Shakeout Can't Put Out Web Tobacco Sales

Despite the shakeout that has led to the closure of Web sites selling such items as furniture, garden supplies and pet food, there is one e-tail sector that is on fire: Web-based tobacco sales.

Online cigarette merchants are apparently thriving, but the budding industry faces more than one legal hurdle.

Not only are tobacco sales to adults in the U.S. often taking place tax-free, in violation of both state and federal laws, but illegal cigarette sales to minors are rampant.

In many cases, it is easier for adults and teenagers to buy cigarettes illegally via the Web than anywhere else. However, law enforcement officials across the United States are hot on the trail, proving that where there's smoke, there's fire.

No ID Required

In the days before the Internet, teenagers looking to score cigarettes often had to talk an older friend into purchasing them or try to bluff their way past a cashier intent on verifying their age.

Now, teenagers can point and click their way to a nicotine fix, often without having to verify their age at all, even though tobacco sales to minors are illegal whether sold over the Internet or elsewhere.

"This is an area we continue to look at," Maryland Assistant Attorney General Jennifer Pressman told the E-Commerce Times Tuesday. "There is not yet any way that we're aware of to ensure that minors can't buy cigarettes online."

Pressman says that Maryland law enforcement officers nevertheless continue to bring suits and take action against tobacco e-tailers in an effort to ensure minors cannot get cigarettes online.

New Leaf

Although some Web sites take pains to verify a smoker's age and require that an adult sign for purchases, others rely on the honor of shoppers not to buy tobacco on the Web if they are underage.

Clara York, an employee of cigarette e-tailer Seneca Cigarettes, told the E-Commerce Times that customers entering the site must click on a link saying "I am over 18" before being allowed to access the online store. The link acts as a "legally binding as a signature," York said.

York added that Seneca Cigarettes verifies that each address entered by the buyer matches the credit card billing address, and pointed out that sometimes children do not know where their parents have their bills sent.

Some sites require consumers to certify they are 18 before entering the site, but others simply print the requirement that purchasers be over 18. For instance, online shoppers who read the fine print at the top of Ron's Smoke Shop will see that, "Proceeding past this page acknowledges that your are of legal age to purchase tobacco products in your State."

Smoke Signals

The ultimate responsibility for making sure teenagers do not purchase cigarettes, according to York, lies with parents who should make an effort to police the Web sites their children are visiting.

However, at least some states have stepped in to crack down on the sale of tobacco products to minors over the Internet. Texas, Maryland, and Michigan are among the states that have sued online tobacco merchants for failing to verify the age of their customers.

Texas Attorney General John Cornyn filed suit in December to shut down a Virginia-based tobacco e-tailer called E-Commerce Today.

State Suits

The suit alleged that E-Commerce Today's retail site, Supercheapcigarettes.com, failed to verify that online purchasers were at least 18 years old and that it allowed the delivery of cigarettes without ensuring that an adult over 18 signed for the purchase.

Supercheapcigarettes.com responded to the suit by placing an announcement on its site that orders to Texas "have been temporarily suspended," and told visitors "We no longer ship to the state of Michigan or Maryland."

Pressman said that Maryland had not sued Supercheapcigarettes.com, but she hoped the site had decided not to sell to Maryland residents because of the actions the state brought against other Web tobacco merchants.

The Texas Attorney General's Office said they are still in negotiations with Supercheapcigarettes.com toward a settlement.

Tax Avoidance

Buying cigarettes online also appeals to adults looking to avoid paying the hefty taxes that can add as much as US$10 to the price of a carton of cigarettes.

Online cigarette buyers looking for tax-free smokes can buy from foreign companies that sell cigarettes cheap. A trip to Yesmoke.com, for example, found that the same premium cigarettes that sell in the U.S. for $25 to $30 a carton can be picked online up for only $14.95.

Smokers can also purchase non-premium cigarettes from Web sites operated on Native American reservations. For instance, Taxfreetobacco.com sells Native All Natural cigarettes for as low as $11 per carton, and promises customers that it does not report to any state taxation or tobacco department.

Law and Order

Purchasing cigarettes across state borders does not officially exempt a consumer from state-based tobacco taxes, however. State laws require that individual consumers report their purchases and pay the state directly. However, few consumers do so, and states have found themselves having to pursue individual consumers to collect the tax.

Last year, the State of Washington informed past buyers of Internet cigarettes that they owe $8.25 in state taxes for each carton of cigarettes they purchased online.

Likewise, California has warned its residents they must pay the state $8.70 for each carton of cigarettes purchased online -- or face taxes and penalties.

Oceans of Trouble

The U.S. Customs Service has also stepped into the fray. In December, the agency warned that consumers who purchase cigarettes and other products from foreign-based Web sites and bring the product into the U.S. risk becoming ensnared in the intricate legalities of importation law.

"Shopping on the Internet seems quick and easy," the Customs Service said, "but buying gifts or other goods online from a foreign source turns the shopper into an importer who may be subject to complex regulations."

Fighting Fire

On the other side of the battleground are tobacco companies who want the right to sell their wares online.

In October, Brown & Williamson Tobacco Corporation (B&W), the third largest cigarette manufacturer in the U.S., filed suit in a Manhattan federal court to overturn a New York state law banning the sale of cigarettes on the Internet.

The suit, which has not yet come to trial, alleges that the law -- which makes it a crime to ship or transport cigarettes sold via mail order, telephone or the Internet to New York residents -- is an "unconstitutional interference" with commerce.

The statute, signed in August by New York Governor George Pataki, was the first of its kind in the United States.