State targeting tax-evading smokers
Oregon is chasing buyers and sellers of untaxed cigarettes traded on the internet, hoping to plug a hole that is costing the state up to $20 million a year.
Last summer state prosecutors closed a web site run by an Aloha man and have filed racketeering charges against him. The prosecutors are beginning to send bills to buyers for cigarette taxes never paid.
Randy Evers, administrator for the Oregon Department of Revenue’s business tax division, says the state is just getting started.
Most web sites that sell tax-free cigarettes fill orders from outside the United States, often from Europe, and customers pay about half of what they would in Oregon.
Inexpensivesmokes.com operated from Aloha until the Oregon Tobacco Compliance Task Force raided it in July. Eric Gutherie, 35, was indicted Dec. 15 on racketeering charges and crimes relating to the illegal sale of cigarettes. He is held on $161,300 bail and could face 21 months in prison.
Oregon collects $1.18 per pack in taxes, the 10th-highest such tax in the nation.
The federal General Accounting Office in 2002 reported finding 147 U.S. web sites that weren’t passing bills for state taxes to their customers. This past fall, an internet search produced 935 such sites with names such as cheapsmokesbymail.com, cigs4free.com and notaxsmokes.com.
While some argue that higher taxes discourage smoking, others counter that it is not so simple because tobacco is habit-forming.
They say boosting the tax merely encourages people to find cheaper cigarettes.
"The driving force is the tax rates," said Lyle Beckwith, senior vice president of the National Association of Convenience Stores in Alexandria, Va. "They create lawbreakers."
Kevin Neely, spokesman for the Oregon attorney general’s office, agrees.
"The American Cancer Society is going to tell you that if taxes are raised high enough, people will quit smoking. What I’m going to tell you is that I don’t care," Neely said.
"These internet companies are stealing money from the state, and our job is to stop them. This is a criminal issue for us."
Store owners say internet sales have cut into their business.
Some smokers, meanwhile, think the state is picking on them by taxing something grown-ups are allowed to do.
The Jenkins Act of 1949 said any retailer who ships cigarettes into a state must pay state tobacco taxes. The General Accounting Office said in 2002 that none of the web sites it studied was giving information to states.
"We ask the sites for their Jenkins list," Evers of the Department of Revenue said, "but most of them ignore us."
Oregon law also requires anyone who buys tobacco over the Internet or through the mail to send the state the taxes they didn’t pay. This gives the state the authority to bill smoking scofflaws.
Evers said smokers who want to pay back taxes can use a form on the Revenue Department’s web site, www.oregon.gov/DOR/.
