Tax-free online cigarette sales snuffed out

Government's reach for e-commerce profit lengthened when
California's Board of Equalization, the
elected tax collection arm of the state, sent 3,200 letters demanding
payment of excise taxes garnered from online cigarette sales, including
sales by American Indian tribes. Critics call the move a violation of
privacy.

Federal law requires out-of-state sellers who ship cigarettes to
unlicensed distributors in California to report the name and address of
the buyer, as well as the brand and amount sold, according to Dennis
Maciel, Chief of the state Board of Equalization's excise-tax division.

"If you go [online] and buy your product, you will be taxed the same
as if you bought the cigarettes in the state," said Vic Day, also with
the excise tax division.

The aggressive tax collection move began early this month when the
bulk of the letters were mailed. The letters represent approximately
$350,000 in tax revenue the state claims it began losing when a new 50
cent per pack cigarette tax law took effect in California on Jan. 1,
1999. The total excise tax amount on one pack of cigarettes is now 87
cents.

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Maciel, who calls the Board of Equalization's actions "part of a
routine compliance program," told WorldNetDaily, "There was concern that
individuals would seek other cheaper methods of purchasing cigarettes
rather than quitting."

That concern has become a reality, and has prompted Board of
Equalization officials to comb the Internet for sites advertising
"tax-free" cigarette sales. So far, the agency has found 170
out-of-state sellers and has sent each of them a letter reminding them
of the federal law which requires those sellers to hand over their
consumer information.

H.L. Dickerson, a Costa Mesa resident who was reported to the Board
of Equalization, told the Associated Press he had received one of the
3,200 tax bills, charging him $1,044 for 120 cartons of cigarettes
purchased over the past year.

"If I'd thought I had to pay taxes, I wouldn't have bought them [over
the Internet]," said Dickerson, a 71 year-old who smokes 2 1/2 packs per
day. "You're buying them out of state. You're paying the freight to
get them here. Why the hell do you owe the state taxes?"

The state said those who don't pay by the Jan. 25 deadline will be
charged interest and penalties. The state can use a lien to force
payment.

"If I were to get a letter like that, I would give a two-word
response not fit for publication," said California State Assemblyman
Dick Floyd in an exclusive WorldNetDaily interview.

The outspoken Los Angeles area Democrat made a rally-cry to citizens
concerned about their privacy.

"It's about time that the American people stop being pushed around,
and I don't mean just by government. Look at the airlines -- they push
us around ..." said Floyd.

"Airports have a duty-free store. I can go to the duty-free store
and buy a case of XO brandy at $150 a bottle and not pay any state or
federal taxes on it. I can buy a Rolex for $15,000 and not pay any tax
to any state or nation anywhere. What is the BOE going to do about
that?" asked Floyd, who calls the Board of Equalization's actions
"totally outrageous."

Floyd expressed his concern about the privacy of medical and
religious transactions as well, such as the sale of "medicine, Bibles or
the Koran."

"What if I buy Viagra? Do they know that?" he exclaimed. "Somewhere
you have a right to be free of people getting in your business."

Unfortunately, "getting in your business" is completely legal when it
comes to excise taxes on cigarettes. Use taxes, while not charged on
the bill currently being sent to e-customers, are also said to be
applicable to online cigarette sales, although that particular tax is
temporarily suspended due to the Internet Tax Freedom Act which placed a
moratorium on all e-commerce sales and use taxes until 2001.

Floyd believes the distinction is merely a technicality.

"What difference does it make whether you call it sales tax or excise
tax?" he asked.

The National Smokers Alliance is
seeking to make that case in court. The organization's president,
Thomas Humbert, told WorldNetDaily he is "currently investigating all
situations to find out what the law is on this," with the goal of
pursuing a legal challenge arguing that excise taxes and sales taxes
are, for all practical purposes, the same tax with different names.

Excise taxes, like sales taxes, do not apply unless a product is
purchased. Humbert believes the moratorium should include excise taxes.

Humbert also questions the federal law cited by the Board of
Equalization that allows the state to demand consumer information. He
explained that when the law was written, it was aimed at mail order
sales, and may not apply to Internet sales.

The National Smokers Alliance president also questions whether this
"routine compliance program" complies with equal protection laws.

"Are there other similar taxes consumers have not paid that
California has not attempted to collect?" he asks.

That question remains unanswered, as the Board of Equalization's
involvement in e-commerce has just begun, although California is not the
only state to put the tobacco industry on the tax-compliance hot seat.
Alaska, Minnesota and Washington have also taken similar collection
measures.

Those states have focused on "lost" revenue from American-Indian
tribal sales. Sales between tribal members are exempt from state and
federal taxes, but sales to non-tribal consumers are not, Maciel said.
The burden of excise tax compliance rests on the consumer in those
cases.

Tribes, however, are not helping state collection efforts.

"Some [tribes] are complying," said Maciel. "I think you can look at
the ads on the Internet as a clue that many tribes are not going to
cooperate in this."

Some tribes maintain websites with large advertisements and online
ordering for "tax-free" cigarettes.

Many see tobacco product excise taxes as yet another easy target for
government intervention and profit in Internet commerce. U.S.
Attorney General Janet Reno has proposed the
creation of "LawNet," a band of cyber-cops, and the Food and Drug
Administration is in the process of approving its
regulations of online pharmacies.

Pro-smokers' organizations say they recognize government's long-term
plan. "We have been warning consumers about this issue for years," said
Humbert. "We're opposed to all taxation of all sales on the Internet,
including cigarettes."

"What we ought to do is recall every damn person on the BOE and fire
their staff," said Floyd. "Tell them to quit stomping on my rights --
and I'm the ACLU liberal here!"

See WorldNetDaily's "Don't Tax the Net!" petition.

Julie Foster is a staff
reporter for WorldNetDaily.

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Reno turns cyber-cop

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North Carolina enforces Internet tax

Net tax in limbo

See Joseph Farah's columns:

New Internet taxes and old hoaxes

Don't tax the net!