Cigarettes and Tobacco News

Aug 24, 2007 -- HARRISBURG - Harry E. Quinn feels he got burned buying cigarettes from an American Indian-owned company in southern New York.

Looking to save a few bucks, the 57 year-old disabled machine operator started ordering cartons of Kingsley cigarettes from SmartSmoker in 2006.

The company charged just $11.99 per carton compared to the $35 Quinn would have paid at area convenience stores.

But the savings went up in smoke last month when Quinn opened the mailbox at his home in Rochester, Beaver County.

Inside the mailbox, Quinn found a notice that he owed the state $2,323.84 for the 144 cartons of cigarettes he bought from the New York company, which its Web site claims is part of the Seneca Nation and Iroquois Confederacy.

Quinn found out that the cigarettes cost less because the retailer had not tacked on Pennsylvania's $13.50 per carton cigarette tax and a 6 percent state sales tax.

"I think it's a rip-off," said Quinn, who will be sending $58.49 each month to the state Department of Revenue for the next three years to pay off his tax debt.

"Now I'm paying for cigarettes that I've already smoked," Quinn continued. "You could buy a lot of cigarettes for $2,323."

Quinn is one of the 123 Beaver County smokers smoldering over the state revenue department's crackdown on cigarettes purchased online or over the phone from companies in other states.

Beaver smokers owe a total of $243,755 in unpaid cigarette and sales taxes, according to the department.

In Fayette County, 98 smokers have been notified that they owe the state nearly $200,000 in taxes for cigarettes they bought in other states.

An increasing number of out-of-state cigarette vendors are complying with a federal law that requires them to send state tax officials monthly sales reports, said Stephanie Weyant, a revenue department spokeswoman.

The reports include customers' names, addresses and the quantity of cigarettes purchased.

Weyant said Pennsylvania is getting more sales reports thanks to a 2005 federal investigation in Virginia of online vendors and because other states have turned up the heat on retailers shipping smokes across state borders.

Tax collection on online and phone order cigarette sales was stepped up this year because the 2006-2007 state budget included money for stricter enforcement, Weyant said.

Pennsylvania is tracking down residents who have bought cigarettes from out-of-state companies since 2005, Weyant said.

Pennsylvania customers who bought 100 or more cartons received tax collection notices in April, she said. Residents who bought 70 or more cartons received letters at the end of July.

The state has collected nearly $4 million and has set up payment plans to collect another $7.7 million as of Aug. 9, according to the department.

"It has been very successful," Weyant said of the letter blitz. "We will continue to send out these letters in waves until we have contacted everyone. We are hoping that going forward people will maybe purchase cigarettes from brick-and-mortar stores in Pennsylvania."

The state collected almost $779 million in cigarette taxes during the 2006-2007 budget year and estimates hauling in nearly $767 million in 2007-2008.

With millions at stake, it's no surprise that states are ratcheting up collection efforts, said Arturo Perez, a fiscal analyst with the National Conference of State Legislatures in Denver, Colo.

Smokers have absorbed a total of 72 cigarette tax hikes in various states since 2001, Perez said.

In 2004, Pennsylvania upped its cigarette tax to $1.35 per pack from $1 per pack.

"Cigarette tax rates are now much higher than they were five years ago," he said. "As a result, the potential loss of revenue for states from non-taxed sales of cigarettes has pushed the degree to which states are willing to pursue those with tax liabilities."

Under Pennsylvania law, customers who order the cigarettes are on the hook for the taxes - even if they are not the ones lighting up.

Gloria Monahan learned about that quirk in the law the hard way.

The 65 year-old licensed practical nurse had 10 cartons of USA 100s and eight cartons of USA 100 menthol cigarettes shipped every month to her Falls Township, Bucks County, home.

Monahan said she would give the eight cartons of menthol cigarettes to her sister, Mary.

At $13.47 per carton, Monahan thought she was getting a bargain from the SmartSmoker company.

"What I figured was they were a lot cheaper than buying them at the store and nothing was ever mentioned about taxes," Monahan reasoned. "I figured that was the wholesale price. Why would I order cigarettes and try to save money if I knew I had to pay taxes? I would have never done that."

While Monahan had grown accustomed to cigarettes showing up in her mailbox, she was shocked when a letter from the revenue department arrived in April telling her that she owed $5,300 in unpaid taxes.

Monahan dipped into her savings account to come up with a $531 lump-sum payment the state demanded.

She also agreed to send a check for $133.57 by the 20th of each month until the balance is paid off in May 2010.

Monahan said the payment is a little less than her monthly electric bills, which average about $140 per month.

Her sister is not helping with the payments because she died last year, Monahan said.

"In the long run, I saved no money," she lamented.