Online cigarette buyers face state tax bills
The Massachusetts Department of Revenue is preparing to send surprise tax bills to 1,800 individuals who bought cigarettes on the Internet and probably thought they'd never get tagged for roughly $1.6 million in unpaid excise taxes.
With penalties and interest, the total bill comes to $2 million, or about $1,100 per smoker.
Timothy Connolly, a department spokesman, said some smokers will be sent bills this month for as much as $2,100. The state's cigarette excise tax is $1.51 per pack.
The crackdown on Internet tobacco purchases is intensifying, with a number of online vendors now supplying the state with the names of their Massachusetts customers and their purchase data. Connolly said bills seeking more than $4 million in unpaid excise taxes, interest, and penalties will start going out this summer. He declined to identify the Internet vendors who are providing purchase data.
Many smokers shifted to the Internet in recent years to evade state taxes and to buy their cigarettes more cheaply, often for $7 to $10 a carton less. Cigarette websites, which tend to operate on Indian reservations and in states where excise taxes are low, often disclose that a customer's purchase may be subject to state taxation, without telling the customer that purchase data is being passed along to state authorities.
Connolly said Massachusetts residents should not think that because they buy cigarettes on the Internet state taxes don't have to be paid.
``The idea of no taxing on the Internet has to do with the use of the Internet, like taxing Internet providers," he said. ``But other taxes are collected. Taxes are being collected on the Internet every day."
Massachusetts collects sales taxes directly from retailers that have operations in the state, or directly from the consumer if they don't. But the consumer system is largely self-reported when you file your taxes. The Revenue Department has been pursuing cigarette taxes because the Legislature passed a law requiring more aggressive enforcement to crack down on websites set up to evade state taxation.
The $2 million in bills going out this month grew out of a court settlement Attorney General Thomas F. Reilly struck with eSmokes of Reston, Va., for selling cigarettes to minors. As part of the settlement, eSmokes and an affiliated website called Mycigarettes.com were required to turn over the names, addresses, and purchase information of all Massachusetts customers between November 2003 and February 2005. Both eSmokes and Mycigarettes have since gone out of business.
The Revenue Department has developed an automated billing process for unpaid cigarette excise taxes, which should speed up collections. Previously, bills were sent out by hand because there were few of them.
Over the past three years, the Revenue Department has recovered $331,000 in excise taxes and penalties from Internet cigarette buyers. That tab is expected to go up to as much as $6 million this year.
Overall, Connolly said, cigarette excise tax revenue is up about $10 million through the first 10 months of this fiscal year, the first increase in three years. The state collected $424 million in cigarette excise taxes in fiscal 2005, which was down about $2 million from fiscal 2004 and $25 million from fiscal 2003, when the $1.51-per-pack tax took effect.
Bruce Mohl can be reached at mohl@globe.com. 
