NCPA - National Center for Policy Analysis


March 9, 2005

Smokers increasingly are turning to the Internet because state and local taxes in some areas account for more than half the cost of cigarettes. But thousands of smokers are now getting letters from state and local tax collectors demanding they pay up for their Internet purchases. The governments want the taxes to support budgets that are stretched thin and to level the playing field for conventional retailers, who must collect taxes on every pack sold.

Among states and cities targeting online buyers:

  • The Pennsylvania Department of Revenue sent letters to 63 people last month, demanding payment of $1.35 per pack they bought from two Web sites.
  • The Ohio Department of Taxation sent letters to 25 customers of one Internet vendor, seeking unpaid taxes ranging from $400 to $800; tax collectors there plan to send 1,000 more letters.
  • New York City mailed bills in January to 3,700 people. By Friday, 2,010 had paid $680,000 of $1.2 million owed; that's a small amount in a city that collects $18 billion in taxes every year.

In addition to a $1.50 state tax per pack, the city adds another $1.50, making cigarettes in New York City the nation's most expensive.

Many states are collaborating on a uniform tax system that would make it easier for online retailers to collect sales taxes on goods they sell. The Streamlined Sales Tax Project would let retailers determine the proper state and local tax rates by entering the customer's ZIP code. The project has been enacted or partially enacted in 20 states.

Source: Larry Copeland, "Online tax bill due for smokers; officials try to recoup revenue," USA Today, March 8, 2005.


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