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Sales and Marketing of Cigarettes on the Internet: Emerging Threats to Tobacco Control and Promising Policy Solutions

Kurt M. Ribisl

University of North Carolina - Chapel Hill

School of Public Health


Annice E. Kim

University of North Carolina - Chapel Hill

School of Public Health


Rebecca S. Williams1

University of North Carolina - Chapel Hill

School of Public Health

INTRODUCTION

An editorial in Tobacco Control by Connolly (2001) expressed concern about the tobacco industry embracing a relatively unregulated Internet because “many of the public health interventions that we have developed to curb real world lung cancer could go up in a puff of cyber smoke (Connolly 2001). Taxes, ad bans, and youth access laws are easily eroded online.” There is great potential for the sales and marketing of tobacco products on the Internet to undermine the progress that has been made in tobacco control. Experts at the Centers for Disease Control and Prevention (CDC) selected the “recognition of tobacco use as a health hazard and subsequent public health antismoking campaigns” as one of the 10 greatest public health achievements of the twentieth century (CDC 1999). Recent evidence-based reviews (Task Force on Community Preventive Services 2005) and reports by the U.S. Surgeon General (DHHS 2001) have concluded that tobacco control policies and programs account for much of this progress. One of the most potent strategies for reducing tobacco use involves increasing tobacco prices, which is typically accomplished through increasing state and federal excise taxes on tobacco products. When tax-free cigarettes are sold on the Internet, this reduces their price and can undermine the public health benefits of increased cigarette prices. Restricting tobacco product advertising and marketing has

1

Acknowledgments: Support for this research and the preparation of this appendix was provided by a grant from the Robert Wood Johnson Foundation to the School of Public Health at the University of North Carolina at Chapel Hill (“Examining the Sales Practices of Internet Cigarette Vendors: Implications for Policy Development, Implementation, and Enforcement”—Kurt M. Ribisl, principal investigator). Additional support in the form of dissertation research awards were provided to Annice Kim and Rebecca Williams by the Association of Schools of Public Health (ASPH) with funding by the American Legacy Foundation (Legacy) as part of their Scholarship, Training, and Education Program for Tobacco Use Prevention (“STEP UP”). This appendix does not necessarily represent the views of ASPH, Legacy, Legacy Foundation staff, Legacy’s Board of Directors, the Robert Wood Johnson Foundation, or its Board of Directors.



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Ending the Tobacco Problem: A Blueprint for the Nation M Sales and Marketing of Cigarettes on the Internet: Emerging Threats to Tobacco Control and Promising Policy Solutions Kurt M. Ribisl University of North Carolina - Chapel Hill School of Public Health Annice E. Kim University of North Carolina - Chapel Hill School of Public Health Rebecca S. Williams1 University of North Carolina - Chapel Hill School of Public Health INTRODUCTION An editorial in Tobacco Control by Connolly (2001) expressed concern about the tobacco industry embracing a relatively unregulated Internet because “many of the public health interventions that we have developed to curb real world lung cancer could go up in a puff of cyber smoke (Connolly 2001). Taxes, ad bans, and youth access laws are easily eroded online.” There is great potential for the sales and marketing of tobacco products on the Internet to undermine the progress that has been made in tobacco control. Experts at the Centers for Disease Control and Prevention (CDC) selected the “recognition of tobacco use as a health hazard and subsequent public health antismoking campaigns” as one of the 10 greatest public health achievements of the twentieth century (CDC 1999). Recent evidence-based reviews (Task Force on Community Preventive Services 2005) and reports by the U.S. Surgeon General (DHHS 2001) have concluded that tobacco control policies and programs account for much of this progress. One of the most potent strategies for reducing tobacco use involves increasing tobacco prices, which is typically accomplished through increasing state and federal excise taxes on tobacco products. When tax-free cigarettes are sold on the Internet, this reduces their price and can undermine the public health benefits of increased cigarette prices. Restricting tobacco product advertising and marketing has 1 Acknowledgments: Support for this research and the preparation of this appendix was provided by a grant from the Robert Wood Johnson Foundation to the School of Public Health at the University of North Carolina at Chapel Hill (“Examining the Sales Practices of Internet Cigarette Vendors: Implications for Policy Development, Implementation, and Enforcement”—Kurt M. Ribisl, principal investigator). Additional support in the form of dissertation research awards were provided to Annice Kim and Rebecca Williams by the Association of Schools of Public Health (ASPH) with funding by the American Legacy Foundation (Legacy) as part of their Scholarship, Training, and Education Program for Tobacco Use Prevention (“STEP UP”). This appendix does not necessarily represent the views of ASPH, Legacy, Legacy Foundation staff, Legacy’s Board of Directors, the Robert Wood Johnson Foundation, or its Board of Directors.

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Ending the Tobacco Problem: A Blueprint for the Nation also reduced consumption, with complete advertising bans having the greatest impact. Since 1971, advertising for tobacco products has been banned on all broadcast media in the United States. Under the 1998 Master Settlement Agreement, Joe Camel and other cartoon characters were banned from appearing in cigarette advertisements, sponsorships were restricted, and cigarette advertisements were banned on billboards and buses. Outside of the United States, many countries have implemented complete bans on all forms of tobacco advertising. The landmark Framework Convention on Tobacco Control, a worldwide public health treaty sponsored by the World Health Organization in 2003 (Shibuya et al. 2003; Taylor and Bettcher 2000), urges all ratifying countries to ban all tobacco advertising (if their constitution permits it), including cigarette advertising on the Internet. The impact of advertising bans and restrictions at home and abroad will be diluted if the tobacco industry aggressively markets its products online and if bans, such as those included in the Framework Convention, are not adequately implemented and enforced. This appendix addresses two fundamental questions: (1) What are the major threats to tobacco control posed by the sales and marketing of cigarettes on the Internet and (2) what current policies and practices and promising new ones can counteract these threats? The first section provides background on the scope and magnitude of Internet cigarette sales. The next section examines the three major threats to tobacco control efforts: online sales of cheap “tax-free” cigarettes, online marketing and promotional efforts by Internet cigarette vendors and tobacco companies, and online cigarette sales to minors. In the final section we review policies designed to regulate these practices and conclude with a proposed framework for regulating Internet cigarette sales. BACKGROUND ON INTERNET CIGARETTE SALES Trends in the Number of Internet Cigarette Vendors Over the past 6 years, there has been a substantial increase in the number of Internet cigarette vendors. Although there is no national licensing system for Internet vendors that would precisely enumerate the number, researchers have relied on comprehensive web searching strategies to estimate the number of Internet vendors. Ribisl and colleagues (2001) used a standardized searching protocol whereby data collectors manually entered several search strings (e.g., discount cigarettes, tax-free cigarettes) into multiple search engines (Ribisl et al. 2001). This approach identified 88 unique domestic Internet cigarette vendors in January 2000. Unpublished follow-up studies using a similar protocol identified 195 domestic vendors in January 2002 and 338 domestic and international vendors in January 2003. Of the 338 sites found in 2003, 266 (78.7 percent) were domestic, 34 (10.1 percent) were outside the United States, and the location could not be determined for 38 (11.2 percent). In January 2004, 775 Internet cigarette vendors were identified, of which 323 (41.7 percent) were domestic, 347 (44.8 percent) were outside the United States, and the location could not be determined for 105 (13.5 percent). In January 2005, 664 Internet cigarette vendors were identified. Of those vendors, 306 (46.1 percent) were domestic, 300 (45.2 percent) were outside of the United States, and the location could not be determined for 58 (8.7 percent). Although a small number of international vendors were identified in January 2000 and 2002, they were excluded from the sample because the original study focused on domestic vendors and policies that were unique to the United States (e.g., presence of a U.S. Surgeon General’s warning on the site). However, in 2003 and subsequent years, the eligibility criteria were

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Ending the Tobacco Problem: A Blueprint for the Nation expanded to include international vendors after a pilot study revealed that their numbers were growing. The growth in the number of Internet cigarette vendors from 2000 to 2005 could be a true increase or it could simply reflect improvements in the sampling protocol. At each wave of data collection, several sources of information (such as shopping portals and search directories) were used in addition to keyword searching to identify new vendor websites. Starting in 2004, however, keyword searching was replaced with new automated searching strategies developed by Cyveillance, a private sector online risk monitoring and management firm. They entailed deploying specially developed algorithms and intelligent web spiders that reviewed more than 40 million websites, as well as postings to nearly 100,000 message boards and newsgroups and 1 million spam email messages to identify websites that were likely to be Internet cigarette vendors, which were then reviewed by trained research assistants for inclusion in the study. A small change was also made to the protocol for removing “duplicate” sites. In the first three waves from 2000 to 2003, when two sites appeared to be nearly identical based on visual inspection of the site and the contact information, only one site was coded. However, starting in 2004, each site with a domain name (i.e., website address) was counted as an individual website because they are listed separately on search engines and are rated separately by organizations that collect data on visitor traffic to the site. This minor change in protocol would have a small effect on increasing the number of sites compared to prior waves of data collection. The extent to which the growth in the number of Internet cigarette vendors represents a true increase versus better detection or the revised protocol is currently being explored in an ancillary study. However, it is likely that the increase in the number of vendors identified represents both true growth and better detection methods. It is important to realize that the number of websites identified by these rigorous search strategies is still a lower-bound estimate of the true number of Internet cigarette vendors. First, these studies have only examined sites written in English, and there would be more Internet cigarette vendors if foreign language sites were included. Second, the World Wide Web contains billions of web pages and even the most comprehensive search strategy will miss some sites. Given the dynamic changing nature of the Internet, the searching protocol was modified and improved at each wave with the goal of identifying the highest number of Internet cigarette vendors at each given period. Location of Internet Cigarette Vendors Many Internet cigarette vendors are located on tribal lands and countries outside the United States, which presents regulatory and enforcement challenges. In January 2005, among domestic vendors, 63.4 percent appeared to have a Native American affiliation. Sites were coded as having a Native American affiliation if they explicitly mentioned being located on sovereign land or an Indian reservation, or if they featured Native American wording or imagery, such as descriptions of tax-related treaties or pictures of an Indian chief or Native American artwork. In January 2005, the Seneca Indians located on two reservations near Buffalo, New York comprised 77.7 percent of Native American sites. In fact, 98.1 percent of sites in the State of New York were Native American, which explains why New York State has consistently led the nation in the number of websites selling cigarettes. Background information on the Seneca and their retail, mail order, and Internet tobacco operations is provided elsewhere (Ribisl et al. 2001; Tedeschi 2005). Figure M-1 shows the growth and location of Internet cigarette vendors from 2000 to 2004.

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Ending the Tobacco Problem: A Blueprint for the Nation Outside of New York, the next greatest concentration of Internet cigarette vendors occurs in southern tobacco-producing states, such as Kentucky, North Carolina, and Virginia. Historically, these states have had low cigarette excise taxes. As of March 18, 2005, the mean excise tax in tobacco-producing states was 19.8 cents per pack compared to 93.1 cents per pack for other states (McMahon 2005). Why would proximity to low cigarette excise taxes be important to Internet cigarette vendors? A newspaper article described how one unemployed North Carolina resident set up www.CutRateSmokes.com and operated his small online business out of his home. The owner mentioned selling a carton of Marlboro cigarettes for $26.50 a carton (plus a flat fee of $6.00 for shipping), which was a bargain for smokers paying approximately $70.00 a carton in New York City. Although his source of cigarettes was not identified in the article, presumably he was purchasing them from a North Carolina warehouse club for approximately $19.99, which would still allow him to resell them online for a small profit. This example illustrates how web vendors located in low-tax states can profitably sell cigarettes to smokers residing in high-tax states. Although the cigarette excise taxes are paid for in the “source” state, they are not being collected and remitted to the revenue department in the “destination” state. Similar to tax-free cigarette sales from Indian reservations, they also constitute a source of tax avoidance because it is very rare for recipients of the cigarettes to pay the back taxes that are owed in their own state. Another trend is the emergence and growth of Internet cigarette vendors located outside the United States. This may reflect a growth in international vendors or, alternatively, a trend of U.S. Internet cigarette vendors relocating their businesses offshore in order to escape U.S. regulations. Determining the true location of Internet cigarette vendors has become increasingly difficult. Over time, the number of vendors not listing a location for their operations has been increasing. Nevertheless, many vendors make claims that they are selling from “outside of the United States,” “Europe,” or “a duty-free zone.” Table M-1 describes the claimed location of 664 Internet vendors identified in January 2005. The United States led all other countries in the number of English language websites selling cigarettes, followed by Switzerland (22.9 percent), the United Kingdom (1.2 percent), Spain (1.1 percent), and Indonesia (1.1 percent). There were also 34 “international” sites (5.1 percent) and 55 “European” sites (8.3 percent); these regional locations were inferred based on information provided on the site. Neither country nor regional location could be determined for 58 (8.7 percent) sites. Among the 606 sites with country-specific or regional location information, 306 (50.5 percent) were based in the United States and 300 (49.5 percent) were based outside of the United States. Manufacturers Selling Directly to Consumers Cigarette manufacturers have traditionally sold their cigarettes to wholesalers or distributors who then sell to the retailers. The retailer then sells the cigarettes to the smoker. Recently, there have been changes in the distribution channel whereby some small manufacturers are now selling their brands directly to consumers via the Internet. Also, some large manufacturers are selling selected brands online. For example, the upscale manufacturer of premium cigarettes, Nat Sherman, sells its own brand on its website (www.natsherman.com). Philip Morris, the market leader in the United States, does not sell its cigarette brands online, but R.J. Reynolds sells its supposedly reduced-exposure product, Eclipse (www.eclipse.rjrt.com), and provides coupons and other special offers for its generic brand Doral (www.smokerswelcome.com) online. The promotional aspects of the Smokers Welcome site and others like it are described in the marketing and promotion section of this chapter. In 2000, the Brown & Williamson Tobacco Company announced that it was going to sell its less popular cigarette brands directly to consumers via

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Ending the Tobacco Problem: A Blueprint for the Nation mail order, telephone, and eventually, the Internet. The company established a subsidiary, BWT Direct LLC, because it claimed that scarce shelf space at U.S. retailers forced retailers to stock only the most popular cigarette brands (Fairclough 2000). The company appears to have discontinued its direct sales of cigarettes to consumers. In general, relatively little is known about the market share of direct sales of cigarettes from manufacturers and the implications of this new delivery channel for tobacco control efforts. Estimated Sales of Cigarettes Online Two approaches have been put forth to estimate the extent of Internet cigarette sales: (1) industry report projections and (2) assessing smokers’ Internet cigarette purchasing behavior over time. Several industry reports have attempted to estimate the market size and share of Internet cigarette sales. In 2001, the private firm Forrester Research estimated that by the end of 2005, online tobacco sales would exceed $5 billion and comprise 14 percent of all U.S. tobacco sales (Rubin et al. 2001). A 2002 report by Prudential Securities (Campagnino 2002) projected that Internet cigarette sales would account for 5.9 percent of industry volume in 2005, but these figures should be interpreted with caution because most are outdated and based on proprietary assumptions and methodologies that were not adequately described or peer-reviewed. The U.S. Department of Commerce conducts a Census of Retail Trade that estimates annual revenue and the number of establishments selling various product categories, including tobacco products. In the nonstore retailer category, “electronic shopping and mail order” houses were estimated in 1997 to have sold $127,801,000 in “cigars, cigarettes, tobacco, and smokers’ accessories (excluding sales from vending machines operated by others)” (U.S. Department of Commerce 2001). This is a small fraction of the total $36.8 billion sales for the category. Aside from being outdated, another shortcoming in the methodology of this economic census is that it covers only the subset of establishments with a payroll, which tend to be the larger establishments. An upcoming Census of Retail Trade might provide a more useful estimate of the magnitude of Internet and mail order tobacco sales. Both of the private industry projections seem to be overestimates given recent studies described below that have examined sources of cigarettes for smokers, which have generally concluded that a relatively small proportion of smokers purchase their cigarettes via the Internet. A study of 5,215 adult smokers from the 1999 California Tobacco Survey found that 70 percent of respondents regularly purchased cigarettes from traditional retail markets, such as convenience stores and gas stations, compared to only 5.1 percent who purchased from lower ornon-taxed sources such as out-of-state outlets, military bases, or the Internet (Emery et al. 2002). Only 0.3 percent of smokers in California regularly purchased their cigarettes from the Internet in 1999. A subsequent survey in 2002 found a small increase whereby 1.1 percent of California smokers reported purchasing cigarettes on the Internet. A study of 3,602 smokers who were originally in the Community Intervention Trial for Smoking Cessation (COMMIT) study were asked in 2001 about their cigarette purchasing patterns, including purchasing cigarettes on the Internet (Hyland et al. 2005). Overall, 59 percent of smokers reported engaging in a high price avoidance strategy, such as purchasing at a reservation or switching to discount cigarettes. The rate of regularly purchasing cigarettes from the Internet was 2.0 percent overall, with a range of 0 percent in Greensboro, North Carolina, where the state excise tax was 5 cents per pack to 9 percent in Yonkers, New York, where the state excise tax was $1.11 at the time. The rate of purchasing online was higher in communities with higher state excise taxes, unless the community was in close proximity (<40 miles) to an Indian reservation.

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Ending the Tobacco Problem: A Blueprint for the Nation Most recently, the 2003 International Tobacco Control (ITC) Four Country Survey of 6,682 smokers in the United States, the United Kingdom, Canada, and Australia found that 6.1 percent of U.S. smokers, 19.7 percent of UK smokers, 3.7 percent of Canadian smokers, and 1.1 percent of Australian smokers reported a low or untaxed source for their last cigarette purchase. American smokers reported buying cigarettes online more than the other three countries in the survey, with 1.3 percent of American smokers reporting the Internet as the source for their last cigarette purchase. Canada, the United Kingdom, and Australia had very low percentages of smokers reporting buying their cigarettes online, with 0 percent, 0.1 percent, and 0.1 percent respectively. In each country, except Canada, these estimates represented an increase over the percentage of smokers purchasing their cigarettes online during a wave of data collected 7 months earlier, when 0.6 percent of U.S. and 0.0 percent of UK and Australian smokers reported the Internet as the source of their most recent cigarette purchase (Hyland et al. 2006). Studies have also been conducted in states with high state excise taxes. A telephone survey of 3,447 current adult smokers in New Jersey found that 0.8 percent usually purchased their cigarettes on the Internet in 2000, which rose to 3.1 percent in 2002 after the state increased its cigarette excise tax (Hrywna et al. 2004). In New Jersey, the rate of ever purchasing cigarettes on the Internet rose from 1.1 percent in 2000 to 6.7 percent in 2002. Smokers who bought cigarettes online were more likely to be white, to be older, and to report fewer quit attempts in the past year. Similarly, after New York City levied an additional excise tax of $1.50 on top of the state excise tax of $1.50 per pack of cigarettes, there was a tenfold increase in tax receipts and an 89 percent increase in cigarettes purchased outside of the city, 18.1 percent of which were purchased over the Internet (Frieden et al. 2005). A recent economic study examined patterns over time for state cigarette excise taxes, tax-paid cigarette sales, and cigarette consumption (Stehr 2005). The analysis suggested that the decline in tax-paid sales (i.e., elasticity of tax-paid sales) in response to tax increases is significantly greater than the decline observed in consumption (i.e., elasticity of consumption) measured by population surveys. In other words, when cigarette prices increase because of a tax hike, the percentage decline in tax-paid sales is greater than the decline in actual smoking rates. The fact that both do not decline equally suggests that some smokers are simply avoiding the taxes. The author estimated that from 1985 to 2001, 9.6 percent of cigarettes were purchased without payment of state taxes. Similar findings were observed in another econometric study that found that the rise of the Internet, and the associated ability of consumers to purchase tax-free cigarettes, has altered the elasticity of tax-paid cigarette sales and suggests that states now have a reduced ability to raise revenue by increasing cigarette taxes (Goolsbee and Slemrod 2004). In summary, the number of Internet cigarette vendors appears to have increased substantially over the past half-decade, with a growing proportion of sites coming from outside the United States. Longitudinal studies in selected states and countries suggest that the proportion of adults purchasing online may be rising, especially in states with higher excise taxes. However, few smokers appear to be purchasing cigarettes online if they have ready access to cheaper cigarettes from nearby Indian reservations or if they reside in a state with a low excise tax. The issue of tax avoidance is described in greater detail in the following section.

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Ending the Tobacco Problem: A Blueprint for the Nation THREATS Threat 1: The Internet as a Source of Cheap Cigarettes from Tax Avoidance The public health benefits of raising cigarette prices to reduce consumption are undermined by sales of low-tax or tax-free cigarettes online. Up to 78 percent of Internet cigarette vendors advertise selling cigarettes tax-free (GAO 2002a), which is attractive to price-sensitive smokers residing in states with high excise taxes. Internet vendors can sell cigarettes more cheaply than brick-and-mortar retail outlets because they are generally selling low-tax or untaxed products from tobacco-producing states, foreign countries, or American Indian reservations. Their customers are generally smokers residing in high-tax areas. Figure M-2 is a scatterplot based on one Internet vendor’s shipping records that shows the relationship between a state’s cigarette excise tax rate and the number of shipments to that state per 100,000 smokers (based on state-level rates of current smoking for adults). There are very few shipments to states where the excise taxes are fairly low, and the highest rate of shipment occur in the six states with the highest excise taxes. The shipment rate was only moderately related to other possible predictors, such as state-level rates of Internet access (Frieden et al. 2005). The availability of low-cost cigarettes online may have a negative impact on public health because price-sensitive smokers who might have considered quitting or reducing their consumption after a tax hike can continue to smoke by purchasing cheaper cigarettes online. In the COMMIT study, 59 percnet of smokers reported trying to avoid high cigarette prices when taxes increased (Hyland et al. 2005). Hyland and colleagues (2005) found that when cigarette prices increased, price-sensitive smokers who are not motivated to quit most commonly seek out lower-priced or tax-free cigarettes, rather than switch to generic brands or use coupons, especially when lower-priced tax-free sources are readily available. Given that the Internet is accessible to approximately 66 percent of the U.S. population (Pew Internet and American Life Project 2005), price-sensitive smokers may seek out cheaper cigarettes online when cigarette taxes increase. A small-scale study of New York and New Jersey smokers found that smokers who purchased cigarettes online were motivated primarily by lower prices (Kim et al. 2006). Additionally, smokers who purchased cheaper cigarettes from the Internet and other lower-taxed sources significantly increased their consumption over time, compared to smokers who reported paying full-price at traditional brick-and-mortar retail stores. This result is consistent with findings from a prior longitudinal study of New York smokers that 68.4 percent of smokers who paid full price at retail outlets attempted to quit, compared to only 44.4 percent of smokers who paid lower-tax prices from American Indian reservations (Hyland et al. 2005). Among those who paid full price, 20 percent successfully quit smoking at follow-up, compared to only 10.2 percent who purchased cigarettes from Indian reservations. These studies suggest that easy access to low-tax cigarettes online may influence price-sensitive smokers to continue smoking when retail prices increase, thereby undermining the public health benefits of increased cigarette excise taxes. Despite concerns that Internet cigarette sales may undermine the efforts of raising cigarette taxes, recent data suggest that increasing taxes still confers tax revenue benefits on states. In 2002, New York City raised its city’s cigarette excise tax from $0.08 to $1.50, which occurred in addition to the New York State excise tax of $1.50. After the New York City tax increase, tax receipts increased tenfold even though the proportion of cigarettes reportedly purchased by smokers outside of New York City increased 89 percent (Frieden et al. 2005). Of cigarettes purchased elsewhere, 29.0 percent were bought in New York State outside of New York City, 21.7 percent were bought in a different state, 18.1 percent were bought over the Internet, 12.4 percent

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Ending the Tobacco Problem: A Blueprint for the Nation were bought from another person, and 7.8 percent were bought from an American Indian reservation. Tax evasion from online sales also deprives governments and tobacco control or public health programs of much needed revenue. Forrester Research estimated that states would lose more than $1.4 billion in 2005 due to the sale of untaxed cigarettes on the Internet (Rubin et al. 2001). It is likely that the actual amount of lost revenue to states is lower, but still quite significant. When Congress held the first ever hearings about problems posed by Internet tobacco sales,2 economist Patrick Fleenor presented estimates of state and local revenue losses under three scenarios. The first scenario assumed Internet retailers would capture a 2 percent market share in 2003, and this yielded $552.4 million in lost state and local government revenue. The second scenario assumed Internet retailers would capture a 6 percent market share in 2005, and this yielded $1.7 billion in lost state and local government revenue. The final scenario assumed a 14 percent market share in 2005, which yielded nearly $4 billion in lost revenue. As mentioned earlier, there are no firm national estimates of Internet tobacco sales, so the exact revenue losses cannot be calculated at this time, but it is likely that the 2005 market share was considerably lower than the 14 percent estimate and probably lower than the 6 percent estimate. Given that the 2003 International Tobacco Control Four Country Survey showed that 1.3 percent of adult smokers made their last cigarette purchase online (Hyland et al. 2006), the 2 percent market share estimate is probably the most accurate estimate, yielding more than half a billion dollars in lost revenue to state and local governments. Although there are no federal laws that require Internet vendors to collect and remit cigarette taxes to taxation authorities, under state law consumers who purchase cigarettes on the Internet are liable for their own state’s cigarette excise tax and, in some instances, for sales and/or use taxes (GAO 2002b). One of the ways to prevent lost revenue from cigarette excise taxes is by having policies that require vendors to register with states and share their customer lists. The Jenkins Act (Title 15, Chapter 10A, Sections 375–378) is a federal law from 1949 that regulates interstate commerce of cigarettes and has the potential to reduce tax evasion on the Internet (Banthin 2004; GAO 2002b). The Jenkins Act requires that tobacco vendors selling out-of-state must “first file with the tobacco tax administrator of the state into which such shipment is made.” The vendors must also report all cigarette sales to state taxation authorities by the tenth day of each calendar month. These reports must include “the name and address of the person to whom the shipment was made, the brand, and the quantity thereof.” Thus, if a smoker from New York City purchases three cartons from an Internet vendor in Virginia, the Virginia Internet vendor is obligated to report to the New York tobacco tax administrator the name and address of the buyer and the brand and quantity of cigarettes purchased. The penalties for violation are a misdemeanor with a fine of not more than $1,000 or imprisonment of 6 months, or both. An investigation conducted by the U.S. General Accounting Office (GAO) concluded that most websites openly stated that they violate the Jenkins Act and that there have been no successful prosecutions of noncompliant Internet cigarette vendors (GAO 2002b). The GAO concluded that the Jenkins Act is violated, in part, because it is a misdemeanor and not a felony. In addition, there has been little enforcement because the U.S. Federal Bureau of Investigation has jurisdiction, and this has been a low priority for them because of their new challenges and priori- 2 HR 1839 (May 1, 2003): Youth Smoking Prevention and State Revenue Enforcement Act: Hearing before the Subcommittee onCourts, the Internet, and Intellectual Property of the Committee on the Judiciary, House of Representatives, 108th Congress. Serial No.19. Washington DC.

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Ending the Tobacco Problem: A Blueprint for the Nation ties related to the threat of terrorism. The GAO recommended that the penalties for noncompliance be elevated to a felony and jurisdiction be given to the Bureau of Alcohol, Tobacco, Firearms and Explosives. Finally, although many tribal websites claim that they are not subject to the Jenkins Act provisions because they reside on sovereign lands, the GAO concluded that they are obligated to comply and the U.S. Supreme Court has ruled that the federal government can regulate interstate commerce including tribal commerce that occurs across state lines. The GAO report was based on the advertised sales practices of websites. Our research team conducted a purchase survey to assess the actual rate of compliance with the Jenkins Act, which we believed would be very low based on reviewing website content and anecdotal reports in the media. The study is currently being prepared for publication. One buyer in California purchased cigarettes from 101 Internet vendors, all of which should have filed a Jenkins Act report for California. Research staff then asked the state’s taxation authority, the California Bureau of Equalization, what proportion of the 101 vendors filed reports. None of the 101 vendors filed a Jenkins Act report. Several states have identified individuals who have purchased cigarettes online because a small number of Internet vendors have filed Jenkins Act reports in the past and because some Internet vendors have turned over their customer lists to taxation authorities as a condition of legal settlements. In addition, the Massachusetts Revenue Department has identified Massachusetts residents who received deliveries of cigarettes from out-of-state Internet vendors by requiring shippers, such as United Parcel Service (UPS), to hand over their records (Mohl 2003; 2004). The GAO report (GAO 2002b) profiled the efforts of six states to promote Jenkins Act compliance by notifying Internet vendors of their duty to comply with the act. Relatively few Internet vendors complied. For instance, only 13 of 262 Internet vendors in Massachusetts responded to the notification with reports of their customers. However, in cases where the states received customer names and addresses, state revenue authorities then notified individual smokers to collect back taxes. In California, approximately 23,500 were identified from 20 Internet vendors. Approximately 13,500 of the 23,500 notified responded and the state recovered approximately $1.4 million in back taxes, penalties, and interest. More recent news reports (Copeland 2005) have described how other cities and states, such as New York City, Pennsylvania, and Ohio, have sent thousands of letters to smokers who purchased their cigarettes on the Internet. In summary, the Internet offers cheap so-called tax-free cigarettes for smokers concerned about high retail cigarette prices in their area. The availability of low-cost cigarettes from low-taxed sources, including the Internet, appears to be related to decreased quit attempts, thereby undermining the public health benefit of higher cigarette prices. Of the three threats to tobacco control posed by the Internet, tax avoidance is probably the most significant. Concern over revenue losses caused by Internet cigarette sales, however, should not deter states from increasing cigarette excise taxes. Despite some losses due to Internet sales and other tax evasion activities, states still experience a net increase in their tax revenue when increasing their cigarette taxes (Farrelly et al. 2003). An important topic for future study, according to Farrelly and colleagues (2003), is to better understand the effectiveness and the cost-effectiveness of controlling tax evasion and Internet sales. Threat 2: Marketing and Promotional Efforts The Internet provides unprecedented opportunities to market and promote tobacco products in a largely unregulated medium. A Surgeon General’s report on smoking noted that “the future of tobacco advertising and promotion may lie in cyberspace” because “the Internet offers endless

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Ending the Tobacco Problem: A Blueprint for the Nation possibilities for promoting tobacco use and marketing tobacco products” (DHHS 2001, p.16). These advertising and promotional messages are available 24 hours a day, 7 days a week to smokers who are online. The Internet has the potential to be a more potent medium than static print advertising in magazines because of its ability to individually tailor marketing strategies and to engage in these activities relatively unnoticed in the vast World Wide Web. As a result, this medium presents new challenges for the monitoring and regulation of tobacco marketing and promotions. In this section, we examine the range of marketing and promotional strategies that Internet cigarette vendors use based on findings from our ongoing longitudinal study of Internet cigarette vendors. We also present results from a small study on cigarette spam e-mails, explore how the major tobacco companies are using the Internet to build relationships with their customers, and conclude with a discussion of several policies that have been proposed to regulate online tobacco marketing practices. Wide Variety of Cigarette Brands and Tobacco Products Internet cigarette vendors sell a wide variety of cigarette brands and tobacco products online. In 2005, we found that all these sites sold some type of cigarettes (Table M-2). Approximately 30 percent advertised selling duty-free cigarettes, which are manufactured for export only and are illegal to sell in the United States because they violate the Imported Cigarette Compliance Act of 2000. Another 22.7 percent sold clove cigarettes, while about 5 percent sold bidis or herbal cigarettes. Internet cigarette vendors sold an average of 39.3 (standard deviation [SD] 21.52, range = 1 to 98) unique cigarette brands, with 45 percent of sites selling 40 or more brands. Internet cigarette vendors also sold cigars (42.2 percent), smokeless tobacco such as Skoal (28.0 percent), loose tobacco for pipes and roll-your-own cigarettes (23.0 percent), and tobacco paraphernalia such as lighters, ashtrays, and cigar cutters (19.3 percent). Approximately 10 percent of sites sold other tobacco-related products such as candles and air fresheners designed specifically for smokers, and roughly 15 percent of sites also sold non-tobacco products such as coffee, moccasins, jewelry, or condoms. These results suggest that Internet cigarette vendors advertise and carry a wide range of tobacco and non-tobacco products for virtually every type of customer. Whereas traditional brick-and-mortar retail vendors are restricted in the number of tobacco products they can sell because of limited physical storage and shelving space, Internet cigarette vendors can carry a much larger inventory of items and offer greater brand and product selection that might be appealing to a wider customer base. This may become increasingly important if more smokers switch cigarette brands and alter their purchasing and consumption patterns in response to rising cigarette excise taxes. One report suggested that Internet cigarette vendors aggressively promote cheaper, deep-discount brands because they yield more than four times the profit for vendors than premium brands and because many smokers who buy online are very cost conscious (Campagnino 2002). Price-Related Promotions Internet cigarette vendors also offer price-related promotions that reduce the actual cost of cigarettes or add value to their purchase. In 2005, 31.8 percent of Internet cigarette vendors offered reduced-price specials (Table M-2) such as discounts on specific brands, monthly or weekly price specials, and coupons. Approximately 40 percent of sites advertised that they sold cigarettes tax-free; this was explicitly stated on their website or incorporated into their business name or website URL (Figure M-3). By advertising that their cigarettes are tax-free, Internet

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Ending the Tobacco Problem: A Blueprint for the Nation cigarette vendors are targeting smokers who reside in high-excise-tax states and currently pay high cigarette prices at retail stores. Few sites offered gifts, multipack specials, or contests, but those doing so gave away items such as free cigarettes or enter-to-win vacation contests. Peer-to-Peer Promotions One of the advantages of selling products on the Internet is using features of email and website technology to facilitate word-of-mouth communication among peer social networks (Hoffman and Novak 1997). In our study, we found that Internet cigarette vendors use several peer-to-peer strategies to attract more customers to their site. Approximately a third of the sites offered mechanisms to refer friends to the site (30.1 percent) and ways to link to their site (16.7 percent), while a few offered wish lists to their customers (3.9 percent). Wish lists enable customers to create lists of cigarette and tobacco products they desire that they can make available to friends who might purchase the products for them. The “link-to-us” function enables customers to create a bookmark or link on their own personal website so that interested friends can click on the link, which takes them directly to the Internet cigarette vendor site. Once new customers are at the website, Internet cigarette vendors also use strategies such as “customer testimonials” and “top-selling brands” as a way to share information about other customers’ purchasing patterns and experiences. In 2005, 11.6 percent of Internet cigarette vendors utilized customer testimonials and 28.3 percent advertised “top-selling brands.” The ease of sharing information via the Internet allows Internet cigarette vendors to utilize strategies that encourage word-of-mouth promotions among peer networks. Direct peer-to-peer marketing becomes more important in the electronic marketplace because online businesses only have a virtual presence among billions of other web pages, making it difficult for customers to find Internet cigarette vendors unless they actively search for the sites or are referred to them by friends. Customized Services The interactive capabilities of the Internet allow Internet vendors to communicate directly with their customers via email, to tailor these communications precisely to individual customers’ needs, and to obtain relevant information from customers so that vendors can customize their services and serve their customers more effectively in the future (Hoffman et al. 1995). In 2005, approximately 45 percent of Internet cigarette vendors provided register or create-an-account capabilities, which allow vendors to collect information about their customers’ product and ordering preferences and to store this in their databases so that future interactions with the customer can be personalized (Figure M-4). Approximately 40 percent of Internet cigarette vendors also offered mailing lists, which are emailed newsletters announcing upcoming sales or promotions that can be tailored to individual consumers’ product preferences. Approximately 20 percent of Internet cigarette vendors also offer automated shipping programs that enable customers to designate how many cigarettes they want delivered on a regular time schedule. All of these features ease the ordering process for customers and help vendors to build personalized relationships with their customers, which might translate into customer loyalty and retention over time. Use of Spam Email to Attract Customers to Internet Cigarette Vendor Websites Internet cigarette vendors can also attract new customers to their site by sending out unsolicited email messages (spam) to a wide range of recipients. This is a relatively inexpensive strategy

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Ending the Tobacco Problem: A Blueprint for the Nation ments may deter most youth who don’t have access to a credit card, it should not be relied upon as a method of age verification. Age verification at delivery is potentially the most effective strategy available to Internet cigarette vendors to reduce sales to minors, since it is the sole face-to-face opportunity for the customer to be matched to a photo ID. Currently, few Internet cigarette vendors verify the age of their customers at delivery. In our youth purchase survey (Ribisl et al. 2003), the age of the youth buyers was not verified at delivery by any vendors. There are several barriers to widespread adoption of age verification at delivery by Internet cigarette vendors, the most significant of which is that currently the only shipping carrier legitimately available to Internet cigarette vendors is the U.S. Postal Service, which does not offer an age verification at delivery service. UPS is the only delivery company in the United States with an age verification at delivery service. In October 2005, however, UPS announced that, like FedEx and DHL, it would no longer ship cigarettes to consumers (Gormley 2005), leaving no age verification at delivery options for Internet cigarette vendors. Self-Regulation of Internet Cigarette Vendors The Online Tobacco Retailers Association (OLTRA) is an organization of Internet Cigarette Vendors formed, ostensibly, to “bring a standard of service to the online tobacco industry” (www.oltra.com). OLTRA claims to be a self-regulating organization and state that in addition to providing member benefits such as group purchasing benefits, legal representation, and an “OLTRA Certified Website Seal,” all OLTRA member websites adhere to certain business standards, including only accepting customers aged 21 and over, requiring customers to submit a copy of their driver’s license prior to order fulfillment, and exclusively using the “UPS adult signature required” shipping method to ensure that tobacco products are not delivered to minors. OLTRA’s claims about its members’ self-regulation were tested in a separate compliance survey (Williams 2005). During this purchase survey, which was designed to assess the extent of vendor compliance with California Business and Professions Code § 22963, California’s law regulating what Internet cigarette vendors must do to prevent sales to minors, 11 of the 20 member vendors listed on OLTRA’s website were included in the randomly selected study sample. Compliance with OLTRA’s standards among these member vendors was low. Of the vendors included in the study, only three required that their buyers be 21 and over, two required buyers to submit a copy of their driver’s license, and none used UPS age verification at delivery. These results suggest that OLTRA’s attempts at self-regulation are ineffective. POLICY SOLUTIONS AND RECOMMENDATIONS This final section examines some of the state-level policies in place to address the challenges posed by Internet cigarette sales and concludes with a recommended framework for addressing Internet cigarette sales. An analysis of laws governing Internet and mail order sales of cigarettes in the 50 U.S. states and the District of Columbia identified 33 state laws (Chriqui et al. Under Review). Data were collected as part of the National Cancer Institute’s State Cancer Legislative Database system, and this represents the first comprehensive analysis of state laws to prevent tax evasion and youth access from Internet cigarettes sales. Details of the laws are provided in Table M-3. Highlights of this analysis are that 31 states have provisions designed to reduce youth access, 32 states have tax evasion provisions, and 2 states totally ban all Internet and mail order tobacco sales. Details on the number and percentage of states with specific provisions within

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Ending the Tobacco Problem: A Blueprint for the Nation these categories are listed in the table and not described here. The two rightmost columns denote whether these specific provisions are recommended in model legislation from the Campaign for Tobacco Free Kids (Lindblom 2005a; Lindblom 2005b; Lindblom 2005c) and Philip Morris. Effectively regulating Internet cigarette sales is difficult for many reasons (Ribisl 2003), including its supergeographical reach, complexities related to regulation of interstate commerce, tribal sovereignty and overseas vendors, and the fact that case law is still being formed (Banthin 2004). Given these challenges, we propose a framework (see Figure M-10) with multiple strategies that may effectively regulate Internet cigarette sales. The main goal of the Q.U.I.T. (Quarantine of Unhealthy Internet Trade) Framework is to go beyond simply regulating the vendor, and to involve other members of the supply chain starting at the beginning of the distribution process where Internet cigarette vendors (ICVs) first acquire their cigarettes to the final culmination of the sale when consumers receive their cigarette deliveries. In this model, we propose several regulatory strategies that intervene along the sales and delivery process in order to “quarantine” online vendors who are not compliant with existing tobacco tax collection and age verification laws. The vendors are essentially quarantined by disrupting the distribution process, which prevents Internet cigarette vendors from selling their product to consumers. The approach can be applied to other potentially harmful products sold over the Internet, such as firearms, illicit drugs, or child pornography. One strategy would be to block or regulate the supply of cigarettes to Internet cigarette vendors from tobacco manufacturers, distributors, or retailers (Step 1, Figure M-10). For example, suppliers could be required to sell only to Internet cigarette vendors who are compliant with existing youth access and taxation laws. This strategy requires that tobacco manufacturers, distributors, and retailers keep detailed documentation of their inventories of tobacco products, which shows the route from manufacturer to distributor and retailer. Although some Native American Internet vendors manufacture their own brands of cigarettes, most carry other brands made by the major cigarette manufacturers and thus depend on an outside distributor. Native American cigarette vendors file paperwork when buying cigarettes that allows them to purchase cigarettes without payment of state excise taxes, as long as the cigarettes are for sale to other tribal members. Many tribal vendors claim that their sovereignty rights permit them to sell to anyone from their reservation (where their website is located). New York State has been planning efforts to cut off the supply of tax-free cigarettes to the Seneca nation and other tribes by requiring suppliers to sell cigarettes only where all state taxes are paid. This approach tends to work better when the supplier is based in the United States and may not work as well for cigarettes being shipped from overseas from a vendor that also acquires them overseas. A second strategy is to block a vendor from hosting its website by seizing the domain name and shutting down the online storefronts of noncompliant Internet vendors (Step 2, Figure M-10). This strategy was employed by UK customs authorities who seized the URLs of websites such as www.cigarettesfromeurope.com for not charging appropriate cigarette taxes to UK customers. Although the reasons were for trademark infringement and other violations, Philip Morris successfully seized the domain name www.yesmoke.com, which now redirects to its corporate website (Dunai 2004). Although Yesmoke migrated its online business to another website address (www.yesmoke.ch), the domain name seizure likely caused significant difficulties for the vendor and some customers may not know of the new website address. Although there are many complexities in the field of domain name law (Moringiello 2004), states have several legal rationales that would allow them to seize the domain name of Internet vendors and perhaps replace the website content with a message of their choosing (Burstein In press).

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Ending the Tobacco Problem: A Blueprint for the Nation A third strategy would be to prevent the major payment-processing companies such as Visa, MasterCard, American Express, Diners Club, Discover, or PayPal from approving transactions for Internet cigarette sales (Step 3, Figure M-10). In March 2005, all of the companies listed above reached a landmark voluntary agreement with state attorneys general and the Bureau of Alcohol, Tobacco, Firearms and Explosives to stop processing credit card payment of Internet cigarette orders because Internet vendors were conducting illegal business by not charging appropriate state cigarette excise taxes and not verifying the age of buyers (AP 2005; Tedeschi 2005). The negotiations were led by attorneys general from California, New York, and Orgeon, and several other attorneys general also participated. Restricting credit card payment does not entirely prevent all Internet cigarette sales because vendors can still utilize alternative payment methods such as money orders or personal checks, but nevertheless, according to media reports this policy has already caused scores of Internet vendors to lose business or shut down their operations (Tedeschi 2005). Credit cards are the most commonly used payment method offered by Internet cigarette vendors (Ribisl et al. 2001). The agreement applies to virtually all credit cards and affects websites based in the United States and abroad that sell to U.S. customers. Internet vendors that can document that they comply with all relevant laws will be allowed to accept credit cards under conditions of the agreement. A fourth strategy would be to regulate delivery services such as the UPS or a postal service such as the U.S. Postal Service. For example, the vendor could be required to ship using a service that verified the age and identity of the buyer at the point of delivery. Moreover, cigarettes could be declared non-mailable matter, and delivery services could be banned from picking up packages of cigarettes from Internet cigarette vendors that appear on a “Do Not Ship” list comprised of vendors that do not comply with existing tax collection or youth access laws (Lindblom 2005c) (Step 4, Figure M-10). These provisions have been proposed as part of two federal legislative bills, the Green-Meehan Internet Tobacco Sales Enforcement Act (H.R. 2824) and the Prevent All Contraband Tobacco Act (PACT ACT, S. 1177), but neither bill has made it to the floor of the U.S. Congress. A spokesperson for UPS opposed any regulation that would require it to refuse packages from Internet tobacco vendors that violated tobacco tax laws (Campaign for Tobacco Free Kids 2005). However, in October 2005, UPS joined shipping carriers DHL and Federal Express involuntarily agreeing to cease shipping cigarettes to consumers (Gormley 2005), leaving the U.S. Postal Service as the only viable shipping option available to Internet cigarette vendors. The final step in the distribution process would be to educate consumers about their requirement to pay taxes on cigarettes purchased from out-of-state Internet vendors (Step 5, Figure M-10). Although educational efforts might deter some customers from buying cigarettes online, this strategy is onerous because of the difficulty in reaching the nearly 50 million smokers in the United States. Instead, intervening upstream in the distribution process with several major manufacturers, distributors, Internet service providers, payment processing companies, or delivery companies can probably have greater impact than individually focused educational efforts. In conclusion, the goal of the Q.U.I.T. framework is to disrupt one or more steps in the distribution channel that occur between the time cigarettes are manufactured and when they are delivered to the door of the smoker. The idea is that regulating vendors is not enough—so far, the overwhelming majority of Internet vendors have violated one or more laws designed to require tax reporting, prevent cigarette sales to minors, or ban the sale of imported duty-free cigarettes. Therefore, the focus is upon entities that do business with the Internet vendor. The goal is to prevent the noncompliant vendor from hosting a website, receiving payment from credit card com-

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Ending the Tobacco Problem: A Blueprint for the Nation panies, and shipping its product to customers. There are weaknesses in any one approach; however, it is likely that the combination of strategies will be effective. Addressing the problems posed by Internet cigarette sales will require a collaborative effort among public health researchers, tobacco control advocates, state departments of revenue, attorneys general, policy makers, and legislators. Policies are needed that require Internet cigarette vendors to comply with the same provisions as brick-and-mortar retail vendors by charging appropriate state and local cigarette excise taxes and verifying the age of buyers. Until such policies are in place, online cigarette sales will undermine the public health benefit of raising cigarette prices. FINAL RECOMMENDATION For all Internet, mail order, and delivery tobacco sales, federal legislation is needed to ensure that customer ages and identities are verified at both the point of ordering and the point of delivery and that appropriate local, state, and federal taxes are collected. This legislation should include strong federal penalties for noncompliance while permitting state governments to have enforcement authority and the ability to pass stricter laws. The legislation should be written to effectively regulate the sales practices of tobacco vendors shipping to U.S. customers regardless of their physical location (i.e., vendors located on tribal lands or outside the United States). Moreover, all Internet and mail order vendors should be licensed at the federal level by an organization such as the Bureau of Alcohol, Tobacco, Firearms and Explosives. Vendors that violate youth access and tax laws should be placed on a do-not-ship list, and delivery services should not be allowed to transport their products.

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Ending the Tobacco Problem: A Blueprint for the Nation TABLE M-1Country and Region Locations of Internet Cigarette Vendor Websites, January 2005 Country N=775 Number (%) United States 323 (41.7) Switzerland 118 (15.2) International (outside the U.S., country not specified) 86 (11.1) Europe (country not specified) 59 (7.6) Spain 17 (2.2) Panama 16 (2.1) Indonesia 11 (1.4) United Kingdom 6 (0.8) Gibraltar 5 (0.7) Asia 4 (0.5) South Africa 4 (0.5) Virgin Islands 3 (0.4) Andorra 2 (0.3) Canada 2 (0.3) Russia 2 (0.3) Other* 12 (1.5) Location could not be determined 105 (13.5) *Other category includes one vendor located in each of the following countries: Belize, Bulgaria, Dominican Republic, Germany, Mauritius, Malaysia, Netherlands, New Zealand, Romania, and Zimbabwe.

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Ending the Tobacco Problem: A Blueprint for the Nation TABLE M-2 Sales and Marketing Practices of Internet Cigarette Vendor Websites, January 2005   N=664 Number (%) Types of tobacco products sold Cigarettes     Premium/value/discount brands 770 (99.3)     Duty-free 189 (28.5)     Clove 151 (22.7)     Bidis 10 (1.5)     Herbal 21 (3.2)   Cigars 280 (42.2)   Smokeless tobacco 186 (28.0)   Loose tobacco 153 (23.0)   Tobacco paraphernalia 128 (19.3)   Other tobacco-related products 49 (7.4)   Number of cigarette brands sold*       1-20 158 (23.8)       21-40 217 (32.7)       41-60 145 (21.8)       61+ 144 (21.7)     Non-tobacco products 82 (12.3)     Price-related promotions         Reduced price special 211 (31.8)     Tax-free prices advertised 253 (38.1)     Gift with purchase 15 (2.3)     Multi-pack special 58 (8.7)     Special contest 26 (3.9)   Peer-to-peer promotions   Refer-a-friend 200 (30.1)     Add to favorites/link to us 111 (16.7)     Wish list 26 (3.9)     Customer testimonials 77 (11.6)   List of most popular/top selling cigarettes 188 (28.3) Customized services   Register/create an account 295 (44.4)     Mailing list 269 (40.5)     Automated shipping program 121 (18.2)   Other promotions^ 47 (7.1)   * Number of cigarette brands ranged from 1 to 107. ^ Examples of other promotions include: free samples of cigarettes and continuity programs.

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Ending the Tobacco Problem: A Blueprint for the Nation TABLE M-3 Summary of the Components of State Cigarette Delivery Sales Lawsa by Area of Emphasis (as of December 31, 2005) Component Description Number of States % states with laws (N=33) % all statesb (N=51) PMc Model Provision CTFKd Model Provision Preventing Youth Access to Cigarettes 25 76 49 Yes Yes Age/ID verification of purchaser 25 76 49 Yes Yes Required one time/first purchase only 11 33 22 Yes No Required at all times/every sale 13 39 26 No Yes Types of Age/ID Verification 22 67 43 Yes Yes Requires customer attestation only 4 12 8 No No Requires any 2: customer attestation, check govt. ID, or check age and/or ID against commercial database of government ID’s 16 49 31 Yes No Requires all 3: customer attestation, check govt. ID, and check age/ID against commercial database of gov ernment ID’s 4 12 8 No Yes Vendor required to use carrier that will: 19 58 37 Yes Yes Verify purchaser ID at delivery time 18 55 35 Yes Yes Obtain adult signature 16 49 31 Yes Yes Delivery only to address on ID 6 18 12 No Yes Preventing Tax Evasion 30 91 59 Yes Yes Requires delivery sales vendors to be licensede 23 70 45 Yes Yes Sale considered delivery sale regardless of seller location (i.e., outside/inside state or tribal) 17 52 33 Yes Yes Registration and reporting requirements and/or Jenkins Act (15 U.S.C. 326) compliance 22 67 43 Yes Yes Tax collection and remittance requirements 21 64 41 Yes Yes Preventing Youth Access and Tax 31 94 61 Yes Yes a For this analysis, “laws” was defined to includes statutes, administrative rules and regulations, and case law, as appropriate. b “All states” includes the 50 states and the District of Columbia. c PM=Philip Morris model law provision (Rubin et al. 2001). d CTFK=Campaign for Tobacco-Free Kids model law provisions {Lindblom 2005a; Lindblom 2005b; Philip Morris USA 2003). e Vendor licensure provisions were captured if specifically referenced in the delivery sales statutes. In other words, a state received credit for requiring delivery sales vendors to be licensed if they explicitly stated this requirement in the delivery sales law OR indicated that delivery sales vendors must comply with existing licensure provisions.

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Ending the Tobacco Problem: A Blueprint for the Nation Component Description Number of States % states with laws (N=33) % all statesb (N=51) PMc Model Provision CTFKd Model Provision Evasion           Ban shipping/delivery of cigarettes directly to consumers 4 12 8 No Yes Requires adherence to do not ship to list 4 12 8 No Yes Requires customer prior notification/ disclosure 15 46 29 No Yes Payment Issues 19 58 37 Yes Yes Required Payment Types 19 58 37 Yes Yes Credit card, debit card, OR check 11 33 22 Yes No Credit or debit card 4 12 8 No Yes Check or credit card 4 12 8 No No Payment type (credit card, debit card, or check) must be in buyer’s name 15 46 29 Yes Yes Credit/debit card billing address must match shipping address/government identification, and/or database address 2 6 4 No No “Tobacco product” language to be printed on credit card statement 1 3 2 No Yes Vendor to provide carrier with evidence of compliance with: 11 33 22 Yes Yes Licensure requirements 2 6 4 No Yes Tax collection/remittance provisions 10 30 20 Yes No Shipping document and/or packaging requirements 28 85 55 Yes Yes Specify tobacco product content 27 82 53 Yes Yes Specify minimum age of sale language 18 55 35 Yes Yes Specify tax collection/remittance obligation 18 55 35 Yes Yes Product quantity order/shipping restrictions 4 12 8 No Yes Specifies minimum amount 1 3 2 No No Specifies maximum amount 3 9 6 No Yes Penalties and Enforcement 31 94 61 Yes Yes Penalty Provisions 31 94 61 Yes Yes Penalties to Vendor 31 94 61 Yes Yes Penalties to Carrier 11 33 22 No Yes Penalties to Purchaser 13 39 26 Yes Yes Enforcement provisions and authority 24 73 47 Yes Yes

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