U.S. States Look to Collect Taxes from Internet Tobacco Sales August 30, 2000
News Summary
Several U.S. states are looking into using obscure laws in order to collect excise and use taxes from people buying cigarettes over the Internet, the Washington Post reported Aug. 29.In the past year, hundreds of sites selling cigarettes have appeared on the Internet, offering cigarettes at prices about 30 percent lower than in the local supermarket or convenience store. It is estimated that online sales could now amount to 20 percent of the $50 billion U.S. tobacco business.
For that reason, some U.S. states want to make sure they receive their share of taxes from those sales. California and Washington are planning on using a little-known law to require cigarette sites to provide the names and addresses of customers so they can collect excise and use taxes. In Wisconsin, the state is setting up sting operations against online retailers, while in New York, a new law prohibits Internet sales of cigarettes to individuals.
"This is definitely not typical for e-commerce," said Jeff Graham, an entrepreneur who is launching Smokestore.com in October. "But if states and the federal government are making it difficult for smokers off-line, which they are, it shouldn't be surprising that they're also making it tough online."
Typically, the Internet has been a tax-free zone and a place largely self-regulated. But the force behind the movement to tax online cigarette sales comes from retail outlets, who claim they are at a disadvantage against their online competitors.
For example, when California increased its excise tax from 37 cents to 87 cents per pack on Jan. 1, 1999, sales of cigarettes over the next three months fell 34.7 percent from the previous year. Retail outlets and authorities blamed the decline on purchases made through unregulated vendors, such as buying cigarettes from bootleggers or over the Internet.
"There are no statutes that regulate what we're doing," said Gary Kirschner, founder of Cigarettesbymail.com. "California is using a law that in our opinion doesn't even apply to what's going on today."
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