Posted on 02/12/2005 2:20:01 PM PST by SheLion
Concerned about the booming trade in online cigarette sales, New York state officials have begun using a variety of techniques to clamp down on the trade, saying New York City alone is losing more than $75 million a year in uncollected tax revenues because of the sales.
In recent weeks, Attorney General Eliot Spitzer has been pushing local postal officials and private carriers to stop delivering cigarettes bought online. His office has also recently begun negotiations with credit card companies to block transactions of online cigarettes.
These efforts were given added push recently as local officials from the federal Bureau of Alcohol, Tobacco, Firearms and Explosives met with credit card executives to alert them to the various ways in which these transactions are illegal.
"The tone was very cordial and unthreatening," said a city official who participated in the presentation three weeks ago at the bureau's office in Brooklyn. "But in the end they made it crystal clear that now that the credit card companies understood the law, they would be held accountable for processing these transactions."
Mr. Spitzer emphasized that the effort has as much to do with health as money. "These sales present a significant threat to public health because they provide easy access to cheap cigarettes, which increases smoking rates, particularly among children," he said. "These illegal sales also evade state tax requirements."
Whatever their motivation, city and state officials are broadening their efforts to eradicate the business.
Two weeks ago, a judge ruled in one of the city's four lawsuits against online sellers that the city can file a revised racketeering lawsuit against Internet cigarette sellers. The ruling was the first time a federal judge has indicated that Internet sellers can be charged under federal racketeering law, said Eric Proshansky, the city's chief lawyer on the case.
After gleaning the names and the addresses from a Virginia lawsuit against one online cigarette company, the city began sending letters last month to more than 2,600 New Yorkers who officials say bought tax-free cigarettes. The letters, sent to those who bought cigarettes online from July 2002 to April 2004, give the alleged violators 30 days to pay or face interest and penalties of up to $200 a carton.
In November, local law enforcement seized 300,000 cartons of illegal cigarettes at Kennedy International Airport. Joseph G. Green, a spokesman for the A.T.F., said that the seizure was the culmination of a yearlong investigation jointly conducted by the Queens district attorney's office; federal Bureau of Alcohol, Tobacco, Firearms and Explosives; postal inspectors; and city and state tax and finance officials.
Sam Miller, a spokesman for the city's Department of Finance, said that the city loses more than $75 million a year as people duck local taxes by purchasing online. But the crackdown has drawn some criticism.
"New York is simply trying to engage in economic protectionism by limiting cigarette sales to brick-and-mortar sellers," said James L. Bikoff, a lawyer who represents several Internet tobacco sellers. "Most of the folks who are in the online cigarette business are small outfits and they typically advise the consumer to check with their own city and state's laws regarding tax rules."
New York City smokers pay the highest cigarette taxes in the country, as the state charges a $1.50 tax per pack and the city adds an additional $1.50 tax per pack. A carton of cigarettes in the city costs about $70, including $33.30 in excise and sales taxes. Online, cigarettes cost as little as $15 a carton.
Thus far, the city and the state have met with mixed results in their efforts to control the online traffic in cigarettes.
Some banks that process MasterCard transactions have begun blocking sales from certain Internet tobacco sites to customers, said Joshua Peirez, a senior vice president at MasterCard. But other banks do not. American Express currently has no policy that blocks Internet cigarette sales, said Christine Elliott, a spokeswoman for the company.
After sending a letter to credit card executives in August, Mr. Spitzer joined several other state attorneys general to send another letter pressing credit card companies to stop the transactions.
Both letters cited several reasons for the failure of Internet tobacco sellers to comply with applicable laws, including that they make no effort to verify the age of their customers and fail to report shipment of cigarettes to the tobacco tax administrator of the state into which shipments are made.
While the United Parcel Service and other private carriers have been more open to the idea of blocking the delivery of these packages, postal officials have balked at pressure from Mr. Spitzer's office, claiming that they do not have the legal authority to stop the shipments, according to city officials who have been part of the discussions. But Mr. Spitzer's office contends that the postal service indeed has the authority under federal laws that prohibit mail fraud schemes, according to a letter sent by the office.
New York State passed a law that took effect in 2003 prohibiting online and mail-order sales of cigarettes to its residents. The law was largely intended to curb tax evasion and under-age smoking, since many online cigarette sites do virtually nothing to verify the age of customers.
Efforts to stop online sales are complicated, since Internet sites are sometimes based abroad and are therefore difficult to prosecute. City officials estimate that about 80 percent of the online cigarette sales come from sites that claim Indian affiliation, which for sovereignty reasons claim immunity from laws like the Jenkins Act.
I don't smoke cigarettes, but have I noticed that you can buy a carton of smokes for as little as $10 down here(Biloxi, Mississippi). What gives with the $70 a carton rip-off in New York? If I were a smoker, I'd vote with my feet!!
meant to say: "I have noticed"
Those lucky enough to live near Indian reservations in NY can get their smokes a lot cheaper as well.
Here's hoping if they try, the Indians raise holy hell! They are sovereign and do not have to comply with other government tax regulations.
I don't smoke cigarettes, but I have noticed that you can buy a carton of smokes for as little as $10 down here(Biloxi, Mississippi). What gives with the $70 a carton rip-off in New York? If I were a smoker, I'd vote with my feet!!
I don't smoke anymore - and I'm going to buy a carton online right now...
That's why they're having such a hard time passing legislation, they haven't figured out a way to get past that pesky sovereignty issue yet.
The smoking Nazis are on the march.
If demand for 'non-smoking' venues such as restaurants and bars are so great, why doesn't the private sector RISE UP and meet the demand, whilst the government leaves private establishments alone.
I already know the answer...
What's happening in NYC is akin to the story of killing the goose that layed the golden eggs. Greedy law makers seeking to raise revenues by punishing the evil smokers are faced with basic economics. As prices increase buyers will purchase less or look for less costly alternatives. Internet sales are just the tip of the iceberg as I'm sure organized crime is also taking advantage of consumers seeking lower cost smokes.
The day that they go after ALL internet sales for state taxes is the day I will sit up and pay attention.
Many people buy expensive items,like computers,from the Internet. I'm sure state taxes aren't added. When they start going after Dell and IBM and Apple I will pay attention and not until then.
They hate smoking,they hate smokers,they want their money----it is as simple as that.
Not just that but other intrusive measures like mandatory seatbelt and helmet laws. They have nothing to do with promoting public health but were passed due to pressure from insurance companies. They're not even trying to hide their hypocrisy any longer, it's all about money.
The phrase "shove the homosexual lifestyle down our throats" is a bit unsettling. Would you care to rephrase that? :-)
"Most of the people ordering cigarettes online are buying them in enormous quantities and reselling them. It is $75 million in tax money they are taking right out of our pockets."
WTF are you talking about? It's not your money in any way.
Looks to me as if YOUR the one in other peoples pockets!
How do you make everyone a criminal? Just keep passing idiotic laws. Pretty soon you can arrest anyone for anything.
If your communist government didn't have smell fixations your government extortion's might be a good deal higher. Reminds me of probation.
Love;
Little Bill
Well then, raise taxes on junk food and alcohol and candy and anything else you think is bad for the people. And claim it's all for the children.
I've got a news flash for you. They're not taking anything out of your pocket. Anytime you're talking about taxes you're talking about the state taking money out of the peoples' pockets. Seems you're a little mixed up.
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