Better Not Shop Around

Online cigarette sales.

Internet retailing threatens to cut into the profits of the shady characters who make a nice living trucking cigarettes from low-tax to high-tax states. But cigarette smugglers, who in recent years have included terrorists as well as ordinary criminals, have found an unlikely ally: New York Attorney General Eliot Spitzer.

Spitzer is determined to eliminate online cigarette sales, banned by a New York law that took effect in 2003, because they reduce revenue from the state's $1.50-a-pack cigarette tax, one of the highest in the nation. New York City adds its own tax of the same amount, pushing prices for premium brands above $7 a pack. The upshot is that New Yorkers who buy cigarettes online, from dealers located on Indian reservations or in other states, can save more than 40 percent a carton.

Last March Spitzer announced that he had successfully pressured credit card companies to stop processing sales for online tobacconists, and in October he unveiled an agreement in which United Parcel Service avoided criminal charges by promising not to deliver cigarettes to individuals. DHL had already gone smoke-free, and Federal Express was expected to follow.

But as Spitzer noted with chagrin, the U.S. Postal Service refuses to get with the program, so discount cigarette sellers still have a way to deliver their goods. Vendors also have found alternative methods of processing payments, including electronic checks and credit card arrangements with foreign banks.

Augmenting Spitzer's supply-side approach, the New York City Finance Department has sent intimidating letters to thousands of online cigarette buyers whose names and addresses it obtained through a court order. Declaring that New Yorkers are liable for state and city excise taxes no matter where they buy cigarettes, the letters demand hundreds or thousands of dollars in back taxes and threaten fines of $500 per carton.

In response to the crackdown, some online cigarette stores have gone out of business, and some have stopped shipping to New York. Others seem defiant. Discount-cigarettes-store.com brags, "We do not report any information about our consumers to any authorities."?