NYC Fuming Over Web Cig Sales

Effort Launched To Collect Unpaid Taxes From Online Sales

(CBS)  For New York City smokers, each puff is a pretty penny. The city tax alone adds $1.50 to every pack. And smokers who shop online to find cheap smokes, had better start worrying about New York City finance commissioner Martha Stark.

"The consumers are mostly going on the Internet to avoid paying taxes," Stark told CBS News Correspondent Randall Pinkston.

Stark has launched one of the most aggressive efforts in the country to collect unpaid taxes from online sales — starting with cigarettes.

"They're telling people that if you buy from us, you don't have to pay tax on the cigarettes," Stark says. And that, she says, is "not true."

Bill Mungen and Debra Uffer got one of Stark's 4,000 tax demand letters, claiming they purchased 103 cartons for a total of $1,545 in alleged unpaid taxes.

Mungen says his first reaction upon receiving the letter was "shock and awe."

"My first thought was, 'What the heck is this?'" Mungen says.

"And it made me feel that anything I do is being closely watched," says Uffer.

The couple thinks more than money is behind this.

"There's a lot of people who don't like smokers out there," says Mungen. "(They're) the easiest target to pick on."

"If you're a smoker, smoke away," Stark says. "However, you have to pay the appropriate tax.

"I take my job here seriously."

Seriously, indeed. Ignore the demand and Stark is ready to put a lien on your paycheck, plus penalties of up to $200 per carton.

So, how did the city get the names of online cigarette buyers?

From court cases against a couple of Web sites. Now, it's asking more Web sites to cough up their customer lists.

Smokers elsewhere who think they don't have to worry should think again.

"When you start hitting numbers like $1 billion in lost revenue, people start to pay attention," says Christopher Baum, a sales tax analyst from the Gartner Group.

That's $1 billion a year nationwide in projected taxes in online cigarette sales - up to $50 billion for all Internet sales.

"You need to make sure that everybody's playing by the same rules whether it's online or down the street," says Baum.

"People who are buying books and CDs on the Internet and not paying appropriate sales taxes, I would advise them to start paying the sales tax," says Stark.

While Mungen and Uffer won't admit they bought cigarettes online, they are offline, buying their smokes close to home and still fuming over the tax bill.