State goes after smokers who buy cigs on Web

OLYMPIA – Grady Russell thought he’d found a great bargain.

A smoker for more than six decades, the retired Ephrata, Wash., carpenter found an Internet company two years ago that sold cigarettes – taxed at the ultra-low Kentucky rate – for slightly more than $1 a pack. Delighted with the savings, Russell started placing orders, 10 cartons at a time.

Then, last year, he got a letter in the mail. The state Department of Revenue told him he owed Washington taxes on all those cigarettes.

“I hate it,” Russell said. But he paid up, dutifully calculating the number of shipments and sending in about $160 in state taxes for each one.

“It was thousands” of dollars, he said. “I’m afraid not to pay it.”

He’s not alone. Over the past 16 months, Washington tax collectors have sent out more than 8,000 letters like the one Russell got. So far, the state has collected more than $150,000 in unpaid cigarette taxes.

The money is only a tiny fraction of the estimated $140 million the state thinks it loses to contraband cigarettes each year. But collecting back taxes, a Department of Revenue spokesman says, is secondary to the state’s larger goal: discouraging Washington residents from trying to avoid state taxes by buying tobacco over the Internet.

“What we’re trying to do is educate people so they realize they’re breaking the law,” said spokesman Mike Gowrylow. The first letter requesting payment “is kind of voluntary,” he said.

“We ask you to be a good citizen and pay it, but we don’t send it to Collections,” Gowrylow said. “But if we see your name again, we will.”

Under state law, anyone found in possession of cigarettes without either a Washington state or state-authorized tribal tax stamp is subject to a fine of $250 or $10 a pack, whichever is greater.

Critics – including Russell – say the state simply is targeting an unpopular minority: smokers.

“Why aren’t they going after the people who buy wine or tennis shoes or every other product sold over the Internet?” said Norman Kjono, a Redmond, Wash.-based columnist for www.forces.org, an advocacy group opposed to anti-tobacco and anti-obesity regulations.

“Smokers are always the easy, politically safe, no-backlash constituency to leech more money from,” Kjono said.

Three years ago, Washington filed its first lawsuit against Internet tobacco dealer www.dirtcheapcig.com. The company – which billed itself as “the last refuge of the persecuted smoker” – was based in Paducah, Ky., where cigarette taxes are less than 3 cents per pack. (Washington’s tax recently rose to more than $2.02 per pack.) Smokers like Russell paid the Kentucky tax but not the Washington tax.

Washington turned to a rarely used federal law from 1949: the Jenkins Act. Aimed at mail-order sales, the law requires tobacco companies to disclose lists of their customers in other states.

In recent years, the number of Internet-based tobacco sellers has mushroomed – a 2002 search by the Government Accounting Office found 147 such Web sites. Nearly a third assured buyers that they didn’t report purchases to state tax officials.

The federal Internet Tax Freedom Act prohibited new or discriminatory taxes on Internet ventures out of concern that taxes might squelch technological growth. But according to the state and the GAO, the law doesn’t shield companies from existing tax laws such as the Jenkins Act. Washington won its case.

Since then, several other larger Internet vendors have turned over lists of Washington customers. In a nationwide first, a tobacco seller based on Seneca Nation of Indians reservation land in New York agreed earlier this year to provide customer names.

“It is our intention to continue to file lawsuits,” said Gowrylow. “We’ve got another one in the works.” Against whom, he wouldn’t say.

State attorneys general also have gotten several major credit card companies to stop letting people charge cigarette purchases online. And some shipping companies have agreed to stop carrying them, Gowrylow said.

Kjono agrees that the state taxes are due, but he predicts a political backlash from smokers. He says that if you count “social smokers” – peo-ople who might have a couple of cigarettes while drinking at a bar – about a quarter of Washington consumers can be considered smokers. Unfairly targeting smokers, he says, is chilling Internet commerce and angering voters who happen to smoke.

“It’s not going to work that much longer,” Kjono said.

In a surprise move last week, Wisconsin Gov. Jim Doyle ordered the Wisconsin Department of Revenue to stop trying to collect seven years’ worth of back taxes from people who bought from five online vendors.

“We had anticipated collecting about $3 million,” said Meredith Helgerson, a department spokeswoman. The state had sent letters to about 1,000 Wisconsin residents and planned to write to 5,000 more.

“It’s a legal and legitimate tax claim by the department, … but the governor gave us a directive to halt, which we have,” said Helgerson.

Doyle is “outraged” by the sale of cigarettes online and would like to see such sales banned, according to spokesman Dan Leistikow.

“He thinks it’s a good thing that the state has taxes on tobacco, whether it’s sold in a store or on the Internet, but that it’s not a good use of resources to have the state going after a 70-year-old grandmother who bought a few cigarettes on the Internet,” Leistikow said.

As for Russell, he now buys his Pall Mall Ultralight 100s at the grocery store, a pack at a time. At 73, he said, he feels no ill effect from decades of smoking.

He’s trying to cut back but says he enjoys his longtime habit too much.

“Once you’re in your 70s, you want to enjoy yourself and keep yourself comfortable,” he said. “After you’ve smoked as long as I’ve smoked, quitting them is like quitting breathing.”