California Revenue LossSales of Cigarettes through

the Internet

• California retailers lose 5% of their sales to sales made through mail order catalog, telephone and the Internet

• California Revenue loss is estimated at:

$ 53.9 Million

California Solutions

Internet Projects• 1999 California State Board of Equalization sent out letters to 167 internet sellers.

– Received reports from 26

– Registered 15,000 Consumers

– Received $2,330,000

State Number ofInternet vendors

identified andnotified

Number of Internetvendors that

responded withreports of cigarette

sales

Number ofresidents identified

and notified

Number of residentsthat responded

Amount of taxes,penalties, and

interest collected

Alaska 15 2 3 1 $9,850

California 167 (approx.) 20 (approx.) 23,500 (approx.) 13,500 (approx.) $1.4 million(approx.)

Massachusetts 262 13 None None None

Rhode Island Number unknown None None None None

Washington 186 8 800 (approx.) 560 (approx.) $29,898

Wisconsin21 6 696 696 $80,200

GAO Graph

California Solutions

Internet Projects

Lawsuit results

• Settlement negotiations were reached with several of the internet distributors

• Provide Jenkins Act reports to States

• Payment of Civil Penalties

• Internet distributors agreed not to ship cigarettes into California

Current Projects Continued

• Currently obtaining programming and resources to establish accounts

• Send out returns

• Address backlog and future reports

• Currently California continues to receive monthly reports from three internet retailers.

Other Tobacco Products

• No Jenkins reporting requirement

• No stamp

• Excise tax evasion for OTP is equal to revenues received– $50 Million

Common Carrier Records

• Article 15 U.S.C.A., Section 376 of the Federal Law relating to collection of State Cigarette & Tobacco Product Taxes

• Investigation Division requested voluntary compliance

• Investigations Division issued subpoenas for records

Common Carrier Records Revealed

• Records subpoenaed from one common carrier covering the period of 3/1/04 to 9/30/04 reported 117,692 tobacco product shipments into California to approximately 26,000 separate locations.

Problem with Common Carrier Records

• Common Carrier does not have– Information on the product– Information on the price– Name of consignee

Board of Equalization Investigation Division

• Obtains Listings

• Investigates largest consignees

• Determines if evasion exists

• Provides Excise Taxes and Fees Department with the audit

Board of Equalization Audit Results

• Fiscal Year 2004/2005:– Audited 86 Retailers– Generated 2.5 million in tax revenue

QUESTIONS

?