Watch out - your local leeches (politicians) will want their share too:
Online cigarette buyers hit for back taxes by state
Wednesday, July 13, 2005
When an envelope arrived in the mail with a return address for the Illinois Department of Revenue, excise taxes division, it got Mary Ghidotti's attention.
Ghidotti, of Orland Hills, noticed the manila envelope addressed to her also was unusually thick.
Inside were more than 60 pages of official-looking documents.
Half of those pages contained identical words with different dates.
"We have received information that on 6/20/03 you made a mail-order purchase of 2 cartons of cigarettes from ESMOKES.Com, 1851 Alexander Bell Drive, Reston, Va. ...
"You are required to file Form RC-44 Cigarette Use Tax Return, and pay cigarette use tax that is due within 30 days of bringing the cigarettes purchased out-of-state into Illinois. We have calculated the amount of cigarette use tax, penalty and interest on the following ..."
Listed below were rates of 98 cents for each package of cigarettes purchased (10 packages per carton), a late filing penalty of 39 cents, a late payment penalty of $2.94 and interest of $1.93.
Total amount due for two cartons of cigarettes purchased online in June 2003: $24.86.
Ghidotti purchased about four cartons of cigarettes a month on the Internet for nearly 14 months.
There was an itemized tax bill for each of those purchases.
She said her total bill from the state for unpaid sales taxes, penalties, fees and interest comes to more than $800.
"I haven't even purchased cigarettes online for more than a year," Ghidotti said.
"How did the state get my name? How did it find out how many cartons of cigarettes I purchased? What's with all these fees and penalties?"
It turns out the Jenkins Act, a federal regulation, has been on the books for years.
It states, "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 shall ..."
The rest of the language says that the cigarette seller must supply to each state an invoice covering each and every shipment of cigarettes made to that state.
"The law's been on the books for years, but we've really stepped up enforcement this year," said Geraldine Conrad, a spokesman for the Illinois Department of Revenue.
Since 1999, the state has collected nearly $1 million in sales tax revenues in this manner.
"The bulk of that," Conrad said, "has actually been collected this year."
She said some Internet companies provide paper invoices to the state, which means state employees must go through them by hand and calculate how much each tax offender owes.
"But more frequently we've been getting the invoices on computer disk, which makes the process much easier for us," Conrad said.
She said computer sites that claim to be connected to Indian reservations must notify the state of its sales just like any other Internet operation.
For each invoice of cigarette purchases (more than 30), Ghidotti also received a form RC-44 Cigarette Use Tax Return.
Under Illinois law, people who buy their cigarettes out-of-state are required to "voluntarily" file such a form so that their Illinois sales tax can be calculated.
"I didn't know what all this paperwork was about," Ghidotti said.
"There wasn't even a cover letter with the paperwork."
Conrad, the revenue department spokesman, said there should have been.
"A computer generates a cover sheet for every person that we mail to," she said.
Ghidotti, who had restricted her purchases to about two cartons a month, wondered how people would feel who had purchased cigarettes online for friends and relatives.
"I did that myself," said a co-worker. "You're not going to tell me I have to pay sales taxes on all of those cigarettes."
Well, that's the state's position.
"We can arrange payment plans for people who can't afford to pay all their taxes at once," Conrad said.
And don't forget the penalties for failing to file an RC-44 in a timely fashion, and the late payment fee and the interest due the state.
"What about all the other purchases I make online?" Ghidotti wondered. "Am I going to be charged sales tax for books, clothes, appliances ..."
Conrad said any online company that has a "nexus" in the state of Illinois, a location where it does business, must charge a state sales tax.
"Most people are paying the tax already but don't realize it because it is hidden in some other charge," Conrad said.
That doesn't ease Ghidotti's mind at all.
"The government can find out anything it wants about you and then hit you with taxes you didn't know you owed, and penalties for laws that you didn't know existed," she said.
"That doesn't seem right."
Phil Kadner may be reached at firstname.lastname@example.org or (708) 633-6787.
Thieves in suits.