Skip to comments.NYC:New York Hits Online Sellers of Cigarettes
Posted on 02/12/2005 2:20:01 PM PST by SheLion
Concerned about the booming trade in online cigarette sales, New York state officials have begun using a variety of techniques to clamp down on the trade, saying New York City alone is losing more than $75 million a year in uncollected tax revenues because of the sales.
In recent weeks, Attorney General Eliot Spitzer has been pushing local postal officials and private carriers to stop delivering cigarettes bought online. His office has also recently begun negotiations with credit card companies to block transactions of online cigarettes.
These efforts were given added push recently as local officials from the federal Bureau of Alcohol, Tobacco, Firearms and Explosives met with credit card executives to alert them to the various ways in which these transactions are illegal.
"The tone was very cordial and unthreatening," said a city official who participated in the presentation three weeks ago at the bureau's office in Brooklyn. "But in the end they made it crystal clear that now that the credit card companies understood the law, they would be held accountable for processing these transactions."
Mr. Spitzer emphasized that the effort has as much to do with health as money. "These sales present a significant threat to public health because they provide easy access to cheap cigarettes, which increases smoking rates, particularly among children," he said. "These illegal sales also evade state tax requirements."
Whatever their motivation, city and state officials are broadening their efforts to eradicate the business.
Two weeks ago, a judge ruled in one of the city's four lawsuits against online sellers that the city can file a revised racketeering lawsuit against Internet cigarette sellers. The ruling was the first time a federal judge has indicated that Internet sellers can be charged under federal racketeering law, said Eric Proshansky, the city's chief lawyer on the case.
After gleaning the names and the addresses from a Virginia lawsuit against one online cigarette company, the city began sending letters last month to more than 2,600 New Yorkers who officials say bought tax-free cigarettes. The letters, sent to those who bought cigarettes online from July 2002 to April 2004, give the alleged violators 30 days to pay or face interest and penalties of up to $200 a carton.
In November, local law enforcement seized 300,000 cartons of illegal cigarettes at Kennedy International Airport. Joseph G. Green, a spokesman for the A.T.F., said that the seizure was the culmination of a yearlong investigation jointly conducted by the Queens district attorney's office; federal Bureau of Alcohol, Tobacco, Firearms and Explosives; postal inspectors; and city and state tax and finance officials.
Sam Miller, a spokesman for the city's Department of Finance, said that the city loses more than $75 million a year as people duck local taxes by purchasing online. But the crackdown has drawn some criticism.
"New York is simply trying to engage in economic protectionism by limiting cigarette sales to brick-and-mortar sellers," said James L. Bikoff, a lawyer who represents several Internet tobacco sellers. "Most of the folks who are in the online cigarette business are small outfits and they typically advise the consumer to check with their own city and state's laws regarding tax rules."
New York City smokers pay the highest cigarette taxes in the country, as the state charges a $1.50 tax per pack and the city adds an additional $1.50 tax per pack. A carton of cigarettes in the city costs about $70, including $33.30 in excise and sales taxes. Online, cigarettes cost as little as $15 a carton.
Thus far, the city and the state have met with mixed results in their efforts to control the online traffic in cigarettes.
Some banks that process MasterCard transactions have begun blocking sales from certain Internet tobacco sites to customers, said Joshua Peirez, a senior vice president at MasterCard. But other banks do not. American Express currently has no policy that blocks Internet cigarette sales, said Christine Elliott, a spokeswoman for the company.
After sending a letter to credit card executives in August, Mr. Spitzer joined several other state attorneys general to send another letter pressing credit card companies to stop the transactions.
Both letters cited several reasons for the failure of Internet tobacco sellers to comply with applicable laws, including that they make no effort to verify the age of their customers and fail to report shipment of cigarettes to the tobacco tax administrator of the state into which shipments are made.
While the United Parcel Service and other private carriers have been more open to the idea of blocking the delivery of these packages, postal officials have balked at pressure from Mr. Spitzer's office, claiming that they do not have the legal authority to stop the shipments, according to city officials who have been part of the discussions. But Mr. Spitzer's office contends that the postal service indeed has the authority under federal laws that prohibit mail fraud schemes, according to a letter sent by the office.
New York State passed a law that took effect in 2003 prohibiting online and mail-order sales of cigarettes to its residents. The law was largely intended to curb tax evasion and under-age smoking, since many online cigarette sites do virtually nothing to verify the age of customers.
Efforts to stop online sales are complicated, since Internet sites are sometimes based abroad and are therefore difficult to prosecute. City officials estimate that about 80 percent of the online cigarette sales come from sites that claim Indian affiliation, which for sovereignty reasons claim immunity from laws like the Jenkins Act.
AND the City COUNCEL!
Some banks that process MasterCard transactions have begun blocking sales from certain Internet tobacco sites to customers
It's ok to purchase porn over the Internet with Master Card and who's to say that CHILDREN aren't getting it? So how can a credit card company stop a transaction? I think these lawmakers are blowing threatening smoke.
Why would a CREDIT CARD company care WHAT the money is spent for? There is a chipmunk in the wood pile as far as "I" am concerned. I am very suspicious of this. I believe this is just a scare tactic because they are desperate for the money!
How desperate are these idiot lawmakers. This is the most pathetic attempt to collect money I have ever witnessed in my entire life.
Yah....right.We might have been born at night,Comrade, but it wasn't last night!
Exactly! And they are still spewing "It's about the CHILDREN!" Well, I will tell you that no kid of mine was ever given a credit card. Especially to purchase online.
And no decent well informed UPS driver is going to hand over tobacco products to a kid answering the door. If the UPS driver knows by the label that it is indeed tobacco products.
The NYC Officials are complete A-holes!
Oh and I thought they stopped online sales "for the children", to protect them? Now they admit the real reason, it's about the money, not that we didn't know all along.
We need to continue to starve the beast at all levels.
Hurray for the online cig sellers.
Most of the people ordering cigarettes online are buying them in enormous quantities and reselling them. It is $75 million in tax money they are taking right out of our pockets.
Sounds to me like the United States Government needs to retake the State of New York, looks as if the Blooming Aliens have taken it over.
Eliot Spitzer is a power mad freak. He should be STOPPED, but he'll probably by the next governor.
Let's face it, they think ALL the money is THEIRS FIRST.
Cripes how I hate them all.
If that is true, it would not take the ATF long to arrest the ones doing it. Where did you get your information?
We need to continue to starve the beast at all levels.
Exactly, cigarettes are legal, and there is NO law that requires anyone to buy anything form the state or city they live in.
I can go to a state where I have relatives and buy them there, then what can they do? This is BS
Either the New York Post or the New York Sun.
Those lucky enough to live near Indian reservations in NY can get their smokes a lot cheaper as well. I suspect legislators will keep trying to put a stop to that too, for the children.
Sounds like the real fraud being perpetuated is by the State of NY when they give the reasons for the crack down.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.