Internet Sales Update
The Constitution for the United States of America.
Article 1, Section 9, Clause 5:
Article 1, Section 9, Clause 5:
No Tax or Duty shall be laid on Articles exported from any State.
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Senate passes internet sales tax bill amid opposition from conservatives
Bill to overturn 1992 court decision has support of Obama, Amazon and Walmart – but its future in the House is uncertain
Bill to overturn 1992 court decision has support of Obama, Amazon and Walmart – but its future in the House is uncertain
May 6, 2013
By Dominic Rushe
By Dominic Rushe
The US Senate on Monday passed a bill aimed at ending tax-free shopping on the internet but the move looks set to face fierce opposition before it becomes law.
The Marketplace Fairness Act, which has cross-party supporter and the backing of powerful retailers, would give states the power to require retailers with sales over $1m to collect state and local sales taxes for online purchases.
The bill has the support of president Barack Obama the majority of senators including Republican John McCain but Marco Rubio, seen a potential Republican presidential hopeful, and Rand Paul both voted against the bill.
The bill passed the Senate by 70 votes to 24 but faces a second test in the House of Representatives where internet retailers and conservatives are already lobbying against the tax. House leaders have yet to schedule hearings or votes on their version of the measure.
The legislation would overturn a 1992 supreme court ruling that said a state could not force a retailer to collect sales tax unless the retailer had a physical presence in the state.
The bill has aligned unlikely parties. Amazon, the largest online retailer, has joined its bricks-and-mortar rivals including Walmart to support the act. Amazon was once a staunch critic of the tax but as it has built more distribution centers it has become liable for sales tax in more states and is now a backer.
The largest online opponent is eBay, which has campaigned against the bill and organised a mass protest by its sellers. Other opponents include numerous conservative and antitax groups including Americans for Tax Reform, FreedomWorks and Heritage Action.
Ahead of the vote the National Retail Federation called for Congress to “level the playing field” and tax online retailers. “The Marketplace Fairness Act is a commonsense piece of legislation necessary to modernize and streamline our federal and state understanding of sales tax laws so that they can keep current with real world change in the marketplace,” said NRF senior vice president David French.
“As the retail industry evolves and digital commerce becomes a more prominent portion of total retail sales, it is critical that the tax laws not discriminate between businesses based on how their products are distributed,” French said.
“This collection disparity has tilted the competitive landscape against local stores, creating a crisis for brick-and-mortar retailers around the country and in your state,” French said.
House Panel Approves Bill to Deter Illegal Sales and Smuggling of Tobacco
April 28, 2009
A House panel approved legislation Tuesday aimed at combating illegal Internet cigarette sales and the smuggling of tobacco.
The House Judiciary Committee by voice vote approved a bill that would require tobacco sellers to verify the age of buyers who purchase products online or over the phone, and would require sellers to keep delivery sales records.
The bill also would require sellers of cigarettes and smokeless tobacco to include notices about excise tax requirements and would bar shipments of cigarette or smokeless tobacco that weigh more than 10 pounds.
Sellers who violate the new rules could face up to three years in prison or civil penalties of up to 2 percent of their gross sales for the year before the violation.
As states have increased their tobacco taxes, smugglers have taken to selling tobacco products on the Internet to avoid paying local taxes, said Rep. Anthony Weiner , D-N.Y., the bill’s sponsor.
The illegal sales have affected state revenue, according to ranking Republican Lamar Smith of Texas. In California, state officials estimate that purchasers do not pay taxes on as much as 15 percent of all tobacco sold.
Before approving the measure, the panel adopted by voice vote a Howard Coble , R-N.C., amendment that would make an exception for tobacco mailings intended for consumer testing by manufacturers.
The panel also adopted by voice vote a Robert W. Goodlatte , R-Va., amendment that would express the sense of Congress that the measure does not set a precedent regarding states’ ability to collect sales tax on out-of-state entities.
HR 2824 IH
Internet Tobacco Sales Enforcement Act
IN THE HOUSE OF REPRESENTATIVES
July 23, 2003 introduced
January 28, 2004. The House Judiciary Committee amended and approved
Internet Tobacco Sales Enforcement Act
IN THE HOUSE OF REPRESENTATIVES
July 23, 2003 introduced
January 28, 2004. The House Judiciary Committee amended and approved
Philip Morris fights Web sales
Cigarette maker seeks inquiry into ‘gray-market’ goods
Mar 06, 2008
Philip Morris USA is asking a federal agency to investigate and take action against illegal imports of its cigarette brands.
The Henrico County-based company said it filed a complaint yesterday with the U.S. International Trade Commission to stop imports of “gray market” cigarettes. Those are cigarettes that are intended for sale in foreign markets but imported into the United States without the company’s consent.
The complaint names 13 Web sites — most based in foreign countries such as Russia — that the company says sold gray-market cigarettes to U.S. consumers. It also listed 177 other Web sites that the company believes have sold gray-market product.
“This is another in a series of steps that we are taking to really clamp down and address this issue of illegally imported cigarettes and contraband and counterfeit cigarettes in general,” said David Sutton, a Philip Morris USA spokesman. The company said it has filed 23 lawsuits since 2003 against sellers of gray-market cigarettes.
Sutton could not say how many of the company’s cigarettes have been illegally imported. “Because of the nature of the activity, it is very difficult to quantify accurately,” he said. But Sutton cited a 2003 federal report that estimated online cigarette sales would reach $5 billion by 2005 and cost states $1.4 billion in lost tax revenue.
Philip Morris USA wants the commission to issue a general exclusion order, which would require U.S. Customs and Border Protection to stop infringing imports from entering the country.
The complaint says that some of the Web sites “advertise their willingness” to sell gray-market cigarettes, which the company said differ from its cigarettes sold in the United States. For example, gray-market cigarettes might not contain health warnings that are required here.
PA: Looks to collect taxes from Internet tobacco buyers.
NY: Internet tax bills from the City.
NY: Call for Honoring Seneca Nation Treaties.
USA: Collins Legislation To Stop Tobacco Mail.
Stealth assault launched on selling tobacco by mail. By Bob Barr. Tacking an anti-freedom tobacco measure onto postal-reform legislation takes a well-intended reform measure and turns it into a stealth assault on the principle that individual consumers should be able to decide for themselves what is and isn’t healthy behavior.
Senator Kohl Introduces Bill to Combat Illegal Internet Cigarette Sales
8-10-06
Senator Kohl (D-WI) recently introduced a bill aimed at cracking down on the illegal sale of cigarettes over the Internet. The bill, entitled “Prevent All Cigarette Trafficking Act” (PACT), is similar to a measure introduced last Congress by Senator Hatch and bearing the same title. This legislation would strengthen the reporting requirements for interstate cigarette sellers and would increase criminal penalties for violations of reporting and state tobacco tax laws. In addition, the measure would give federal and state law enforcement officials more power to investigate and prosecute violators. And a new provision of the bill would prohibit the U.S. Postal Service from delivering tobacco products.
Speaking on behalf of his newly introduced measure, Senator Kohl said, “Illegal cigarette sales have become a cottage industry for groups trying to skirt state tax laws. Too often this diverts money that rightfully belongs in cash-strapped state budgets to the pockets of criminals and terrorist groups. We can’t let these insidious groups turn legitimate marketplaces, including the Internet, into a fundraising tool.”
The measure has been referred to the Senate Judiciary Committee for consideration and AWMA will keep members apprised of any new developments with respect to this issue.
8-10-06
Senator Kohl (D-WI) recently introduced a bill aimed at cracking down on the illegal sale of cigarettes over the Internet. The bill, entitled “Prevent All Cigarette Trafficking Act” (PACT), is similar to a measure introduced last Congress by Senator Hatch and bearing the same title. This legislation would strengthen the reporting requirements for interstate cigarette sellers and would increase criminal penalties for violations of reporting and state tobacco tax laws. In addition, the measure would give federal and state law enforcement officials more power to investigate and prosecute violators. And a new provision of the bill would prohibit the U.S. Postal Service from delivering tobacco products.
Speaking on behalf of his newly introduced measure, Senator Kohl said, “Illegal cigarette sales have become a cottage industry for groups trying to skirt state tax laws. Too often this diverts money that rightfully belongs in cash-strapped state budgets to the pockets of criminals and terrorist groups. We can’t let these insidious groups turn legitimate marketplaces, including the Internet, into a fundraising tool.”
The measure has been referred to the Senate Judiciary Committee for consideration and AWMA will keep members apprised of any new developments with respect to this issue.
Lorillard Tobacco Co. joins effort to stop Internet cigarette sales in Iowa
July 11, 2006
GREENSBORO, N.C. (AP) — Lorillard Tobacco Co. said Monday it reached agreements with Iowa and 30 other states to prevent illegal cigarette sales through the mail and Internet.
“The bottom line here is that kids will have less access to cigarettes,” said Iowa Attorney General Tom Miller. “And that’s very important because most smokers start when they are young.”
The negotiations with Lorillard were led by the New York attorney general’s office, which said it expects to reach agreements from other tobacco companies. There is no timetable for any other agreements, said Christine Pritchard, a spokeswoman with the New York attorney general’s office.
In addition to targeting minors, officials said Internet and mail-order sales can avoid sales taxes and that foreign sales can violate federal laws on labeling, contraband, money laundering and smuggling.
In addition to targeting minors, officials said Internet and mail-order sales can avoid sales taxes and that foreign sales can violate federal laws on labeling, contraband, money laundering and smuggling.
Lorillard said it will curtail direct shipments to customers determined to have engaged in illegal sales and suspend promotional programs for sellers who engaged in illegal sales.
“Lorillard always has supported compliance with laws dealing with the illegal sale of our products, and has instituted measures to punish those who are determined to be in violation of the law,” said Ronald S. Milstein, senior vice president, legal and external affairs for Lorillard.
“We believe that these measures will assist our active efforts to combat counterfeit product sales and will help us and our customers to comply with the laws and regulations intended to stop sales to and consumption of our products by youth.”
The agreement applies in the following states: Alabama, Arkansas, California, Connecticut, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, Northern Mariana Islands, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia and Wyoming.
MA:Online buyers face state tax bills.6/2/06
Post Office Said to Abet Cigarette Sales to Kids
Web Sites Offering Tax-Free Cigarette Sales Off Indian Reservations, Allegedly to Minors, Called Illegal
Web Sites Offering Tax-Free Cigarette Sales Off Indian Reservations, Allegedly to Minors, Called Illegal
June 18, 2006
DAN HARRIS and FELICIA BIBERICA
DAN HARRIS and FELICIA BIBERICA
New York Attorney General Eliot Spitzer says the U.S. Postal Service has become “the delivery arm of a massive criminal enterprise.”
Every day, Native American businesses ship millions of cigarettes from reservations across the country.
While Native Americans on the reservation are entitled to tax-free cigarettes, the Web sites that offer those tax-free cigarettes for sale off the reservation are, officials say, illegal.
The public health community says Web sites that illegally sell cheap smokes are a real concern — especially when it comes to young smokers.
“The monetary incentive, from the state’s perspective, is not what drives us,” Spitzer says. “What drives us is the concern that kids will gain access to cigarettes online.”
Studies confirm that children can easily buy cheap cigarettes online.
“I got Virginia Slims Light cigarettes, and I’m 14,” said one teen who was working for law enforcement.
Spitzer, now running for governor of New York as a Democrat, is on a mission to shut down the sites. He’s convinced private delivery services like FedEx, DHL and UPS to stop shipping cigarettes to individual consumers. But he can’t convince the U.S. Postal Service.
“Somebody at the Postal Service,” says Spitzer, “should be smart enough to say, ‘Stop this. We don’t need the money. It is illegal to deliver these goods. We shouldn’t do it.’ “
But Tom Boyle of the U.S. Postal Inspection Service says, “That’s unfair to the Postal Service.
“We are not a private carrier,” Boyle adds. “We are a government entity. … By law, we cannot just open packages. We have to get a federal search warrant.”
Spitzer counters, “We’re not saying to them they should be opening packages randomly. We’re saying when there is a company whose sole line of business is to ship cigarettes, then you can say to the company, ‘We don’t think you should be delivering your product because we believe it may be contraband.’ “
But deciding what’s contraband or not, says the post office, is not their job.
“We’re doing as much as we possibly can,” Boyle says.
In the meantime, the two sides can’t agree on how to solve what they both say is a problem. And so a branch of the federal government continues to deliver throughout the country what Spitzer says are millions of illegal cigarettes.
3/7/06
Amendments to Contraband Cigarette Trafficking Act
MEMORANDUM
March 7, 2006
TO: Anne Holloway
FROM: John W. Thomas
RE: Amendments to Contraband Cigarette Trafficking Act
On March 7, 2006, the House is expected to give final congressional approval to legislation to extend the USA Patriot Act (H.R. 3199). Included in that bill is a provision that amends and strengthens the Contraband Cigarette Trafficking Act. The amendment expands the
definition of “contraband cigarettes,” making additional transactions illegal, but it also expands the authority of the U.S. Justice Department to require tobacco manufacturers and distributors to maintain records of transactions.
The primary purpose of the Contraband Cigarette Trafficking Act is to make it a federal crime to move untaxed cigarettes in interstate commerce. The original law establishes the 60,000-cigarette transaction as the threshold for federal criminal jurisdiction, and the new legislation lowers that threshold to 10,000 cigarettes. The new legislation also makes it a federal crime to distribute more than 500 packages of untaxed smokeless tobacco.
The major changes in this amendment are:
1. Currently, a sale of more than 60,000 cigarettes in a single transaction is an event
which the seller (manufacturer or distributor) must keep a record of. The new legislation lowers the threshold for recordkeeping to a transaction involving more than 10,000 cigarettes. Sellers
will have to keep records of more transactions, but there is no requirement to report these transactions to a government agency.
2. The current law applies only to cigarettes. This new legislation adds smokeless tobacco and sets the threshold for recordkeeping at a single transaction involving more than 500
“single-unit consumer-sized cans or packages.”
3. The third major amendment in the legislation is to establish a new recordkeeping and reporting requirement for out-of-state sales of cigarettes and smokeless tobacco. Any person is
subject to the law if he sells more than 10,000 cigarettes or 500 smokeless tobacco cans/packages per month, and some of those sales involve shipping products ordered by phone, fax, Internet, or
mail and delivering the tobacco products to a buyer in another state.
a. The new legislation calls these out-of-state transactions “delivery sales,” and these transactions must be reported to the U.S. Justice Department, the IRS, and the state attorney general and tax officials in the states where the transactions were initiated and ended.
b. The contents of the transaction reports include the monthly beginning and ending inventory of the seller; quantity, name, and address of each supplier of cigarettes and smokeless tobacco; and quantity, name, and address of each non-retail customer.
4. The new legislation grants the Justice Department the authority to add new recordkeeping requirements to the records of 10,000-cigarette transactions. There is no indication in the legislative history of what added information the department wants.
5. The basic criminal-law changes will take effect when President Bush signs the legislation.
6. The record keeping and reporting requirements will require implementing regulations to be issued by the Justice Department. Initially, proposed regulations will be published for public comment and recommendations.
7. The new legislation allows companies holding Federal tobacco import or manufacturing permits to bring private law suits to enjoin violations of this statute by private entities. Indian tribes are immune from such suits, however.
Amendments to Contraband Cigarette Trafficking Act
MEMORANDUM
March 7, 2006
TO: Anne Holloway
FROM: John W. Thomas
RE: Amendments to Contraband Cigarette Trafficking Act
On March 7, 2006, the House is expected to give final congressional approval to legislation to extend the USA Patriot Act (H.R. 3199). Included in that bill is a provision that amends and strengthens the Contraband Cigarette Trafficking Act. The amendment expands the
definition of “contraband cigarettes,” making additional transactions illegal, but it also expands the authority of the U.S. Justice Department to require tobacco manufacturers and distributors to maintain records of transactions.
The primary purpose of the Contraband Cigarette Trafficking Act is to make it a federal crime to move untaxed cigarettes in interstate commerce. The original law establishes the 60,000-cigarette transaction as the threshold for federal criminal jurisdiction, and the new legislation lowers that threshold to 10,000 cigarettes. The new legislation also makes it a federal crime to distribute more than 500 packages of untaxed smokeless tobacco.
The major changes in this amendment are:
1. Currently, a sale of more than 60,000 cigarettes in a single transaction is an event
which the seller (manufacturer or distributor) must keep a record of. The new legislation lowers the threshold for recordkeeping to a transaction involving more than 10,000 cigarettes. Sellers
will have to keep records of more transactions, but there is no requirement to report these transactions to a government agency.
2. The current law applies only to cigarettes. This new legislation adds smokeless tobacco and sets the threshold for recordkeeping at a single transaction involving more than 500
“single-unit consumer-sized cans or packages.”
3. The third major amendment in the legislation is to establish a new recordkeeping and reporting requirement for out-of-state sales of cigarettes and smokeless tobacco. Any person is
subject to the law if he sells more than 10,000 cigarettes or 500 smokeless tobacco cans/packages per month, and some of those sales involve shipping products ordered by phone, fax, Internet, or
mail and delivering the tobacco products to a buyer in another state.
a. The new legislation calls these out-of-state transactions “delivery sales,” and these transactions must be reported to the U.S. Justice Department, the IRS, and the state attorney general and tax officials in the states where the transactions were initiated and ended.
b. The contents of the transaction reports include the monthly beginning and ending inventory of the seller; quantity, name, and address of each supplier of cigarettes and smokeless tobacco; and quantity, name, and address of each non-retail customer.
4. The new legislation grants the Justice Department the authority to add new recordkeeping requirements to the records of 10,000-cigarette transactions. There is no indication in the legislative history of what added information the department wants.
5. The basic criminal-law changes will take effect when President Bush signs the legislation.
6. The record keeping and reporting requirements will require implementing regulations to be issued by the Justice Department. Initially, proposed regulations will be published for public comment and recommendations.
7. The new legislation allows companies holding Federal tobacco import or manufacturing permits to bring private law suits to enjoin violations of this statute by private entities. Indian tribes are immune from such suits, however.
***************
There were two companion bills in Congress called the Prevent All Cigarette Trafficking (PACT) Act by the sponsors that crafted and introduced it.
Senate Bill S1177 was passed by the Senate on December 9, 2003, with an amendment to the official title of the bill. It would now be called “A bill to prevent tobacco smuggling, to ensure the collection of all tobacco taxes, and for other purposes.” (PACT Act was now just the short title).
But the House Bill, HR2824, was last acted on by its Judiciary Committee on January 28, 2004, when they amended and approved the Internet Tobacco Sales Enforcement Act. To date, there is no indication that the full House ever voted on it. Techlawjournal does a nice job of providing a brief history of the House’s progress and reasons for the Act.
The PACT Act was intended to strengthen both the Jenkins Act and the Contraband Cigarette Trafficking Act.
A 1999 Memo put out by the ATF does a good job of offering a brief and concise description of each Act as a reminder to their agents. It’s called Unlawful Transportation, Shipment, or Sale of Cigarettes and Domestic Sale of Cigarettes Labeled for Export.
NY: Cigarette Supply to Senecas Halted.
USA: USPS on Tobacco Shipments.
USA: eSmokes Inc., turns over internet sales records.
OR: State bills smokers for untaxed cigarettes.
USA: UPS Agrees to End Cigarette Deliveries To Individuals.
MA: Online cigarette vendor settles.
MN: Response for cigarette tax bill.
MI: State tracks down smokers skirting cigarette tax.
WI: Agency told to stop seeking back taxes on online cigarette sales.
AK: Online cigarette buyers must pay up, state says.
GA: UPS reviews cigarette shipments.
WI: Internet Sales Records.
NY: DHL won’t ship Internet cigarettes.
USA: USPS on Tobacco Shipments.
USA: eSmokes Inc., turns over internet sales records.
OR: State bills smokers for untaxed cigarettes.
USA: UPS Agrees to End Cigarette Deliveries To Individuals.
MA: Online cigarette vendor settles.
MN: Response for cigarette tax bill.
MI: State tracks down smokers skirting cigarette tax.
WI: Agency told to stop seeking back taxes on online cigarette sales.
AK: Online cigarette buyers must pay up, state says.
GA: UPS reviews cigarette shipments.
WI: Internet Sales Records.
NY: DHL won’t ship Internet cigarettes.
Department of Law
120 Broadway
New York, NY 10271
For More Information:
518-473-5525
For Immediate Release
February 7, 2006
120 Broadway
New York, NY 10271
For More Information:
518-473-5525
For Immediate Release
February 7, 2006
FEDEX TO STRENGTHEN POLICIES RESTRICTING CIGARETTE SHIPMENTS
All Major Package Delivery Companies Have Now Joined Effort To Reduce Youth Smoking
Attorney General Eliot Spitzer today announced that FedEx Express and FedEx Ground (FedEx) have agreed to undertake changes to their business practices that will strengthen their policies prohibiting the delivery of cigarettes to consumers throughout the United States.
“I commend FedEx for joining in this important effort,” said Spitzer. “This is another example of private industry joining with law enforcement to address important social problems. When private companies like FedEx take the initiative to protect their services from being used by those engaged in criminal conduct, we all win.”
“I commend FedEx for joining in this important effort,” said Spitzer. “This is another example of private industry joining with law enforcement to address important social problems. When private companies like FedEx take the initiative to protect their services from being used by those engaged in criminal conduct, we all win.”
FedEx’s current policy already prohibits tobacco sellers from using its services to ship tobacco products to consumers in the United States. Under the agreement, FedEx will undertake specific disciplinary action against companies that violate its tobacco shipping policy, including terminating services for shippers who repeatedly violate the policy. FedEx will also work with the Attorney General’s Office to root out shippers that traffic in illegal cigarette sales. Today’s agreement covers Federal Express Corporation, FedEx Ground Shipment Systems, Inc., and their affiliated companies.
The FedEx agreement is part of a continuing effort to end the sale and shipment of contraband cigarettes over the Internet and through the mails. Internet and mail order cigarette retailers operate in violation of numerous federal, state and local laws, including tax laws, age verification laws, delivery restrictions, reporting requirements, and federal wire fraud and mail fraud statutes. As a result, a coalition of federal, state and local law enforcement agencies has been working on several initiatives to stop these illegal sales, including federal and state criminal indictments of cigarette sellers, seizures of contraband cigarettes, and efforts to strengthen cigarette trafficking prohibitions.
In 2005, both DHL and UPS agreed to cease delivery of cigarettes to consumers throughout the United States. In addition, in March 2005, the major credit card companies all agreed to take steps to ensure that their credit card systems are not used to process payments that further illegal cigarette sales. Finally, last month, Philip Morris USA (PM USA) reached an agreement with a coalition of 37 Attorneys General to reduce the supply of PM USA cigarettes to those engaged in such illegal sales.
Today’s agreement means that the three major package delivery companies – FedEx, UPS and DHL – have all agreed to prohibit deliveries of cigarettes to individual consumers nationwide. Unfortunately, the cigarette traffickers continue to use the United States Postal Service as courier for their illegal sales.
“Congress needs to act to close the Postal Service loophole as soon as possible,” said Attorney General Spitzer. “The Postal Service effectively has become the delivery arm of a massive criminal enterprise shipping contraband cigarettes nationwide. I have nothing but praise for the efforts to the U.S. Postal Inspection Service, which is working with us to stop these traffickers, but they have a nearly impossible task. Congress needs to address this problem now.”
Discussions with FedEx were handled by Assistant Attorney General Vincent Esposito, Jr. under the supervision of Health Care Bureau Chief Joseph Baker and Deputy Bureau Chief Sandra Jefferson Grannum.
A copy of the FedEx agreement is available on the New York Attorney General’s website: FedEx – Executed Assurance of Compliance
FedEx Clamps Down on Cigarette Delivery
02/07/2006
FedEx Express and FedEx Ground (FedEx) have agreed to undertake changes to their business practices that will strengthen their policies prohibiting the delivery of cigarettes to consumers throughout the United States, New York Attorney General Eliot Spitzer announced.
“I commend FedEx for joining in this important effort,” said Spitzer. “This is another example of private industry joining with law enforcement to address important social problems. When private companies like FedEx take the initiative to protect their services from being used by those engaged in criminal conduct, we all win.”
FedEx’s current policy already prohibits tobacco sellers from using its services to ship tobacco products to consumers in the United States.
Under the agreement, FedEx will undertake specific disciplinary action against companies that violate its tobacco shipping policy, including terminating services for shippers who repeatedly violate the policy. FedEx will also work with the Attorney General’s Office to root out shippers that traffic in illegal cigarette sales.
Today’s agreement covers Federal Express Corporation, FedEx Ground Shipment Systems, Inc., and their affiliated companies.
The FedEx agreement is part of a continuing effort to end the sale and shipment of contraband cigarettes over the Internet and through the mails. Internet and mail order cigarette retailers operate in violation of numerous federal, state and local laws, including tax laws, age verification laws, delivery restrictions, reporting requirements, and federal wire fraud and mail fraud statutes.
A coalition of federal, state and local law enforcement agencies has been working on several initiatives to stop these illegal sales, including federal and state criminal indictments of cigarette sellers, seizures of contraband cigarettes, and efforts to strengthen cigarette trafficking prohibitions.
In 2005, both DHL and UPS agreed to cease delivery of cigarettes to consumers throughout the United States. In addition, in March 2005, the major credit card companies all agreed to take steps to ensure that their credit card systems are not used to process payments that further illegal cigarette sales.
Finally, last month, Philip Morris USA (PM USA) reached an agreement with a coalition of 37 Attorneys General to reduce the supply of PM USA cigarettes to those engaged in such illegal sales.
Today’s agreement means that the three major package delivery companies – FedEx, UPS and DHL – have all agreed to prohibit deliveries of cigarettes to individual consumers nationwide. However, the cigarette traffickers continue to use the United States Postal Service as courier for their illegal sales.
“Congress needs to act to close the Postal Service loophole as soon as possible,” said Attorney General Spitzer.
“The Postal Service effectively has become the delivery arm of a massive criminal enterprise shipping contraband cigarettes nationwide. I have nothing but praise for the efforts to the U.S. Postal Inspection Service, which is working with us to stop these traffickers, but they have a nearly impossible task. Congress needs to address this problem.
TOBACCO ROAD
June 11, 2005
“Leading postal reform booster Rep. John McHugh, R-NY, introduced legislation yesterday that would ban the delivery of cigarettes, smokeless tobacco and other tobacco products by the U.S. Postal Service,” reported DM News on Thursday. “Cigarette delivery by mail lets tobacco buyers skirt state tobacco taxes and makes tobacco products available to minors, McHugh said.”
This idea kinda puts limited-government types between a rock and a hard place.
First, this notion that the purpose of the bill is to stop kids from using mom-and-dad’s credit card to order cigarettes over the Internet is a red herring. This “for the children” crud is the kind of stuff liberals have become known for in order to pass bad “feel good” legislation. It’s disappointing to see Republicans stoop to this silly level.
No, the real motive behind this measure is…the money. McHugh claims the states are missing out on $1.4 billion in sales tax revenue when people buy cigarettes via the Internet.
Well…duh. Consumers order everything from books to electronics to skimpy women’s under-britches in order to skirt the high cost of state sales taxes. And considering how so many states, especially McHugh’s state of New York, have raised tobacco taxes through the roof – often as high as two and three bucks a pack – is it any wonder smokers are seeking relief through the Internet? The proper solution here isn’t to shut down the Internet, but to cut the outrageously high tax on tobacco products.
On the other hand, there are a number of states which ban the delivery of cigarettes via private companies, such as FedEx. But since the post office is a federal government operation, the states can’t tell it what it can and cannot do. Only Congress can do that. So McHugh’s bill would level the playing field by extending the delivery ban currently on private carriers to the postal monopoly.
That being said, McHugh’s bill is, nevertheless, the wrong solution. Rather than banning the post office from delivering legal products to American consumers, it ought to ban the states from banning such deliveries by FedEx and other private carriers. This, unlike the Supreme Court’s anti-state’s rights ruling on medical marijuana last week, really and truly DOES fall under the “commerce” clause of the Constitution.
McHugh’s bill is the wrong solution to the wrong problem at the wrong time. Cut taxes and open the market. That’s the direction Congress SHOULD follow. It won’t, of course. But it should.
Congressman Moves to Block Cigarette Mailings
6/10/2005
The House of Representatives is considering a bill that would bar the U.S. Postal Service from delivering cigarettes by mail, the New York Times reported June 9.
The Postal Service has been criticized for refusing to ban shipments of cheap cigarettes sold over the Internet to residents of states with high cigarette taxes. A measure introduced by Rep. John M. McHugh (R-N.Y.) would declare cigarettes an “unmailable” item. McHugh serves as chair of the House’s Special Panel on Postal Reform and Oversight.
“Unfortunately, this is an area that is ripe for abuse in terms of tobacco sales to minors,” said McHugh. “The data shows that of the some 400 sites that are engaged in tobacco sales over the Internet, there are virtually no meaningful age enforcements.”
States like New York ban direct shipment of cigarettes and the delivery of cigarettes by private carriers like Federal Express. Credit-card companies have agreed not to process payments from Internet cigarette sellers. But the states have no power over the Postal Service, a federal agency.
“We appreciate the concerns that the McHugh bill seeks to address,” said Postal Service spokesperson Gerald McKiernan. “However, we see real practical problems with its implementation were it to become law, since the sanctity of the mails provision remains in place.”
McHugh, however, said the measure simply adds cigarettes to an existing list of items banned by the post office. “There are other products that they don’t currently allow onto the mail stream, and they have protocols to address that,” he said.
McHugh proposes bill to ban shipping cigarettes by U.S. mail
Sunday, June 05, 2005
PETER LYMAN
WASHINGTON NOTEBOOK
PETER LYMAN
WASHINGTON NOTEBOOK
Cigarettes have disappeared from easy-access racks at supermarket check-out lines. Cigarette vending machines have gone the way of rotary telephones and 45-rpm records.
The changes are aimed at keeping tobacco products out of the hands of children, and Rep. John McHugh, R-Pierrepont Manor, wants to take another step toward that end.
McHugh plans to introduce a bill in the House this week to ban the delivery of tobacco products by the U.S. mail. He chairs the postal reform task force of the House Government Reform Committee.
New York already prohibits the shipment of tobacco products by private carriers, McHugh said, but states do not have authority over U.S. Postal Service policy.
“The simple truth is that a loophole exists, and it must be closed,” McHugh said. “Since the Postal Service hasn’t acted . . . Congress is going to have to handle it legislatively.”
Besides making tobacco available to children, mail delivery also allows distributors to evade taxes some $400 million a year in New York alone, McHugh said.
McHugh cited a recent experiment by Reality Check, an anti-tobacco youth program, in which a group of Madison County teen-agers tried to purchase cigarettes online. More than half their attempts resulted in deliveries, most of those by the Postal Service, McHugh said.
There are more than 400 Internet sites that sell tobacco, compared to only a handful in the late 1990s, according to the Campaign for Tobacco Free Kids. Internet sales account for 14 percent of all cigarette sales in the United States, the organization reports.
McHugh is the chief sponsor of a bill that would fundamentally change the structure and policies of the Postal Service for the first time in more than 30 years. The measure passed the House Government Reform Committee in April, and the full House is expected to act on it in early summer.
Court strikes down portions of Maine anti-tobacco law. U.S. District Judge D. Brock Hornby said that while Maine’s statute is laudable and well-intentioned, it runs afoul of federal interstate commerce laws by impeding delivery services.
NY: Post Office Delivers. Sidesteps Fray on Illicit Sales of Cigs.
IN: State bills for online cigarettes.
TN: No smokes for minors via Internet. The bill would require a label on a delivery package.
Cigarette Web Sites on Last Gasp
By Bob Tedeschi
The New York Times
04/09/05 5:00 AM PT
The New York Times
04/09/05 5:00 AM PT
Now, most merchants are reduced to accepting electronic or paper checks, and fewer customers may be willing to wait for those checks to clear before their orders are shipped. Meanwhile, some online merchants say they have been wrongfully singled out by authorities.
Not since the dot-com bust have so many sites gone south so quickly.
Two weeks after credit card companies announced they would no longer accept payment for tobacco products bought online, scores of Internet cigarette merchants have effectively lost the means to do business profitably and either are limping along or have shut down altogether.
Visa International, MasterCard International, American Express, eBay’s PayPal service and others cut off the online tobacconists last month after being told by a coalition of U.S. states and representatives of the U.S. Bureau of Alcohol, Tobacco and Firearms that virtually all such sales were illegal.
Alternate Payment Methods
Government officials said that merchants had not done enough to comply with age verification practices or to register sales with governments to ensure the collection of state taxes.
Government officials said that merchants had not done enough to comply with age verification practices or to register sales with governments to ensure the collection of state taxes.
Now, most merchants are reduced to accepting electronic or paper checks, and fewer customers may be willing to wait for those checks to clear before their orders are shipped. Meanwhile, some online merchants say they have been wrongfully singled out by authorities.
Maxine Jimerson, owner of Ron’s Smoke Shop in Allegany, N.Y., recently shut down the online part of her business and laid off 120 of her 160 employees. As a member of the Seneca Nation Indian tribe, she is entitled to sell cigarettes free of state tax.
“Most everybody else around here is going out of business, too,” said Jimerson, who will keep her retail shop open but has sold her Web address to another merchant who operates on Seneca territory. “We’re talking about probably 30 businesses, and between 1,500 and 2,000 employees being laid off.”
Jimerson said that her company had gone to great lengths to verify customers’ ages, contracting with a special vendor and requiring buyers to send in a copy of a government-issued picture ID, with age and signature, before a purchase could be made. Customer signatures at the time of delivery had to match the signatures on file.
Jenkins Act
But federal and state authorities said that online cigarette merchants did not do enough to ensure the collection of taxes. In particular, they did not comply with the Jenkins Act, a federal law that requires sellers to register purchases in states where customers live.
But federal and state authorities said that online cigarette merchants did not do enough to ensure the collection of taxes. In particular, they did not comply with the Jenkins Act, a federal law that requires sellers to register purchases in states where customers live.
Like many other online sellers operating on Indian territory, Ron’s Smoke Shop did not comply with such strictures because it argued that the law did not apply to it.
If there were online companies that complied with all state and federal regulations, “it’s news to us,” said Marc Violette, a spokesman for the office of Eliot Spitzer, the attorney general of New York State, where all online cigarette sales are considered illegal.
“It’s good public relations to say you’re bending over backwards to comply with the law, but the fact is, they’re engaged in an illegal industry, and on their face, these transactions are illegal,” Violette said.
State officials for years tried unsuccessfully to collect cigarette taxes from online merchants, and they had redoubled such efforts as budget deficits grew in recent years. By using the credit card companies as leverage, though, they appear to have made progress in the fight.
The credit card company embargo “will significantly curtail cigarette sales over the Internet, to the advantage of the major cigarette manufacturers as well as state governments,” Robert Campagnino, an analyst with Prudential (NYSE: PFA) Equity Group, wrote in a report late last month.
High Cigarette Taxes
Campagnino estimated in his report that in 2004, US$1 billion of cigarettes were sold online, or about 3.1 percent of the industry’s total volume. Many of those sales were made to customers in states with particularly high cigarette taxes like New York, where offline merchants must charge $15 or more in taxes for each carton. New York bars direct shipment of tobacco products to its residents, but many online merchants have ignored that law.
Campagnino estimated in his report that in 2004, US$1 billion of cigarettes were sold online, or about 3.1 percent of the industry’s total volume. Many of those sales were made to customers in states with particularly high cigarette taxes like New York, where offline merchants must charge $15 or more in taxes for each carton. New York bars direct shipment of tobacco products to its residents, but many online merchants have ignored that law.
In theory, at least, law-abiding online tobacco sellers could avoid the credit card embargo. Joshua Peirez, a senior vice president at MasterCard, said banks that issued his company’s brand of credit cards could provide MasterCard with documentation if they believed that one of their merchant customers was selling tobacco online legally.
“But if there’s any doubt, banks have the obligation not to contract,” said Peirez, who estimated that his company has so far cut off about 100 of the biggest online tobacco sellers.
Some online cigarette sellers, who spoke on condition of anonymity, said they were exploring ways to create their own credit cards, perhaps in association with other online tobacco sellers. They would then battle government regulators in court to determine the legality of their practices.
Foreign Credit Cards
Still other online sellers are engaged in more creative practices. Richard Johnson Jr., who until late last year sold foreign-made duty-free cigarettes through http://www.internet-distributors.com/, said he was reviving that site so he could sell domestic cigarettes to U.S. consumers. Johnson said he planned to establish credit card accounts with foreign banks, which he said were not bound by U.S. laws.
Still other online sellers are engaged in more creative practices. Richard Johnson Jr., who until late last year sold foreign-made duty-free cigarettes through http://www.internet-distributors.com/, said he was reviving that site so he could sell domestic cigarettes to U.S. consumers. Johnson said he planned to establish credit card accounts with foreign banks, which he said were not bound by U.S. laws.
Because some Internet cigarette sellers continue to accept credit cards, this practice is possibly already being adopted. Peirez of MasterCard said the company’s policy applied to any bank whose merchants sell to United States customers. “So, no, we wouldn’t allow them to process those transactions,” he said.
http://www.ecommercetimes.com/story/42090.html
http://www.ecommercetimes.com/story/42090.html
Cigarettes delivered right to the doors of teenagers
May 3, 2005 Arkansas
http://www.klrt.com/news/local/story.aspx?content_id=572006AA-46B5-48F3-A202-A8CD231B3B5D
May 3, 2005 Arkansas
http://www.klrt.com/news/local/story.aspx?content_id=572006AA-46B5-48F3-A202-A8CD231B3B5D
