The number of Internet tobacco retailers has increased dramatically in recent years (Ribisl, Appendix M) (Parmet and Banthin 2005), generating concerns about minors accessing tobacco products and consumers evading excise tax payments. Those concerns appear to be well founded, as research findings and anecdotal data suggest that both access by minors and avoidance of excise taxes have contributed to the popularity of Internet tobacco vendors. For example, following New York City’s increase to $1.50 in excise tax per pack of cigarettes in 2002, there was an 89 percent increase in cigarettes purchased outside of the city, 18.1 percent of which were purchased over the Internet (Ribisl, Appendix M). Evasion of state excise taxes for Internet tobacco purchases is a pervasive problem. While studies suggest that few minors are now obtaining cigarettes online, researchers believe that as states adopt more restrictive approaches to retail tobacco sales, more youth may seek to purchase cigarettes from Internet retailers (Ribisl, Appendix M).
Regulation of Internet tobacco sales has presented numerous challenges for state officials, particularly because a large number of online tobacco vendors are located either outside of the United States or on Native American tribal lands (Ribisl, Appendix M). Although the federal Jenkins Act requires Native American retailers to report Internet tobacco sales to the applicable state tax administrator to facilitate collection of excise taxes from consumers (Jenkins Act, 2005), investigation and enforcement of Jenkins Act violations have been virtually nonexistent to date (GAO 2002). However, the prospects for state enforcement have recently increased by judicial decisions recognizing states’ implied rights of action against online vendors under the Jenkins Act (Banthin 2004; Campaign for Tobacco-Free Kids 2003). In July 2005, a federal judge ordered a tribal Internet seller to provide Washington State officials with its list of customers within the state to facilitate the collection of excise taxes from those residents (Washington State Department of Revenue 2005).
The nature of Internet sales—conducted anonymously and in the privacy of the consumer’s home—has also frustrated state efforts to police online sales, as officials have no practical way of ensuring that Internet vendors accurately verify the purchasers’ ages. In fact, recent studies have revealed that most Internet tobacco vendors fail to verify their customer’s age, and those that purport to do so have largely been ineffective in obtaining age verification. One study found that only 6.3 percent of Internet vendors requested that buyers submit a copy of their photo identification before a sale, and the companies that do require age verification often fulfill the orders submitted without the requested identification (Ribisl, Appendix M). Many online vendors merely require consumers to type in a valid birth date or click on a box indicating that they are 18 years or older (Ribisl,