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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?"
if they decide to tax porn...
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.
Do you Gentoo!?
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.
This seems dangerous to consumers. States can, at any time, subpoena Amazon.com and other online suppliers to regard tax revenue? What's the statue of limitations on this? Most states are hard up for tax dollars right now, and this could be one very scary way for states to generate revenue. Just a thought...
State - Did you make any online purchases this year? You - *fills in no whilst using your new uber computer you just dropped a few K on from newegg...*
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.
Help Brendan pay off his student loans
"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.
I'd like to say that this is a little different, but I'm not fully confident that's true. From what I can tell, there was an explicit law preventing sale in the state of cigarette packs that did not contains a stamp proving the taxes were paid.
But now I'm not so sure. Several states (including good old Taxachusetts) get very grumpy about "use tax" (what you're supposed to pay if you purchased something in another state and didn't pay sales tax), and occasionally go after people. Usually, however, they don't do that unless it's a big ticket item (car, boat, etc). The state was losing a lot of money on cigarette tax (much, much more than sales tax on the same amount), which is what motivated them in this case.
If the state was to go after everyone who purchased a few books from Amazon, they'd be so overwhelmed with paperwork, it wouldn't be worth their while. Then again, Amazon keeps selling more and more expensive things tax-free (I got a $1900 radial arm saw in my Gold Box a while back), so maybe it'll happen.
There is no sig, there is only Zuul.
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.
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).
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.
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.
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)
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.
[You have a stable society when some nut guns down a schoolyard and the law doesn't change.]
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.
Regardless of how the states try to phrase it, it most certainly still *is* a sales tax. It is the state's way of collecting taxes that they did not get because you went outside of the borders. (Oh, you evil person!) You do not pay "use taxes" on items that you did *not* purchase outside of the state's borders because use taxes are based on the price that you paid to acquire the item; therefore, it is a sales tax. But because states cannot force other states' business entities to collect taxes, they have used this "use tax" as an excuse.
It is, in effect, nothing more than punishing citizens of a state for daring to purchase items in places other than that particular state. This is offensive is way that cannot possibly be described in mere words.
Taxes on interstate commerce are forbidden as per U.S. Constitution, Article 1, Section 8, Clause 10, which states...
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.
A "use tax" is nothing more than a euphemism importation duty. I don't know of any law that has ever gone through the U.S. Congress that allows duties of one state to another, thereby making "use taxes" in violation of the above clause at the current time.
Granted, I'm not a lawyer, but this is one of those things that I've done a lot of research on. I want desperately to shove this in the Pennsylvania Department of Revenue's every time they ask about this during income tax time.
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