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Wisconsin Stops Collecting Back Taxes for Online Cigarettes

MADISON, Wis. -- Gov. Jim Doyle ordered the state Department of Revenue to end an effort to collect back taxes and penalties from thousands of Wisconsin residents who bought cigarettes over the Internet, the Wis.-based Janesville Gazette reported.

The department in the last month had sent 1,000 letters ordering taxpayers to compute and pay their delinquent taxes for online cigarette purchases from September 1999 to the present. Recipients of that letter inundated the department with concerns over how they would pay.

"I'm troubled when the burden of this comes down on the backs of some person someplace," the governor told reporters.

Doyle directed the department to stop sending the letters and try to step up regulation of Internet cigarette companies instead, according to the newspaper. The department estimates the state lost more than $4 million due to unregulated Internet sales of cigarettes in 2004.

Doyle aide Dan Leistikow said taxpayers who have already paid the back taxes would not see refunds since they paid taxes they legitimately owed. He said others who have yet to respond or who have ordered cigarettes online "can rest assured that the department is not going to come after them."

"The focus needs to be on the sellers, not on going after a senior citizen out there who bought a few cigarettes on the Internet," Leistikow said.

A federal law makes it illegal for people to transport cigarette products across state lines unless they are licensed dealers, but online cigarette companies had allowed customers to flout that law. Buying smokes online allows customers to avoid the state's cigarette tax, which is 77 cents per pack, in addition to local sales taxes ranging from 5 percent to 5.6 percent.

In the letters, the Department of Revenue asked customers to voluntarily report their purchases and provided worksheets to figure out their outstanding tax burden. For a smoker who bought one $15 carton online per month for three years, the outstanding taxes and penalties would amount to $420.

The agency applied 18 percent interest for every year a customer did not pay taxes and a $20 late filing fee for each year the purchases were not reported, and warned that failure to respond promptly or accurately would net a penalty of $25 per carton.

Brandon Scholz, president of the Wisconsin Grocers Association, said it is only fair that customers who order their cigarettes online pay the same taxes as those who buy tobacco in grocery stores.

"From the state's economic perspective, it's better for the state that they are collecting the tax on this product," he said. "If there's a tax we have to collect it."
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