Mail and Internet orders of tobacco product put traditional tobacco retailers at a competitive disadvantage by not charging appropriate state excise taxes and not properly verifying the age of their customers.
Over the years, more consumers have turned to the Internet for their tobacco purchases. Many of these vendors claim sovereign immunity and do not charge their customers the excise tax imposed by the customers state. A simple Google search for “tax free cigarettes” returns hundreds of sites that illegally enable consumers to avoid paying state excise taxes. Additionally, retailers in low excise tax states have setup websites site to sell cheaper tobacco products to individuals in higher tax states in violation of federal law. As states seek to bolster their budgets by raising tobacco taxes, the flow of consumers to these Internet vendors has increased.
In addition, as brick and mortar tobacco retailers, like convenience stores, have increased their vigilance to ensure minors do not purchase tobacco products, these children have found Internet vendors, with weak or non-existent age verification procedures, a viable option for obtaining tobacco.
Sales of cigarettes and other tobacco products account for more than 36 percent of NACS member in-store (non-motor fuel) sales. NACS members collect and remit taxes on these products and follow laws on age verification to sell them responsibly. Unfortunately, many Internet sellers of tobacco products do not follow any of these laws, which puts NACS members who do collect and remit taxes at a severe competitive disadvantage. Tax evasion and failure to verify age are common in the context of Internet sales. The state and local revenue losses and the societal costs of the failure of Internet sellers to follow the law are very large and difficult to fully calculate.
The recent increase in the federal excise tax on tobacco products increases the attractiveness to consumers of avoiding state excise taxes by shopping online. Many expect online sales of tobacco products to increase, at the expense of convenience stores.
The unprecedented ability of young people to access goods and services via the Internet raises significant problems with respect to their obtaining and consuming age-restricted products such as tobacco and alcohol. Specifically, at the very time when states have undertaken extraordinary efforts to restrict minors' access to these products, and the federal government has passed legislation increasing the regulations affecting the sale of tobacco, their availability via the Internet offers a virtually risk-free and attractively priced means by which minors can easily obtain them.
NACS supports the Prevent All Cigarette Trafficking Act (PACT Act), which begins to address the long-standing convenience store industry concern of tax evasion via remote sellers of tobacco products. The PACT Act will help close the doorway to tax evasion that allows hundreds of Internet retailers to sell cigarettes ‘tax free’ and without appropriate age-verification checks.
The PACT Act (H.R. 1676 and S. 1147) contains the following provisions:
- Strengthens the Jenkins Act: The bill would make it a federal offense for any seller making a sale via telephone, the mail, or the Internet to fail to comply with all state tax laws. The legislation would empower states to enforce the federal law against out-of-state sellers sending deliveries into its state and gives state attorneys general the authority to seek injunctive relief and civil penalties against violators.
- Requires effective age verification: The legislation would require Internet and other remote sellers to verify the purchaser’s age and identity through easily accessible databases. It also would require the person accepting delivery to verify their age.
- Prohibits mail-order tobacco: Cigarettes and smokeless tobacco products would be non-mailable matter through the United States Postal Service (USPS). While FedEx, UPS and DHL have agreed not to ship cigarettes and other tobacco products, USPS has continued to deliver tobacco products bought over the Internet.
- Creates inspection authority: The bill would grant the Bureau of Alcohol, Tobacco, Firearms and Explosives inspection authority for distributors of cigarettes and creates a penalty for those who refuse inspection.
Contact your Senators and let them know that you support the All Cigarette Trafficking Act (PACT Act), which will help stop illegal Internet sales of cigarettes.
On May 21, 2009, the PACT Act passed the U.S. House of Representatives by a vote of 397 to 11.
On March 11, 2010, the Senate passed its version of the PACT Act, S. 1147, by unanimous consent.
While passing the PACT Act in the Senate is a major hurdle cleared, because of slight differences in the Senate and House bills, the House will need to take a final vote to accept the Senate version of the bill. It would then go to President Obama’s desk for his signature.