Ill. Going After Unpaid Online Smoke Taxes

Revenue Dept. has sent out more than 13,000 bills

SPRINGFIELD, Ill. -- Since March, the Illinois Department of Revenue has sent out more than 13,000 bills to Illinois consumers who bought cigarettes online, where a sales tax is not generally applied, reported the Peoria Journal Star.

The consumer is legally responsible for paying taxes on anything purchased via the Internet, but until now, the state has largely looked the other way, said the report; however, in a span from March to November 2005, Illinois officials collected more than $2.7 million from thousands of individuals who bought their cigarettes [image-nocss] online and never paid the tax.

It's not only helpful for the state's bottom line, but it also helps level the playing field for retailers in the state, department director Brian Hamer told the newspaper.

Illinois consumers are legally required to pay state taxes on all online purchases, but this largely works on the honor system because the state has no way of tracking e-purchases. That is not the case, however, when it comes to cigarettes. A decades-old federal law known as the Jenkins Act aimed at preventing people from skirting state cigarette taxes by traveling across borders to states where smokes are cheaper was updated several years ago to apply to Internet sales.

Between 1999, when the federal law was updated, and 2004, the state collected only $250,000 from cigarette tax scofflaws, the report said, sending bills to only a few hundred people. In 2005, the state sent 13,000 bills, largely in amounts of about $100, but ranging to more than $1,000 to individuals who had failed to pay their taxes.

The onus to pay the tax is on the consumer, but the act requires retailers selling or shipping to people who will smoke the cigarettes in another state to report the sale to the state's tobacco tax administrator, which in Illinois is the revenue department.

The state tax for Illinois smokers is 98 cents a pack, plus any local taxes that are applied. At the least, an individual smoking a carton a week, or 10 packs, would save nearly $10 by buying tax-exempt smokes online, adding up to more than a $500 illegal savings in a year, the report said.

Revenue spokesperson Geraldine Conrad said the reason the state was so much more successful with collections in 2005 is because of a crackdown on the out-of-state retailers to provide their consumer lists. It's much easier to contact people when you have those receipts and people are beginning to realize they have to pay this, she told the paper.

Although thousands of bills already have been sent, Conrad said people who have not received one are not necessarily in the clear. The process of finding cigarette tax evaders continues. Some of them [receiving bills] do say they were ignorant of the fact that they had to pay taxes, but what other reason is there to buy cigarettes online, she said.

Bud Kelley, executive director of the Candy & Tobacco Distributors of Illinois, told the paper that it is not fair for Illinois retailers to have to fear being illegally undercut by online retailers. When you buy a carton of Marlboros over the Internet or you buy them from the Casey's in Peoria, honey, they taste the same. There's no difference, he said. What this does is create an illegitimate business atmosphere.

The cigarette taxes from online purchases are required to be paid within 30 days of purchase, the report said.