House Judiciary Committee Approves Internet Tobacco Sales Enforcement Act
January 28, 2004. The House Judiciary Committee amended and approved HR 2824, the "Internet Tobacco Sales Enforcement Act", by unanimous voice votes.
On July 23, 2003, Rep. Mark Green (R-WI), Rep. Marty Meehan (D-MA), and others introduced HR 2824. See, story titled "Internet Cigarette Sales Bill Introduced in House" in TLJ Daily E-Mail Alert No. 711, August 5, 2003.
On October 2, 2003, the House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property amended and approved the bill. See, story titled "House Subcommittee Approves Internet Tobacco Sales Enforcement Act" in TLJ Daily E-Mail Alert No. 752, October 3, 2003.
Also, on August 13, 2002, the General Accounting Office (GAO) released a report [60 pages in PDF] titled "Internet Cigarette Sales: Giving ATF Investigative Authority May Improve Reporting and Enforcement" which documents non compliance with the Jenkins Act by internet vendors. See also, story titled "GAO Reports on Internet Cigarette Sales" in TLJ Daily E-Mail Alert No. 491, August 14, 2002.
Rep. Meehan (at right) stated at the January 28 markup that the bill serves two purposes. First, it addresses "the problem of illegal sales of tobacco to children over the internet". Second, it addresses "the rampant tax evasion" resulting in lost state revenues due to internet sales.
The Jenkins Act, enacted in 1949, does not create a federal tax collection regime. Rather, it established reporting requirements. It requires that any person who sells and ships cigarettes across a state line to a buyer, other than a licensed distributor, to report the sale to the buyer's state tobacco tax administrator. Some states impose vastly higher taxes on the sales of cigarettes than others. The Jenkins Act helps these states enforce their cigarette tax laws. It is codified at 15 U.S.C. §§ 375-378. Currently, many internet based cigarette sellers are not reporting sales to state tax administrators. And, states have little recourse.
The Committee approved an amendment in the nature of substitute offered by Rep. Green and Rep. Meehan.
The bill revises the Jenkins Act in a number of ways.
Section 2 of the bill provides that "Each person who engages in an interstate sale of cigarettes or smokeless tobacco or in an interstate distribution of cigarettes or smokeless tobacco shall comply with all the excise, sales, and use tax laws applicable to the sale or other transfer of cigarettes or smokeless tobacco in the State and place in which the cigarettes or smokeless tobacco are delivered as though the person were physically located in that State or place."
It further provides that "Unless State law requires otherwise, no cigarettes or smokeless tobacco may be delivered pursuant to an interstate sale unless in advance of delivery -- (A) any cigarette or smokeless tobacco excise tax that is imposed by the State in which the cigarettes or smokeless tobacco are to be delivered has been paid to the State ..."
It imposes expanded record keeping and reporting requirements on remote sellers of cigarettes and smokeless tobacco.
The bill also give states the ability to enforce these requirements of Section 2. It provides that "the attorney general of a State may in a civil action obtain any appropriate relief, including money damages, civil penalties, and injunctive or other equitable relief ..." The bill also provides for federal criminal penalties for violation of Section 2.
It expands the covered products to include a range of smokeless tobacco products.
The bill's definition of "interstate sale of cigarettes or smokeless tobacco" is noteworthy. It does not require a transaction across state lines. It includes any transaction in which "the buyer submits the order for such sale by means of a telephone or other method of voice transmissions, the mails, or the Internet or other online service, or the seller is not in the physical presence of the buyer when the request for purchase or order is made ..."
This bill pertains to taxes on remotes sales, in the special case of cigarettes and smokeless tobacco. The issue of sales and use taxes on remote sellers generally is a contentious and unresolved issue in the Congress. Hence, this bill now contains language stating that this bill is not a precedent for other types of remote sales.
The bill provides that "It is the sense of Congress that unique harms are associated with the remote interstate sales of cigarette and smokeless tobacco, including problems associated with verifying the legal age of consumers and long-term negative health effects associated with the continued use of these products. This Act further affirms Congress' long-standing interest in encouraging compliance and enforcement of State laws that relate to the remote sales, including internet sales, of these products. Enacted more than 50 years ago, the Jenkins Act established reporting requirements for remote interstate sellers of cigarettes in order to reduce incentives for smuggling and to help states enforce tobacco taxes. In light of the unique federal policy and historic distinctions between cigarettes and smokeless tobacco and other products, the requirements of this Act are in no way meant to create, and ought not be considered, precedent regarding the collection of State sales or use taxes by out-of-state entities that lack a physical presence within the taxing State."
The bill also contains language relating to tribal sovereignty. However, both Rep. Green and Rep. Meehan stated that they plan to continue to work with tribal groups and Senators to revise this language. Rep. Howard Berman (D-CA) stated that the reason the issue could not be fully addressed in the House Judiciary Committee' mark up is that inserting the appropriate language would have the consequence of giving another House committee jurisdiction over the bill. Several members of the Judiciary Committee stated that the issue of tribal sovereignty will be addressed in a conference committee that resolves differences between the House and Senate versions of the bill.
Rep. Anthony Weiner (D-NY) offered, but later withdrew, an amendment that would have provided that cities may also bring enforcement actions under the Jenkins Act. It would have extended enforcement authority to "the chief law enforcement officer of a local government that imposes an excise tax on cigarettes or smokeless tobacco".
New York City, which Rep. Weiner represents, has a cigarette tax. Rep. Weiner made several arguments in support of his amendment. Similar language is already in the Senate bill; few cities have a cigarette tax; most city taxes on cigarettes are small; and, cities are losing tax revenues.
Rep. James Sensenbrenner
(R-WI), the Chairman of the Committee, argued that "this amendment, if adopted,
could very well be a deal breaker". Rep. Green argued that the bill reflects a
balance achieved after months of negotiations, and that adoption of the Weiner
amendment could be a setback for the bill. Rep. Meehan jokingly referred to Rep.
Weiner's amendment as "the Bloomberg amendment".