The 2010 Prevent All Cigarette Trafficking (PACT) Act imposes a functional ban on remote sales of cigarettes.  U.S. Mail cigarette deliveries are now prohibited. Remote sellers (if they can find a common carrier to transport their products) are now required to collect excise taxes and obtain licenses as if the transaction occurred entirely in the purchaser’s state.  (This provision has thus far been ruled unconstitutional.)  More robust enforcement mechanisms of the Jenkins Act’s reporting requirements better allow states to collect excise taxes from consumers who remain able to buy cigarettes remotely.

Has all of this prevented consumers from buying cigarettes over the Internet?  Apparently not.  A January 16th article in the Idaho Statesman discusses the apparent proliferation of Internet sales by foreign entities.  The article discusses an Idaho distributor who was able to buy a carton of cigarettes from Cyprus for $31.99, about 30% cheaper than the products are sold in Idaho convenience stores.  Because of state and federal law enforcement’s limited reach against foreign companies, the PACT Act requirements apparently have not significantly impacted sales by foreign companies.

The end result is that, although the PACT Act has shut down scores of U.S.-based remote tobacco merchants, it has probably bolstered the businesses of foreign companies.  Another likely contributing factor is the states’ ever-increasing tobacco excise tax rates, which surely has driven even more consumers to foreign remote sellers.

One lesson from all this is clear.  Raising cigarette taxes and eliminating economical tobacco sources will not stop consumers will smoking, nor will it necessarily drive consumers to higher-priced brands.  Rather, it only increases incentives to break the law, and makes it harder for legitimate businesses to survive.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.