Mass. to Target Internet Tobacco Sales

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Mass. to Target Internet Tobacco Sales

BOSTON -- The Massachusetts Revenue Department is stepping up efforts to collect excise taxes from people buying cigarettes on the Internet, tracking down scofflaws through the companies that deliver the cigarettes to them. The state is threatening to take harsh action against those who don't pay the cigarette excise tax of $1.51 a pack, warning that those who fail to turn over the money may have a lien placed on their assets, their property seized, or their income garnished. Forty residents had final collection notices hand-delivered to their homes in June.

Bob Kalell, director of the Revenue Department's audit division, said the goal of the enforcement effort is to collect money owed the state and to protect Massachusetts-based cigarette wholesalers and retailers from unfair competition. He said most consumers who buy cigarettes on the Internet are trying to evade taxes and cut their costs.

Revenue Department officials say they don't know how much revenue their aggressive enforcement effort will yield. Many analysts suspect rising cigarette tax rates are leading more and more smokers to New Hampshire or to the Internet to buy cigarettes, but to date the state's enforcement effort has brought in only $83,038, according to the Boston Globe.

Many consumers are under the mistaken impression that items purchased over the Internet are tax-exempt. Kalell said many Internet cigarette retailers add to the confusion by claiming tax-exempt status in ads. Kalell said the state is only attempting to collect unpaid cigarette excise taxes, but may pursue uncollected use taxes -- the equivalent of the 5 percent sales tax -- in the future.

Governor Mitt Romney (pictured) has taken more interest in collecting Internet sales taxes of all sorts than his predecessors. Under Romney, Massachusetts has joined a group of states working on Internet taxation issues. The governor hasn't taken a formal position yet.

Massachusetts hiked the excise tax on cigarettes from 76 cents to $1.51 a pack last year. At the same time, the Legislature ordered the Revenue Department to aggressively collect tobacco excise taxes from those buying cigarettes across state lines, the report said. Many Internet retailers, particularly those on Indian reservations, sell their packs at cut-rate prices without collecting excise and sales taxes.

Last fall, the Revenue Department asked hundreds of Internet cigarette retailers to turn over the names of their Massachusetts customers, but only 10 have complied. In May, the agency issued an administrative summons to an unidentified delivery company, demanding the names of Massachusetts customers to whom it delivered cigarettes for Internet retailers.

The delivery company turned over the names of 5,082 customers, whom the Revenue Department is now contacting. The agency has even developed a special excise tax return for smokers buying cigarettes on the Internet. Revenue Department officials declined to identify the delivery company that provided the information, and said they would probably contact other delivery firms.

The enforcement effort and the state's higher cigarette taxes are having an impact on cigarette sales here. The number of tax stamps sold, which tracks the number of packs sold, fell nearly 15 percent in the fiscal year, which ended June 30, according to the Revenue Department. However, cigarette tax revenues were up nearly 63 percent in fiscal 2003 to $37.2 million, reflecting the excise tax increase.