Mail and Internet orders of tobacco products put traditional tobacco retailers at a competitive disadvantage by not charging appropriate state excise taxes and not properly verifying the age of their customers.
With increases in some state tobacco excise taxes, there are some retailers who take advantage and offer cheaper cigarettes and tobacco products online. 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 to sell cheaper tobacco products to individuals in higher tax states in violation of federal law.
With the federal government and many states increasing excise taxes on tobacco products and with the increase in state budget deficits, remote sales of tobacco products is receiving greater attention.
Sales of cigarettes and other tobacco products account for nearly 40 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.
NACS supported 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.
On March 31, 2010 President Obama signed the PACT Act into law. However, in August 2010, the Seneca Indians filed a lawsuit claiming the PACT Act was unconstitutional. Judge Richard Arcara decided that the tribe must comply with the mail-order prohibition found in the Prevent All Cigarette Trafficking Act (PACT). However, the judge allowed Seneca-owned businesses to temporarily not pay taxes on cigarettes. The U.S. Department of Justice is appealing the finding that requiring Internet sellers to comply with all state/local laws is a violation of due process. There are similar challenges in U.S. District Courts in Pennsylvania and the District of Columbia. NACS has submitted amicus briefs in all of these actions urging that the entirety of the law take effect.