NYC Seeks to Tax, Fine Online Cigarette Buyers

Published March 1, 2005

New York City residents who purchased smokes over the Internet are facing huge fines and garnishment of their wages for failing to pay city cigarette taxes.

The city’s tax collection action was announced January 14 by Mayor Michael Bloomberg (R) in his weekly radio address.

“The law says you’ve got to pay your taxes. The handful of people who don’t are just stealing from the rest of us,” Bloomberg said in his address.

The city has sent letters to 2,300 residents, claiming they owe about $1.3 million in taxes. The letter says the city is giving them one month to pay the local cigarette tax or face a bill that includes the tax and penalties up to $200 per carton.

The letters went to residents who purchased cigarettes from a now-defunct Internet retailer in Virginia. The city finance department obtained the names after a Virginia court ordered the retailer to divulge its customer list.

City finance department officials said they plan to send similar letters to thousands more Internet purchasers in the months ahead.

Serious Threats Made

New Yorkers are required by law to pay state and city taxes on most items they buy out of state, including tobacco products. State and city officials say they are losing millions of dollars by residents using the Internet to make purchases from out-of-state retailers and then neglecting to forward the appropriate tax.

“The finance commissioner is required by the city charter to enforce the law,” Bloomberg said. “It’s against the law to buy something out of state and bring it in and avoid sales tax.”

“Purchases of unstamped or unlawfully stamped cigarettes require the consumer to pay the New York City tax on those cigarettes,” reads the letter the city sent to the targeted consumers.

The letter also says, “Failure to pay the required cigarette tax could eventually lead the Finance Department to file a judgment against you in court, allowing the Department to take more severe collection actions, such as garnishing your wages and taking money from your bank account to pay the tax due.”

Taxes Highest in Nation

New York City has the highest cigarette taxes in the nation. The state tax on one pack of cigarettes is $1.50. The city tax adds another $1.50. The federal tax is 39 cents a pack, for a total tax of $3.39 per pack.

A January 17 report by Jeff McKay for the Cybercast News Service quoted New Yorker Andrew Hoffer, who received a letter from the city demanding $1,005 for 67 cartons of Bronco brand cigarettes he bought over the Internet. The letter threatens him with fines of $200 a carton, which would total $13,400.

“For me this was not about evading taxes. Honestly, that thought never even entered my mind,” Hoffer told McKay.

Hoffer said he could not find a New York City store that sold Broncos, which he first tried and liked during a trip out of state. After having no luck finding a New York City retailer who sold Broncos, he searched on the Internet and found the Virginia retailer.

“I didn’t think I was breaking any laws,” Hoffer told McKay. “Then out of the blue I get this letter from the city, threatening to garnish my wages and damage my credit if I didn’t pay.”

Joel Sherman, president and CEO of Nat Sherman, a 75-year-old maker of luxury cigarettes based in New York City, said the city’s high cigarette tax “has created an enormous black market in cigarettes. Truckloads come in from outside the state. Much like in Prohibition days, they’ve created an underground network. They’re killing honest people along with the dishonest,” Sherman said.

“We’ve always handled mail order, but we are restricted from selling in a number of states. I can’t send anything in New York State, to my own customers. That forces them to one of the Internet providers.”

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.