Woman billed $8,000 for cigarette back taxes

SF is considering new rules that would place more restrictions on smoking. (AP)

February 7, 2011 12:00:00 AM PST
The state is intensifying pressure on consumers to pay taxes on purchases made online. Shoppers who buy items from out of state retailers online don't get charged a sale tax, but are expected to pay them later. Many don't and now the state is stepping up efforts to go after those it finds out about.

"I'm pretty upset. I don't think it's fair. I mean, why should I be held responsible? They should already be charging the tax," Anita Dealmeida said.

She recently received final notice for the collection of about $8,000 in back taxes, including $2,000 in interest and penalties. The taxes were for cigarette purchases she made online for clients at Tia Maria's Family Home, an assisted living center she runs for the developmentally disabled.

"We have clients that smoke and we're on a limited income, so when we can find the cheapest, that's the route we go," Dealmeida said.

The Hayward resident purchased the cigarettes between 2005 and 2007 and she says the cigarettes were bought so long ago, she doesn't even remember where she bought them and wonders why the retailer didn't collect the tax back then.

Betty Yee, chairwoman of the State Board of Equalization, explains the law doesn't require out of state retailers to collect taxes, but those that sell cigarettes are required to report its sales to the state under the federal Jenkins Act passed in 1949.

"Often times, we have a lag of when the out of state retailer provides the information to us about the purchaser in California. We will work with any purchaser to reconcile what really took place," Yee said.

The Jenkins Act applies only to cigarette sales. Consumers are required to pay tax on other out-of-state Internet purchases including computers and electronics, but compliance is pretty much voluntary. In December, the Board of Equalization approved a new fine on all delinquent taxpayers.

"Those who still owe excise taxes and sale taxes on Internet purchases of cigarettes and have not paid their liability are subject to a new cost recovery collection, cost recovery fee," Yee said.

The fee ranges from $195 to $925 and the stakes are high. California estimates its owed $50 million in back taxes for cigarette purchases alone and $1.3 billion in back taxes for all out of state sales.

"I can understand if I owe the tax, I'll pay the tax. It's the interest and penalties I'm not OK with when I wasn't notified," Dealmeida said.

She says the final notice she received in late December was actually the first time she had been notified she owed the tax and just a few days ago, her bank informed her that the state had removed from her account nearly $8,000 in back taxes, interest and penalty.

"So I will definitely personally help her and if the invoices need to get resolved, I will certainly give her assistance to help her do that," Yee said.

Yee says out of state purchases can be reported on your state income tax form or via a use tax return. Since 2006, the state has collected about $6 million in delinquent cigarette sales taxes.