Incredible Shrinking Smoke Taxes

May 6, 2005

With more smokers turning to hard-to-track Internet sales, state tobacco tax collections are going up in smoke. As a result, state tax collectors are increasingly targeting online cigarette buyers with aggresive tactics aimed at recouping millions in lost revenue from recent years. From Stateline:

Michigan resident Julia Sidebottom inhaled sharply when she opened her mailbox earlier this year and was greeted with an unexpected and unwelcome bill from the state for $4,753.89 in unpaid cigarette and sales taxes.

“It never even crossed our minds,” said Sidebottom, whose 57-year-old boyfriend suffers from Alzheimer’s and has granted her power of attorney. “I search the Web all the time for the best deals on everything. Never in a million years did I expect the state to come back and say we own them money.”

Sidebottom is one of more than 1,500 Michigan residents who recently were mailed bills for the cigarette and sales taxes they had avoided by buying their smokes from online retailers.

As tobacco tax collections have leveled off in recent years (see data), states have fallen into the uncomfortable position of trying to boost tax collections while simultaneously warning of health risks and banning smoking in public places.

For more on the economics of tobacco excise taxes check out our Excise Tax page, especially “Who Bears the Ancilliary Costs of Smoking” by TF chief economist Patrick Fleenor.

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