Goal of online tobacco sales ban: more state tax revenue

Goal of online tobacco sales ban: more state tax revenue

California may be considered a technology pioneer, but at least one state lawmaker wants to put the brakes on a growing segment of the online retail market.

Assemblyman Roger Dickinson, D-Sacramento, has introduced a measure to ban online sales of all tobacco products, including cigarettes, cigars and e-cigarettes. Dickinson says the bill, Assembly Bill 1500, would help state regulators combat teen smoking.

“Although great progress has been made to curb teen smoking, the use of e-cigarettes and the internet availability of tobacco products pose a serious risk,” Dickinson said in a press release. “AB1500 will make it impossible for young people to order e-cigarettes or other tobacco products online thereby safeguarding them from the dangers of smoking.”

Although Dickinson has made teen smoking central to his media pitch, the real battle over AB1500 is over the dollars and cents at stake in online cigarette sales. Unsurprisingly, state tax collectors are anxiously hoping new regulations will boost state coffers.

Online sales result in tax ‘breakage’

Dickinson’s bill, which blocks a segment of the online marketplace, is expected to generate $24 million in tax revenue for the state. At first blush, that might sound a bit counterintuitive: How could a bill that bans commerce generate more revenue for the state?

Smokers who buy tobacco products online won’t quit smoking. Consequently, the ban is expected to redirect online sales to brick and mortar stores. With online transactions, there’s more tax “breakage,” sales and use tax that is either never charged or collected.

“By requiring purchases at brick-and-mortar retailers, it will ensure that tax revenue is collected,” said Taryn Kinney, Dickinson’s communications director. “The purpose of the bill is aimed at limiting access to tobacco products for teenagers but the additional tax revenue is an added benefit.”

The state Board of Equalization, which administers the state’s sales and use tax laws, has yet to take a position on the bill but acknowledges the difficulty in tracking e-commerce.

“The BOE has no formal revenue estimate for eCigarette sales,” said Venus Stromberg, a spokeswoman for the Board of Equalization. “Since there is no excise tax on these products, and no licensing requirements, BOE does not track these purchases.”

Although the Board of Equalization doesn’t track online purchases, it has implemented a program, the Cigarette and Tobacco Product Internet Program, to pursue use tax from consumers that purchase tobacco products from out-of-state Internet retailers. Federal laws also assist the state with this program.

“Currently, federal laws such as the Jenkins Act and PACT Act assist with tax collection by requiring out-of-state sellers to submit reports to each state’s tax agency of their cigarette and certain tobacco sales made to residents,” Stromberg said.

State taxes on cigarettes are hefty

With nearly a dollar of taxes on each pack of cigarettes, state tax collectors have reason to track down online sales. Of the 87 cents in taxes per pack of cigarettes, the Board of Equalization says that 50 cents goes towards programs that  “encourage proper childhood  development, including the  development of professional and  parental education and training,  informed selection of childcare,  development and education of  childcare providers, and research  into the best practices and  standards for all programs and  services relating to early childhood  development.”

The remaining tax funds are distributed with 25 cents for tobacco-related health education programs and disease research; 10 cents for the state’s  General Fund; and two cents for the Breast Cancer Research Fund.

“With proper outreach to consumers, eCigarette purchases would be redirected to brick and mortar stores in CA where there is oversight with regard to compliance with the tax laws,” said Stromberg, a Board of Equalization spokeswoman.

Unique tax issues behind retailers vs. onlight fight

Online sales of tobacco products, just like all e-commerce, pose unique tax issues. Right now, the amount of taxes owed to the government is the same for online sales and brick and mortar transactions. The difference lies with the reporting and collection obligations. Retailers collect sales taxes at the point of sale, whereas with online sales, consumers are obliged to report use taxes.

Earlier this year, U.S. Sen. Lamar Alexander, R-Tenn.,  vowed to reintroduce legislation that would allow states to require online retailers to collect sales taxes. Known as the Marketplace Fairness Act, the bill would switch the tax obligation from consumers to online retailers. It is backed by some business groups that represent brick and mortar retailers.

Critics of the Marketplace Fairness Act say the legislation would force small online businesses to adhere to thousands of tax regulations.

Marketplace Fairness Act“For the first time, online merchants would be forced to collect sales taxes for all of America’s estimated 9,600 state and local taxing authorities,” the Wall Street Journal cautioned in an editorial against the bill. “New Hampshire, for example, has no sales tax, but a Granite State Web merchant would be forced to collect and remit sales taxes to all the governments that do. Small online sellers will therefore have to comply with tax laws created by distant governments in which they have no representation, and in places where they consume no local services.”

In California, online retailers have largely given into the online tax push. In 2012, Amazon, the world’s largest online retailer, cut a deal with Gov. Jerry Brown to begin collecting sales tax on transactions involving California residents.

Dickinson’s bill once again makes California a leader in the effort to restrict online commerce. His spokesperson says it’s justified to treat tobacco products differently from other products and impose an outright ban on online sales.

“Tobacco products should be treated differently because each day in the United States, nearly 4,000 under 18 smoke their first cigarette, and an estimated 1,000 youth in that age group become new daily cigarette smokers,” said Kinney, Dickinson’s communications director.  “The Internet is currently the only way a minor can purchase tobacco products in California that does not require age verification.”

Thus far, the industry isn’t weighing in on the issue. The Cigar Association of America, Inc. declined to comment for this story.

13 comments

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  1. LetitCollapse
    LetitCollapse 20 January, 2014, 17:44

    It’s my belief that the ultimate goal of the gov is to make tobacco an illegally controlled substance. A class 1 narcotic with no legitimate medical use. Then fed and state revenue will skyrocket with asset seizures, along with fines and incarcerations resulting in more prisons and more public safety union power. And, of course, the sugar daddy white collar financeers will profit hand over fist, just like they’re doing now with weed, coke, meth and smack. Who’ll get screwed? The little people. The taxpayers and the poor guy who enjoys to lite up a Marlburo after dinner. Another freedom on the death bed. Nanny knows best. lol.

    Reply this comment
  2. Ulysses Uhaul
    Ulysses Uhaul 20 January, 2014, 22:38

    This is ridiculous…..

    Reply this comment
  3. LetitCollapse
    LetitCollapse 21 January, 2014, 10:49

    Did you read Obama’s latest quotes on tobacco, alcohol, weed??? LOL. It appears the POTUS has to comment on everything from pro football to religion these days. When’s the POTUS going to jump back on the rubber chicken circuit and appear on the afternoon shows like Dr. Phil, The Ellen Show, Rachael Ray, the Tyra Banks Show to give us THE WORLD ACCORDING TO BARACK? lol. What a narcissist. lol. Who gives a rip what Obama thinks about pro football??? lol.

    His latest claim is that weed in no more dangerous than alcohol and that he considers weed only as another ‘vice’ and ‘bad habit’ not much different from cigarettes. Naturally the POTUS previously admitted to being a pothead in his formative years. But the media did a great job at covering it up in 2008.

    Yet out of the OTHER SIDE OF HIS MOUTH Obama urged a cautious approach to changing marijuana laws, claiming that people who think legalizing pot will solve social problems are “probably overstating the case.” LOL!!!!

    Mr. President – there are THOUSANDS of people currently serving PRISON SENTENCES for weed crimes that YOU CLAIM are mere ‘vices’ and ‘bad habits’ no more dangerous than alcohol. THOUSANDS who had their freedoms stolen for smoking or growing weed.

    So, Mr. President, stop speaking from BOTH SIDES OF YOUR MOUTH by asserting weed crimes are mere ‘vices’ and ‘bad habits’ no more dangerous than taking a shot of bourbon – yet supporting a corrupted system that incarcerates thousands of Americans for ‘vices’ and ‘bad habits’ by asserting that we should use caution in changing the marijuana laws that justify loading up our prisons that accomodate 25% of the world’s inmates while America only has 5% of the world’s collective population!!!

    YOU HAVE THE POWER TO PARDON THOSE DOING JAIL TIME BEHIND UNJUST AND UNFAIR LAWS, MR. PRESIDENT!!! STOP SPEAKING FROM BOTH SIDES OF YOUR MOUTH!! ISSUE IMMEDIATE PARDONS FOR THOSE WHO HAD THEIR FREEDOMS REVOKED FOR SMOKING, POSSESSING OR GROWING POT!!!

    Naturally you would never do this because you are owned by those who promote the prison industrial complex which enjoys the LARGEST PER CAPITA prison population of any other nation in the entire world. Yes, larger than Russia, larger than Iran, larger than North Korea, larger than Cuba, larger than Syria, larger than any fascist or totalitarian nation that occupied Planet Earth. America BY FAR has the LARGEST PER CAPITA PRISON POPULATION of any other nation on the planet!!!!

    http://en.wikipedia.org/wiki/List_of_countries_by_incarceration_rate

    You are a hypocrite who supports such a system, Mr. President. You speak with forked tongue. That’s the reason we can’t stand you and your approval ratings are falling like a stone. It’s got NOTHING to do with your skin color!!! lol.

    Full disclosure: I was an athlete when I was young and never smoked weed. I don’t promote weed smoking, possession or growing it. But I detest a system that jails those who choose to do so.

    Reply this comment
  4. LetitCollapse
    LetitCollapse 21 January, 2014, 11:41

    Anyone with a brain can see where they’re going with tobacco.

    In a very methodic manner the police state with the highest incarceration rate of any other nation on the planet the oligarch are moving in the direction of making it a fully controlled substance and illegal to smoke or possess – just like pot.

    First they ordered separate smoking tables in restaurant. Remember? Then they banned smoking in restaurants alltogether. Then they banned it in the bars. lol! So you couldn’t have a smoke with a beer! LOL! Then they banned it on beaches! lol. In parks! lol. Some homeowner associations have banned the owners from smoking IN THEIR OWN HOMES!!! LOL!!! Some cities have banned it now!! LOL! And, of course, to make a load of money off those who continue to smoke they taxed it so a lousy pack of 20 in California costs about $8. LOL! In NYC you’d pay nearly $15 for a pack of cigarettes!!! LOL! So besides enacting laws that FORBID you to lite up – they are robbing the ones who choose to smoke blind!!! And most of those people are in the lower economic classes getting screwed. So these are REGRESSIVE taxes that the dims who
    claim to be for the ‘little guy’ are promoting!!! LOL!!!!

    You’d have to be brain dead not to see where all this is going. It goes back to the frogs in the pot on the stove. The oligarchs want to make tobacco a Class 1 illegal narcotic with no legitimate medical use. And then apply the asset seizure laws! Get caught driving your car in possession of tobacco and have your car seized by the po-po! lol! The prison guard union loves it!!! Make tobacco a controlled substance and raise the per capita prison population in America to 1200 per every 100,000 citizens!!! LOL!!! A prison on every street corner!!! LOL!

    …….with liberty and justice for all!!!! LOL!

    Reply this comment
  5. LetitCollapse
    LetitCollapse 21 January, 2014, 11:47

    Full disclosure: I’m not a smoker. Never have been. I’ve always been an athlete. Still am. But I don’t believe in punishing those who do choose to smoke. That’s their business and I have no right whatsoever to tell them how to live their lives!!!

    Reply this comment
  6. The Ted Steele Conceptual Abstraction Unit
    The Ted Steele Conceptual Abstraction Unit 21 January, 2014, 13:30

    My God Collapso– an opinion about EVERYthing and always wrong? Yikes those are long posts we will NEVER read!

    Reply this comment
  7. billybs
    billybs 21 January, 2014, 15:04

    Personally, me and the brethren at the union hall anticipate the great POTUS’s March madness bracket picks.

    Reply this comment
    • LetitCollapse
      LetitCollapse 21 January, 2014, 16:08

      Go look at Obama’s picks for ESPN’s 2013 March Madness bracket!!! lol.

      He was ranked 2,080,996!!! lol.

      He’s as good at picking BB games as he is at designing healthcare systems and managing the economy!!! lol.

      Reply this comment
  8. Ulysses Uhaul
    Ulysses Uhaul 22 January, 2014, 08:43

    Collapso be professional.

    Long time posters want dignified content and reasonable levity.

    Bashing fair and balanced posters is gosh!

    Reply this comment
  9. Ulysses Uhaul
    Ulysses Uhaul 22 January, 2014, 08:46

    Teddy….forget this divisive poster…..he is in pain…..go easy on him.

    Reply this comment
  10. LP
    LP 22 January, 2014, 14:59

    In President O’s defense he is working on fairness in sentencing for drug laws.
    This bill will be defeated or changed.
    It is up to us.

    Reply this comment

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