Tax flags as surfers bag fags online

NEWS By Margaret Kane Online sales of cigarettes could be costing the US economy millions of dollars in unpaid taxes every year, according to a new report. The US General Accounting Office (GAO) points to a Forrester Research report which predicts internet tobacco sales in the US will exceed $5bn in 2005 and that the states will lose about $1.4bn in tax revenue from these sales. Almost all states tax the sale of cigarettes, but the issue has come to the fore as municipalities such as New York City raise taxes to close budget gaps. Like many other products, one of the attractions of purchasing cigarettes online has been the avoidance of those added taxes. But, as with sales taxes, just because consumers aren't charged the tax by the vendor when they purchase the item, they are still responsible for remitting it to their home state. In the case of cigarettes, a 1949 federal law known as the Jenkins Act requires dealers who ship cigarettes across state lines to people other than licensed distributors to report the sale to the buyer's home state, so that state can collect excise tax. However, only five per cent of the internet retailers surveyed posted notices of their responsibilities under the Jenkins Act, although those that did stated that they didn't comply with it, according to the GAO. Many internet retailers even stated on their websites that they did not have to comply with the Jenkins Act - with 16 per cent citing their Native American status, the Internet Tax Freedom Act and other laws as reasons for not complying. Margaret Kane writes for CNET