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OLYMPIA, Wash. -- Washington State Attorney General Christine Gregoire is trying to force an Internet cigarette dealer to cough up its list of Washington customers so the state can levy its steep tobacco tax on them.
The state Department of Revenue estimates that perhaps 40 percent of the cigarettes smoked in Washington are contraband -- smuggled in from out-of-state, bought at tax-exempt Native American smoke shops on reservations or purchased by mail or through the Internet.
Gregoire estimated that contraband cigarette sales account for $250 million of lost revenue, she said.
The lawsuit seeks an injunction against dirtcheapcig.com, which sells cigarettes online from Kentucky, forcing the company to disclose its customers within Washington. That would allow the state to track down the buyers and collect both the cigarette tax of $1.425 per pack and the 6.5-percent use tax -- the tax the state levies on out-of-state purchases by Washington residents in lieu of the sales tax. Philip Morris Cos. Inc., the largest cigarette maker, last week launched a similar suit against Internet retailers in several states for selling its flagship Marlboro cigarettes online without permission.
At dirtcheapcig.com a 10-pack carton of Marlboros sells for less than $30, compared with as much as $50 at retail locations in Washington.
The state's lawsuit seeks to invoke the Jenkins Act, a decades-old federal law that requires dealers who ship cigarettes to customers in another state to provide that state's authorities with a list of customers every month. The law was designed to prevent large-scale tax evasion, and the state argues that it applies to Internet sales.
In general, Internet and mail-order retailers can't be compelled to collect Washington taxes or provide customer lists unless they're physically located in the state. That puts the burden of paying any taxes on the consumer, who typically doesn't show much interest in paying.
Enforcing the use tax is virtually impossible except on large items such as boats or cars that must be registered with the state.