Illinois Smokes Out Online Cigarette Tax Evaders

PEORIA, Ill. -- Since March, the Illinois Department of Revenue has sent out more than 13,000 bills to Illinois consumers who bought cigarettes online, where a sales tax is not generally applied -- making the consumer legally responsible for paying taxes on anything purchased via the Internet, reported the Peoria (Ill.) Journal Star .

Up until recently, the state looked the other way. This year, however, in a span from March to November, Illinois officials collected more than $2.7 million from thousands of individuals who bought their cigarettes online and never paid the tax, reported the newspaper.

"It's not only helpful for the state's bottom line, but it also helps level the playing field for retailers in the state," department director Brian Hamer told the Journal Star .

Illinois consumers are legally required to pay state taxes on all online purchases, but this largely works on the honor system because the state has no way of tracking e-purchases. However, when it comes to cigarettes a decades-old federal law known as the Jenkins Act, aimed at preventing people from skirting state cigarette taxes by traveling across borders to states where smokes are cheaper, was updated several years ago to apply to Internet sales, according to the report.

Between 1999, when the federal law was updated, and last year, the state collected only $250,000 from cigarette tax evaders -- sending bills to only a few hundred people, Journal Star reported.

This year, the state sent 13,000 bills -- ranging from $100 to more than $1,000 --to individuals who had failed to pay their taxes.

The act requires retailers selling or shipping to people who will smoke the cigarettes in another state to report the sale to the state's tobacco tax administrator, which in Illinois is the revenue department.

The state tax for Illinois smokers is 98 cents a pack, plus any local taxes that are applied. At the least, an individual smoking a carton a week, or 10 packs, would save nearly $10 by buying tax-exempt smokes online, adding up to more than a $500 illegal savings in a year, according to the report.

Revenue spokeswoman Geraldine Conrad told the Journal Star the reason the state has been so much more successful with collections this year is because of a crackdown on the out-of-state retailers to provide their consumer lists. "It's much easier to contact people when you have those receipts and people are beginning to realize they have to pay this."

Although thousands of bills already have been sent, Conrad told the newspaper that people who haven't received one aren't necessarily in the clear. The process of finding cigarette tax evaders continues. "Some of them (receiving bills) do say they were ignorant of the fact that they had to pay taxes, but what other reason is there to buy cigarettes online?"

And while this new push has some Illinois smokers hot, Bud Kelley, executive director of the Candy and Tobacco Distributors of Illinois, told the newspaper it's not fair for Illinois retailers to have to fear being illegally undercut by online retailers.

"When you buy a carton of Marlboros over the Internet or you buy them from the Casey's in Peoria, they taste the same. There's no difference," he told the Journal Star . "What this does is create an illegitimate business atmosphere."