State cigar tax obligation of internet purchases.

[Burnt Tongue]

I met Mrtapes for a herf at one of our local cigar shops in Albany NY last week. We had a nice conversation and smoked some cigars in the lounge at the shop. While we were there the owner joined us for a short while. He brought up an interesting topic during our discussion. He claims that when we order cigars over the internet we are avoiding the payment of our state tobacco taxes. In our case in New York that would be 37%. He claimed that at any time our state tax agency can subpoena an internet vendor for sales to customers in their state. The shop owner is also an internet vendor who ships both nationally and internationally. According to him, he said that we as internet customers would be held responsible for any purchases made through the internet that state taxes were not paid on as well as fines and interest. He also stated that this occurred in the state of Texas and people received tax bills from their state taxing agency. I was wondering if anyone else has ever heard of this happening before.

 

[tkoepp]

Yes that is true, however I do not know of anyone personally that has happened to..

That MAY be why Holt's wants send you a lil form to fill out and they want you to send it back.. (I am not sure, just a guess)

 

[grateful1]

I met Mrtapes for a herf at one of our local cigar shops in Albany NY last week. We had a nice conversation and smoked some cigars in the lounge at the shop. While we were there the owner joined us for a short while. He brought up an interesting topic during our discussion. He claims that when we order cigars over the internet we are avoiding the payment of our state tobacco taxes. In our case in New York that would be 37%. He claimed that at any time our state tax agency can subpoena an internet vendor for sales to customers in their state. The shop owner is also an internet vendor who ships both nationally and internationally. According to him, he said that we as internet customers would be held responsible for any purchases made through the internet that state taxes were not paid on as well as fines and interest. He also stated that this occurred in the state of Texas and people received tax bills from their state taxing agency. I was wondering if anyone else has ever heard of this happening before.

It is true. Same with mail order goods.

<on a state by state basis - also some companies require you pay the tax (for your state) upon purchase>

<I had to get info, for our purchasing agent on, on all out of state purchases.>

 

[davidr2340]

Link!!! ???

 

[Burnt Tongue]

Well that was a dpressing read. I must have been on vaction when that disscussion took place. I would have remembered reading that. I will be reconsidering my internet purchases from now on.

 

[jkim05]

Well that was a dpressing read. I must have been on vaction when that disscussion took place. I would have remembered reading that. I will be reconsidering my internet purchases from now on.

i think it only matters if you are purchasing from a vendor that is located in the same state as the shipping address, but I'm not entirely certain. I'll ask my business law professor tomorrow to see what she thinks and get back here, unless someone more familiar with tax law replies before.

 

[CoventryCat86]

Well that was a dpressing read. I must have been on vaction when that disscussion took place. I would have remembered reading that. I will be reconsidering my internet purchases from now on.

i think it only matters if you are purchasing from a vendor that is located in the same state as the shipping address, but I'm not entirely certain. I'll ask my business law professor tomorrow to see what she thinks and get back here, unless someone more familiar with tax law replies before.

I don't think so. In Connecticut, you're supposed to report ALL of your purchases that you didn't pay sales tax on on your state tax return. If they catch you, you will owe back taxes, penalties and interest.

 

[Mr Peat]

Old news..Very old news for me. I've known about this for 2 years now. :laugh: Thus the reason I don't buy my cigars online or out of state.

 

[jkim05]

I don't think so. In Connecticut, you're supposed to report ALL of your purchases that you didn't pay sales tax on on your state tax return. If they catch you, you will owe back taxes, penalties and interest.

A company which is selling goods over the Internet and has a presence in the state of delivery, ie has established nexus in that state, will be required to register to collect sales tax on all taxable goods.

"However, in many, perhaps most cases, an Internet sale will not involve nexus in the receiving state, and the Supreme Court has prevented states from imposing sales tax on out-of-state supplies in that situation. Arguably, use tax provisions should then step in and impose tax on the sale, but the reality is that the operation of such consumption taxes depends heavily on the ability of the taxing authority to find traces or records of transactions, thus motivating taxpayers to comply with the law because of the near-certainty that they will be found out if they don't."
-link

i have not fact checked the site, but they seem knowledgeable. there's a bunch of good pages on that site.
Basically what it boils down to is that in 1992, the Supreme Court ruled that states cannot force internet retailers to collect sales tax in a state in which they do not have a physical location, however, this does not limit use taxes which is an excise that can be levied on any goods purchased outside of the state. Any taxes already paid would be reimbursed as a tax credit and any additional taxes due would have to be paid or interest will accrue. However, the enforcement of these use taxes is insignificant because of the small amount of revenue generated versus the labor required to uncover it. So, unless you're purchasing many, many thousands of dollars worth of goods, states are looking for other ways to get the taxes back and you don't really have to worry about it. Hypothetically it could happen, I guess, but if you were audited, most likely it would be because you purchased from a vendor in your state and ordered online to avoid taxes, repeatedly.

again, i'll post more after i get some clarification.

 

[JimD]

For out of state sales it is the responsabilty of the receiver to pay state taxes.

 

[PuroEsq]

Next we will receive letters from the local police and highway patrol asking us to write down all the times we were speeding and not caught, and then send in a check for the unassessed fines that the state missed out on. :sign:

 

[antaean]

Michigan now has a line item on the state income tax form that allows you to pay a lump sum tax for out-of-state internet purchases. This is based on income level and assumes all purchases are less than $1000. Those over $1000 are to be figured separately. Since "I don't keep records of my internet purchases during the year", this seems to be a very "fair" way of doing this. I think I paid $30 or so this year (for last year). I did my taxes early this year and I cannot remember the exact numbers. In any event, I believe it lets me off the hook for sales and use tax. However, excise (sp?) taxes are a different matter...

Cheers,
antaean

 

[Infinity]

For out of state sales it is the responsabilty of the receiver to pay state taxes.

To whom?


There may come a time that we will have to pay the sales tax to the state of purchase. Right now there is no law that pertains to paying sales tax
when purchasing out of state and that, IMHO, is the way it should be. Just my $100

Brian

 

[DKAudio]

Wow, this is news to me. I live in MN and did not notice anything about internet purchases when I did my taxes.

 

[Burnt Tongue]

I am told there is a line on the New York sytate tax form that you are suppose to declare internet purchases on as well. I for one haver never noticed it. Of course it is hard to see when you tax filing report averages 17 pages.

 

[NullSmurf]

If the vendor volunteers the information to the requesting state, we're stuck. If the vendor refuses and is served subpoena, that has to constitute an illegal search based on probable cause.

 

[Burnt Tongue]

If the vendor volunteers the information to the requesting state, we're stuck. If the vendor refuses and is served subpoena, that has to constitute an illegal search based on probable cause.

Couldn't probable cause be based on the information in these threads?

 

[jkim05]

So I've spoken with a tax attorney (my business law professor) who gave me kind of a final word on this subject. Basically, states cannot charge sales tax on goods that are purchased through an internet vendor not located with in the state. However, states can charge a use tax on products purchased outside of the state. The only way they can obtain this money though is through an audit, and most likely they will not audit an individual as it is not very cost effective. Ironically, her business got audited by the state tax authorities for internet purchases and was forced to pay back taxes, fees and interest. In addition, in my state, Maryland, the former treasurer had gone after furniture manufacturers in North Carolina for shipping to Maryland without charging for taxes. Basically, the state can force you to pay use taxes on products purchased online, but it probably will not because they are looking for other ways to more easily recover sales tax revenue lost to online retailers such as a flat internet sales tax, etc. If you are really paranoid, you can report all of your internet purchases and pay the government the requisite taxes, but otherwise you don't really have to worry.
In answer to the question on requesting information from vendors, it's not really a question of probable cause, but of jurisdiction because the company already does not recover taxes from its customers. If it did, you could report it and if there was a positive difference between the sales tax charged and the use tax in your home state, you will receive a tax credit. With respect to jurisdiction, it could easily get the information from in-state vendors and from out of state vendors, it could prove long-arm jurisdiction if there was a significant number of customers from within the state.
About the forms that individuals were receiving, in all likelihood they were just a fishing expedition. However, my professor said that if the government wanted, they could probably compel you to fill out the form.
The government just wants to recover its lost taxes and constitutionally they do have the right to tax us, so we will have to pay, or pay the consequences, whatever they may be. If you choose to wait until the government compels you, you may have to pay more, but hedging your bets is up to you.
This was pretty long, but if you have any other specific questions let me know and I'll try to answer them.

 

[CoventryCat86]

Long version:

So I've spoken with a tax attorney (my business law professor) who gave me kind of a final word on this subject. Basically, states cannot charge sales tax on goods that are purchased through an internet vendor not located with in the state. However, states can charge a use tax on products purchased outside of the state. The only way they can obtain this money though is through an audit, and most likely they will not audit an individual as it is not very cost effective. Ironically, her business got audited by the state tax authorities for internet purchases and was forced to pay back taxes, fees and interest. In addition, in my state, Maryland, the former treasurer had gone after furniture manufacturers in North Carolina for shipping to Maryland without charging for taxes. Basically, the state can force you to pay use taxes on products purchased online, but it probably will not because they are looking for other ways to more easily recover sales tax revenue lost to online retailers such as a flat internet sales tax, etc. If you are really paranoid, you can report all of your internet purchases and pay the government the requisite taxes, but otherwise you don't really have to worry.
In answer to the question on requesting information from vendors, it's not really a question of probable cause, but of jurisdiction because the company already does not recover taxes from its customers. If it did, you could report it and if there was a positive difference between the sales tax charged and the use tax in your home state, you will receive a tax credit. With respect to jurisdiction, it could easily get the information from in-state vendors and from out of state vendors, it could prove long-arm jurisdiction if there was a significant number of customers from within the state.
About the forms that individuals were receiving, in all likelihood they were just a fishing expedition. However, my professor said that if the government wanted, they could probably compel you to fill out the form.
The government just wants to recover its lost taxes and constitutionally they do have the right to tax us, so we will have to pay, or pay the consequences, whatever they may be. If you choose to wait until the government compels you, you may have to pay more, but hedging your bets is up to you.
This was pretty long, but if you have any other specific questions let me know and I'll try to answer them.

Short version which pretty much says the same thing without having to read all the BS:

For out of state sales it is the responsibilty of the receiver to pay state taxes.

Thanks JimD! :thumbs:

 

[CoventryCat86]

For out of state sales it is the responsibilty of the receiver to pay state taxes.

To whom?


There may come a time that we will have to pay the sales tax to the state of purchase. Right now there is no law that pertains to paying sales tax
when purchasing out of state and that, IMHO, is the way it should be. Just my $100

Brian

There is in Connecticut and my guess is Connecticut is not the only state. You may want to check the applicable laws in California.

To whom?

To the state you live in. Of course if you live in Canada, that's a whole 'nother story! :laugh: