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Up in (Virtual) Smoke

"CHEAP CIGARETTE PRICES WITH FREE DELIVERY!!!!!!
$9.95 Generic, $15.50 Premiums, No Joke!!
Marlboro, Winston, Camel, Newport"

Chances are if you've been on the Internet for more than a nanosecond or so, you've received spam like this. And guess what? So has the government, and they are not amused.

In fact, state governments are said to be losing millions in tax dollars as the number of online sales outlets for cigarettes has risen along with the tax bite on tobacco.

A quick search on Google for the words "cheap cigarettes" turned up dozens of site offerings, many in Europe, some at so-called duty-free shops, and some claiming to be affiliated with Native American Indian reservations, such as "Smoke Signals Sovereign Seneca Territory ... Brant, NY..."

The trend is said to be seriously undercutting efforts by some states to raise revenues by hiking cigarette taxes. In Massachusetts lawmakers recently approved a 75-cent hike on a pack of cigarettes, a move officials hope will bring in an extra $190 million annually. In Illinois, the state boosted taxes by 40 cents to a total of 98 cents a pack.

New Jersey and New York state both have a $1.50 per pack tax, the nation's highest.

Federal law requires Internet cigarette sellers to provide state revenue officials with names and addresses of their customers. The officials can then pursue the buyers to make sure they pay local sales taxes.

But that is just not happening, and the U.S. General Accounting Office has issued a 54-page report saying that giving the bureau of Alcohol, Tobacco and Firearms more authority may improve reporting and enforcement of laws relating to tax collection on Internet cigarette sales. The FBI currently has the responsibility.

Internet cigarette vendors openly flout the law, known as the Jenkins Act, the GAO says. By 2005, Internet tobacco sales in the United States could exceed $5 billion and states could lose about $1.4 billion in revenues, according to the report.

"Our Internet search efforts identified 147 Web site addresses for Internet cigarette vendors based in the United States," the report said, adding that none of the Web sites posted information that indicated the vendors complied with the Jenkins Act.

"Conversely, information posted on 78 percent of the Web sites indicated the vendors do not comply with the act. For example, 31 percent of the Web sites stated the vendors either do not report cigarette sales or do not comply with the Jenkins Act. Sixteen percent of the Web sites and four vendor representatives cited their Native American status, the Internet Tax Freedom Act, and other laws as reasons for not complying with the act," the report stated. None of those reasons are valid, says the GAO.

U.S. Rep. Marty Meehan, a Massachusetts Democrat who commissioned the report, plans to introduce legislation on the issue when Congress returns from recess in September, according to a Reuters report.

The bill would require Internet cigarette vendors to become licensed tobacco sellers in each state in which they do business.