Internet Sales Update

 

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.
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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.
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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.
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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.

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.
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Post Office Said to Abet Cigarette Sales to Kids
Web Sites Offering Tax-Free Cigarette Sales Off Indian Reservations, Allegedly to Minors, Called Illegal

June 18, 2006
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.
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