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?"

Comments

To federal court or bust

[Anonymous Coward]

These styles of cases are going to have to be settled in the federal court system. The state, upon joining the union, gave up specific rights to regulate interstate commerce that is up to the Federal system. The Federal law currently doesn't allow states to tax imports from other states and has banned any Internet taxes. Thus, the only recourse is a federal ruling to set precedence - of course there is already precedence but may not be specific enough to thwart the state attempt of taxing.

In Massachusetts, the state income tax fillers have to estimate the value of imports to the state thus taxing the citizens that way. This too will be settled from a federal case, as all these types should be. If the law says you can't tax interstate commerce then that is the way it is. If the law is twisted forcing imports to be taxed then that is fine too - we will just all know the law and not be hit with a $2500+ unexpected (or should I say unjustified at this point) tax bill.

This case is where state law and federal law collide but it will have implication to all internet purchasers.

'The collection of purchasers' names is allowed by a 1949 federal law called the Jenkins Act' - Sec. 376. Reports to State tobacco tax administrator
(a) Contents
Any person who sells or transfers for profit cigarettes in interstate commerce, whereby such cigarettes are shipped into a State taxing the sale or use of cigarettes, to other than a distributor licensed by or located in such State, or who advertises or offers cigarettes for such a sale or transfer and shipment...

I don't see where this individual is required to pay state tax.

No free trade within the US?

[lokedhs]

I'm not trying to troll or anything, I honestly want to know how inter-state trade regulations work in the US.

As a EU citizen I'm allowed to buy anything from any EU country paying sales tax in the country from which I purchase the goods. It's a key part of the "free movement of goods and services" idea upon which the EU is founded.

To me, it seems as though trade between US states are more restricted than between EU countries. Is this correct?

Re:Isnt' against federal law?

[MrLint]

It seems to be a red herring on what they call it. It amounts the the same thing, they could call it a 3 headed chicken. However a court will have to decide if it is in fact a sales tax (aka purchase tax, a sales tax would have to be paid by the seller:P)

Misnamed Tax

[Whispers_in_the_dark]

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.

Quite true. I have to wonder though whether there would be more public pushback if it was given a more apt name like "buying tax". After all it isn't the sale that's being taxed (it isn't the seller's state that's important), it's the buyer.

IMHO, if they want to continue calling it a sales tax, they should tax the seller and the price listed is the final price to the consumer. This would mean no more silliness about trying to figure out the over-the-top tax rates when one buys goods, no stupid use tax traps, and make interstate commerce a LOT easier (calculating tax often requires knowing the actual municipality based on zip code -- quite a pain the tuckus).

Taking advantage of the handicapped

[RadioactivePorpoise]

It seems that States want it both ways - they like to get nicotine addiction classified as a handicap (MN) in order to pursue tobacco companies to get huge settlements, then they turn around and enact outrageous, disporportionate taxes on this same addiction. Is it morally right to collect $1.7 million based on people being addicted to a substance? Are Michigan smokers really just a big nicotine fueled cash cow? If the state is able to tax that much based on something a person is addicted to, what motivation does the state really have to help get that person off nicotine? It seems as though all of these lawsuits against the tobacco companies were just a way to give the state a cut from our addictions - more like the Gambinis muscling in on the Gottis than any sort of public representation.

Re:Pointless Article

[FreeUser]

"It is illegal to bring any cigarettes into Michigan from other states unless by licensed sellers who pay the appropriate tax."

That state law is a violation of federal law and of the constitution. States may not regulate interstate commerce. Cigarettes can only be illegal to import into Michigan if they are illegal to possess in Michigan (like, for example, marijuana). They obviously are not illegal to possess, so the Michigan law is unconstitutional and won't hold up to a legal challenge. Which, if someone sent me a bill for $2500, would be exactly what I would do: join with everyone else who also received these rediculous bills and sue the state in federal court, getting the law overturned and maybe a little pocket money in punitive damages as well.

Re:How long?

[wondafucka]

Naaaah. Smokes are just low hanging juicy fruit that people think is bad so it's okay to take said juicy, juicy fruit. Mmmmmmm....taxes.

Line in the Sand

[buckhead_buddy]

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.

Just because the states claim the right doesn't mean that they will be allowed the right. Look at gay marriage and slavery.

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) and take legal evidence of smoking and consuming these products outside of Michigan. You may not be able to show that you consumed all of the cigarettes outside of the state, but it will add a significant burden to the prosecution's case to prove that you consumed the majority inside the state.

Even so, I think the prosecution is going to have a hard time proving that the cigarettes were consumed at all. Some people collect cigarette packaging (or wine bottles or coke cans) and don't give a flip what happened to the content. Did the defendant smoke the cigarettes or did he simply throw them away? Prove it! Where were these sticks consumed

I personally don't smoke anything legal or illegal. But I find government regulation of smoking to have gone to greedy excess. As soon as this revenue stream starts drying up, they'll all move on to other items to tax (or other internet revenue). This needs to be stopped right now.

Re:Line in the Sand

[pla]

Just because the states claim the right doesn't mean that they will be allowed the right.

You make a HUGE mistake in trying to apply logic to tax laws...

Yes, you could point to a million possible ways that the "use" taxes don't apply. But state taxation departments simply don't care - They can and will make your life hell, even if you "win" your argument.


Case in point... My SO and I moved from state A to state B roughly four years ago. Last year, she received an excise tax bill from state A, plus tons in penalties, for those three years.

After literally dozens of hours wasted on the phone (which at her salary, arguably cost quite a bit more than the tax bill itself), she finally convinced them she no longer lived in state A. She STILL had to pay the late penalty charges on the bill that everyone involved agreed she never actually owed (the "logic", if you can call it that, ran something like "You may not have owed us that money, but you did fail to pay it promptly, so the penalties still apply even though the original bill doesn't"... Whiskey Tango Foxtrot???). She paid it just to get the whole miserable mess over with. Okay, all seemed great.


Guess where she got a new excise tax bill from this spring?

Re:Not Long At All

[cdipierr]

Presumably his state taxes works like North Carolina's does. If you do not keep all of your receipts, there's an option that allows you to use their estimate, which is something like 0.07% of your gross income.

So for instance, if you make $50,000 a year, you pay $35 in out of state "use tax".

You could argue that it's unfair for some, but for the majority of Slashdot readers, I suspect this is actually an underpayment. None the less, it's a perfectly legal way to fill out the tax forms.

Re:Legal under Jenkins Act of 1949

[zymurgy_cat]

So basically, then, MI (and other states) aren't going to be able to do what they're doing for long. I imagine those people will just start buying tobacco from companies on Native American reservations.

eBay

[gandell]

What about eBay? The legitimate stores that have taxation in their store? I've been charged taxes from certain sellers on eBay...and not by others. I've been taxed from some online retailers (big names such as Dell or Apple), but not by others (smaller names such as online game stores).

I think it IS just a matter of time before online retailers are required to tax based on state legislation.

Re:Not Long At All

[LaCosaNostradamus]

As a short rebuttal, legislatures should not pass laws they are hardly able to enforce. The "use tax" is so little enforced (from being inherently unenforceable) that it simply creates criminals, and from that, it also develops in the population a widespread disrespect or contempt for the law.

Such taxes should be repealed, yes. But civil disobedience is a force to be reckoned with.