[This is putting quite a dent in online sales. I see YESMOKE is not selling in the USA anymore ... which was the biggest online dealer.]


"Trouble for Online Vendors of Cigarettes"

By BOB TEDESCHI

Published: April 4, 2005


OT since the dot-com bust have so many sites gone south so quickly.

Two weeks after credit card companies announced they would no longer accept payment for tobacco products bought online, scores of Internet cigarette merchants have effectively lost the means to do business profitably, and are either limping along or have shut down their operations altogether.

Visa International, MasterCard International, American Express, eBay's PayPal service and others cut off the online tobacconists last month after being told by a coalition of states and representatives of the federal Bureau of Alcohol, Tobacco and Firearms that virtually all such sales were illegal. Government officials said that merchants had not done enough to comply with age verification practices or to register sales with governments to insure the collection of state taxes.

Now, most merchants are reduced to accepting electronic or paper checks, and fewer customers may be willing to wait for those checks to clear before their orders are shipped. Meanwhile, some online merchants say they have been wrongfully singled out by authorities.

Maxine Jimerson, owner Ron's Smoke Shop in Allegany, N.Y., recently shut down the online part of her business and laid off 120 of her 160 employees. As a member of the Seneca Nation Indian tribe, she is entitled to sell cigarettes free of state tax.

"Most everybody else around here is going out of business too," said Ms. Jimerson, who will keep her retail shop open but has sold her Web address to another merchant who operates on Seneca territory. "We're talking about probably 30 businesses, and between 1,500 and 2,000 employees being laid off."

Ms. Jimerson said her company had gone to great lengths to verify customers' ages, contracting with a special vendor and requiring buyers to send in a copy of a government-issued picture ID, with age and signature, before a purchase could be made. Customer signatures at the time of delivery had to match the signatures on file.

But federal and state authorities said that online cigarette merchants did not do enough to insure the collection of taxes. In particular, they did not comply with the Jenkins Act, a federal law that requires sellers to register purchases in states where customers live. Like many other online sellers operating on Indian territory, Ron's Smoke Shop did not comply with such strictures because it argued that the law did not apply to it.

If there were online companies that complied with all state and federal regulations, "it's news to us," said Marc Violette, a spokesman for the office of Eliot Spitzer, the attorney general of New York, where all online cigarette sales are considered illegal.

"It's good public relations to say you're bending over backwards to comply with the law, but the fact is, they're engaged in an illegal industry, and on their face, these transactions are illegal," Mr. Violette said.

State officials had for years tried unsuccessfully to collect cigarette tax revenues from online merchants, and had redoubled such efforts as budget deficits skyrocketed in recent years. By using the credit card companies as leverage, though, they appear to have made progress in the fight.

The credit card company embargo "will significantly curtail cigarette sales over the Internet, to the advantage of the major cigarette manufacturers as well as state governments," wrote Robert T. Campagnino, an analyst with Prudential Equity Group, an investment firm, in a report late last month.

Mr. Campagnino estimated in his report that in 2004, $1 billion worth of cigarettes were sold online, or about 3.1 percent of the industry's total volume. Many of those sales were made to customers in states with particularly high cigarette taxes like New York, where offline merchants must charge $15 or more in taxes for each carton. New York bars direct shipment of tobacco products to its citizens, but many online merchants ignored that law.

Some established tobacco sellers, like Nat Sherman, a cigar and cigarette manufacturer based in New Jersey that also sells its products online, strenuously object to the government actions.

"They're throwing the baby out with the bathwater," said Joel Sherman, the company's chief executive. "We have over 70 licenses to sell directly to customers around the country - every state, and many municipalities. And we have a whole series of proofs in place for age verification."

Mr. Sherman said that credit card companies "have not gotten around to shutting us off yet," so his site still accepts plastic. But he said that since his customers can find Nat Sherman products at retailers throughout the country - at lower prices, since customers do not pay for shipping - his business will not be as deeply affected by a credit card embargo as others.

In theory, at least, law-abiding online tobacco sellers could avoid the credit card embargo. Joshua Peirez, a senior vice president at MasterCard, said that banks that issue his company's brand of credit cards may provide MasterCard with documentation if they believe one of their merchant customers is selling tobacco online legally.

"But if there's any doubt, banks have the obligation not to contract," said Mr. Peirez, who estimated that his company has so far cut off about 100 of the biggest online tobacco sellers.

Some online cigarette sellers, who spoke on condition of anonymity, said they were exploring ways to create their own credit cards, perhaps in association with other online tobacco sellers. They would then battle government regulators in court to determine the legality of their practices.

Still other online sellers are engaged in more creative practices.

Richard Johnson Jr., who until late last year sold foreign, duty-free cigarettes through www.internet-distributors.com, said he was in the process of reviving that site so he could sell domestic cigarettes to United States consumers. Mr. Johnson said he planned to establish credit card accounts with foreign banks, which he said were not bound by United States laws.

Because some Internet cigarette sellers continue to accept credit cards, this practice is possibly already being adopted. Mr. Peirez, of MasterCard, said the company's policy applied to any bank whose merchants sell to United States customers. "So no, we wouldn't allow them to process those transactions," he said.

Meanwhile, Ms. Jimerson of Ron's Smoke Shop said she hoped to use her company's former warehouse for a new party supplies and candle business, FirstAmericanCandle.com, which she began developing months ago.

"I could retire," she said. "But I don't like to be forced into anything."

NY TIMES

quote:

Richard Johnson Jr., who until late last year sold foreign, duty-free cigarettes through www.internet-distributors.com, said he was in the process of reviving that site so he could sell domestic cigarettes to United States consumers. Mr. Johnson said he planned to establish credit card accounts with foreign banks, which he said were not bound by United States laws.

Maybe we should all just get foreign bank and credit accounts just like all the big American corporations moving offshore to avoid corporate taxes. I say a pox on Visa and Mastercard... as I start turning in the plastic. Can you imagine the Fed turning somersaults if 50 million smokers were to burn their plastic and opt to receive their take home pay in US greenbacks? They couldn't print enough bills. It would make the runs on banks during the great depression look like child's play.

Oh no. The government is finally starting to pressure online (non-tax paying) cigarette traffickers into a law-abiding group. I bet my cat could buy cigarettes online with the age verification process currently in place.

Let me wipe a tear from my eye.

quote:

Oh no. The government is finally starting to pressure online (non-tax paying) cigarette traffickers into a law-abiding group.

And then the government can start pressuring the not-so-law abiding offline cigarette traffickers(drug dealers and terrorist groups)who will pick up the lost business from the online vendors. Good luck with that one, especially since selling cigarettes is now more profitable than selling drugs - I doubt they will go down as easily.

Only if your cat had a major credit card, Niconazi. "Children" really never did buy from online suppliers except when they were put up to it by someone from the anti-tobacco industry who lent the "kid" their credit card to do it.
You see, most children don't have credit cards.

The people buying over the internet were adults, and the only reason the states are having conniption fits over this is because they weren't getting their m-o-n-e-y, which is all they really care about. OTOH, if the tax rates weren't so ridiculously high, there wouldn't have been a problem.

quote:

Originally posted by NicoNazi:
Oh no. The government is finally starting to pressure online (non-tax paying) cigarette traffickers into a law-abiding group. I bet my cat could buy cigarettes online with the age verification process currently in place.

In my state there is a line on the tax form to pay these kinds of taxes. It's not the vendors who are supposed to collect the taxes. It's the taxpayer who's supposed to send it in.

Federal tax might be a different story.

Btw, I bought booze online. Don't recall how they verified my age, but I sure as hell didn't have to send them any ID.

And what about porn sites? Do they check IDs?

BTW, are taxes collected from porn sites? I believe that's the biggest industry on the internet, isn't it?

Help Your Community-Buy Your Porn From Local Merchants

Right you are, Squeezer.

Smoke ’em if … they’re cigars?
Proposed hike on cigarettes contradicts measure to cut other tobacco tax

JOSEPH TURNER; The News Tribune
Last updated: April 4th, 2005 12:20 PM


The same Legislature that wants to give a hefty boost to the tax on cigarettes is likely to take the opposite approach to taxes on cigars and other tobacco products.
Both the House and the Senate are considering bills that would reduce the tax on cigars, pipe tobacco, chewing tobacco and snuff from nearly 130 percent today to 75 percent. Senate Bill 6097 and House Bill 2303 also say the tax on a cigar would be no more than 50 cents.

It’s mostly about money, said Sen. Margarita Prentice (D-Seattle), the Senate’s chief budget-writer and prime sponsor of SB 6097.

At Friday’s public hearing before the Senate Ways and Means Committee, a representative of the tobacco industry held up a box of cigars and said it could be bought for $130 on the Internet, $191 in Oregon or $370 in Washington.

http://www.thenewstribune.com/news/local/story/4744810p-4375152c.html

What about other transactions made
over the internet? Why are they
not deemed Illegal?

I will tell you why in a Wisconsin
perspective. For a hair dryer that
costs 10.00, they lose .60 of taxation.
For a 1.10 pack of cigarettes, they lose
.77 of tax revenue. My average order
is 5 cartons of cigarettes, my cost is
55.00. They lose 38.50 in taxes.
If somebody buys a wrinkle remover cream
for 55.00, they lose 3.36 in taxes.

We know this unfair and discriminatory,
but which consumer are they going to target?

There must be some way to fight this.

Larry Z.

Larry Z.

It annoyed me when credit cards were no longer accepted.

But instead of worrying about a paper check clearing I just go buy a money order at the post office. Costs .80 cents

Mail it off. Still takes a couple of weeks to get my order, but I make sure I send the money before I'm out of smokes.

Works well.

Glad to know the Nazi's are once again killing businesses "FOR THE CHILDREN". Gee what about the children of all those laid off employees???

Because their parents needed a job that the world deemed a crime, now THOSE CHILDREN have to suffer???

I buy my cigarettes by telephone allowing two weeks for my shipment to arrive. The vendor just debit's my checking account. It was easier when I could go online but I am willing to put up with whatever it takes so I will not have to contribute to the entities trying to eliminate my pleasure.

I am in the credit card industry and it makes me sick that the card associations, mastercard and visa are doing this to the online tobacco retailers. I have several tobacco merchants that sell online, they do age verification and the delivery must be signed my someone 21 years of age or older. Their chargeback ratio is less than 0.001%, do not tell me children are constantly buying cigarettes online using their parents credit cards. That is a load of crap! These retailers are Native Americans and all that is going on, is the government wants a piece of the action and they are not getting it because the Native Americans do not have to pay state taxes. THAT IS WHY. If so many kids were buying cigarettes online then these retailers would have a higher chargeback %. Restaurants where the card is present have more chargebacks / disputes than the online tobacco retailer. Yes, I pitty them, because they are Native Americans and the government will not leave them alone. Why does the government keep taking from the Indians? We are silly to think other countries operate in this manner, because they do not. We are a greedy naition all about taking a dollar.

quote:

Originally posted by jlgchia:
...do not tell me children are constantly buying cigarettes online using their parents credit cards. That is a load of crap!

You're absolutely correct.

We know politicians and anti-tobacco people have put kids up to it so they can make headlines.

BTW, Welcome.

quote:

Originally posted by jlgchia:
These retailers are Native Americans and all that is going on, is the government wants a piece of the action and they are not getting it because the Native Americans do not have to pay state taxes. THAT IS WHY.

We are a greedy naition all about taking a dollar.

I agree on this 100%.

Thanks Squeezer and Jason K. I am not Native American, but my business clients are. I read lots of articles on the ridiculous reasons as to why this is going on. It's more of the same. No age verification. (Untrue) And not reporting shipments of cigarettes so they can pay tax. (True - because they don't have to) Native Americans do not have to pay state tax. The government needs to get over it. Find money some place else and leave them alone. It is all about the state governments wanting a piece of the Native Americans dollar. And, how much the state is losing because of non-taxed internet tobacco sales that are sold by Native Americans. So in order for them to process "legally" online, they have to pay taxes. Or take the business to a bank out of the U.S. Love that idea... I cannot stand the fact that tobaccofreekids.com is in on this. Come on. If your kids are using your credit card, to buy cigarettes online, you need to be worring about what else they are doing too. If they have the guts to take your credit card to buy tobacco online and have it shipped to the house, there are some serious problems there. These parents should point the finger at themselves and wonder what they did wrong, not elsewhere.

I believe my state and the state Indian nations have some sort of agreement on taxes. It doesn't pay for me to drive to a reservation to get cigarettes and the nations get something in return for collecting taxes on the rest of us. Their members are tax-exempt.

The way I understand it, non-"Native Americans" still owe taxes even on tobacco products purchased on the reservation.

In order to skirt the taxes, they have to show some form of tribal ID.

Not entirely sure about this, but that is what I've heard in MN.

quote:

Originally posted by Jason K:
The way I understand it, non-"Native Americans" still owe taxes even on tobacco products purchased on the reservation.

In order to skirt the taxes, they have to show some form of tribal ID.

Not entirely sure about this, but that is what I've heard in MN.

That's the way it is in WI.

I believe our compact with them is that they can have casinos if they agree to collect the taxes on non-Indians. It's been awhile I can't remember for sure.

I know if I was my own nation I'd do whatever the hell I wanted to. LOL

From what they tell me, they do not have to pay / or notify the state of any sales no matter what. They do pay Federal tax. According to the Native Americans, as being part of their soverign nation they do not want anyone providing the governments with any information. However, I do know of one Native american tobacco company that has a tobacco call center that is giving the state all the information they want, and he is being let's say, frowned upon by everyone else. They won't even let a P & L Statement leave the reservation, that is how strict they are about not providing information. Believe me, I have seen them tell ATF people to go F--- themselves.

In my state, they do not have to collect state tax at the reservation.