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Cigarette Tax Bill

To get a good deal, Paul Brodman used to buy cheap cigarette online .

Little did he know, those smokes weren't the bargain they appeared to be. There's no getting out of paying state taxes simply by buying buy cigarette online online.

Earlier this month, Brodman received a bill for $1,398 from the State Board of Equalization for back taxes and penalties he owes for 100 cartons of discount cigarettes he bought online from an out-of-state retailer in 2007 and 2008. Initially, Brodman thought it was a mistake.

"We smoked them; we didn't resell them," he said. "I wasn't selling them on the corner."

When he bought cigarettes for sale online, Brodman should have paid the state an excise tax of 87 cents per pack, plus a use tax of 8.25 percent on the total purchase amount.

"We know that people make purchases out of state and online looking for a deal, and they know they're getting away with something, or they should know they're getting away with something," said Anita Gore, spokeswoman for the State Board of Equalization. "It is the law that these taxes be paid."

Brodman says he turned to the Internet because cigarettes online were "substantially cheaper" than at the corner store.

One reason cigarettes are more expensive in California than in some other states is because voters have added several surtaxes to cheap cigarettes and other buy cigarettes products over the years. The base cigarette tax is 12 cents per pack. The additional 75-cent tax on eachpack funds tobacco-related health education programs and disease research, medical treatment for low-income patients with tobacco-related illnesses and early childhood development programs.

Additionally, since 1935, California residents have also been responsible for paying the use tax -- equaling the sales tax rate in the city where they live -- on cigarettes or anything else bought outside the state. If the retailer is not required to collect and report the use tax, buyers must pay it directly to the Board of Equalization.

Under federal law, online cigarette retailers must report purchase information to state tax collectors, Gore said. Some sellers submit monthly invoices, she said, while it sometimes takes a little legal arm-twisting from state attorneys general to get the data from reluctant retailers.

As Brodman found, it can take years for the state to catch up with debtors.

In fiscal year 2010-11, the Board of Equalization issued 1,723 bills under the "Cigarette Internet Program," collecting about $1.6 million in revenue. Of that amount, $1.4 million was excise tax and $234,193 was use tax.

Smokers may grumble about paying the taxes, but Gore said it's a fairness issue. When Californians buy cigarettes online, they deprive the state of tax dollars that fund schools, public safety and other services.

"Everybody gets cheated when these taxes go unpaid," she said.

Brodman wasn't happy to find out he's on the hook for almost $1,400, but he took the news in stride.

"Well, I got caught. I was trying to buy them with the least amount out of my pocket at the time. I'll pay the tax," he said.

The good news? Brodman and his wife quit smoking cigarettes a few years ago when the price of a pack of cigarettes reached $5.


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