E-Tailers Fuming Over N.Y. Law
NEW YORK -- Fed up with the ever-increasing per-pack price of cigarettes, many smokers now purchase their cigarettes online, where the cost for a carton can be 30 percent lower than in many offline stores.
But virtual shopping for smokes soon may not be an option for New Yorkers, who are paying an average of 47 cents per pack more than they were at the beginning of the year.
A new New York State law prohibits the sale or shipment of cigarettes to individual Internet customers. The law -- which also prohibits mail order and telephone sales of cigarettes and goes into effect January 2001 -- was passed earlier this year by state legislators, who said it was needed to protect public health and the state economy.
But American Indian businesses based on selling discounted cigarettes, and tobacco retailers who sell direct to customers, are crying foul.
The Brown & Williamson Tobacco Corporation of Louisville, Ky., filed suit in federal court Monday challenging the law. The Santa Fe Natural Tobacco Company of New Mexico filed its own suit on Tuesday.
Both companies say the law "is an unconstitutional interference with interstate commerce" and also warn that it sets a precedent for other states to place their own wide-ranging regulations on Internet shopping.
Although the American Indian-owned businesses have not filed any suits, there is a strong feeling in the community that the law is directed at the many business that have been selling cigarettes from their reservation stores in the state of New York. That, according to a spokesman from Cigarettes Express.com, located on the Allegany Indian Reservation, home to the Seneca Nation, in Salamanca, N.Y.
"It seems the lawmakers have overlooked the Seneca Nation's treaty of 1842 with the United States in which the federal government declared the Nation's sovereignty and its freedom from external controls," said a spokesman from Tobaccoxpress , which is also located on the reservation.
Buffalo attorney Joseph Crangle, who represents several of the Seneca's business interests, has advised his clients that the new law "does not apply to the Indians."
Crangle told his clients that New York State civil laws do not apply to Indian reservations, and that shipment of products from a reservation can only be regulated by the federal government because a reservation is considered to be "interstate" by federal law.
Crangle also said that he was cheered by the fact that the case has been assigned to U.S. District Judge Loretta Preska in New York City. Preska ruled three years ago that New York's attempt to criminalize sending pornographic material over the Internet was unconstitutional.
That may also be good news for the Brown & Williamson, which had just decided to begin selling selected brands of its cigarettes directly to consumers. The company's federal suit charges the state is engaging in "impermissible economic protectionism at its most flagrant."
Brown & Williamson officials were not available for comment.
Harvey Jacobs, of Jacobs & Associates -- a firm that specializes in Internet law -- agrees that an absolute ban on the online sale of cigarettes to New York residents would impose an unconstitutional burden.
"If New York were to ban the sale of cigarettes entirely by any means to its citizens, only then would it be likely that it could ban Internet sales, too," Jacobs said.
But citing the oft-mentioned need to protect children, Joseph Conway, a spokesman for Gov. George Pataki, said that the sales ban is "an important public health measure that will help save lives by preventing young people from obtaining cigarettes illegally."
"We're confident that the law is constitutional and that the lawsuit will be unsuccessful," Conway added.
Manhattan criminal attorney Edward Hayes doubts the law is really based on protecting children or public health. "These types of laws have little to do with anything but politics," he said. "But the whole issue of controlling Internet sales by local tax jurisdictions is just beginning to be litigated so who knows where this will go?"
Anil Patel, owner of a magazine store in Manhattan, is unsure about whether he favors the law. Patel says that every time a new tax is imposed on cigarettes, his sales drop.
"My customers tell me the prices have gone too high, and so they are now going to quit," Patel said.
"But then I see them on the street and they are smoking. One of them said he was buying cigarettes from the Indians, and I thought he meant Indians like me, from India. And then when he explained that the other Indians, the ones from here, didn't have to charge tax I began to worry about my business."
Smokers have long sought bargains by purchasing their cigarettes at Indian reservations, or at wholesale outlets located in the tobacco-growing southern states. But this activity was limited to those who could physically get to these places.
Now anyone with a modem can cheaply buy cartons at more than 100 websites, many of which are owned and operated by American Indians who do not collect or pay state sales taxes.
New York isn't the only state to battle out-of-state cigarette sales. In California, officials found that a 50-year-old federal law called the Jenkins Act was still in effect. Under the Jenkins Act, anyone who ships cigarettes must file monthly reports to the state that detail the purchaser and the amount purchased.
The law was originally designed to halt shipments of cigarettes to anyone who wasn't a licensed distributor. American Indians said that since they were running their business within sovereign nations they were not subject to the Jenkins Act.
Some of the other non-Indian cigarette sales sites do supply the monthly reports -- and some of California's bargain-hunting smokers soon found tax bills for $8.70 per carton purchased in their mailboxes.
"I bought cigarettes for my entire family on a pretty regular basis," said Jessie Spears of Sunnyvale. "Then I got a bill saying I owed $4,672.28 in California taxes. I'm retired and on a fixed income and I can't pay that. And I can't ask my children to pay for what I told them was a present."
Jacobs says that the New York law could speed up the interest states have in protecting their tax income.
"If New York's law isn't struck down you will find all sorts of industries trying to get on the bandwagon to preserve their local sales of goods. It would be a nightmare to enforce and could start a 'Net-war' among the states," said Jacobs.
"Suppose Virginia, which is a large tobacco producer, decided to retaliate by passing a law saying that New Yorkers could not buy AOL Internet service from AOL, a Virginia company? Where would that put us? At best, this appears to be a short-sighted attempt against 'evil-tobacco.' At worst, it's one state going about its business in a very misguided way."