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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.
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.
FreeBSD: The Power to Serve!
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.
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)
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.
*--BigMan--- Time flies like an arrow.. but personally I prefer a nice glass of wine!
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.
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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And that Florida USE tax got repealled because it is really a sales tax.
Just a Tuna in the Sea of Life
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.
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.