Smokers buying cigarettes online to avoid taxes : lincoln, ne journal star

Jordan Roswell’s customers at the Tobacco Hut in central Lincoln have been doing more huffing and puffing than usual in recent months.

A city enacted indoor smoking ban, he says, has done more than push them outside it’s also sharpened their anger about the state’s 64 cents a pack cigarette tax.

“Everybody is griping about cigarette taxes now,” Roswell said between sales of cartons of cigarettes and packs of Phillies Blunt cigars.

In Nebraska and across the country, smokers have a way to avoid paying any cigarette or sales taxes on their smokes. Instead of buying tobacco at local stores, they’re lighting up the Web with big cigarette buys. And some say states are losing out on millions of dollars in tax revenue they are owed.

A 2003 report cited by the U.S. General Accounting Office estimated that states will lose out on more than $1 billion in taxes this year because of Internet tobacco sales.

Tobacco watchdog groups, meanwhile, report that there are hundreds of Web sites where smokers can make buys.

Nebraska officials haven’t estimated how much money is being lost in cyberspace because of Internet tobacco sales. But they have taken some action to collect.

“We’re in the process of contacting large Internet sellers, asking for (sales) information, and we’ve got some already,” said Cliff Thomas with the state Department of Revenue.

“We send Nebraska customers a nice letter,” asking them to pay the Nebraska taxes they owe on their out of state, Internet cigarettes, Thomas said. “Most all of them pay it’s pretty hard to get away with it.”

Thomas said he didn’t know how much the state has collected from the procedure.

Lost sales and other taxes caused by Internet shopping have agitated state and local governments for years. During that time, federal officials have said that a system of collecting taxes from Internet sales will be devised. But nothing has been implemented to date. Legislation for Congress to consider could be introduced this year.

A 55 year old federal law, the Jenkins Act, gives states a tool to go after cigarette buyers that is not available with other Internet purchases, such as clothes and other consumer items. The act requires out of state cigarette sellers to provide the names and addresses of people they have sent tobacco products.

“It is, unfortunately, not enforced that well,” said another revenue department official, Tom Norris. “It doesn’t work perfectly. If they (cigarette sellers) don’t tell us, we have no way of knowing.”

Some states have recently ramped up enforcement and passed laws of their own to gather all the cigarette taxes they are owed. Nebraska is not among them, though the Legislature did pass a resolution last year calling on the state to study Internet, mail and telephone tobacco sales and the loss of revenue.

Among the states that has become more aggressive is Michigan, which has a $2 per pack cigarette tax. A law enacted there a year ago buttresses the Jenkins Act It is now illegal to buy cigarettes over the Internet or through other out of state sources unless the buyer is registered with the state, or the seller collects and remits cigarette and sales taxes.

Since February, the Michigan Department of Treasury has contacted more than 4,000 people with demands to pay the taxes they owe, according to Caleb Buhs, a department spokesman. Total amount the state has requested $4.5 million.

“We’ve really not had any negative response from the public, because what is going on is illegal,” Buhs said.

According to a May story on , Michigan officials sent one Michigan woman a tax bill for $4,753.89.

Chasing down Internet cigarette buyers hasn’t been warmly received in other states. Late last month, Wisconsin Gov. Jim Doyle reeled in that state’s revenue department after officials sent out hundreds of letters demanding residents pay back taxes they owed from online cigarette purchases. Officials promised to return more than $82,000 to residents.

“I’m troubled when the burden of this comes down on the backs of some individual person someplace,” Doyle told the Associated Press. “I don’t think we should be doing this on the backs of older people.”

The Wisconsin cigarette tax is 77 cents per pack, not much more than Nebraska’s. Officials there estimated the state missed out on more than $4 million in taxes last year because of online cigarette sales.

Some Internet cigarette vendors appear to be responding to the heightened attention they are receiving because of taxes, but not in a way states may appreciate.

“All orders are processed and shipped from out of the U.S.,” says a message on the main page of the Internet cigarette vendor “Therefore, we don’t report tax or customer information to any government agency or other entity.”

Reach Nate Jenkins at 473 7223 or njenkins .

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