Clearing the online air on cigarette sales

They can sell you a carton of cigarettes at half the price.

But they're skirting the government and undercutting law-abiding retailers in the process.

Internet and bulk-mail cigarette companies, many of them based outside the United States, are currently using a loophole in the law that allows them to circumvent all sorts of taxes, including local and state cigarette and sales taxes.

By avoiding taxes, companies can advertise cigarettes at $12.95 per carton. A full-color advertisement showcasing Marlboro, Winston, Camel Lights and Parliament cigarettes was recently mailed in bulk to Southeast Missouri residents. The ad encouraged consumers to visit its Web site and pay a $49.95 membership fee or buy 10 cartons and earn a membership that way.

By comparison, Schnucks manager Dennis Marchi says his store can legally purchase a carton of Marlboro cigarettes for a wholesale cost of $27.99. Ten cartons on the Web site would cost about $130. After a 10 percent markup, 10 cartons at the grocery store would cost nearly $310.

Marchi said he doesn't mind a little competition, but only if everyone is playing by the same rules.

"We're not even on the same playing field," Marchi said.

Marchi is not alone in his argument. Major cigarette manufacturers, The National Association of Convenience Stores and even anti-smoking organizations are lobbying to put a stop to or at least regulate the online sales of cigarettes.

Nationally, legislation is being considered that would force Internet cigarette vendors to collect taxes like every other business.

Both the U.S. House and Senate are looking at bills. The House Judiciary Committee adopted a measure recently that would make it a felony to evade state taxes on cigarettes through Internet sales.

The Senate has adopted a somewhat similar measure that would require Internet firms to report their transactions, making it easier for states to ensure that taxes are collected.

According to the National Association of Convenience Stores, there were more than 350 Internet and mail-order cigarette companies at the end of 2003. The NACS estimates 413.9 million packs were sold over the Internet in federal fiscal year 2003, which ran from October 2002 through September. In 2002, the NACS estimated $200 million was lost in taxes to the states.

A spokeswoman from the Missouri Department of Revenue said Wednesday that the state does not have an estimate on how much revenue it could be losing from lost cigarette taxes, which amounts to 17 cents per pack.

"We don't have any connections with these companies because they wouldn't have registered," said DOR spokeswoman Jessica Robinson.

Robinson said Missouri saw a 1 percent increase in cigarette sales tax revenue last year, so there was no cause for alarm to study the issue.

Several cigarette Web sites tell visitors that their sales are legal. One Web site explains that it gets around paying import taxes by sending only one carton at a time. ""If the value exceeds a certain amount," the Web site says, "usually around $25 to $50 in the U.S., the cigarettes are subjected to tax. As long as only one carton of cigarettes is imported, you are not subjected to duty tax. In order to ensure that no duty taxes are applied, we ship out each carton separately to our customers."

Mark Berlin, legislative counsel for Altria Group Inc. -- parent company of Philip Morris, the nation's largest cigarette maker -- said his group strongly supports federal legislation.

Online tobacco sellers, unsurprisingly, oppose the measure. Ali Davoudi, who heads the Online Tobacco Retailers Association, testified recently that the bill "would exacerbate the disparate treatment of Internet tobacco retailers.

"It would compel them, unlike all other interstate retailers, to participate in the tax-collection process. Giving individual states the authority to bring actions against retailers would lead to a patchwork of different enforcement decisions in each state."

This issue is one of the rare occasions where tobacco companies and anti-smoking groups appear to be on the same side. Some have argued that Internet sales make it easier for under-age smokers to get their hands on cigarettes.

"We want the taxes that have been passed on cigarettes to be collected, said Eric Lindblom of the Campaign for Tobacco-Free Kids. "If you increase the price of cigarettes, smoking goes down.

The Associated Press contributed to this report.

bmiller@semissourian.com

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