Tax collectors sour about overestimated cigarette taxes
Monday, November 15, 2004 8:11 AM PST
By Associated Press
Printable version
E-mail this articleSALEM -- The state tax-collecting agency says it is facing a budget shortfall because it miscalculated how many people would curtail their smoking or buy cigarettes on the Internet to avoid paying taxes.
Revenue Department Director Elizabeth Harchenko said she takes responsibility for the resulting shortfall in cigarette tax revenue, which could mean layoffs for the 950-employee department.
"The Internet problem didn't look like a big one a year and a half or two years ago," Harchenko said.
The error can also be attributed to lawmakers trying to balance the state budget in 2003, the longest session in Oregon history.
A team of state workers showed they could raise more money by going after smokers, retailers and others trying to escape the state's cigarette tax.
In 2001, the Legislature provided $2.1 million for an 18-person strike force of revenue collectors, state police and prosecutors. The effort netted more than $8 million in added tobacco taxes in 2001-03, Harchenko said.
As lawmakers tried resolve a budget standoff in the 2003 session, they asked the Revenue Department what it could produce if the number of staff members on the strike force was tripled, Harchenko said.
"We all had stars in our eyes. We were ready to put the sunset on the session," said former state Rep. Rob Patridge, R-Medford, a key member of the budget committee in 2003.
Harchenko, with less than two days to produce a number, said a bulked-up strike force could deliver $30 million more in tobacco taxes.
But cigarette taxes for 2003-05 are projected to fall $25 million below the initial target.
Experts predicted that the 60-cents-per-pack cigarette tax increase approved by voters in late 2002 would dent sales in Oregon. But the reduction in cigarette smoking was larger than expected, Harchenko said.
The department also underestimated the number of people resorting to the Internet. It appears the state is losing up to $20 million or more per biennium from people using the Internet to buy cigarettes, said Randy Evers, administrator of the department's Business Tax Division.
Oregonians buying cigarettes online must pay taxes. But they must take the initiative by downloading a tax form from the Revenue Department.
Fewer than 100 have paid taxes from Internet purchases, Evers said.
Federal law requires online cigarette vendors to provides the states with contact information about purchasers. But it has proved difficult for the state to get them to comply. The largest vendor is based in Switzerland, Evers said.
Because the Revenue Department never raised the $30 million, it won't be able to spend $20 million of its $135 million budget for 2003-05. The department expects it will have to begin layoffs early in 2005 as its general fund money runs out, unless it gets $15 million in emergency money.
The Legislative Fiscal Office and state Department of Administrative Services have recommended the Legislative Emergency Board approve $5 million when it meets Thursday and Friday, then another $5 million in January. The 2005 Legislature would be asked to come up with the remaining $5 million.
But it may be a tough sell.
State Sen. Kurt Schrader, D-Canby, the Legislature's top budget expert, said he'll reject the request.
"Then I guess next time they'll come back with more honesty about what they can actually produce with their personnel," he said.
Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Past Month's Most Commented Stories