New Federal PACT Act Prohibits Trafficking Cigarettes on Internet

New York to Recover Millions in Lost Cigarette Tax Revenue

ALBANY, N.Y. (July 1, 2010) – The Internet sale of tobacco products in the United States is now illegal under the federal PACT Act – the Prevent All Cigarette Trafficking Act. President Obama signed the PACT Act into law on March 31, which curtails the sale of untaxed cigarettes and other tobacco products over the Internet and bans the delivery of tobacco products through the U.S. mail.

Cigarette tax evasion in New York is a serious problem that undermines efforts to protect children from starting smoking and leads to tremendous losses in state tax revenues. The State Health Department (DOH) reported in 2006 that 37 percent of New York smokers frequently purchased cigarettes from low-price untaxed sources, such as Indian reservation stores and over the Internet.

It is estimated that New York loses at least $419 million annually due to cigarette tax evasion and that eliminating tax evasion that occurs through Internet or phone tobacco sales would generate an additional $106 million to $122 million annually for the State.

"Internet sales of tobacco products have undermined tobacco control efforts by making it easier for children to buy cigarettes and by facilitating tax evasion," State Health Commissioner Richard F. Daines, M.D., said. "Many vendors that sell cigarettes and smokeless tobacco products over the Internet or through other mail-order sales do not pay applicable tobacco taxes and do not have sufficient safeguards to prevent sales to children, such as effective policies to verify a purchaser's age."

The PACT Act prohibits the sale of cigarettes and smokeless tobacco products over the Internet. The Act requires Internet sellers to pay all federal, state, local or Tribal tobacco taxes and affix tax stamps before delivery to any customer. It also mandates checking the purchaser's age and identification.

The top three Internet cigarette vendors used by New York smokers are based on Indian reservations in New York State. A 2002 New York State law makes it illegal for common carriers such as Fed EX, UPS and DHL to ship cigarettes to New York addresses, except to a retailer licensed to sell cigarettes.

The PACT Act will now prohibit delivery of tobacco products through the U.S. Postal Service, effectively eliminating the ability of Internet vendors to ship tobacco products to anyone other than a licensed tobacco retailer.

The protections afforded by this Act will help ensure that children under 18 do not purchase cigarettes over the Internet and that the incentive not to smoke, created by New York's taxes on cigarettes, is implemented at all points of sale, including the Internet.

By avoiding taxes, smokers pay lower prices for tobacco, which diminishes their incentive to either quit smoking or to reduce the amount they smoke. It is estimated that if all smokers in New York paid state cigarette taxes, there would be a 2 percent to 3 percent reduction in smoking in New York State.