Driving Tobacconists Offline
The New York Times reports that the government has put most online tobacco sellers out of business by leaning on credit card companies, which recently announced they would no longer process cigarette purchases from Internet retailers. Annoyed at cost-conscious smokers who avoid hefty taxes by ordering cigarettes from online tobacconists, state officials complain that such retailers are violating the Jenkins Act, which requires anyone who ships cigarettes across a state line to report the sale to tax authorities in the buyer's state. Cigarette discounters on Indian reservations say the law does not apply to them, but the federal Bureau of Alcohol, Tobacco, Firearms, and Explosives is siding with the states. Given the relatively modest size of the online cigarette market (about $1 billion, or 3 percent of total cigarette sales), MasterCard, Visa, et al. presumably decided their cut was not worth a fight. But what will they say when states demand that they stop doing business with online retailers that do not charge sales tax?