Internet Sales

Internet sales remain another channel through which smokers acquire tobacco products. This has been a less expensive avenue for some seeking to escape payment of a state excise tax. According to the anti-smoking advocacy group "Campaign for Tobacco Free Kids," there were more than 700 Internet sites selling cigarettes to American consumers in 2006.

A report from Prudential Securities estimated that about 3 percent of all cigarettes sold in 2002 were acquired over the Internet.[151] A forthcoming paper by economists Austan Goolsbee, Michael Lovenheim and Joel Slemrod, however, concludes that governments will probably find that their ability to raise revenue through cigarette tax hikes is undermined by Internet cigarette sales.[152]

The potential of revenue losses from World Wide Web transactions have not been lost on state treasury officials. In Michigan the state began cracking down on online purchases in early 2005. Terry Stanton, spokesman for the Michigan Department of Treasury, reports that from February 2005 through August 2008, more than 23,000 people have been identified by the Treasury Department as having purchased cigarettes online.

According to Stanton, the purchases had a total tax liability of more than $36 million. That is a tobacco tax liability exceeding $1,500 per person. Stanton also reports a significant drop in online sales and argues that "purchasing un-stamped/untaxed cigarettes from un-licensed sources is illegal ... has been heard."[153]

[151] "Indian Sales of Tobacco Face New Pressure," New York Times,, September 26, 2004.

[152] Austan Goolsbee, Michael Lovenheim, and Joel Slemrod, "Playing with Fire: Cigarettes, Taxes, and Competition from the Internet," University of Michigan Office of Tax Policy Research, August 29, 2007.

[153] Terry Stanton (Michigan Department of Treasury) e-mail message to author Michael LaFaive, September 24, 2008.