Selling cigarettes online – world law direct

Selling cigarettes online – world law direct

March 31st, 2015

By WORLDLawDirect February 1st, 2011

Taxes Key Points

Customers are required to pay state cigarette taxes on all cigarettes purchased from Internet cigarette retailers.
Federal law requires all Internet cigarette retailers to report names of their customers to local state tax officials in almost all cases.

State Laws for Internet Cigarette Retailers

In the relatively brief period of time since the emergence of Internet cigarette retailers, states have responded with a broad array of regulatory and law enforcement approaches. The approaches range from prosecution of Internet cigarette retailers for violations of existing minimum age sales laws to a ban on all direct to consumer deliveries of cigarettes.

The law is clear that whenever an Internet cigarette retailer sells cigarettes to a customer, tobacco taxes are owed to the state where the customer is located. When customers purchase cigarettes from a grocery store or other brick and mortar retailer, they are technically liable for paying the state excise tax (“tobacco tax”) on that purchase. The tax liability may not be readily apparent to customers because states typically require the cigarette wholesaler or some other intermediary to collect and remit the tobacco tax for each package of cigarettes before the package ever reaches the retail store display. The stamp on each package of cigarettes is proof that the state tobacco tax was collected and remitted to the state.

Because interstate tax law complicates the application of this collection and remittance requirement to Internet cigarette retailers, states may opt to collect directly from Internet cigarette retailer customers. A federal law passed in 1949, which is referred to as the Jenkins Act, simplifies the procedure for locating Internet cigarette retailer customers. The Jenkins Act requires any person or business that ships cigarettes to a state imposing a tobacco tax to disclose to local tax enforcement officials the name and address of the shipper and the person to whom the cigarettes are shipped. The disclosure also must include the brand names and quantities sent to each address. States may use this information to collect the tax directly from the customer.

Several states have successfully used the Jenkins Act.

Washington state, for example, sued an Internet cigarette retailer under the Jenkins Act, ultimately forcing the Internet cigarette retailer to turn over all its relevant customer information to the state. The court found that states have an implied right to sue under the Jenkins Act because the Act was passed explicitly to benefit states and state enforcement is consistent with its goal.

While the Jenkins Act enforcement provides a tax enforcement option for any state, some states have adopted new laws to increase tobacco tax compliance as well as simplify collection. For example, in addition to complying with the Jenkins Act reporting requirements, Internet cigarette retailers selling in California must also collect all applicable tobacco taxes and remit them to the state. If the Internet cigarette retailer opts not to collect and remit such taxes, then the Internet cigarette retailer must clearly disclose to each customer the following

If these cigarettes have been shipped to you from a seller located outside of the state in which you reside, the seller has reported pursuant to federal law the sale of these cigarettes to your state tax collection agency, including your name and address. You are legally responsible for all applicable unpaid state taxes on these cigarettes.

This notification is important because the offer of tax free cigarettes is a primary promotional technique for Internet cigarette retailers.

Californians who think they can evade state tobacco taxes by purchasing from an Internet cigarette retailer, will be disabused of this notion shortly after their first purchase.

Youth Access Laws for Internet Cigarette

Retailers

When tested in compliance checks, Internet cigarette retailers frequently sell to children. Many states have reacted by passing youth access laws tailored specifically for Internet cigarette retailers. Rhode Island became the first such state in 2000. Before shipping a tobacco product into Rhode Island, Internet cigarette retailers must obtain a copy of the customer’s government identification showing that he or she is at least 18 years of age, along with a written attestation as to the authenticity and accuracy of the photocopy. Internet cigarette retailers selling to Rhode Island customers must also limit delivery to the address listed on the identification and use a delivery service that requires the signature of the addressee or another adult.

Since Rhode Island passed its law in 2000, numerous states have adopted similar laws with additional requirements. For example, California mandates that Internet cigarette retailers check back with customers, in part to confirm that the potential customer is an adult.

The California requirement states

The distributor or seller shall submit to each credit card acquiring company with which it has credit card sales identification information in an appropriate form and format so that the words “tobacco products” may be printed in the purchaser’s credit card statement when a purchase of tobacco product is made by credit card payment.

The distributor or seller shall make a telephone call after 5 p.m. to the purchaser confirming the order prior to shipping the tobacco products. The telephone call may be a person to person call or a recorded message. The distributor or seller is not required to speak directly with a person and may leave a message on an answering machine or by voice mail.

The “check back” requirement, which exists in some other states, is meant to inform parents or guardians about their children’s purchases, information that might otherwise remain hidden. The “check back” requirement also intensifies minors’ concern that a parent or guardian will intercept the delivery of the tobacco products, which should dissuade at least some children patronizing Internet cigarette retailers.

Other laws in California include requiring a two carton minimum per order and prohibiting the use of cash and money orders as a payment option.

A few states have banned Internet cigarette retailers from shipping cigarettes directly to consumers to keep Internet cigarette retailers from selling to children.

New York was the first state to adopt this approach in August 2000.

The New York law prohibits all tobacco retailers, including Internet cigarette retailers, from shipping cigarettes directly to consumers with few exceptions. Alaska followed New York’s example in 2003. In December 2004, Arkansas similarly banned Internet cigarette retailers when the Supreme Court of Arkansas upheld the Arkansas Tobacco Control Board’s ruling that tobacco retailers must have a physical space in the state in order to obtain a license to sell cigarettes directly to consumers in Arkansas.

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