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Tobacco Company Hits Out At Tax-Free Internet Sites

by Mike Godfrey, Tax-News.com, New York

24 September 2002


Recent research reports have revealed that the number of Internet tobacco sites is over 200, having more than doubled in just a year, and that their turnover has risen through $1bn annually, heading for $5bn by 2005.

At first sight you'd think the tobacco companies might not disapprove of another distribution channel; and you'd be wrong. On Monday Philip Morris Company said that it had filed lawsuits against a number of Internet cigarette sellers, alleging trademark violations.

19 states have raised cigarette taxes this year, and the Internet sites, many of which blatantly advertise that they don't pay taxes or collect customer information, are booming. Philip Morris says that many Internet cigarette vendors don't bother to verify the age of purchasers, contravening federal regulations, and incorrectly claim that their cigarettes are tax-exempt.

Although Internet cigarette sales sites all depend on avoiding state sales and use taxes, the latter charge relates to sites on indian reservations, which claim they have sovereign immunity from taxes. About half of the 200 reported Internet tobacco sales outfits are on reservations.

"Philip Morris is committed to pursuing all available options to ensure that its products are sold in strict compliance with the law," said Jack Holleran, vice president of brand integrity at Philip Morris's US operations. "We are also committed to taking appropriate action to protect our trademarks to ensure that adult smokers continue to receive the consistent high-quality products they have come to expect from our brands.


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