Michigan Smokes Out Tax Avoiders

Published in CSP Daily News

Collects $5.9 million from 9,000 in web cigarette tax bust

LANSING, Mich. -- Michigan has extracted about $5.9 million from about 9,000 people who tried to avoid the state's $2-a-pack cigarette tax by shopping on the Internet, and thousands more could face similar assessments, officials said, according to an Associated Press report.

Legal cigarette sales dropped after Michigan's tax rose from $1.25 a pack to $2 a pack July 1, 2004.

The rapid growth of Internet cigarette sales prompted state officials to step up enforcement of the tax law. The first year of the crackdown brought in an [image-nocss] average of $650 each from about 9,000 people, said state Treasury Department spokesperson Terry Stanton.

In February 2005, Michigan subpoenaed 13 Internet sites for lists of their customers. So far, four have agreed to cooperate. Michigan has not yet taken legal action against the others.

"We're assessing information and determining whether there is more tax liability," Stanton told the Detroit Free Press. "We reserve the right to take any action we need to get information."

Tobacco taxes, mostly on cigarettes, brought the state $1.18 billion in the fiscal year that ended Sept. 30, 2005.

Internet buyers of other products are supposed to pay the Michigan sales tax when they file their state income tax returns. But there is no such provision for the cigarette tax.

It is a misdemeanor to possess unstamped cigarettes, or to bring into the state or sell between six and 14 cartons of untaxed cigarettes. It is a felony to transport or sell 15 cartons or more. So far, Michigan has not sought criminal penalties against the online buyers.

Stanton said some online cigarette buyers have said that they did not know they were buying illegally. He said Treasury officials are skeptical of that claim. "If someone told you they could sell you a car without sales tax, or you didn't have to pay your income tax, would you believe them?" he asked.