By WORLDLawDirect February 1st, 2011

Taxes Key Points

• Customers are required to pay state cigarette taxes on all cigarettes purchased from Internet cigarette retailers.
• Federal law requires all Internet cigarette retailers to report names of their customers to local state tax officials in almost all cases.

State Laws for Internet Cigarette Retailers

In the relatively brief period of time since the emergence of Internet cigarette retailers, states have responded with a broad array of regulatory and law enforcement approaches. The approaches range from prosecution of Internet cigarette retailers for violations of existing minimum age sales laws to a ban on all direct to consumer deliveries of cigarettes.

The law is clear that whenever an Internet cigarette retailer sells cigarettes to a customer, tobacco taxes are owed to the state where the customer is located. When customers purchase cigarettes from a grocery store or other brick and mortar retailer, they are technically liable for paying the state excise tax (“tobacco tax”) on that purchase. The tax liability may not be readily apparent to customers because states typically require the cigarette wholesaler or some other intermediary to collect and remit the tobacco tax for each package of cigarettes before the package ever reaches the retail store display. The stamp on each package of cigarettes is proof that the state tobacco tax was collected and remitted to the state.

Because interstate tax law complicates the application of this collection and remittance requirement to Internet cigarette retailers, states may opt to collect directly from Internet cigarette retailer customers. A federal law passed in 1949, which is referred to as the Jenkins Act, simplifies the procedure for locating Internet cigarette retailer customers. The Jenkins Act requires any person or business that ships cigarettes to a state imposing a tobacco tax to disclose to local tax enforcement officials the name and address of the shipper and the person to whom the cigarettes are shipped. The disclosure also must include the brand names and quantities sent to each address. States may use this information to collect the tax directly from the customer.

Several states have successfully used the Jenkins Act.

Washington state, for example, sued an Internet cigarette retailer under the Jenkins Act, ultimately forcing the Internet cigarette retailer to turn over all its relevant customer information to the state. The court found that states have an implied right to sue under the Jenkins Act because the Act was passed explicitly to benefit states and state enforcement is consistent with its goal.

While the Jenkins Act enforcement provides a tax enforcement option for any state, some states have adopted new laws to increase tobacco tax compliance as well as simplify collection. For example, in addition to complying with the Jenkins Act reporting requirements, Internet cigarette retailers selling in California must also collect all applicable tobacco taxes and remit them to the state. If the Internet cigarette retailer opts not to collect and remit such taxes, then the Internet cigarette retailer must clearly disclose to each customer the following

If these cigarettes have been shipped to you from a seller located outside of the state in which you reside, the seller has reported pursuant to federal law the sale of these cigarettes to your state tax collection agency, including your name and address. You are legally responsible for all applicable unpaid state taxes on these cigarettes.

This notification is important because the offer of tax free cigarettes is a primary promotional technique for Internet cigarette retailers.

Californians who think they can evade state tobacco taxes by purchasing from an Internet cigarette retailer, will be disabused of this notion shortly after their first purchase.

Youth Access Laws for Internet Cigarette

Retailers

When tested in compliance checks, Internet cigarette retailers frequently sell to children. Many states have reacted by passing youth access laws tailored specifically for Internet cigarette retailers. Rhode Island became the first such state in 2000. Before shipping a tobacco product into Rhode Island, Internet cigarette retailers must obtain a copy of the customer’s government identification showing that he or she is at least 18 years of age, along with a written attestation as to the authenticity and accuracy of the photocopy. Internet cigarette retailers selling to Rhode Island customers must also limit delivery to the address listed on the identification and use a delivery service that requires the signature of the addressee or another adult.

Since Rhode Island passed its law in 2000, numerous states have adopted similar laws with additional requirements. For example, California mandates that Internet cigarette retailers check back with customers, in part to confirm that the potential customer is an adult.

The California requirement states

The distributor or seller shall submit to each credit card acquiring company with which it has credit card sales identification information in an appropriate form and format so that the words “tobacco products” may be printed in the purchaser’s credit card statement when a purchase of tobacco product is made by credit card payment.

The distributor or seller shall make a telephone call after 5 p.m. to the purchaser confirming the order prior to shipping the tobacco products. The telephone call may be a person to person call or a recorded message. The distributor or seller is not required to speak directly with a person and may leave a message on an answering machine or by voice mail.

The “check back” requirement, which exists in some other states, is meant to inform parents or guardians about their children’s purchases, information that might otherwise remain hidden. The “check back” requirement also intensifies minors’ concern that a parent or guardian will intercept the delivery of the tobacco products, which should dissuade at least some children patronizing Internet cigarette retailers.

Other laws in California include requiring a two carton minimum per order and prohibiting the use of cash and money orders as a payment option.

A few states have banned Internet cigarette retailers from shipping cigarettes directly to consumers to keep Internet cigarette retailers from selling to children.

New York was the first state to adopt this approach in August 2000.

The New York law prohibits all tobacco retailers, including Internet cigarette retailers, from shipping cigarettes directly to consumers with few exceptions. Alaska followed New York’s example in 2003. In December 2004, Arkansas similarly banned Internet cigarette retailers when the Supreme Court of Arkansas upheld the Arkansas Tobacco Control Board’s ruling that tobacco retailers must have a physical space in the state in order to obtain a license to sell cigarettes directly to consumers in Arkansas.

Related News Articles

Prevent All Cigarette Trafficking (PACT) Act

American Lung Association, May 15th 2010

On March 31st, 2010 President Barack Obama signed the Prevent All Cigarette Trafficking (PACT) Act, legislation to regulate the sale of tobacco products over the Internet and through the mail. The PACT Act makes it harder for vendors to avoid paying federal, state, and local taxes and forces internet retailers to comply with other regulations of tobacco products, including selling to minors.

Previously, online sellers of tobacco products often failed to pay state excise taxes making cigarettes and tobacco products cheaper than store bought substitutes. Online and mail order venders were also an easy source of cigarettes for underage smokers.

The PACT Act will encourage more smokers to quit and limit the access of kids and young people to cigarettes. With bi partisan sup
port in the House and Senate and key sponsorships from Rep. Anthony Weiner (D NY) and Sen. Herb Kohl (D WI), the new legislation will help curb access to tobacco in a number of important ways. It will

• Require all federal, state, and local taxes on tobacco products be paid and documented
• Ban the delivery of tobacco products through the U.S. Postal Service
• Require age verification upon both the purchasing and delivery of tobacco products
• Authorize greater penalties and provide better enforcement tools for state law enforcement

This is a dual strike at deceptive practices by Big Tobacco and another legislative victory for the American Lung Association and public health. The American Lung Association strongly supports this legislation and greatly appreciates the leadership of President Obama, Senator Kohl, Congressman Weiner and the entire Congress in its efforts to prevent the illegal sale of tobacco products.

Supreme Court Accepts Appeal of Online Cigarette Sales Case

June 27, 2007, News Summary

The U.S. Supreme Court has agreed to decide whether states have the power to regulate Internet tobacco sales in order to prevent delivery of cigarettes to minors, the Associated Press reported June 25.

The high court will review a 1st U.S. Circuit Court of Appeals ruling that federal interstate commerce statutes preempted the state of Maine’s attempt to require delivery companies to inspect every package containing tobacco slated for delivery in the state.

The Maine attorney general argued that the 2003 law falls under the state’s public health police powers, and told the Supreme Court that the appeals court ruling “leaves delivery sales of tobacco to children unregulated by any government, a result nowhere suggested by Congress or supported by common sense.”

Delivery companies and the Bush administration opposed the law.

Court to Hear Internet Cigarette Fight

2007 06 25, The Associated Press

Intro The Supreme Court on Monday agreed to consider reinstating Maine’s law aimed at regulating Internet sales of cigarettes to keep them out of the hands of minors.

Trade associations for delivery companies successfully argued in an appeals court that a federal statute supporting the free flow of interstate commerce pre empted the Maine law.

The Maine attorney general, who asked the Supeme Court to hear the case, argues that states should be allowed to exercise their historic public health police powers to stop delivery of tobacco to children.

The case is Rowe v. New Hampshire Motor Transport, 06 457.

See also…

Internet Law Forum

Tax Law Forum

Business and Finance Law

Can i still buy american-made cigarettes online? (tobacco, telephone, bill) – shopping and consumer products -stores, auctions, buying and selling, brands, malls, markets, internet… – city-data forum

Podomatic
02 28 2010, 07 33 PM nikky77 14 posts, read 43,457 times Reputation 17 Can I still buy American made cigarettes online?

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You used to be able to buy name brand, American made cigarettes online. Now it seems you can’t! Did some law go into effect that I don’t know about?

Anyone know where to buy American made cigarettes online? (specifically, Virginia Slims).

It seems a person can buy “Virginia Slims” that are made overseas, but I don’t trust that they would be the same.

thanks!
02 28 2010, 07 55 PM Ketabcha Location Texas 11,623 posts, read 6,438,798 times Reputation 49059 Yes, you can. Check out

I buy Virginia Slims from the site. I’ve never had a problem with them. 02 28 2010, 10 58 PM planthappy 232 posts, read 367,675 times Reputation 293 Be careful. States are going after people buying online and not paying taxes. I searched “state billed me for taxes for cigarettes I bought online”. More than a few horror stories about folks who got a tax bill from their state. 04 10 2010, 03 46 AM frankscott147 30 posts, read 93,338 times Reputation 14 Sure you can still buy the famous E cig from Home. You just give a try here. I bought E cigs from this company and was benefited in all means. They peovide separate health tips sessions too. 04 11 2010, 02 53 AM azoria Location rain city 2,622 posts, read 6,434,188 times Reputation 3541 Obama Signs PACT Act

POSTED April 1, 2010

President Obama Wednesday signed the Federal PACT (Prevention of All cigarette Trafficking) Act (S.1147), effectively putting an end to cigarette tax evasion via the Internet, telephone and other means of purchasing tobacco products other than face to face transactions.

The law, which takes effect in 90 days, makes tobacco products nonmailable matter, meaning that the U.S. Postal Service cannot be used to deliver them. For some years, common carriers such as UPS and FedEx have refused to handle tobacco products because of legal concerns.

Obama signs PACT Act News, Sports, Jobs, Community Information Dunkirk The Observer 04 11 2010, 11 06 AM Stratford, Ct. Resident 7,708 posts, read 8,203,758 times Reputation 4662 Quote Originally Posted by azoria Obama Signs PACT Act

The law, which takes effect in 90 days, makes tobacco products nonmailable matter, meaning that the U.S. Postal Service cannot be used to deliver them. For some years, common carriers such as UPS and FedEx have refused to handle tobacco products because of legal concerns.

Obama signs PACT Act News, Sports, Jobs, Community Information Dunkirk The Observer This article is not accurate.

Cigars are specifically exempted from the PACT Act. Also, a revision will likely be required to address pipe tobacco, which technically speaking, has not been referenced in the PACT Act. 04 11 2010, 11 57 AM Grandpa Pipes Location Planet Eaarth 8,961 posts, read 7,033,363 times Reputation 7193 Quote Originally Posted by Stratford, Ct. Resident This article is not accurate.

Cigars are specifically exempted from the PACT Act. Also, a revision will likely be required to address pipe tobacco, which technically speaking, has not been referenced in the PACT Act. As a pipe smoker I watch what’s going on in the way of bans/taxes for pipe tobacco.

There is a bill in committee now to tax pipe tobacco at the same rate as RYO since tobacco companies are doing an end run on the RYO tax by calling tobacco for RYO “pipe tobacco” in some cases.

The last known figure for pipe smokers was less that 2 million in the U.S. so we are unimportant in the grand scheme of things. 04 11 2010, 12 11 PM Stratford, Ct. Resident 7,708 posts, read 8,203,758 times Reputation 4662 Quote Originally Posted by Tightwad As a pipe smoker I watch what’s going on in the way of bans/taxes for pipe tobacco.

There is a bill in committee now to tax pipe tobacco at the same rate as RYO since tobacco companies are doing an end run on the RYO tax by calling tobacco for RYO “pipe tobacco” in some cases.

The last known figure for pipe smokers was less that 2 million in the U.S. so we are unimportant in the grand scheme of things. It’s buried in committee. There hasn’t been any movement on it in 3 months. I speculate that they introduced it in committee as a hedge of sorts. They know where they want to go, but they’re not sure which way to go right now. I think as long as Republican candidates don’t mention anything about the S Chip debacle, then we won’t see any tax changes until after the November elections. 04 13 2010, 04 32 PM GloryB Location Orlando, Florida 43,862 posts, read 24,196,059 times Reputation 58021 What is bad is that politicians don’t care about our just want a socially acceptable reason to tax anything they can. 12 27 2012, 05 47 PM gardener34 5,210 posts, read 10,736,836 times Reputation 3122 It is not a tax, it is “revenue”. Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

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