S. 1147: A bill to prevent tobacco smuggling, to ensure the collection of all tobacco taxes

S. 1147

A bill to prevent tobacco smuggling, to ensure the collection of all tobacco taxes

Date
March 17, 2010 (111th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

S. 1147 is expected to be considered on the floor of the House on March 17, 2010, under a motion to suspend the rules, requiring a two-thirds vote for passage.  The legislation was introduced by Sen. Herb Kohl (D-WI) on May 21, 2009.  The Senate passed the bill by unanimous consent on March 11, 2010.

Note that on May 21, 2009, the House passed a companion measure (H.R. 1676) by a vote of 397-11.  That bill is nearly identical to S. 1147.

 

Bill Summary

S. 1147 applies State tobacco tax reporting requirements to the sale of smokeless tobacco products, persons who ship or transfer cigarettes and smokeless tobacco products and the shipment of cigarettes or smokeless tobacco into a locality or Indian country that taxes the sale or use of such products. The bill requires sellers of tobacco products to file with the Attorney General the reports filed with state tobacco tax administrators.

The bill would expand requirements for delivery sales by requiring each delivery seller to comply with specified shipping and record-keeping requirements, all laws generally applicable to sales of cigarettes or smokeless tobacco as if such delivery sales occurred entirely within the specific state and place, and specified tax collection requirements. The bill would require that the shipping package containing cigarettes or smokeless tobacco include a statement that federal law requires the payment of all applicable excise and sales taxes and compliance with applicable licensing and tax-stamping obligations. Sellers would also have to comply with specified weight and age verification requirements and keep records of all delivery sales for four years after the date of the delivery sale and make such records accessible to state, local, and Indian tribe tax authorities and the Attorney General.

S. 1147 prohibits the delivery of cigarettes or smokeless tobacco unless the excise tax on such products has been paid and any required stamps or other indicia of payment are properly affixed to the products.

The bill would require the Attorney General to compile a list of noncompliant delivery sellers of cigarettes and smokeless tobacco and to distribute such list to state attorneys general and tax administrators. The legislation would prohibit the delivery of any package to, or on behalf of, a noncompliant seller without determining that such package does not include cigarettes or smokeless tobacco.

S. 1147 would impose a fine and/or prison term of up to three years for violations of this Act and increases civil penalties for violations. The bill would establishes a PACT Anti-Trafficking Fund into which 50 percent of criminal and civil penalties collected in enforcing this Act shall be deposited and available to the Attorney General to enforce this Act and other laws relating to contraband tobacco products.

S. 1147 would amend the federal criminal code to treat cigarettes and smokeless tobacco as non-mailable matter and prohibit their deposit into U.S. mail, and also require the USPS to refuse to accept for delivery any package that it has reasonable cause to believe contains cigarettes or smokeless tobacco made non-mailable by this Act. Exemptions are made for cigars, mailings within the states of Alaska or Hawaii, and mailings for business purposes between legally operating tobacco businesses and by individuals for noncommercial purposes. The bill would impose an additional civil penalty and a criminal penalty for mailing non-mailable tobacco products.

The bill would establish a PACT Postal Service Fund to which 50 percent of criminal and civil fines for mailing violations shall be transferred and made available to the Postmaster General to enforce mailing restrictions on cigarettes and smokeless tobacco products. The bill allows a state, local government, or Indian tribe to obtain appropriate injunctive or equitable relief for mailing violations in a civil action in a U.S. district court.

S. 1147 would authorize the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) to enter the business premises of delivery sellers and inspect their records and information and any cigarettes or smokeless tobacco stored at such premises. The bill would impose a civil penalty for failure to comply with these inspections.

The bill states that nothing in this Act shall be construed to modify specified agreements or limitations relating to the collection of taxes on cigarettes or smokeless tobacco sold in Indian country or to inhibit the coordination of law enforcement by states or other jurisdictions with respect to interstate sales or seizures of tobacco products.

The Act would become effective 90 days after its enactment, except for provisions authorizing ATF to enter and search business premises, which takes effect on the date of enactment.

 

Background

This legislation seeks to require Internet and other remote sellers of cigarettes and smokeless tobacco to comply with the same laws that apply to other tobacco retailers and create disincentives to smuggle tobacco products illegally. The bill also seeks to make it more difficult for cigarette and smokeless tobacco traffickers to engage in and profit from illegal activities.

The Jenkins Act of 1949 regulates shipments of tobacco products through common carriers, such as the U.S. Postal Service and private shipping companies, directly to consumers. The law requires tobacco sellers that ship tobacco products directly to consumers to file monthly reports with the tax collection agency in each state in which it does business. Several major private shipping companies, such as UPS, DSL, and FedEx, do not ship tobacco products. Most consumer tobacco shipments are sent via the U.S. Postal Service.

The sale of illegal cigarettes and smokeless tobacco products reduces federal, state, and local government revenues. Additionally, according to the bill's sponsor, Hezbollah, Hamas, al Qaeda, and other terrorist organizations have profited from trafficking in illegal cigarettes and counterfeit cigarette tax stamps. The sale of illegal cigarettes and smokeless tobacco over the Internet, and through mail, fax, or phone orders, also makes it cheaper and easier for children to obtain tobacco products. The number of Internet vendors in the U.S. and in foreign countries that sell cigarettes and smokeless tobacco to buyers in the U.S. increased from only about 40 in 2000 to more than 500 in 2005.

 

Cost

CBO estimates that implementing S. 1147 would cost $120 million over five years, assuming appropriation of the necessary amounts.