Key Researchers

  • There are no specific federal laws requiring the collection of taxes from Internet vendors. However, an existing federal law requires cigarette vendors selling across state lines to report the transactions to state tax authorities. This law is widely ignored, however, by Internet vendors.

    The Jenkins Act (Title 15, Chapter 10A Sections 375-378) is a federal law from 1949 that requires tobacco vendors selling to customers out-of-state to register with the tax authorities in every state in which they have customers and submit monthly reports to those tax authorities including customer names, contact information, and purchase information so that the state tax authorities can collect any unpaid excise taxes from those customers. A 2002 investigation by the U.S. General Accounting Office (GAO) reported that most websites openly violate the Jenkins Act and that there have been no successful prosecutions of noncompliant Internet cigarette vendors (U.S. GAO, 2002). Although many Native American websites claim that they are not subject to the provisions of the Jenkins Act because they reside on sovereign lands, the GAO concluded that they are, in fact, obligated to comply, and the U.S. Supreme Court has ruled that the federal government can regulate Internet commerce, including tribal commerce that occurs across state lines. The issue of Jenkins Act enforcement is further complicated by the fact that this federal law does not specify whether states are authorized to enforce it. Nevertheless, after the release of the 2002 GAO report, the State of Washington successfully prosecuted a vendor for Jenkins Act violations (State of Washington v., Inc., F. Supp. 2d 1048 (2003)), indicating that states can legitimately threaten to sue vendors for non-compliance with the Jenkins Act. However, as the issue of state authority to enforce the Jenkins Act is still unclear, a federal policy and enforcement plan is needed.

    The GAO report was based on the advertised sales practices of Internet cigarette vendors. A study conducted in 2003 assessed the actual rate of compliance with the Jenkins Act. After purchasing cigarettes from 101 Internet cigarette vendors, the researchers asked the state taxation authority, the California Board of Equalization, what proportion of the vendors filed the required reports. None of the 101 vendors included in the study filed a Jenkins Act report (Ribisl, Williams, & Feighery, unpublished data).

    In recent years, there have been several attempts at federal legislation to mandate the collection of taxes from Internet tobacco sales such as 2004’s Prevent All Contraband Tobacco Act (PACT ACT, S. 1177) and H.R. 2824. Unfortunately, concerns raised by common carriers such as UPS, kept this legislation from moving forward. With continuing opposition by common carriers and other political obstacles, no federal laws have been passed by Congress mandating the collection of taxes from Internet cigarette vendors (Lindblom, 2006).



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