LANSING – Illegal online tobacco sales are costing Michigan retailers money but some state residents are being forced to pony up.

Since the cigarette tax increased to $2 per pack in 2004, retailers and wholesalers have seen a 30 percent reduction in tobacco sales, said Polly Reber, president of the Michigan Distributors and Vendors Association.

Meanwhile, the Department of Treasury is pursuing residents who purchase tax-free tobacco online and have subpoenaed records from several companies that refused to disclose names and addresses of their Michigan buyers.

“We certainly applaud those efforts to crack down,” Reber said.  “There’s a huge

incentive for people in Michigan to try to find cigarettes elsewhere, and they’re hurting

Michigan retailers who are complying with the law.”

Terry Stanton, public information officer for the Treasury, said purchasing tobacco from an out-of-state Internet vendor has become hard to track down.

“These sites offer cheap and tax-free smokes,” Stanton said.  “They can use one URL (Web address) for six months and then move to another site.”

Treasury declined to identify the subpoenaed companies because many cases are still open and under investigation.

The attorney general’s office said Michael Bassar pled guilty to a misdemeanor in Clinton County Circuit Court last April and was sentenced to pay more than $20,000 in taxes, penalties and interest for purchasing cigarettes from Esmokes, a Web site that sells discount tobacco products and condoms.

The tobacco tax in 2002 was 75 cents per pack.  Michigan became the fourth highest in the nation when it was increased in 2004.

“Treasury got records from the companies that enabled them to track individuals down,” said Ari Faneuil, media officer for the attorney general.  “They got shipping information from Esmokes.” 

He said records showed hat Bassar bought 15 or more cartons on 24 separate occasions between 2002 and 2004.

“Purchasing cigarettes on the Internet from out of state is illegal unless the seller collects the taxes for the state or the buyer is licensed by the state.” Stanton said.

A disclaimer on the Esmokes site warns buyers to comply with laws in their own states.  Esmokes collects sales tax for only three states, not including Michigan, the disclaimer said.

So far, Treasury sent over 10,000 letters since 2005.  One assessed charges of almost $900 in excise and sales tax.

If the assessment is not paid, the letters say, the penalty would increase 500 percent.

Handling claims against a state resident is a three-step process, Faneuil said.

“Treasury will investigate the case, refer it over to State Police, and then they refer it over to us to determine if it warrants prosecution on criminal tax charges,” Faneuil said.

Tobacco tax dollars go to the Medicare Trust Fund for people with smoking-related illnesses, Stanton said.

Reber said Michigan yearly collects more than $1.2 billion in tobacco revenue.