California Program Collects $1.6 Million in Internet Cigarette Taxes

A program in California is collecting state excise taxes and use taxes from people who purchase untaxed tobacco products via out-of-state Internet, mail or telephone sales.

Internet cigarette sellers are required to turn information over to the state about who is buying cigarettes from them. While the state has been sending invoices to those purchasers "for some time," for fiscal year 2010 to 2011, the State Board of Equalization (BOE) issued 1,723 billings resulting in $1.6 million in revenue. The previous year, BOE issued 3,077 billings, resulting in $232,424 in revenue.

Anita Gore, spokesperson for the BOE, told Tobacco E-News that it "beefed up efforts" in 2005 and brought on more staff to help with a backlog of invoices that arrived from the out-of-state retailers.

"People are quite often surprised when they get a bill," she said. In fact, a recent article in the Contra Costa Times, documented one Internet customer who received a bill for $1,398 from the BOE for back taxes and penalties on over 100 cartons purchased between 2007 and 2008. He had purchased the cigarettes on the Internet, because they were "substantially cheaper." But he told the paper that he "got caught" and would pay the tax.

"You know that when you go to a store and make a purchase, you pay both sales tax and excise tax," Gore said. "If you make those purchases online, you most likely know you're getting away without paying it—and that it is due. It's that old adage: If something looks too good to be true, it probably is."