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California Revenue Loss

California retailers lose 5% of their sales to internet sales, resulting in an estimated revenue loss of $53.9 million. The California State Board of Equalization sent letters to internet sellers, received reports from 26, registered 15,000 consumers, and reached settlement negotiations with distributors. California continues to receive reports from three internet retailers and is investigating common carrier records for tax evasion.

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California Revenue Loss

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  1. California Revenue Loss Sales 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

  2. California SolutionsInternet 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

  3. GAO Graph

  4. California SolutionsInternet Projects

  5. 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

  6. 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.

  7. Other Tobacco Products • No Jenkins reporting requirement • No stamp • Excise tax evasion for OTP is equal to revenues received • $50 Million

  8. 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

  9. 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.

  10. Problem with Common Carrier Records • Common Carrier does not have • Information on the product • Information on the price • Name of consignee

  11. Board of Equalization Investigation Division • Obtains Listings • Investigates largest consignees • Determines if evasion exists • Provides Excise Taxes and Fees Department with the audit

  12. Board of Equalization Audit Results • Fiscal Year 2004/2005: • Audited 86 Retailers • Generated 2.5 million in tax revenue

  13. QUESTIONS ?

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