PACT Act, Signed Into Law by President, Will Cut Internet Cigarette Tax Evasion In New York

Health Groups Praise Federal Action, Call On Governor Paterson To Collect Tax On All Sales

ALBANY, NY (04/01/2010)(readMedia)-- President Obama yesterday signed the Federal PACT Act (S.1147), effectively putting an end to cigarette tax evasion via the Internet, telephone and other means of purchasing tobacco products other than face-to-face transactions. The law will have a major impact on rampant cigarette tax evasion in New York.

A 2004 study by the New York State Health Department found that ten percent of New York smokers sometimes or always bought cigarettes through Internet or toll-free telephone vendors. In the same survey, about one-third of smokers reported going to an Indian reservation to buy cigarettes Studies have shown that most of the nation's high-volume Internet cigarette sites are located in New York State on the Seneca Indian Reservation.

The new law, passed overwhelmingly by Congress earlier this month, requires Internet and other mail-order sellers of cigarettes and smokeless tobacco, including Indians, to:

• Pay all applicable federal, state and local taxes and affix related tax stamps before delivering cigarettes or smokeless tobacco to any customer;

• Comply with state and local laws as if the sellers were tobacco product retailers located in the same jurisdiction as their customers;

• Register with the state and make periodic reports to state tax collection officials;

• To stop sales to minors, check the age and ID of customers at both points of purchase and delivery.

The law, which takes effect in 90 days, makes tobacco products nonmailable matter, meaning that the U.S. Postal Service cannot be used to deliver them. For some years, common carriers such as UPS and FedEx have refused to handle tobacco products because of legal concerns. The PACT Act also strengthens penalties for illegal sales and allows state attorneys general to enforce the law.

"Internet sales of tobacco products are a serious and growing problem that keeps prices down and smoking levels up," said Russell Sciandra, tobacco policy specialist, American Cancer Society of NY & NJ. "Such sales make it easier and cheaper for kids to buy cigarettes, facilitate tax evasion and cost New York hundreds of millions in revenue every year. The PACT Act is just one piece of the puzzle. Gov. Paterson must complete the picture by implementing state law that imposes state excise taxes on cigarettes at the wholesale level before they are shipped to Indian reservations."

"Passage of the PACT Act is a milestone in the fight to keep kids from smoking and prevent tax evasion that has cost New York taxpayers hundreds of millions of dollars. While the PACT Act will dramatically minimize Internet tax evasion, Governor Paterson must follow through on his pledge to prevent the sale of untaxed tribal cigarettes to non-tribal members," said Kevin O'Flaherty, Regional Director of Advocacy for the Campaign for Tobacco-Free Kids.

"The availability of cheap, tax-free cigarettes undermines the health and economic benefits of New York's cigarette tax. Passage of the federal PACT act will help cut off the supply through Internet sales which has allowed cheaper cigarettes to be sold to our children through the postal service," stated Julianne Hart, NYS Director of Advocacy for the American Heart Association. " Now New York State must follow suit and implement the law which curbs tax-free cigarette sales from Indian reservations. New York is faced with budget woes and the state can no longer afford to stand by and enable tax evaders."

"The PACT Act will cut off a major source of tax-evading, low-cost tobacco from coming into New York and other states," said Scott T. Santarella, President and CEO of the American Lung Association in New York. "The passage of this bill is a true public health victory because higher tobacco prices will prevent more kids from beginning to smoke and encourage more people to quit. "We're grateful to our Senators and Representatives for their role in making this happen."

New York Congressman Anthony Weiner sponsored the bill in the House of Representatives. Senators Charles Schumer and Kirsten Gillibrand were cosponsors of the bill in the Senate.