NCPA - National Center for Policy Analysis

States want Taxes from Online Cigarette Sales

March 4, 2003

Hoping to hold down the tax-inflated costs of cigarettes, smokers have been turning to the hundreds of Internet sites where they can order them at considerable savings. This has sent some states searching for ways to recoup what they consider their lost cigarette-tax revenues.

  • Online purchases of cigarettes could save a New York City smoker upward of $30 a carton -- although the courts recently upheld a law there barring online cigarette sales.
  • According to Forrester Research, online bargains will help Web sites sell $2.2 billion worth of cigarettes this year -- and it projects sales of $5 billion by 2005.
  • By attempting to protect or recoup lost cigarette taxes, states have all but abandoned the pretense that their opposition to online sales is prompted by a desire to protect underage smokers, observers point out.
  • States with some of the highest cigarette taxes -- New York and California, for example -- have been among the most aggressive in their pursuit of Internet tobacco merchants.

Eleven states are now proposing laws to regulate online cigarettes sales. But passing laws and successfully enforcing them are two different things. At least 80 percent of online tobacco sellers are on American Indian reservations -- which are exempt from state sales taxes. And government officials, enmeshed in homeland security efforts, are not enthusiastic about diverting resources to cigarette-sales enforcement issues.

Source: Bob Tedeschi, "Pressure Grows from States to Restrict and Tax a Smokers' Haven -- the Internet," New York Times, February 24, 2003.


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