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FAIRFAX, Va. -- Despite recent agreements between major credit card companies, states attorney general and the Bureau of Alcohol, Tobacco and Firearms to stop online cigarette sales, a study conducted by the American Wholesale Marketers Association (AWMA) in Virginia revealed purchasing tobacco over the Internet is still easy.
Recently, members stated during an AWMA government affairs meeting that Internet sales of tobacco are of great concern to the industry. Online tobacco sales not only cause distributors and retailers to lose business, but also are responsible for an estimated $1.4 billion loss in state taxes. In addition, the sale of tobacco online makes it very easy for under-age smokers to get cigarettes.
"Nearly half the cigarettes consumed by New Yorkers are purchased from unlicensed, unregulated, untaxed sources," James Calvin, president of New York Association of Convenience Stores, told CSNews Online. "This tax evasion epidemic costs licensed retailers at least $2 billion a year in lost sales."
It is estimated that by the end of 2005, online cigarette sales will comprise 14 percent of total sales nationwide, or roughly $5 billion. The number of online retailers operating in the United States totals from 800 to 1,000, with prices per carton of cigarettes ranging from $12.40 for the premium American brands made in Russia, to $37 per carton for premium American brands made in the United States.
In response to the crisis, the AWMA conducted a study between June 20 and 29, 2005 to determine the severity of the problem and whether efforts on the local and state level to stop online sales were effective. An AWMA researcher, armed with a credit card, was able to buy cigarettes from 14 of the 30 Web sites chosen for the study. Fifty-three percent of the sites allowed the use of a major credit card despite agreements made between credit card companies to ban their cards from being used for online tobacco purchases.
Scott Raminger, president of AWMA, told CSNews Online that it’s very simple for online tobacco retailers to trick credit card companies. "With all the transactions coming through every day, it is very easy for these people to disguise their business from credit card companies with a generic business name," he said.
In addition, none of the cigarettes purchased had a U.S. state tax stamp, and taxes were never collected at the time of purchase -- a clear violation of the Jenkins Act, a law requiring all cigarette retailers in interstate commerce to report their sales to state tobacco tax administrators. The law was designed to ensure that state authorities could collect excise tax from people looking to avoid paying state taxes. However, when the law was enacted in 1949, there were no Internet, state and federal lawmakers working to address tax regulations in this modernized form of retail.
Virtually all online sales of cigarettes are illegal because it violates one or more state and federal laws, including statutes requiring sellers to verify the age of a buyer or regulate direct sales of cigarettes to consumers. Yet, penalties for buying cigarettes online are not strictly enforced.
"It is an extremely hard business to track, but those who do get caught are charged with tax evasion” Raminger said. “The attorney general did get a list of people buying cigarettes online and tried to make an example of them in hopes others will not follow suit."
"Currently, New York has a law prohibiting private carriers from delivering Internet tobacco orders directly to consumers, but the state is not aggressively enforcing it," Calvin told CSNews Online. "The U.S. Postal Service is hiding behind federal immunity from state laws and continues to irresponsibly deliver truckloads of Internet cigarettes to New York consumers without collecting applicable taxes or verifying age."
Raminger told CSNews Online the AWMA believes new federal legislation is a necessary measure to counter online tobacco sales. "The current agreements are not working," Raminger said. "What we need is for it to be illegal and for the U.S. Postal Service to deliver the tobacco products and strengthen the Jenkins Act on a state level."