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Online Cigarette Customers Get Bill from State
wakebrdr writes "The Michigan Treasury Department has sent bills to state residents who purchased cigarettes online to avoid Michigan's high taxes. One pack-a-day smoker received a bill for $2,500 in back taxes. If a simple subpoena of customer data allows them to easily go after lost cigarette taxes, how long until state treasuries across the country subpoena Amazon.com or other big online retailers to collect unpaid sales taxes?"
The cigarette tax pursuit is aided by a 1947 FEDERAL law specifically geared towards tobacco that authorizes states to use these measures to subpoena records from other states. I don't think officials trying to collect state sales taxes would have that authority.
NOTE: I'm going from memory from an NPR story I heard on the way in this morning. 1947 may not be accurate.
It isn't a 'sales tax' it's a 'use tax'.
The back of my Illinois tax form has had a 'Use Tax' form forever. You're supposed to pay it for all items purchased outside of the state.
There is nothing new about this - it's been around as long as mail-order has. It only become a big deal since the Internet made it a lot easier to do it.
I remember when I was a kid (1960's) that states were making a big deal about mail-order catalog companies not paying sales tax...
From TFA:
It is illegal to bring any cigarettes into Michigan from other states unless by licensed sellers who pay the appropriate tax. People who bring less than $50 in cigarettes don't face penalties. Michigan requires that cigarettes sold in the state have a stamp attached to the pack to signify the payment of taxes.
This is not uncommon, most states claim the right to tax things purchased outside of the state and will be used primarily within their own.
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"It is illegal to bring any cigarettes into Michigan from other states unless by licensed sellers who pay the appropriate tax."
This has nothing to do with taxes on purchases from Amazon or similar online retailers.
The Jenkins Act requires anyone who sells cigarettes into any state, to report those sales to each state monthly. This would include your name and order information. Native Americans are exempt from the Jenkins Act because they are independent nations under their federal treaties.
In California, we have to declare all of our out-of-state purchases that we didn't pay sales tax on and would have, had the purchases been made in-state. It's called Use Tax and we have to pay the standard sales tax on them. Since we are a business, we have to keep records and submit to audits. I've been told that the state office that handles use tax compliance audits rakes in over $4000 per hour of audit time.
"Eve of Destruction", it's not just for old hippies anymore...
You're out in left field buddy. I live in Michigan and know what the law says.
This is simple sales tax, these people do owe it, and it is not a federal issue. It has nothing to do with interstate lines.
If you buy anything in MI (as the end users, which this case is) you owe sales tax to the state. It's that simple. If you go elsewhere any buy it, then this does not apply.
These people were in Michigan when they bought the cigarettes, they owe sales tax. Michigan is not imposing a tax in goods brough into MI from other states or from foriegn countries; the Federal court has nothing to do with this.
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As an industry insider, I'll tell you that you now need a Social Security number to get a prepaid Visa as of the Patriot Act. We used to sell prepaid Mastercards from vending machines, but that's all gone tit's up as of Patriot act.
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Actually, it's called the cigarette excise tax.
some companies (Best Buy, for one) already applies tax based on where you live.
That's because a lot of those companies have a business presense in the state of the buyer.
As I understand it, if I purchase something online from Best Buy, Wal-Mart, or Egghead, I have to pay sales tax because somehow or another the law considers it exactly the same as me going down the street to the store and making the same purchase.
"Everything you know is wrong. (And stupid.)"
Moderation Totals: Wrong=2, Stupid=3, Total=5.
This is correct. It's not a tax made on the sale of the article, but rather on its use/consumption. Several years ago, I bought a car in Illinois, but paid no sales tax there because I was in the U.S. military and was on my way to my next duty station in Florida (yeah, I know, real rough duty!!). So when I went to get a Florida license plate, I was required to pay Florida's "use tax" in order to title the car and get the plate. The "use tax" was at the same percentage rate as the sales tax for Florida on a new car, but was not a tax on the sale of the item, only a tax on its use in the state of Florida. Anyhow, it worked out O.K. in this case personally as the tax amount turned out to be less than any sales tax that would have accrued in Illinois. The point is, that for better or worse, it's necessary to understand the sometimes subtle differences when discussing a subject.
The idea is that if you buy something in one location to be delivered to your home, the seller would have to collect sales tax for your location.
For my state, Kansas, it would work like this - I buy a chair in Wichita to be delivered to my house (3 counties away). The furniture store would have to collect my county's sales tax, not the Wichita tax.
It's a controversial setup, with many problems that don't have solutions yet, but it is probably the direction that sales tax collection is going.
The Tao that can be spoken is not the one eternal Tao
One of the reasons for ditching the Articles of Confederation was that it didn't give the federal government any power to regulate interstate commerce, so you had serious issues with states in that respect.
The federal government (through Congress) now has the power to "To regulate commerce with foreign nations, and among the several states, and with the Indian tribes." U.S. Const. Art. 1 Sec. 8.
As far as the instance at hand here, most states have had use taxes on out of state purchases for quite some time. I would be surprised if it had not already been challenged and upheld.
I located this page which provides some good information on the details of Florida's use tax on out-of-state purchases.
Most states don't bother to pursue collecting these taxes because the cost to collect is much greater than the benefit of the tax they receive.
What?
1) The taxes here are not sales taxes, they are CIGARETTE taxes, which are excise taxes. Excise taxes are not exempted by interstate commerce
2) Sales taxes are only exempt if the vendor of the purcased item does NOT have a business entity in the state where the purchaser lives.
3) Sales taxes can be levied by your home state, regardless of whether the transaction is interstate, if the state of purchase does not levy its own sales tax. (Example is PA-DE - no sales tax in DE, so PA can tax things you drive to DE to buy to avoid sales tax)
Monkeys? Sure. There's a recent story right here on slashdot talking about a study showing that monkeys will pay for porn.
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Actually, this isn't quite true. It is true for most items, however tobacco and alcohol have a "personal use" restriction - ie: you can transport only as much as is reasonable for personal use.
There are other restrictions on items such as cars, whereby local taxes come into effect based on their use rather than their sale.
Actually, speaking as someone who has operated a company and dealt with UK Customs & Excise, VAT is not 'horribly complicated' really, you just charge 17.5% on everything you sell, subtract from this amount the VAT on everything you buy in order to make/supply those goods, and return the difference to Customs & Excise. It only gets complicated if you are dealing with a mix of VAT exempt and liable supplies, or if your trying to claim every penny of expenses (depreciation, to offset you VAT liability. For most retail operations (i.e. box shifters) it's really quite simple.
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Sales tax needs to be collected by the seller only if the seller has a physical presence in the state from which the buyer makes the purchase.
If the buyer makes a purchase in person, the seller must collect sales tax for the state in which the store is located.
If the buyer makes a purchase online, over the phone, or by mail order, the seller must collect sales tax for the state to which the item will be delivered; only if the seller also has a presence in that state. A presence is an office or location.
Regardless, if a buyer makes a purchase outside of their home state without being taxed, it is the responsibility of the buyer to declare that purchase on their tax forms. That, of course, is a croc of bull.
Here's a google cached article (no cache)with more detail on the legal questions and a bit more about what the Jenkins Act is. It was a federal act which obligated state-line crossing cigarette sales to be taxed in the state where they were shipped to.
Several states (including good old Taxachusetts)
There was a study during the election last year that showed that Mass. actually has some of the lowest taxes/fees in the nation (expressed as dollars taxed/dollars earned). I think it came up after Zell Miller made a taxachusetts reference in his keynote speech. IIRC, Georgians pay more per dollar earned in taxes/fees than Mass'ians.
"Taxachusetts" is a right wing myth, in the vein of 'welfare queens', the social security 'crisis', and Iraqi WMDs.
You must be about the only person I've ever known that got taxed by Amazon.com. That's one of the main reasons to order from them...no taxes, and mostly free shipping.
Now, possibly if you order from one of the 'affiliated' shops on Amazon..like the small fry sellers, and big ones like Target, Toys R US..etc...THEY will tax you, but, Amazon purchase themselves are not taxed.
With Amazon, it is up to YOU to report your tax burden to the state...as I'm sure everyone does..
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Yes.
The US does not have a federal sales tax, and with each state being its own entity they can tax as they like.
Most of the use taxes allow you deduct the the taxes from the other state so generally you only have to pay any additional taxes. It would be like going to Germany 16%VAT from France 19% and then France collecting the additional 3% as you come in. Other have aggrements with bordering states where people do not have to pay thoses taxes but only the one of thier residence, provided you fill out the paperwork.
For most individuals they will not see this much unless they purchase a car in another states, just because it is too much a hassle for the states. But you will get states like New York(high sales taxes) which will place police cars at borders with states with lower sales taxes during the Holidays and stop thoses with state plates and check for them bringing in item and then tax them.
That's because a lot of those companies have a business presense in the state of the buyer.
I used to buy stuff from the Apple Store online and never paid any sales tax. Then they opened an Apple Store in Milwaukee and just like that, the online store started charging me tax. It became cheaper to just drive to the store in the mall.
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Reading through the posts here, seems that there needs a clarification as to what $2,500 in taxes is being collected.
If you walk into a retail store in Pennsylvania, there is a 6% sales tax on the $3.50 cigarettes.
The $3.50 cigarettes does not include sales tax. It *does* include cigarette taxes, which the retailer paid in advance when the cigarettes were brought into their distribution chain from the cigarette manufacturer. The proof of the cigarette tax is in the form of a official stamp on the carton.
If you live in Pennsylvania, and order cigarettes online you have avoided the cigarette tax and the sales tax. In this Michigan case it looks as if they are only going after the cigarette taxes, which are much larger than the lost sales tax revenue. You would claim the sales tax on the "use" tax on your tax forms every April.
The online ordering of these cigarettes is circomventing the cigarette tax and the sales tax, of which the state can only back tax you the cigarette taxes (for the moment- let's hope that does not change). The cartons of cigarettes you get online will not have any stamps showing that the retailer has paid the appropriate cigarette tax to the state.
States cannot force companies to collect taxes for them unless the company has a physical presence in the state.
So yes to amazon customers, however since the company has no presence in the state the state has no way of forcing amazon to collect or to provide the information. This case is special since it is done using a federal law forcing the companies to provide the information.
I'm wondering if this had added fines, compounded interest, or something else funky. As per the headline "One pack-a-day smoker received a bill for $2,500 in back taxes."
If you look at the cost, assuming a 5% tax:
$2500 / 0.05 = $50000
So effectively, this person bought $50,000 in cigs? That's more than a lot of people make in a year. Yes, I have friend that smoke a lot, but I have a hard time imaging any regular person being able to afford smoking that much in a year's period, or possibly even 2-3 years. So how long do these "back-taxes" actually go?
how long until state treasuries across the country subpoena Amazon.com or other big online retailers to collect unpaid sales taxes?
> 18 months. You heard it here.
Quoth TFA, "It is illegal to bring any cigarettes into Michigan from other states unless by licensed sellers who pay the appropriate tax. People who bring less than $50 in cigarettes don't face penalties."
So don't worry about this action affecting future tax's on Amazon et al coming from the states as other products which are not as controlled as cigarettes do not usually have specific regulations on importing them to any given state. Additionally, the selling of many other products (such as books, cds, or little snowmen made of of styrofoam balls and glitter) does not require a special license.
That said, as interstate retail commerce grows in general states may have to go looking for new revenue sources.
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And that Florida USE tax got repealled because it is really a sales tax.
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I'm sorry I compared it to an 'import tax', as it muddled the meaning of the comment. My question still stands though. Shouldn't the companies be in trouble, not the consumers?
No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.
Now IANAL but seems to me these Use Taxes could be argued to be a dutie on an import or export and either should be killed or the money must go to the treasury of the US instead of for that specific state. Which would probably make them not enforce it pretty quick if the states were paying to collect money that they could not use.
The Jenkins Act requires that cigarette distributers that sell across state lines provide a copy of the invoice to the state on a monthly basis. Also the law states that if that invoice is provided its presumptive evidence that the cigarettes were sold, so the state has all the proof they need.
The Internet tax ban is on discriminatory taxes--taxes that only apply to Internet-based sales--and also tax on use of the Internet itself. Use taxes already apply to almost all Internet-based interstate transactions, just as they have always applied to catalog/mail-order sales. There's nothing unconstitutional about them. (What is probably unconstitutional is the federal government collecting tax on interstate commerce, or perhaps states levying discriminatory taxes against interstate commerce--that is, state-level import/export taxes. I'm not an expert in the Constitution or in tax law.)
The reason you currently don't pay a state or local tax on transactions where the seller does not have a physical presence in your state, is not because the tax itself is unconstitutional, but because it's an undue burden on the seller to have to figure out the intensely complicated state and local tax rates for everyone in the country. At least, this was the case almost 40 years ago when the US Supreme Court decided this (google for National Bella Hess, Inc. v. Dept. of Revenue of Illinois (1967)). So you actually do owe tax for every purchase, Internet or otherwise (unless you live in a state without sales/use tax)--it's just not legal for the state to require the seller to collect the tax, and it's not practical for the state to come after you.
Plenty of people are trying to change this sorry state of affairs, because as you say, the Internet wasn't around when the rules were made. The main approach seems to be to simplify the state and local sales tax codes across the country, so it would no longer be an undue burden on retailers to calculate the appropriate tax, and Bella Hess could be overturned. 1, 2, 3.
If state A puts out an arrest warrant, state B can arrest her.
Last year I was in Amsterdam (and had a GREAT time consuming some other smokables!), and, on the train from town to the airport, met two men.
These guys, it turned out, were from someplace in England and their wives smoked. They evidently FLEW IN to Amsterdam once a month or so to buy cigarettes and take them back, because it was cheaper to do that than to buy smokes in England. Pretty sad state of affairs if you ask me.
As to why they picked Amsterdam to take a once-a-month trip, I'll let you draw your own conclusions.
The most common citation is an Atrios article which refers to data from TaxFoundation. Indeed, state & local tax rates are higher in Georgia than they are in Mass. It would be even worse, except that Massachussets is a net federal donor that subsidizes a bunch of other states.
"Just because the states claim the right doesn't mean that they will be allowed the right. Look at gay marriage and slavery."
Two very bad examples. The Constitution requires all states to give "full faith and credit" to the laws of all other states, which is why abolition constitutionally required an amendment and why a nationwide ban on gay marriage will also require a constitutional amendment (which I hope gets shot down in flames).
US law is kinda like UK law in that, at first glance, certain parties can seem to get away with murder. If you glance at the UK government, it looks like the queen can do whatever she pleases, Parliament be damned. In the US, instead of monarchs we have state governments, which can elect to eliminate the constitution outright. It's only looking at the details and nuances of history that we have the current state of affairs. However, just as "can" and "will" are two very different concepts, so are "don't" and "can't."
"But beyond that, it seems that the easiest way to beat this wrap is to take a vacation elsewhere (especially a place that doesn't have high smoking tax or regulation such as D.C., Mexico, or Puerto Rico)"
DC: Where are you going to get your tobacco if not Maryland or Virginia? There are certainly no tobacco farms within the district...
Mexico: "Everything's legal in Mexico! It's the American Way!"
Puerto Rico: government by divine right of Congress. American imperialism at its "best." Just because federal laws may be favorable to doing Activity X in Puerto Rico today doesn't mean it'll be that way tomorrow, and there's little San Juan can do about it.
"Even so, I think the prosecution is going to have a hard time proving that the cigarettes were consumed at all."
The jury will draw its own conclusions when they hear the defendant's cough.
Yes, that's including all taxes. The total U.S. tax burdern as a percent of GDP ranks near the bottom of OECD nations.
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For a small business, it is nearly impossible to comply (which is why enforcement has been suspended).
For instance, I live outside the city limits, but have the same zip code as everyone inside the city. So my sales tax would be less than what my cousin (for instance) would have to pay. But how would the local Mom and Pop store know that? Zip codes won't work of course, and there is no mechanism currently in existance that would.
The Tao that can be spoken is not the one eternal Tao
Parent, Parent's Parent, and all children are huffing and puffing over nothing, literally. The inheritance tax, or estate tax, by it's proper name, was abolished, for good or bad, in the 2003 tax cut. Thanks.
Th