Cigarette tax bills to target Net sales Mainers can expect to pay interest also

AUGUSTA – By the end of the year, an estimated 5,000 to 6,000 Mainers will receive a letter from Maine Revenue Services billing them for sales and cigarette taxes for smokes they bought on the Internet from companies across the country.

“We are gearing up to send letters to everyone we have identified from sales records by the end of the year,” Errol Dearborn, director of compliance at Maine Revenue Services said last week. “We won’t know for sure how many letters we will be sending until we get all of the sales records.”

With Maine’s tax on cigarettes at a dollar a pack, the tax bills going to buyers could be significant, he said. In addition to the specific tax on cigarettes, Maine also assesses the 5 percent sales and use tax on cigarettes.

“We will be billing for both taxes that are due and the interest from when they bought the cigarettes,” Dearborn said.

He estimates the state will collect at least $250,000 from the effort that got under way six months ago. Under federal law, Maine can get the sales records of Internet sellers by going to court. The state is also benefiting from similar enforcement efforts in other states.

For example, Virginia recently prosecuted two online cigarette companies and discovered that sales from just those two companies cost 46 states more than $2 million in revenue. They sent the sales records to other states that have stepped up their efforts to collect the taxes.

“I expect we will get hammered when people start getting these letters,” said Sen. Joe Perry, D-Bangor. Perry is the co-chairman of the Legislature’s Taxation Committee.

“I think it is important for people to know that when they buy cigarettes from out of state, they still owe the taxes on those cigarettes. People will be upset, and I know I will be getting calls, but the taxes are due and Maine Revenue Services is doing their job.”

But the effort has its critics, both in Maine and nationally. Sen. Jonathan Courtney, R-Sanford, said he opposed the stepped-up enforcement efforts when the tax committee discussed them last year.

“We didn’t think the way to balance the governor’s budget was on the backs of people harassed by Maine Revenue Services,” he said. “They are under tremendous pressure to find every dollar they can from whatever rock they can turn over.”

Courtney said he has no doubt people will complain to lawmakers when they receive the bills from the state, and he said they are right to complain.

Grover Norquist, president of Americans for Tax Reform, blasted enforcement efforts under way in Michigan in a release earlier this year. The Michigan effort is similar to Maine’s and those in several other states. He said the state was resorting to “police state tactics” to get additional tax revenues.

One part of the effort that has proved controversial in other states is that the tax bill has been compounded by penalties as much as 100 percent of the tax and interest due. Dearborn said Maine is billing for taxes due plus interest. He said a decision to levy penalties would be made at a “higher level” in MRS.

“I think there are some real issues when people are unaware of a tax,” said Rep. Richard Woodbury, an independent from Yarmouth. Woodbury is co-chair of the Legislature’s Taxation Committee. “As a state, I think we have to be really careful about imposing penalties on people that do not realize they are required to pay a tax.”

Perry agreed. He said that MRS needs to “go real slow” on imposing penalties on top of what are going to be tax bills that will shock many that receive them.

“We are talking about more than $12 a carton [in taxes],” he said. “That is going to really add up for someone that is a heavy smoker.”

The states got a boost earlier this year in their efforts to curb online sales when the credit card industry agreed to stop allowing the use of credit cards for the purchase of tobacco products over the Internet.

Dearborn said it would be very difficult to reach all of the Internet sellers even with the cooperation of other states and the federal government. He said many sites “fold up” after a state or the federal government moves to get their records.

“They very quickly set up another Web site and are right back at selling cigarettes,” he said.