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Treasury to Strictly Enforce Tobacco Tax
Treasurer Rising Warns of Illegal Purchases
June 30, 2004
With Michigan's Cigarette Tax increasing from $1.25 to $2 a pack on Thursday, July 1, 2004, State Treasurer Jay B. Rising is reminding state residents it is illegal to have control of or possess untaxed/unstamped cigarettes (or other tobacco products) purchased on the internet, by telephone, by mail, or by crossing state lines. Not only are purchasers liable for cigarette and use taxes on their purchases, they could also face a 100% penalty. "Michigan residents should not be fooled into believing they can purchase tax free cigarettes," said Treasurer Rising. "Under federal law, Internet cigarette vendors have a legal responsibility to provide details of their sales to Michigan residents. We then use that information to issue assessments and collect taxes and penalties that are due."
If a Michigan resident were to purchase a minimum order of three cartons of so-called "tax free cigarettes" on the Internet, at an advertised price of $26.99 per carton, he/she would pay $80.97. However, those same three cartons carry a tax and penalty liability of nearly three-times that amount. Following is a breakdown of those taxes and penalties:
Purchase price: $26.99 x three cartons $80.97
Cigarette Tax: $20.00 per carton x three cartons $60.00
Use Tax: $26.99 + $20.00 x three x 6% $8.45
Penalty: $60.00 (Cigarette Tax) x 100% penalty $60.00
Total cost of three cartons $209.42 ($69.81/carton)
"We want to ensure that Michigan residents are aware of the cigarette and use tax obligations they face, should they choose to purchase untaxed cigarettes from any source," said Rising. "Whether on the Internet, by catalog, or by car, attempts to circumvent the cigarette tax will likely cost people much more in the long run."
The State of Michigan will continue to conduct aggressive enforcement action against those who attempt to import, sell, and/or purchase untaxed/unstamped cigarettes. Since 2001, Treasury's Discovery Unit has assessed cigarette and use tax liabilities to more than 1,000 Michigan residents with $454,000 in cigarette and use tax revenues collected. Assessments were based on information provided by out-of-state cigarette vendors, pursuant to the Jenkins Act (see above).
The State Police Tobacco Tax Team also actively enforces the Tobacco Product Tax Act. The unit seized nearly 3-thousand cartons of unstamped cigarettes between January 1 and April 30, 2004. Since its inception a decade ago, the Tobacco Tax Team has seized 269,000 cartons of untaxed cigarettes and accessed more than $6 million in taxes and penalties, which range from a $1,000 fine and one year in prison to a $50,000 fine and five years behind bars.
To assist tobacco retailers in making changes to their respective in-store systems, the Michigan Department of Treasury has sent notification of the increase, as well as new tobacco tax forms, to Michigan businesses that sell cigarettes and other tobacco products. Tobacco tax notices, return forms, and other information are also available on the Internet at www.michigan.gov/tobaccotaxes.
Any business that has tax paid tobacco in its possession at the end of the day on June 30, 2004 must complete an inventory of all tobacco products and pay the appropriate additional tax for that inventory by Monday, August 2, 2004.
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