Online Cigarette Customers Get Bill from State 856
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?"
Not QUITE as easy as that (Score:5, Informative)
NOTE: I'm going from memory from an NPR story I heard on the way in this morning. 1947 may not be accurate.
Re:Isnt' against federal law? (Score:5, Informative)
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...
Re:Isnt' against federal law? (Score:5, Informative)
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.
Pointless Article (Score:5, Informative)
"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.
Legal under Jenkins Act of 1949 (Score:5, Informative)
The Jenkins Act [senecasmokes.com] 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.
This is nothing new for businesses (Score:3, Informative)
Re:To federal court or bust (Score:3, Informative)
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.
Re:At $2500/year a P.O. Box Presents a Viable Opti (Score:3, Informative)
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.
Re:Isnt' against federal law? (Score:3, Informative)
Actually, it's called the cigarette excise tax.
Re:To federal court or bust (Score:2, Informative)
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.
Re:Isnt' against federal law? (Score:5, Informative)
Destination based sales tax (Score:3, Informative)
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.
Re:No free trade within the US? (Score:4, Informative)
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 [myflorida.com] 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.
RTFA, then listen carefully.. (Score:5, Informative)
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)
Re:We're doomed... (Score:2, Informative)
Re:No free trade within the US? (Score:3, Informative)
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.
Re:Can you say VAT (Score:4, Informative)
Re:Isnt' against federal law? (Score:4, Informative)
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.
Re:Isnt' against federal law? (Score:1, Informative)
Re:Different ... or is it? (Score:3, Informative)
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.
Re:How long? (Score:3, Informative)
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..
Re:No free trade within the US? (Score:3, Informative)
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.
Re:To federal court or bust (Score:3, Informative)
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.
Sales Tax vs Cigarette Tax (Score:2, Informative)
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.
Re:No free trade within the US? (Score:3, Informative)
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.
Was this compounded or what? (Score:3, Informative)
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?
Re:How long? (Score:3, Informative)
> 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.
Re:Isnt' against federal law? (Score:4, Informative)
Re:Isnt' against federal law? (Score:2, Informative)
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?
Re:Destination based sales tax (Score:3, Informative)
The principle is that when you take possesion of it I think. So if you take it from the store, you pay local sales tax for the store's location. If they deliver it, you pay for your location.
Re:No free trade within the US? (Score:3, Informative)
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.
Jenkins Act (Score:2, Informative)
Re:Isnt' against federal law? (Score:5, Informative)
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 [streamlinedsalestax.org], 2 [e-fairness.org], 3 [washingtonpost.com].
Re:Line in the Sand (Score:2, Informative)
Re:Line in the Sand (Score:2, Informative)
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.
Re:Different ... or is it? (Score:4, Informative)
Re:Pointless Article (Score:3, Informative)
Ever heard the saying - "knows just enough to be dangerous" ? That's you. You are wrong wrong wrong.
True - the constitution grants the right to regulate interstate commerce - IN GENERAL - to the Federal Government, and takes that right from the states. However, the Federal Government can re-grant that authority to the states, and the states may act in areas where the Feds have chosen not to act - so long as the effect is non-discriminatory and applies to activities in that state. (This issue is referred to as the "Dormant Commerce Clause.")
In Brown and Willimason v Pataki, (2nd Cir., 2003, Cert. denied) the Court ruled that NY did not violate the "dormant commerce clause" by prohibiting the delivery of cigarettes in NY to anyone not licensed as a distributor/stamper of tobacco products. It is not in any way illegal for a state to regulate this aspect of interstate commerce.
Oh, and by the way - it's an Excise Tax, not a use tax.
Leave the lawyering to lawyers. I certainly leave the coding to you.
Re:Line in the Sand (Score:2, Informative)
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.
Re:Isnt' against federal law? (Score:2, Informative)
Yes, that's including all taxes. The total U.S. tax burdern as a percent of GDP ranks near the bottom of OECD nations [forbes.com].
Re:Update (Score:3, Informative)
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.
Re:Isnt' against federal law? (Score:3, Informative)