States losing millions in taxes as people buy cigarettes on Net

BOSTON -- States are losing millions in taxes as more people buy cigarettes from Internet vendors who routinely ignore a federal law requiring them to report sales to local regulators, according to a new report.

The trend could undercut efforts by cash-strapped states to raise revenue by hiking cigarette taxes.

New Jersey and New York state both have a $1.50 per pack tax, the nation's highest. Washington state is third, at $1.425. In Massachusetts, lawmakers recently approved a 75-cent hike, a move officials hope will bring in an extra $190 million annually.

Federal law requires Internet cigarette sellers to provide state revenue officials with names and addresses of their customers. The officials can then pursue the buyers to make sure they pay local sales taxes.

But Internet cigarette vendors are ignoring the law, according to the report, to be released Tuesday by the General Accounting Office. Of 147 Web sites identified as belonging to Internet cigarette vendors in the United States, none posted information saying they complied with the law -- and 78 percent indicated they do not comply, the report said.

Calls to several Internet cigarette vendors advertising "tax free cigarettes" were not returned to The Associated Press on Monday. One Web site promised buyers: "We do not report to tax authorities in ANY state. 100% confidential."