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    Internet Tobacco Sales Booming

    Cigarette taxes may be promoting sales in low-tax states.

    LOUISVILLE, Ky. -- Higher cigarette taxes in other states are leading smokers to buy their cigarettes over the Internet from companies based in Kentucky and other low-tax states, according to a report in The (Ky.) Courier-Journal.

    While the increased sales are bringing added tax revenues to Kentucky, the practice is costing other states and coming under increased scrutiny from the U.S. General Accounting Office, the investigative arm of Congress.

    At least 10 online retailers, out of about 150 nationwide, are operating in Kentucky and shipping cigarettes by the carton to anyone with a credit card. Kentucky's 3-cent-a-pack tax is levied, but the buyer avoids paying taxes at home, which can reach $1.50 a pack or higher, the report said.

    An April 2001 assessment from Forrester Research Inc., which the GAO cites in its report out this week, estimates that Internet tobacco sales in the United States will exceed $5 billion in 2005 and that high-tax states will lose about $1.4 billion in revenue.

    Under the Jenkins Act, cigarette dealers are required to report out-of state sales to the buyer's state tobacco tax administrator. Violating the Jenkins Act is a misdemeanor and is rarely, if ever, enforced. Selling cigarettes across state lines itself is not illegal, the report said.

    With names like dirtcheapcig.com and discount-tobacco.com, the enticement to saving money on a carton of cigarettes is clear. Cigarettesforless.com explains on its Web site, "We can offer lower prices because we are located in Kentucky which has one of the lowest cigarette tax rates in the nation."

    The lowest amount that can be legally charged for a carton of cigarettes in Massachusetts, for instance, is $54.90. But at cheapsmoke.com in Louisville, a carton of Marlboro cigarettes costs $28.99 and an order of three or more cartons comes with free shipping, the report said.

    "I've yet to see one Internet company out there that is collecting taxes and verifying age," said Mark Smith, spokesman for Louisville-based Brown & Williamson Tobacco Corp., told The Courier-Journal. "It's really irresponsible what's happening right now. This stuff is dangerous, and it's going to increase as the price of cigarettes gets so expensive."

    The GAO suggested in its report that the Bureau of Alcohol, Tobacco and Firearms take over enforcement of the law that requires an out-of-state buyer's tax authority to be notified. The GAO suggests that ATF should take over enforcement partly because of the FBI's heightened focus on terrorism.

    According to the report, neither the FBI nor the Justice Department could identify "any actions taken to enforce the Jenkins Act with respect to Internet cigarette sales," even though those agencies are responsible for its enforcement, the report said.

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