She lost her job. She lost her husband. She lost her home. And that's when the state Department of Revenue delivered yet another blow, a $9,876 lien on Judy Christy's assets for cigarettes she had bought and smoked years ago.
Ms. Christy, of Butler County, was one of tens of thousands of Pennsylvanians caught up in the state's ongoing sweep of people who bought cigarettes by the carton online and failed to pay the state's sales and excise taxes.
Similar sweeps have been carried out in other states.
With a Pennsylvania sales tax of 6 percent and an excise tax of $1.60 per pack (it was lower, $1.35 a pack, when the collection push began back in 2007), many smokers got hit with surprise bills for thousands of dollars.
And more than 2,000 who have been unable, or unwilling, to pay their back taxes found that the state had put a lien on their homes or other personal assets. Those who don't own a home discovered judgments against their credit and future assets.
That's what happened to Ms. Christy. As a result of a federal law that requires cigarette vendors to share buyer information with the states, Pennsylvania's Revenue Department learned that Ms. Christy had purchased 232 cartons of cigarettes online between April 2005 and October 2007. The excise and sales taxes she owed on those cartons, plus interest, was $3,928.90.
She worked out a payment plan with the state: a $395 down payment in June 2008, then $99 a month after that. She paid until the following spring, which is when she lost her job at Farmers National Bank, she said. Five months later, her husband died, and she moved out of her husband's home in Bruin to an apartment in Butler a few months after that.
"It just got the point I couldn't afford to pay them," she said. After losing her job and following her husband's death, she was living on unemployment and some of her late husband's retirement money, a few hundred dollars a month.
Nine months after she stopped paying in spring 2009, the Revenue Department sent Ms. Christy a certified letter, saying it intended to make a claim against her assets for the remainder of what she still owed.
What she owed on the original tax debt, after making nine months of payments, was roughly $2,300 in back taxes. But the state also included in its claim about $7,000 in legal fees, penalties and interest, according to Ms. Christy.
"I don't have an issue paying them what I owe them," she said. "But where do they get off hitting me for $7,000 in legal fees for a legal filing that costs $125, tops?"
The Revenue Department said the majority of that extra $7,000 was not legal fees, but penalties and interest: About $6,700 in accrued penalties and interest, in fact.
So long as those who owe the cigarette taxes continue making monthly payments on their deferred payment plans, the state will waive the penalties. But if the payer defaults on the plan, as Ms. Christy did, all of the accrued late fees are slapped into the lien, dating to 2005 in this case.
Ms. Christy is again employed, as of January. She said she had forgotten about the certified letter from December 2009 and only relearned of it recently because she is looking into buying a home. Her prospective lender ran a credit check and the $9,800 flag against her credit was discovered, she said.
She and many of her fellow smokers have said they felt unfairly targeted -- they bought cigarettes online, often from American Indian vendors, because the cartons were cheaper, not realizing that by doing so they were still obligated to pay the state's excise tax and sales tax. Ms. Christy bought most of her cigarettes from thesmartsmoker.com, an American Indian-run cigarette website.
That website turned over customer data to the state in accordance with the Jenkins Act, a 62-year-old federal law originally written to target cross-state cigarette smugglers, but used in recent years to combat online cigarette vendors. In March 2010, President Barack Obama signed the Prevent All Cigarette Trafficking Act, which strengthens the Jenkins Act by increasing penalties for cigarette vendors who don't comply with the law, and forbids the shipment of cigarettes through the U.S. Postal Service.
As of last month, the state had filed about 2,975 tax liens, "protecting $13.2 million in tax, interest and penalties," said Elizabeth Brassell, spokeswoman for the Revenue Department.
That means more than 13 percent of the cigarette scofflaws eventually were hit with liens. In all, about 22,000 letters were sent out to smokers. So far, those efforts have already collected $23 million in back taxes.
"We're still willing to work with taxpayers," especially those nearly 3,000 people with liens against them, said Ms. Brassell.
Those who have questions about cigarette taxes they owe may call the Revenue Department at 1-717-214-7287.
Bill Toland: email@example.com or 412-263-2625.