U.S. Federal Issues

Internet Tobacco Sales

New Federal Law Fights Tax Evasion, Protects Kids

On March 31, 2010, President Obama signed into law the Prevent All Cigarette Trafficking (PACT) Act, which cracks down on the growing sales of tax-evading, low-cost cigarettes and other tobacco products over the Internet and through the mail. The legislation was sponsored by Rep. Anthony Weiner (D-NY) and Sen. Herb Kohl (D-WI).

Internet sales have offered a way to evade tobacco taxes, keeping cigarette prices down and smoking levels up. Such sales make it easier and cheaper for kids to buy cigarettes, facilitate tax evasion and cost federal and state governments billions in revenue.

Many vendors that sell cigarettes and smokeless tobacco products over the Internet or through other mail-order sales do not pay applicable tobacco taxes and do not have sufficient safeguards to prevent sales to children, such as effective policies to verify a purchaser's age.

Key Provisions

The PACT Act:

  • Requires Internet sellers to pay all federal, state, local or Tribal tobacco taxes and affix tax stamps before delivery to any customer;

  • Mandates that the age and identification of purchasers be checked at purchase and at delivery;

  • Requires Internet vendors to comply with state and local laws as if they were located in the same state as their customers;

  • Provides federal and state enforcement officials with new tools to block delivery of cigarettes and smokeless tobacco products that evade federal or state laws; and

  • Bans the delivery of tobacco products through the U.S. mail.

Several Internet retailers, primarily based on Indian Tribal lands in New York, have filed lawsuits to block implementation of the law. One federal judge has upheld the entire PACT Act. In another court, the judge upheld all of the new law except for the provisions requiring Internet sellers to comply with all state and local laws relating to tobacco product sales and to pay all applicable state and local tobacco taxes prior to delivery. Implementation of most of the law is moving forward as both cases are appealed.

The Campaign for Tobacco-Free Kids and other public health groups strongly supported the PACT Act.