Tax Dangers: Online Cigarettes Purchases

ShoppingTips & Advice

  • Author Jack Petith
  • Published June 25, 2007
  • Word count 1,875

Why is it harder today to buy cigarettes online than ever in the history of the Internet?

Why is your personal information unsafe with virtually every active online cigarettes source?

Here are the critically important facts about the evolution of the Online Cigarettes Industry today. Anyone who wants to avoid the punitive, unfair, and prejudicial taxation faced by smokers in this era needs to know how to get around these serious obstacles.

If you want the details, here is what we all need to be aware of:

• ONLY USA based online cigarette suppliers who have maintained their SOVEREIGNTY can legally sell cigarettes & tobacco products to consumers in the USA without state taxes and without having to comply with provisions of the Jenkins Act.

• Not all Native American entities (tribes) have maintained (held) their sovereignty. In fact, the vast majority have lost much of their sovereignty for various reasons through the years. Therefore, these entities have in effect lost much of the Federal Protection under terms of Treaty & Federal Law, and that places them to a greater degree under the jurisdiction of the State in which they are located. It is for this reason that you cannot find online tobacco sales outlets represented by all Indian tribes located in all USA States.

• Many States, especially the State of New York, want all internet and mail order suppliers of Un-State-Taxed tobacco products shut down. The recent focus by these States has been on Native American suppliers. Because most previous attempts against Indians have failed due to existing laws, treaties and/or protection at the Federal level, many of these States have attempted to implement unenforceable laws that are designed to force suppliers within their boundaries out of business. This feeble effort still continues in some States.

• Some States, and again especially the State of New York, have taken these efforts to a level far beyond legal legislative authority to what could be described as underhanded, slimy, and perhaps even illegal conspiracies against Native Americans and the online tobacco industry. Over the past 2 years the following has occurred:

  1. 2005 – As a direct result of pressures applied by certain States, (State Attorney Generals) Master Card, Visa and Master Card International enacted an internal policy dictating No Online Payment Processing of Un-State-Taxed and/or Unreported Cigarettes or Tobacco Products. At first, this policy applied only to suppliers located within USA boundaries; however within about 60 days the policy language was amended to include all suppliers located outside the USA that sell tobacco products within the USA to any consumer.

This policy also applies to all USA Bank issued Debit Cards; because the electronic processing (routing) system used in processing & verification of these cards is exactly the same as with major credit cards. It is for this reason that all USA Bank issued Debit Cards carry either the Master Card or the Visa logo and therefore can not be used online by any USA card holder to purchase Un-State-Taxed cigarettes or tobacco products.

  1. 2005 - As a direct result of pressures applied by certain States, UPS (United Parcel Service) enacted an internal policy in the USA to not accept or deliver any cigarette or tobacco product that was Un-State-Taxed, Unreported, or shipped by or consigned to, any unlicensed entity. Fed-Ex initiated similar internal policies in 2003.

  2. 2005 - USA Federal Customs Authorities at all USA port of entries began a concerned effort of checking (x-raying) most packages entering the USA from any country overseas as part of the terrorist protection measures in the aftermath of 9/11. As a direct result, over 90% of all cigarettes coming through customs from overseas suppliers (Duty Free Suppliers) were discovered and were seized and, therefore, were never delivered to the consignee. In an effort to meet a 100% compliancy goal, worldwide couriers like UPS, Fed-X, TNT and others now scan and/or x-ray packages destined to enter the USA from overseas in search of any item that may fall into the category of illegal contraband based on USA law. If cigarettes are found, reports are made to USA authorities on the shipper & consignee and the product is either destroyed or returned to Customs Officials at the original point of origin for local investigation.

  3. January 2006 – Under recommendation (pressure) by the worldwide entity controlling ACH; all independent online payment processing companies that are located in the USA that also accept Master Card and/or Visa or USA Bank EFT or Internet Check Systems as individual account holder funding options, enacted internal policies banning all payment processing of cigarettes and/or tobacco products and banned all merchants engaged in those types of businesses. The last to succumb to these pressures that we are aware of was Green Zap, Inc. in March 2006.

  4. 2006 – The State of New York enacted legislation (which is being challenged in Court) banning all NY Licensed Cigarette/Tobacco Wholesale Distributors from selling or delivering any Un-State-Taxed cigarette or tobacco product to any reservation within the boundaries of the State of New York. This action sent all Native American Distributors located in NY scrambling in an attempt to secure product from outside NY State boundaries.

  5. 2006 - As a direct result of pressures applied by certain States, Phillip Morris, Inc. USA (manufacturer of Marlboro, Parliament, Virginia Slims & other well known & popular USA brands) issued an internal distributor policy banning all sales of Un-State-Taxed PM products to any distributor, supplier or retailer that offers products for sale directly to USA consumers online. If enforced by PM, termination of the violator’s Distributor Status & Direct Purchasing Agreement could result.

  6. 2007 - As a direct result of pressures applied by certain States, the USA Banking system is currently considering an internal policy of banning all EFT (Electronic Fund Transfer) and/or online check systems for all online cigarette/tobacco suppliers/retailers that sell product directly to USA consumers. Indications (rumors within the online tobacco industry) are that Banks will succumb to these pressures to avoid being forced into a policing (reporting) situation on those individual checking account holders that make purchases online of Un-State-Taxed cigarettes or tobacco products. It is very probable that this action by USA Banks could be implemented within the next 12 months.

Even if the USA Banks do not take this action as anticipated, it is a fact that simple internal transaction coding could be implemented by all USA Banks to flag any account holder’s transaction of a purchase of Un-State-Taxed tobacco products through their checking account whether it is via EFT or printed check. This information could then conceivably be furnished to various State Government Tax or enforcement officials.

  1. February 12th 2007 – Phillip Morris, Inc. USA will implement another price increase (second increase in less then 6 months) on all PM domestic cigarettes; except Marlboro, Parliament and Virginia Slims. All other PM brands will increase in price at the wholesale level of over $1.00 per carton.

  2. February 15th 2007 – The Seneca Nation, located in Western New York, will commence internal taxing of all cigarettes that enter or are sold on or from the reservation at a rate of $1.00 per carton. Indications are that a special Seneca Tax Stamp will be affixed to each carton (or pack) of cigarettes sold on or from the rez.

• As a direct result of action listed in #1, most if not all, suppliers had funds held by credit card companies for up to 90 days commencing March 1, 2005. (Charge Back Accounts) Since that time, most suppliers do not ship until the money is verified in their account. This standardized policy has delayed shipments by some suppliers up to 10 days.

• After March 2005, many former online tobacco supply companies either were forced out of business completely or have chosen to exclude the internet as a marketing forum in favor of the more traditional physical storefront type sales outlet. At least one we know of still will accept orders by phone only but will not ship until the buyer has mailed in a Cashers Check or Money Order. Those few that have remained online primarily fall into one of three distinctive categories.

  1. Retailers of State Taxed tobacco products. Products that are stamped (taxed) prior to shipment either by the State where the shipper is located or by the State where the consignee is located. There are very few of these types of outlets online; primarily because after shipping fees are calculated, they can not deliver competitively priced products.

  2. Retailers of tobacco type products that report sales under the Jenkins Act. Unfortunately there are a greater number of these retailers online then the average internet shopper realizes because very few inform their customers in advance. The buyer may shop for a full year before receiving a tax statement from their State for prior tobacco purchases and even then still may not realize how the taxing authority got a hold of the information.

From a consumer standpoint; online sellers of tobacco products that do report under the terms of the Jenkins Act are the worst of the lot; primarily because of the private information that they share with the State without the consent of the consumer! This private confidential information ultimately is used by the State to collect State tobacco taxes; however having access to the information also creates a potential risk of the information being leaked to various other entities like Health Insurance Companies at some point in the future. The information currently collected by all States from sellers that comply with the Jenkins’s Act is:

A) Complete name, address & phone number of the purchaser. (All contact information that the retailer has on the buyer)

B) Complete name, address & phone number of the seller. (The person or company that is supplying the information contained in the report)

C) Product purchased. (Full description)

D) Purchase price. (Per unit price, total price per order & shipping fees)

E) Date of purchase or shipment.

  1. Retailers of tobacco type products that have maintained sovereignty and therefore do not report sales under the Jenkins Act or do not ship State Taxed products. There remain a handful of these shops online; however none are as secure or private as they once were because of two important reasons listed in this document. (see below)

• All current USA and/or Native American based companies that are involved in Internet sales of cigarettes or tobacco products utilize (offer) only one online payment option. If you pay online, you use a form of the EFT system through a USA Bank! Most, if not all, also offer offline payment options which allow the buyer to mail in an order with payment by a personal check or money order. Both of these instruments of payment are processed by a USA Bank!

• All current USA and/or Native American based companies that are involved in Internet sales of cigarettes or tobacco products have established their legal point of sale within the boundaries of USA jurisdiction and all store their sales records (complete sales database) at those locations. As all OTD Members discovered the hard way a few years ago, storing any record or database within USA jurisdiction is not a safe or secure situation.

Thanks to the management of Sovran Solutions Online, SSO, for help in compiling this information. SSO is currently structured to legally circumvent the many obstacles discussed above and now perhaps the only safe source of non-state-taxed cigarettes in the USA.

The author has some ten years of experience with

the online discount cigarettes business. He has witnessed its evolution towards modern

forms of oppression and how smokers have sought

to maintain their dignity and freedom of choice.

More information and resources are on his site:

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