Hatch-Kohl Bill Would Reduce Tobacco Tax Evasion Through Internet Sales

Statement of American Cancer Society, American Heart Association, American Lung Association and Campaign for Tobacco-Free Kids

Jul. 31 2003

Washington, D.C. — We urge Congress to pass meaningful, bipartisan legislation introduced by U.S. Senators Orrin Hatch (R-UT) and Herb Kohl (D-WI) unanimously approved today by the Senate Judiciary Committee today to curtail the alarming growth of tobacco product sales over the Internet. Internet tobacco sales facilitate the evasion of state tobacco excise taxes and make low-cost cigarettes readily available to kids.

There are currently more than 400 Internet websites that sell tobacco products. Internet sales of tobacco products pose real problems. Internet tobacco prices are much lower than those in retail outlets because Internet sellers do not pay state tobacco taxes. These low prices make Internet tobacco products attractive to both adult and underage smokers, and help to boost overall smoking levels. Children are especially sensitive to tobacco prices. Studies show every 10 percent increase in the price of cigarettes reduces youth smoking rates by about seven percent and overall cigarette consumption by three to four percent.

In addition, states may be losing hundreds of millions of dollars each year through Internet-based tobacco tax evasion. State cigarette and other tobacco tax increases increase revenues, but these revenues would be even larger if smokers and other tobacco users wishing to evade state taxes could not so readily find and buy tax-free cigarettes and smokeless tobacco products over the Internet.

All of these problems with Internet tobacco sales have been compounded by the lack of federal enforcement of existing laws and the enormous difficulties states face in trying to block illegal Internet sales or bring illegal Internet sellers to justice.

We thank Senators Hatch and Kohl for their willingness to work on this issue with the public health community. We also thank Judiciary Committee members Senators Patrick Leahy (D-VT) and Richard Durbin (D-IL) for their work on this issue. The Hatch-Kohl bill would provide state governments with effective tools for collecting state taxes on Internet tobacco product sales to their residents. State revenue losses from Internet cigarette sales are a growing concern among those states that have high cigarette taxes, have just passed cigarette tax increases or are considering cigarette tax increases. The Hatch-Kohl legislation requires Internet vendors of tobacco products to register with the states where they sell their products and comply with all related state laws regarding state tobacco tax collection and reporting. It allows states to block the delivery of cigarettes and smokeless tobacco sold by Internet sellers who fail to register with the state or otherwise fail to comply with federal or state law. It also gives state officials the right to seek injunctive and equitable relief in federal courts to enforce Internet sellers' compliance with tax collection.

We look forward to working with the Judiciary Committee to address the issues raised during Committee consideration of the bill today including the problem of youth access to tobacco products sold over the Internet.

We also encourage Congress to pass additional legislation to minimize both interstate tobacco product smuggling and international smuggling of U.S. brand cigarettes, which would not only reduce related tax evasion but also help to eliminate a lucrative funding source for terrorist organizations.

Similar Internet legislation was introduced last week by U.S. Representatives Mark Green (R-WI) and Martin Meehan (D-MA), H.R. 2824. We look forward to working with Members of Congress to ensure that Internet sales legislation is quickly enacted into law.

 

Media Contacts