Friday Consumer Alert

JOHN ROBERTS, CBS ANCHOR: One of the attractions of shopping online is that most retailers don`t collect sales tax. Oh, but that does not mean that there is no sales tax. And buyers are beginning to learn that the hard way, as Randall Pinkston reports in our Friday "Consumer Alert."

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RANDALL PINKSTON, CBS CORRESOPNDENT (voice-over): For New York City smokers, each puff is a pretty penny. The city tax alone adds a $1.50 to every pack. But smokers who shop online to find cheap deals had better start worrying about Martha Stark.

MARTHA STARK, NYC FINANCE COMMISSIONER: And those consumers, basically, are mostly going on the Internet, because they`re trying to avoid paying taxes.

PINKSTON: Stark is New York City`s finance commissioner. She`s launched one of the most aggressive efforts in the country to collect unpaid taxes from online sales, starting with cigarettes.

(on camera): So they`re telling people that if you buy cigarettes from us, you don`t have to pay taxes?

STARK: Exactly.

PINKSTON: True or false?

STARK: Not true. False.

UNIDENTIFIED MALE: This one, they want $1,545.

PINKSTON (voice-over): Bill Mangin (ph) and Debra Opper (ph) got one of Stark`s 4,000 tax demand letters.

(on camera): Bill, what was your reaction when you received the letter?

UNIDENTIFIED MALE: To quote George W. Bush, "shock and awe."

UNIDENTIFIED FEMALE: It made me feel that anything I do is being closely watched.

PINKSTON: The couple thinks more than money is behind this.

UNIDENTIFIED MALE: There are a lot of people who don`t like smokers out there. Smokers are the easiest target to pick on.

STARK: If you are a smoker, you know, smoke away -- however, you have to pay the appropriate tax.

PINKSTON (on camera): Why did you want to do that, to all those poor cigarette smokers?

STARK: Well, you know -- those poor cigarette smokers -- I -- I have to say -- it`s really -- I just take seriously my role here.

PINKSTON (voice-over): Seriously, indeed. Ignore the demand, and the city is ready to put a lien on your paycheck. Plus, penalties of up to $200 per carton.

(on camera): 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 customers lists.

(voice-over): Smokers elsewhere who think they don`t have to worry should think again.

UNIDENTIFIED MALE: When you start hitting numbers like $1 billion in lost revenue, people start to pay attention.

PINKSTON: That`s $1 billion a year nationwide, in projected taxes in online cigarette sales. It`s up to 50 billion for all Internet sales.

STARK: Those people who might be buying books and CDs and not paying the appropriate sales tax, I would advise them to start paying the sales tax.

PINKSTON: While Debra and Bill won`t admit they bought the cigarettes online, they`re offline now, buying their smokes close to home and still fuming over the tax bill.

Randall Pinkston, CBS News, New York.

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