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Old 02-19-2003, 09:35 AM   #1
MetsFan
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Taxes for out of state purchases?

Interesting article...

Web Tobacco Buyers Get Taxed By Joanna Glasner
Story location: http://www.wired.com/news/business/0,1367,57657,00.html

02:00 AM Feb. 19, 2003 PT

Over the past five years, JJ Demshock, a New Jersey resident who appreciates a good cigar, frequently patronized online tobacco sites in search of new smokes.

And for most of those years, tax collectors in his home state paid him no heed.

That's why Demshock was caught off guard two weeks ago, when he received a letter from the New Jersey Division of Taxation demanding payment for taxes due on cigars he bought online in late 2001. The state said Demshock was liable for a 48 percent tobacco tax, plus an additional 6 percent sales tax.

"It came as quite a surprise to me," said Demshock, who was not aware that the Michigan-based website that sold him the cigars was passing on information to New Jersey tax collectors. He says he no longer plans to patronize the site.

But while Demshock might not have known about the tobacco sales data changing hands, state tax collectors say such information exchanges have been in effect for decades. The practice dates back to the Jenkins Act, a federal law passed in 1949 that requires anyone who sells cigarettes across a state line to an individual or unlicensed distributor to report the transaction to the state's tobacco tax administrator.

Nowadays, as more smokers head online to avoid hefty state levies on tobacco sales, tax collectors are getting aggressive about seeking payments from Web sales. But so far, officials say tobacco websites are providing limited cooperation.

"In all honesty, there's very little compliance with this statute," said Matt Golden, spokesman for the New Jersey of Taxation. "But some out-of state sellers do provide us with that information and we follow up by billing the purchasers."

In the past several years, Golden said the state has sent between 300 and 1,500 letters annually seeking tax payments for out-of-state tobacco purchases.

According to a report published in August by the General Accounting Office, state tax collectors in Rhode Island and Massachusetts have also contacted residents seeking tax payments for cigarettes bought over the Internet.

But because most online cigarette vendors don't comply with the Jenkins Act, the GAO says states are losing out on millions in potential tax revenue. Officials in one state, California, estimated a tax loss of approximately $13 million from May 1999 through September 2001 because of Internet cigarette vendors not complying with the act, the report said.

The state of New York went so far as banning Internet cigarette sales in 2000. A federal appeals court upheld the ban last week, following a challenge from cigarette manufacturers. But because the state has the highest tobacco excise taxes in the nation, many residents continue to buy cigarettes online.

"Everyone's business exploded when the new tax went in," said the owner of one American Indian-run tobacco site, who said she does not report sales information to state governments. With 17 states recently passing tobacco tax increases, along with New York City, smokers are beginning to feel victimized.

"They feel that because they smoke they're being targeted with the tax increase, so they won't give anything to the states or the city," she said.

As for Demshock, he's not objecting to the state's request for some tax payment on his online cigar purchase. However, he believes the amount the state is requesting -– which exceeds 50 percent of his purchase price -– is excessive.

Although he sent a check to cover the taxes, the New Jersey financial analyst has requested that state refund part of the money. He believes the 48 percent tax was meant to apply to wholesale tobacco sales, not retail purchases.

Golden disputes this interpretation, saying the state tax should be based on the retail price, not the wholesale price.

Either way, Demshock says that dealing with the tax mess has made his main motive for shopping online -- the convenience -- somewhat less compelling.
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Old 02-19-2003, 09:51 AM   #2
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Scary.
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Old 02-19-2003, 10:04 AM   #3
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Can we get a HAIL for the those vendors who do not report their sales
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Old 02-19-2003, 12:01 PM   #4
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HAIL!

Hopefully this is an isolated case and we can figure out which retailer this was.
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Old 02-19-2003, 12:02 PM   #5
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Does anyone know which vendor is in Michigan?

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Old 02-19-2003, 12:06 PM   #6
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Personally,I don't beleive this is true. If it were true, it would have been all over the local newspapers and local tv news stations. This is the first I have heard of it.
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Old 02-19-2003, 04:06 PM   #7
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It is true...

I can assure you this story is true.

1) The person in question posted about this on CigarFamily.

2) The reporter is someone who has written about my business.

3) The reporter was put on to the story by yours truly.
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Old 02-19-2003, 04:44 PM   #8
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I'll second the post from rramstad.
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Old 02-19-2003, 04:59 PM   #9
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Hail
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Old 02-19-2003, 05:30 PM   #10
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Bob - do you who the retailer in Michigan was?
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