Collect Back Taxes from Residents that Purchased Cigarettes Online

By Phil Davidson

For the thrifty smoker looking for deals on the Internet, the state has a message: There's no such thing as cheap cigarettes. The Illinois Department of Revenue is notifying hundreds of Illinois residents who purchased cigarettes on the Web that they must pay the state's 98-cent-per-pack tax.

A Carlock man is among those targeted by the state. Last month, he began receiving bills from the state saying he owed nearly $4,000 in back taxes and penalties.

State officials say getting information on Illinois customers from the thousands of U.S. and internationally-based Internet cigarette companies is not easy.

However, once found, the list providing names and addresses of Illinois residents proves lucrative: The taxes owed this year from Illinois customers of just one company are expected to generate $2.9 million for the state.

Department of Revenue spokeswoman Geraldine Conrad said employees use online search engines such as Google to find the companies, then send letters asking for the purchase and contact information of Illinois customers.

Some companies advertise that they won't give a customer's information to government agencies, but a federal law says they must comply.

The Jenkins Act requires any person who sells and ships cigarettes across a state line to report the sale to the buyer's state tobacco tax administrator.

A 2003 U.S. General Accounting Office report found most Internet cigarette vendors do not comply with the Jenkins Act or notify their customers of their responsibilities under the act.

According to the report, one research firm estimated Internet tobacco sales in the United States will exceed $5 billion in 2005 and the states will lose about $1.4 billion in tax revenue from these sales.

Despite vendors' reluctance to comply at the national level, Conrad said the state revenue department has yet to find a company unwilling to hand over the information.

Illinois has collected $200,000 in Internet cigarette taxes in the last two years, with $100,000 coming from a company that had 1,300 Illinois names.

Of the names and addresses the department receives, Conrad said the state collects from 74 percent of the individuals.

The Carlock man said he thinks the state is going about the problem the wrong way. "I just think it's kind of a back-door way the state has of hitting people up," he said.

As far as recourse goes, most people may be out of luck: Chicago tax law attorney John Gaginni said Illinois customers have no defense.

"Ignorance of the law has never been accepted by states or the federal government as reasonable cause," Gaginni said.

He said an Illinois consumer may have a chance to have late payment penalties waived, but such circumstances would be reviewed on a case-by-case basis.

Conrad said it's still impossible to know how many Illinois residents owe taxes.

"It's a slow process, and slowly people will become accustomed to the fact that there aren't any cheap cigarettes," she said.