US Court Upholds New York Internet Tobacco Sales Ban

by Glen Shapiro, LawAndTax-News, New York

17 February 2003

A US Federal appeals court has upheld a New York state law banning the sale of cigarettes via the Internet or by mail order. Although the law is widely known to be ineffective, and bypasses high New York City taxes on tobacco, it was challenged by two tobacco companies, Brown & Williamson and Santa Fe Natural Tobacco Company, who won at first instance with a ruling that the statute favored local tobacco retailers over out-of-state competitors.

The lower court judge said that Brown & Williamson had proven that the law discriminates against interstate commerce (and by extension e-commerce), but the 2nd US Circuit Court of Appeals has now reversed the lower court's ruling.

New York State Attorney-General Eliot Spitzer welcomed the decision, saying that although state laws ensure that the sale of cigarettes to individuals remains legal, the ruling "reaffirms the power of the state to prevent the circumvention of those laws by Internet, mail order and telephone sellers."

Mostly due to tobacco taxes that are the highest in the country, Internet tobacco sales are in fact booming in New York, with many on-line operations conducted out of Indian reservations, where they arguably are exempt from tax laws and possibly from some other laws. Most Internet tobacco sites openly advertise that they do not collect or pay taxes.

It was not immediately clear whether the tobacco companies would appeal the ruling.

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