Web Cigarette Sales Burn Tax Income

New York Times ^ | 08/12/02 | The Associated Press

[MEGoody]

Web Cigarette Sales Burn Tax Income By THE ASSOCIATED PRESS

Filed at 9:05 p.m. ET BOSTON (AP) -- States are losing millions in tax dollars as more people buy cigarettes from online vendors who routinely ignore a federal law requiring them to report sales to local regulators, a new report says.

The trend could undercut efforts by cash-strapped states to raise revenues by hiking cigarette taxes. In Massachusetts lawmakers recently approved a 75-cent hike on a pack of cigarettes, a move officials hope will bring in an extra $190 million annually. In Illinois, the state boosted cigarette taxes by 40 cents to a total of 98 cents a pack.

New Jersey and New York state both have a $1.50 per pack tax, the nation's highest. Washington state is third, at $1.425.

Federal law requires Internet cigarette sellers to provide state revenue officials with names and addresses of their customers. The officials can then pursue the buyers to make sure they pay local sales taxes.

But Internet cigarette vendors openly flout the law, known as the Jenkins Act, according to a report by the U.S. General Accounting Office to be released Tuesday.

``Our Internet search efforts identified 147 Web site addresses for Internet cigarette vendors based in the United States. None of the Web sites posted information that indicated the vendors complied with the Jenkins Act,'' the report said.

In fact, according to the report, 78 percent of the sites indicated that the vendors do not comply with the law.

The report recommends shifting primary enforcement of the law from the Federal Bureau of Investigations to the Bureau of Alcohol, Tobacco and Firearms, in part because of the FBI's heightened focus on terrorism.

Calls to several Internet cigarette vendors advertising ``tax free cigarettes'' were not returned to The Associated Press on Monday. One Web site told buyers ``We do not report to tax authorities in ANY state. 100% confidential.''

The cost to states can run into the millions, according to the report.

Officials in California estimated a tax loss of approximately $13 million from May, 1999 through September, 2001 because of the failure of Internet cigarette vendors to comply with the federal law.

By 2005, Internet tobacco sales in the United States could exceed $5 billion and states could lose about $1.4 billion in revenues, according to the report.

U.S. Rep. Martin Meehan, D-Mass., requested the report, which he said reveals a burgeoning market of online cigarette sales.

The lack of oversight lets children illegally purchase cigarettes online, said Meehan, who plans to file a bill requiring Internet cigarette shops to verify the age, address and identity of purchasers before shipping tobacco products.

[Wolfie]

The whole situation seems ripe for clarification, doesn't it? The Jenkins Act seems clear enough, and I imagine once States reach a stop loss point, they'll petition the Feds to enforce the law. And some enterprising official at Treasury will see a ripe opportunity for empire building.

[facedown]

For even a little more adventure try this. (SheLion's tip.)

[SheLion]

[SheLion]

And some enterprising official at Treasury will see a ripe opportunity for empire building.

Can you imagine all the ONLINE AUCTIONS? LOL! I don't think ANYone charges taxes on things they sell. heh!

[CaptRon]

Generally, Internet sites don't need to charge sales tax unless they have a "presence" in the state to which they ship the items. This usually means the state in which the site is located or if they have a brick and mortar store in the destination state.

[SheLion]

For even a little more adventure try this. (SheLion's tip.)

Why THANK you, facedown. That's a very good site!!

[RWG]

If native peoples set up web sites on their reservations then what? Smoke shops on reservations operate without interference.

[SheLion]

You have to remember; we aren't really citizens if we smoke; just like we aren't citizens if we are overseas and in the military.

Well, then, maybe we can all claim "immigrant" statis and get all the GOOD things in life the state allows! FREE!

As for the military, when an absentee vote is not counted from an overseas member, that is downright IMMORAL!

[RWG]

That explains it.

[Lloyd227]

"The lack of oversight lets children illegally purchase cigarettes online, said Meehan"

Here they come.... you can see their theme already, "Let's do it for the children!

It's all about money and power. These jerks cannot stand the fact that they're no longer in complete control of everything their eyes can see.

[facedown]

I just ordered a Supermatic Kit yesterday. Should be fun! I used to use a Loredo machine years ago - pretty crude. The new ones look pretty slick.

[SheLion]

I just ordered a Supermatic Kit yesterday. Should be fun! I used to use a Loredo machine years ago - pretty crude. The new ones look pretty slick.

It is SO perfect! When I started rolling our own a year ago this past June, I started out with that little plastic hand held. I couldn't get the cigarettes packed tight enough. I was discouraged.

Then, my friends in here pointed me to the Supermatic, and we have several! And what a pleasure it is. It's top of the line!

[Wolfie]

If native peoples set up web sites on their reservations then what?

I'm sure some court will have to answer that question someday. But, to repeat, the Jenkins Act has nothing to do with the internet. Its a 50 year old tax law affecting interstate commerce in the cigarette trade.

[robertpaulsen]

Yeah, right. Children with credit cards.

[ijcr]

Native Americans are exempt from the Jenkins Act because they are independent nations under our federal treaties. That is the reason that they do not pay, or collect, state taxes.

ROFL!

[Wolfie]

The State's argument will be that the taxes aren't being collected by the Res, but by the State into which the cigarettes are being shipped, in accordance with the Jenkins Act. The cigarette outlet only provides customer names and addresses. Like I said, a judge (or judges) will have to decide. I know who my money's on when the decision comes down.

[dtel]

There doesn't appear to be a provision in the Jenkins Act to compel overseas distributors to comply.
Or am I overlooking something?

[Wolfie]

I couln't find anything in the Jenkins Act dealing with overseas distributors. Its strictly an interstate commerce tax law.

[Grit]

Native Americans are exempt from the Jenkins Act because they are independent nations

As is Switzerland. Yesmoke

[Consort]

The Underground Economy has to go Public. I'm calling my broker.