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Public Health Groups Support Bipartisan Green-Meehan Bill to Reduce Tobacco Tax Evasion Through Internet Sales

Statement of American Cancer Society, American Heart Association, American Lung Association and Campaign for Tobacco-Free Kids
July 24, 2003

Washington, D.C. — Congress should quickly enact the bipartisan legislation introduced by U.S. Reps. Mark Green (R-WI) and Martin Meehan (D-MA) to help states address the growing problem of tobacco excise tax evasion caused by Internet sales of tobacco products. This legislation will support state efforts to increase tobacco prices in order to reduce smoking, especially among kids. It will also help states to collect much-needed revenue to address record budget shortfalls. We commend Reps. Green and Meehan for listening to the concerns of the public health community and working with us to strengthen this important legislation.

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 regular bricks-and-mortar retail outlets because Internet sellers almost never include the state taxes charged by retail stores. 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 very 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 always increase state revenues, but these revenue increases would be even larger if smokers and other tobacco users that wish 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.

The Green-Meehan legislation firmly addresses the problem of tobacco tax evasion through Internet sales. It would explicitly require that Internet sellers ensure that all state excise taxes have been paid on any cigarettes or smokeless tobacco they send into a state, with all required tax stamps affixed. It requires all Internet sellers to register with those states to which they are making cigarette or smokeless tobacco sales and to comply with all state tobacco tax laws as if the Internet seller were based in the state. It allows states to block the delivery of cigarettes and smokeless tobacco sold by Internet sellers that fail to register with the state or otherwise fail to comply with federal or state law. The legislation also gives state officials the right to bring elusive Internet sellers into federal court and to collect comprehensive injunctive and equitable relief, including monetary damages.

To make the Green-Meehan legislation even stronger, we encourage Congress to follow the recommendation of the General Accounting Office (GAO) and make knowing violations a felony under federal law. This increased penalty provision is necessary to prompt adequate federal enforcement efforts and to provide a more significant disincentive to stop Internet sellers from breaking the law.

We also support legislation of the type introduced in the last Congress by Representative Meehan that would establish effective safeguards against kids being able to purchase cigarettes via the Internet. Such safeguards currently are almost non-existent. While many Internet websites post notices that sales to persons under 18 are illegal or not allowed, numerous studies and reports have established that the vast majority of Internet tobacco retailers not only fail to comply with applicable tax laws but also fail to take effective steps to ensure they are not selling to kids.