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Smokers burned by Internet cigarette sales

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Monday, Nov. 12, 2012, 11:58 p.m.
 

Nancy Funfar says she was burned by a now-defunct website that sold her name-brand cigarettes and stuck her with a $3,700 tax bill and a resulting lien on her home.

“They're a bunch of cheaters, whoever they are,” said Funfar, 74, of Glenshaw.

Pennsylvania's Department of Revenue says Funfar and at least 23,000 other residents cheated the state by not paying state and local taxes on more than 1.9 million cartons of cigarettes they bought online or through the mail. Some owe tens of thousands of dollars, department data show.

Funfar bought almost 200 cartons of cigarettes from a website called smartsmoker.com in the mid-2000s. She said she paid $30 or less per carton, about half the price stores charged.

Smartsmoker.com kept prices low — and business up — by not collecting taxes. A $30 carton would cost $48.76 if state excise and sales taxes were applied. The additional 1 percent sales tax in Allegheny County would raise the cost to $49.22.

Scott Maybee, the company's owner in Irving, N.Y., could not be reached for comment. A number for an attorney who handled lawsuits against the company was disconnected.

Funfar did not think she was cheating anybody.

“I was always under the impression that anything you bought online was not taxable,” she said.

The Department of Revenue began pushing to collect the unpaid taxes five years ago, following the lead of other states and the federal government, department spokeswoman Elizabeth Brassell said.

The Department of Justice estimated in a 2009 report that federal, state and local governments were losing out on $5 billion a year in revenue from unpaid cigarette taxes.

To date, Pennsylvania has collected $23 million, including $1.4 million from Allegheny County buyers, in back taxes, Brassell said. Another $4.5 million is outstanding, not counting penalties and interest.

“They're not getting any more of my money, period, end of story,” Funfar said.

Her husband, Bill, said they made 16 small monthly payments on a $1,600 bill they received in 2007. They stopped paying after receiving a second bill for close to $1,800.

In cases where the department cannot collect, it places a lien on a debtor's property. The state placed a $3,749 lien on Funfar's home, according to department data, one of 3,617 state liens seeking to collect more than $15 million in taxes, interest and penalties.

Statewide, the liens range from as large as $51,627 to one as small as $195, department records show. Forty-eight liens seek at least $10,000, and one-third of those are on Western Pennsylvania properties.

The state placed a $46,347 lien on Putignano Candy & Cigar Co. in Vandergrift, the state's second-largest. A phone number for the business was disconnected; a borough official said it closed about two years ago.

The federal Jenkins Act requires vendors who sell and ship cigarettes across state lines to file monthly reports including customers' names and addresses with each customer's home state. Many vendors skirted the law for years.

Brassell said the state can't enforce the federal law, and the Bureau of Alcohol, Tobacco, Firearms and Explosives has limited manpower to go after vendors who are late in filing sales reports.

“We don't have any control over when the data comes to us. The best we can do is act on the information when we get it,” Brassell said.

There is no statute of limitations on tax collections.

States including Washington and Oregon went to court to obtain customer information from the company that operated smartsmoker.com and similar websites from a Seneca reservation. The company agreed but neglected to collect state or local taxes before ceasing to sell name-brand cigarettes.

Tom Fontaine is a staff writer for Trib Total Media. He can be reached at 412-320-7847 or tfontaine@tribweb.com.

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