Testimony 

Before the Subcommittee on Courts, the 

Internet, and Intellectual Property, 

Committee on the Judiciary, 

House of Representatives 

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 10:00 a.m. EST 

Thursday, May 1, 2003 INTERNET CIGARETTE 

SALES 

Limited Compliance and 

Enforcement of the Jenkins 

Act Result in Loss of State 

Tax Revenue 

Statement of Paul L. Jones, Director 

Homeland Security and Justice 

GAO-03-714T 
Page 1 GAO-03-714T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss our work on the extent of 

compliance by Internet cigarette vendors with the Jenkins Act.1

 The 

Jenkins Act requires any person who sells and ships cigarettes across a 

state line to a buyer, other than a licensed distributor, to report the sale to 

the buyer’s state tobacco tax administrator. The act establishes 

misdemeanor penalties for violating the act. Compliance with this federal 

law by cigarette sellers enables states to collect cigarette excise taxes 

from consumers. 

However, some state and federal officials are concerned that as Internet 

cigarette sales continue to grow, particularly as states’ cigarette taxes 

increase, so will the amount of lost state tax revenue due to 

noncompliance with the Jenkins Act. One research firm estimated that 

Internet tobacco sales in the United States will exceed $5 billion in 2005 

and that the states will lose about $1.4 billion in tax revenue from these 

sales.2

My testimony today is based on the results of work that we completed in 

August of 2002— namely, our report entitled Internet Cigarette Sales: 

Giving ATF Investigative Authority May Improve Reporting and 

Enforcement (GAO-02-743). Overall, we found that the federal government 

has had limited involvement with the Jenkins Act concerning Internet 

cigarette sales. We also noted that states have taken action to promote 

Jenkins Act compliance by Internet cigarette vendors, but results were 

limited. 

We determined that most Internet cigarette vendors do not comply with 

the Jenkins Act or notify their customers of their responsibilities under the 

act. Vendors cited the Internet Tax Freedom Act, privacy laws, and other 

reasons for noncompliance. A number of Native Americans cited 

sovereign nation status. GAO’s review indicated that these claims are not 

valid and vendors are not exempt from the Jenkins Act. 

 1

5 U.S.C. §375-378. 

2

Online Tobacco Sales Grow, States Lose, Forrester Research, Inc. (Apr. 27, 2001). We were 

unable to assess the reliability of the estimates because the methodology used in 

developing it, including key assumptions and data, is proprietary. 
Page 2 GAO-03-714T 

We concluded that states are hampered in attempting to promote Jenkins 

Act compliance because they lack authority to enforce the act. We 

suggested that to improve the federal government’s efforts in enforcing the 

Jenkins Act and promoting compliance with the act by Internet cigarette 

vendors, which may lead to increased state tax revenues from cigarette 

sales, the Bureau of Alcohol, Tobacco and Firearms (ATF), instead of the 

Federal Bureau of Investigation (FBI), should be provided with primary 

jurisdiction to investigate violations of the act.3

 We noted that transferring 

primary investigative jurisdiction was particularly appropriate because of 

the FBI’s new challenges and priorities related to the threat of terrorism 

and the FBI’s increased counterterrorism efforts. 

To perform our work, we obtained information from the Department of 

Justice (DOJ) and ATF headquarters regarding federal Jenkins Act 

enforcement actions with respect to Internet cigarette sales. We 

interviewed officials and obtained documentation from nine selected 

states4

 regarding states’ efforts to promote Jenkins Act compliance by 

Internet cigarette vendors and estimates of the impact of noncompliance 

on tax revenues. In addition, we reviewed 147 Internet cigarette vendor 

Web sites, and we interviewed representatives of five Internet vendors. 

Each state, and the District of Columbia, imposes an excise tax on the sale 

of cigarettes, which vary from state to state. As of January 1, 2003, the 

state excise tax rates for a pack of 20 cigarettes ranged from 2.5 cents in 

Virginia to $1.51 in Massachusetts (see fig.1). The liability for these taxes 

generally arises once the cigarettes enter the jurisdiction of the state. 

 3

Since our report was issued, ATF was transferred from the Department of the Treasury to 

the Department of Justice and is now known as the Bureau of Alcohol, Tobacco, Firearms 

and Explosives. 

4

We contacted tobacco tax officials in 11 states. Officials in 9 states provided us with 

information, and officials in 2 states did not provide the information we requested in time 

for it to be included in our report. We selected the 10 states with the highest cigarette 

excise tax rates on January 1, 2002, based on the presumption that these states would be 

among those most interested in promoting Jenkins Act compliance to collect cigarette 

taxes. Also, we selected one additional state that appeared to have taken action to promote 

Jenkins Act compliance by Internet cigarette vendors. 

Background 
Page 3 GAO-03-714T 

Figure 1: State Cigarette Excise Tax Rates, in Cents, Per Pack of 20 Cigarettes, as of January 1, 2003 

Many states have increased their cigarette excise taxes in recent years 

with the intention of increasing tax revenue and discouraging people from 

smoking. As a result, many smokers are seeking less costly alternatives for 

purchasing cigarettes, including buying cigarettes while traveling to a 

neighboring state with a lower cigarette excise tax. The Internet is an 

alternative that offers consumers the option and convenience of buying 

cigarettes from vendors in low-tax states without having to physically 

travel there. 

Consumers who use the Internet to buy cigarettes from vendors in other 

states are liable for their own state’s cigarette excise tax and, in some 

cases, sales and/or use taxes. States can learn of such purchases and the 

taxes due when vendors comply with the Jenkins Act. Under the act, 

Alaska 100.0

Hawaii 120.0

Pa.

100.0

Ore.

128.0

Nev.

35.0

Idaho

28.0

Mont.

18.0

Wyo.

12.0

Utah

69.5

Ariz.

118.0 N.Mex.

21.0

Colo.

20.0

N.Dak.

44.0

S.Dak.

33.0

Nebr.

64.0

Tex.

41.0

Kans.

70.0

Okla.

23.0

Minn.

48.0

Iowa

36.0

Mo.

17.0

Ark.

34.0

La.

36.0

Ill.

98.0

Miss.

18.0

Ind.

55.5

Ky.

3.0

Tenn. 20.0

Ala.

16.5

Fla. 

33.9

Ga.

12.0

S.C.

7.0

N.C.

5.0

Va.

2.5

Ohio

55.0

Vt. 93.0

N.H. 52.0

Mass. 151.0

R.I. 132.0

Conn. 111.0

N.J. 150.0

Del. 24.0

Md. 100.0

D.C. 100.0

W.Va. 17.0

Mich.

125.0

Calif.

87.0

Wash.

142.5

Wis.

77.0

N.Y.

150.0

Maine 

100.0

Sources: Developed by GAO based on Federation of Tax Administrators’ data, CorelDraw (map).
Page 4 GAO-03-714T 

cigarette vendors who sell and ship cigarettes into another state to anyone 

other than a licensed distributor must report (1) the name and address of 

the person(s) to whom cigarette shipments were made, (2) the brands of 

cigarettes shipped, and (3) the quantities of cigarettes shipped. Reports 

must be filed with a state’s tobacco tax administrator no later than the 

10th day of each calendar month covering each and every cigarette 

shipment made to the state during the previous calendar month. The 

sellers must also file a statement with the state’s tobacco tax administrator 

listing the seller’s name, trade name (if any), and address of all business 

locations. Failure to comply with the Jenkins Act’s reporting requirements 

is a misdemeanor offense, and violators are to be fined not more than 

$1,000, or imprisoned not more than 6 months, or both. Although the 

Jenkins Act, enacted in 1949, clearly predates and did not anticipate 

cigarette sales on the Internet, vendors’ compliance with the act could 

result in states collecting taxes due on such sales. According to DOJ, the 

Jenkins Act itself does not forbid Internet sales nor does it impose any 

taxes. 

The federal government has had limited involvement with the Jenkins Act 

concerning Internet cigarette sales. We identified three federal 

investigations involving such potential violations, and none of these had 

resulted in prosecution (one investigation was still ongoing at the time of 

our work). No Internet cigarette vendors had been penalized for violating 

the act, nor had any penalties been sought for violators. 

The Attorney General of the United States is responsible for supervising 

the enforcement of federal criminal laws, including the investigation and 

prosecution of Jenkins Act violations.5

 The FBI has primary jurisdiction to 

investigate suspected violations of the Jenkins Act. However, DOJ and FBI 

officials were unable to identify any investigations of Internet cigarette 

vendors or other actions taken to enforce the act’s provisions regarding 

Internet cigarette sales. According to DOJ, the FBI could not provide 

information on actions to investigate Jenkins Act violations, either by itself 

 5

28 U.S.C. §533 provides that the Attorney General of the United States may appoint 

officials “to detect and prosecute crimes against the United States...” except where 

investigative jurisdiction has otherwise been assigned by law. 

Limited Federal 

Involvement with the 

Jenkins Act and 

Internet Cigarette 

Sales 

FBI Has Primary 

Investigative Jurisdiction 
Page 5 GAO-03-714T 

or in connection with other charges, because the FBI does not have a 

section or office with responsibility for investigating Jenkins Act violations 

and does not track such investigations. Also, DOJ said it does not maintain 

statistical information on resources used to investigate and prosecute 

Jenkins Act offenses. 

In describing factors affecting the level and extent of FBI and DOJ 

enforcement actions with respect to the Jenkins Act and Internet cigarette 

sales, DOJ noted that the act creates misdemeanor penalties for failures to 

report information to state authorities, and appropriate referrals for 

suspected violations must be considered with reference to existing 

enforcement priorities. Since September 11, 2001, it is understood that the 

FBI’s priorities have changed, as unprecedented levels of FBI resources 

have been devoted to counterterrorism and intelligence initiatives. 

ATF, which enforces federal excise tax and criminal laws and regulations 

related to tobacco products, has ancillary authority to enforce the Jenkins 

Act.6

 ATF special agents investigate trafficking of contraband tobacco 

products in violation of federal law and sections of the Internal Revenue 

Code. For example, ATF enforces the Contraband Cigarette Trafficking 

Act (CCTA), which makes it unlawful for any person to ship, transport, 

receive, possess, sell, distribute, or purchase more than 60,000 cigarettes 

that bear no evidence of state cigarette tax payment in the state in which 

the cigarettes are found, if such state requires a stamp or other indicia to 

be placed on cigarette packages to demonstrate payment of taxes (18 

U.S.C. 2342).7

 ATF is also responsible for the collection of federal excise 

taxes on tobacco products and the qualification of applicants for permits 

to manufacture tobacco products, operate export warehouses, or import 

tobacco products. ATF inspections verify an applicant’s qualification 

information, check the security of the premise, and ensure tax compliance. 

 6

With ancillary authority to enforce the Jenkins Act, if ATF investigates a possible 

Contraband Cigarette Trafficking Act violation (i.e., cigarette smuggling), for which it has 

primary jurisdiction, and determines there is a possible Jenkins Act violation, then ATF 

may also investigate the Jenkins Act violation and refer it to DOJ for prosecution or 

injunctive relief. 

7

Certain persons, including permit holders under the Internal Revenue Code, common 

carriers with proper bills of lading, or individuals licensed by the state where the cigarettes 

are found, may possess these cigarettes (18 U.S.C. 2341). 

ATF Has Ancillary 

Enforcement Authority 
Page 6 GAO-03-714T 

To enforce the CCTA, ATF investigates cigarette smuggling across state 

borders to evade state cigarette taxes, a felony offense. Internet cigarette 

vendors that violate the CCTA, either directly or by aiding and abetting 

others, can also be charged with violating the Jenkins Act if they failed to 

comply with the act’s reporting requirements. ATF can refer Jenkins Act 

matters uncovered while investigating CCTA violations to DOJ or the 

appropriate U.S. Attorney’s Office for charges to be filed. ATF officials 

identified three investigations since 1997 of Internet vendors for cigarette 

smuggling in violation of the CCTA and violating the Jenkins Act. 

• In 1997, a special agent in ATF’s Anchorage, Alaska, field office noticed 

an advertisement by a Native American tribe in Washington that sold 

cigarettes on the Internet. ATF determined from the Alaska 

Department of Revenue that the vendor was not reporting cigarette 

sales as required by the Jenkins Act, and its investigation with another 

ATF office showed that the vendor was shipping cigarettes into Alaska. 

After ATF discussed potential cigarette smuggling and Jenkins Act 

violations with the U.S. Attorney’s Office for the District of Alaska, it 

was determined there was no violation of the CCTA.8

 The U.S. 

Attorney’s Office did not want to pursue only a Jenkins Act violation, a 

misdemeanor offense, and asked ATF to determine whether there was 

evidence that other felony offenses had been committed. Subsequently, 

ATF formed a temporary task force with Postal Service inspectors and 

state of Alaska revenue agents, which demonstrated to the satisfaction 

of the U.S. Attorney’s Office that the Internet cigarette vendor had 

committed mail fraud. The U.S. Attorney’s Office agreed to prosecute 

the case and sought a grand jury indictment for mail fraud, but not for 

violating the Jenkins Act. The grand jury denied the indictment. In a 

letter dated September 1998, the U.S. Attorney’s Office requested that 

the vendor either cease selling cigarettes in Alaska and file the required 

Jenkins Act reports for previous sales, or come into compliance with 

the act by filing all past and future Jenkins Act reports. In another letter 

dated December 1998, the U.S. Attorney’s Office instructed the vendor 

to immediately comply with all requirements of the Jenkins Act. 

However, an official at the Alaska Department of Revenue told us that 

the vendor never complied. No further action has been taken. 

 8

The U.S. Attorney’s Office determined there was no CCTA violation because the state of 

Alaska did not require that tax stamps be placed on cigarette packages as evidence that 

state taxes were paid. 
Page 7 GAO-03-714T 

• Another investigation, carried out in 1999, involved a Native American 

tribe selling cigarettes on the Internet directly to consumers and other 

tribes. The tribe was not paying state tobacco excise taxes or notifying 

states of cigarette sales to other than wholesalers, as required by the 

Jenkins Act. ATF referred the case to the state of Arizona, where it was 

resolved with no criminal charges filed by obtaining the tribe’s 

agreement to comply with Jenkins Act requirements. 

• A third ATF investigation of an Internet vendor for cigarette smuggling 

and Jenkins Act violations was ongoing at the time of our work. 

ATF officials said that because ATF does not have primary Jenkins Act 

jurisdiction, it has not committed resources to investigating violations of 

the act. However, the officials said strong consideration should be given to 

transferring primary jurisdiction for investigating Jenkins Act violations 

from the FBI to ATF. According to ATF, it is responsible for, and has 

committed resources to, regulating the distribution of tobacco products 

and investigating trafficking in contraband tobacco products. A change in 

Jenkins Act jurisdiction would give ATF comprehensive authority at the 

federal level to assist states in preventing the interstate distribution of 

cigarettes resulting in lost state cigarette taxes since ATF already has 

investigative authority over the CCTA, according to the officials. The 

officials also told us ATF has special agents and inspectors that obtain 

specialized training in enforcing tax and criminal laws related to tobacco 

products, and, with primary jurisdiction, ATF would have the investigative 

authority and would use resources to specifically conduct investigations to 

enforce the Jenkins Act, which should result in greater enforcement of the 

act than in the past. 

Officials in nine states that provided us information all expressed concern 

about Internet cigarette vendors’ noncompliance with the Jenkins Act and 

the resulting loss of state tax revenues. For example, California officials 

estimated that the state lost approximately $13 million in tax revenue from 

May 1999 through September 2001, due to Internet cigarette vendors’ 

noncompliance with the Jenkins Act. Overall, the states’ efforts to promote 

compliance with the act by Internet vendors produced few results. 

Officials in the nine states said that they lack the legal authority to 

successfully address this problem on their own. They believe greater 

federal action is needed, particularly because of their concern that 

Internet cigarette sales will continue to increase with a growing and 

substantial negative effect on tax revenues. 

States Have Taken 

Action to Promote 

Jenkins Act 

Compliance by 

Internet Cigarette 

Vendors, but Results 

Were Limited 
Page 8 GAO-03-714T 

Starting in 1997, seven of the nine states had made some effort to promote 

Jenkins Act compliance by Internet cigarette vendors. These efforts 

involved contacting Internet vendors and U.S. Attorneys’ Offices. Two 

states had not made any such efforts. 

Six of the seven states tried to promote Jenkins Act compliance by 

identifying and notifying Internet cigarette vendors that they are required 

to report the sale of cigarettes shipped into those states. Generally, 

officials in the six states learned of Internet vendors by searching the 

Internet, noticing or being told of vendors’ advertisements, and by state 

residents or others notifying them. Five states sent letters to the identified 

vendors concerning their Jenkins Act reporting responsibilities, and one 

state made telephone calls to the vendors. 

After contacting the Internet vendors, the states generally received reports 

of cigarette sales from a small portion of the vendors notified.9

 The states 

then contacted the state residents identified in the reports, and they 

collected taxes from most of the residents contacted. When residents did 

not respond and pay the taxes due, the states carried out various follow-up 

efforts, including sending additional notices and bills, assessing penalties 

and interest, and deducting amounts due from income tax refunds. 

Generally, the efforts by the six states to promote Jenkins Act compliance 

were carried out periodically and required few resources. For example, a 

Massachusetts official said the state notified Internet cigarette vendors on 

five occasions starting in July 2000, with one employee working a total of 

about 3 months on the various activities involved in the effort. 

Table 1 summarizes the six states’ efforts to identify and notify Internet 

cigarette vendors about the Jenkins Act reporting requirements and shows 

the results that were achieved. There was little response by the Internet 

vendors notified. Some of the officials told us that they encountered 

Internet vendors that refused to comply and report cigarette sales after 

being contacted. For example, several officials noted that Native 

Americans often refused to report cigarette sales, with some Native 

American vendors citing their sovereign nation status as exempting them 

from the Jenkins Act, and others refusing to accept a state’s certified 

notification letters. Also, an attorney for one vendor informed the state of 

 9

Cigarette vendors are not required to report to a state unless they sell and ship cigarettes 

into the state. Consequently, the states do not know if the Internet vendors that were 

notified but did not respond had any cigarette sales to report. 

States’ Efforts Produced 

Limited Results 
Page 9 GAO-03-714T 

Washington that the vendor would not report sales because the Internet 

Tax Freedom Act relieved the vendor of Jenkins Act reporting 

requirements. 

Table 1: Summary of Six States’ Efforts to Promote Jenkins Act Compliance Since 1997 

State 

Number of Internet 

vendors identified and 

notified 

Number of 

Internet vendors 

that responded 

with reports of 

cigarette sales

Number of 

residents identified 

and notified

Number of 

residents that 

responded 

Amount of taxes, 

penalties, and 

interest collecteda

Alaska 15b,c 2 3 1 $9,850

California 167 (approx.) c,d 20 (approx.) 23,500 (approx.) 13,500 (approx.) $1.4 million (approx.)

Massachusetts 262 13 Nonee None None

Rhode Island Number unknown NonefNone None None

Washington 186 8 800 (approx.) 560 (approx.) $29,898

Wisconsin 21 6 696 696 $80,200

Source: Developed by GAO from states’ data. 

Note: Massachusetts’ data are as of May 2002, Washington’s and Wisconsin’s data are as of April 

2002, Alaska’s and Rhode Island’s data are as of March 2002, and California’s data are through 

September 2001. 

a

 Not all states collected penalties and interest, and some of the amounts paid include sales and use 

taxes in addition to cigarette excise taxes. Some of the amounts paid by residents were for more 

cigarette purchases than the vendors reported to the state. 

b

 Alaska identified 17 vendors, but did not know where 2 were located and could not notify them. 

c

 Alaska and California sent ATF a copy of each letter mailed to Internet cigarette vendors notifying 

them of their Jenkins Act reporting responsibilities. 

d

 California started its Internet/Mail Order Program in May 1999. Through September 2001, 196 

vendors had been identified and notified, of which about 85 percent, or approximately 167, were 

Internet vendors. All 20 vendors that responded were Internet vendors. 

e

 At the time of our work, Massachusetts had not notified the residents identified in reports provided 

by the 13 vendors that responded out of the 262 vendors notified because the state was in the 

process of developing policy regarding Jenkins Act compliance and reports of residents’ Internet 

cigarette purchases. 

f

 No Internet cigarette vendors reported cigarette sales in response to Rhode Island notifying them of 

their Jenkins Act reporting responsibilities. 

Apart from the states’ efforts to identify and notify Internet cigarette 

vendors, state officials noted that some Internet vendors voluntarily 

complied with the Jenkins Act and reported cigarette sales on their own. 

The states subsequently contacted the residents identified in the reports to 

collect taxes. For example, a Rhode Island official told us there were three 

or four Internet vendors that voluntarily reported cigarette sales to the 

state. On the basis of these reports, Rhode Island notified about 400 

residents they must pay state taxes on their cigarette purchases and billed 

these residents over $76,000 (the Rhode Island official who provided this 
Page 10 GAO-03-714T 

information did not know the total amount collected). Similarly, 

Massachusetts billed 21 residents for cigarette taxes and collected $2,150 

based on reports of cigarette sales voluntarily sent to the state. 

Three of the seven states that made an effort to promote Jenkins Act 

compliance by Internet cigarette vendors contacted U.S. Attorneys and 

requested assistance. The U.S. Attorneys, however, did not provide the 

assistance requested. The states’ requests and responses by the U.S. 

Attorneys’ Offices are summarized below. 

• In March 2000, Iowa and Wisconsin officials wrote letters to three U.S. 

Attorneys in their states requesting assistance. The state officials asked 

the U.S. Attorneys to send letters to Internet vendors the states had 

identified, informing the vendors of the Jenkins Act and directing them 

to comply by reporting cigarette sales to the states. The state officials 

provided a draft letter and offered to handle all aspects of the mailings. 

The officials noted they were asking the U.S. Attorneys to send the 

letters over their signatures because the Jenkins Act is a federal law 

and a statement from a U.S. Attorney would have more impact than 

from a state official. However, the U.S. Attorneys did not provide the 

assistance requested. According to Iowa and Wisconsin officials, two 

U.S. Attorneys’ Offices said they were not interested in helping, and 

one did not respond to the state’s request.10

• After contacting the FBI regarding an Internet vendor that refused to 

report cigarette sales, saying that the Internet Tax Freedom Act 

relieved the vendor of Jenkins Act reporting requirements, the state of 

Washington acted on the FBI’s recommendation and wrote a letter in 

April 2001 requesting that the U.S. Attorney initiate an investigation. 

According to a Washington official, the U.S. Attorney’s Office did not 

pursue this matter and noted that a civil remedy (i.e., lawsuit) should 

be sought by the state before seeking a criminal action. At the time of 

our work, the state was planning to seek a civil remedy. 

• In July 2001, the state of Wisconsin wrote a letter referring a potential 

Jenkins Act violation to the U.S. Attorney for prosecution. According to 

a Wisconsin official, this case had strong evidence of Jenkins Act 

noncompliance—there were controlled and supervised purchases 

 10DOJ noted that federal prosecutors generally do not issue advisory opinions about 

prosecutive matters, as they may subsequently be presented with the need to make an 

actual decision based on specific facts. The issuance of such an opinion might create the 

basis for a legal dispute if a subsequent prosecution were undertaken. 
Page 11 GAO-03-714T 

made on the Internet of a small number of cartons of cigarettes, and 

the vendor had not reported the sales to Wisconsin. The U.S. Attorney’s 

Office declined to initiate an investigation, saying that it appeared this 

issue would be best handled by the state “administratively.” The 

Wisconsin official told us, however, that Wisconsin does not have 

administrative remedies for Jenkins Act violations, and, in any case, the 

state cannot reach out across state lines to deal with a vendor in 

another state. 

Officials in each of the nine states expressed concern about the impact 

that Internet cigarette vendors’ noncompliance with the Jenkins Act has 

on state tax revenues. The officials said that Internet cigarette sales will 

continue to grow in the future and are concerned that a much greater and 

more substantial impact on tax revenues will result. One state, California, 

estimated that its lost tax revenue due to noncompliance with the Jenkins 

Act by Internet cigarette vendors was approximately $13 million from May 

1999 through September 2001.11

Officials in all nine states said that they are limited in what they can 

accomplish on their own to address this situation and successfully 

promote Jenkins Act compliance by Internet cigarette vendors. All of the 

officials pointed out that their states lack the legal authority necessary to 

enforce the act and penalize the vendors who violate it, particularly with 

the vendors residing in other states. Officials in three states told us that 

efforts to promote Jenkins Act compliance are not worthwhile because of 

such limitations, or are not a priority because of limited resources. 

Officials in all nine states said that they believe greater federal action is 

needed to enforce the Jenkins Act and promote compliance by Internet 

cigarette vendors. Four state officials also said they believe ATF should 

have primary jurisdiction to enforce the act. One official pointed out that 

his organization sometimes dealt with ATF on tobacco matters, but has 

never interacted with the FBI. Officials in the other five states did not 

express an opinion regarding which federal agency should have primary 

jurisdiction to enforce the act. 

 11The Excise Taxes Division, California State Board of Equalization, did not make an 

official analyses of lost revenue. The $13 million estimate is a projection by the division 

based on the amount of state excise and use taxes determined as due from cigarette sales 

reported by out-of-state Internet vendors during the period of May 1999 through Sept. 2001. 

States Concerned about 

Internet Vendors’ 

Noncompliance and 

Believe Greater Federal 

Action Is Needed 
Page 12 GAO-03-714T 

Through our Internet search efforts, we identified 147 Web site addresses 

for Internet cigarette vendors based in the United States and reviewed 

each website linked to these addresses.12 Our review of the Web sites 

found no information suggesting that the vendors comply with the Jenkins 

Act. Some vendors cited reasons for not complying that we could not 

substantiate. A few Web sites specifically mentioned the vendors’ Jenkins 

Act reporting responsibilities, but these Web sites also indicated that the 

vendors do not comply with the act. Some Web sites provided notice to 

consumers of their potential state tax liability for Internet cigarette 

purchases. 

None of the 147 Web sites we reviewed stated that the vendor complies 

with the Jenkins Act and reports cigarette sales to state tobacco tax 

administrators.13 Conversely, as shown in table 2, information posted on 

114 (78 percent) of the Web sites indicated the vendors’ noncompliance 

with the act through a variety of statements posted on the sites. Thirtythree Web sites (22 percent) provided no indication about whether or not 

the vendors comply with the act. 

 12The 147 Web site addresses appear to represent 122 different Internet cigarette vendors. 

We made this determination by comparing information such as vendor names, company 

names, street addresses, P.O. box numbers, and telephone numbers. For example, some 

Web sites had the same mailing address and telephone number, suggesting they were 

separate Web sites being operated by one company. 

13Two Web sites posted statements indicating that customer information would be released 

if required; however, both sites also stated that the information would not be given out 

without the customers’ permission. The Jenkins Act does not require cigarette sellers to 

notify customers regarding whether or not they comply with the act’s reporting 

requirements. 

Most Internet 

Cigarette Vendors Do 

Not Comply with the 

Jenkins Act or Notify 

Consumers of Their 

Responsibilities 

Majority of Web sites 

Indicate that Vendors Do 

Not Comply with the 

Jenkins Act 
Page 13 GAO-03-714T 

Table 2: Web sites Indicating Internet Cigarette Vendors’ Noncompliance with the 

Jenkins Act 

Web site statement indicating noncompliance Number Percent

Do not report sales to state tax authorities 44a 30

Do not comply with the Jenkins Act 1 1

Keep customer information private 43 29

Silent on reporting, but claim cigarettes are tax-free 26 18

Total 114 78

Source: GAO’s analysis of Web site data. 

a

One Web site stated that it does not report to state tax authorities and that it does not comply with 

the Jenkins Act. In determining the number of Web sites indicating noncompliance with the Jenkins 

Act, we counted this only as a statement that it does not comply with the act. 

Some Internet vendors cited specific reasons on their Web sites for not 

reporting cigarette sales to state tax authorities as required by the Jenkins 

Act. Seven of the Web sites reviewed (5 percent) posted statements 

asserting that customer information is protected from release to anyone, 

including state authorities, under privacy laws. Seventeen Web sites (12 

percent) state that they are not required to report information to state tax 

authorities and/or are not subject to the Jenkins Act reporting 

requirements. Fifteen of these 17 sites are Native American, with 7 of the 

sites specifically indicating that they are exempt from reporting to states 

either because they are Native American businesses or because of their 

sovereign nation status. In addition, 35 Native American Web sites (40 

percent of all the Native American sites we reviewed) indicate that their 

tobacco products are available tax-free because they are Native American 

businesses.14

To supplement our review of the Web sites, we also attempted to contact 

representatives of 30 Internet cigarette vendors, and we successfully 

interviewed representatives of 5.15 One of the 5 representatives said that 

the vendor recently started to file Jenkins Act sales reports with one 

state.16 However, the other 4 said that they do not comply with the act and 

 14Fifty-nine percent, or 87, of the 147 Web site addresses reviewed are either Native 

American-owned or located and/or operated on Native American lands. 

15We were either unable to reach representatives of the remaining 25 vendors we selected 

to conduct structured interviews, or they declined to answer questions. 

16The vendor who said that he does comply with the Jenkins Act told us that he recently 

started to file reports with the state of Washington after receiving a notice from the state’s 

Department of Revenue. However, he said Washington is the only state he reports to, and 

he declined to provide us with evidence of his compliance with the act. 

Reasons Cited for 

Noncompliance with 

the Jenkins Act 
Page 14 GAO-03-714T 

provided us with additional arguments for noncompliance. Their 

arguments included an opinion that the act was not directed at personal 

use. An additional argument was that the Internet Tax Freedom Act17

supercedes the obligations laid out in the Jenkins Act. 

Our review of the applicable statutes indicates that neither the Internet 

Tax Freedom Act nor any privacy laws exempt Internet cigarette vendors 

from Jenkins Act compliance. The Jenkins Act has not been amended 

since minor additions and clarifications were made to its provisions in 

1953 and 1955; and neither the Internet Tax Freedom Act nor any privacy 

laws amended the Jenkins Act’s provisions to expressly exempt Internet 

cigarette vendors from compliance. With regard to the Internet Tax 

Freedom Act, the temporary ban that the act imposed on certain types of 

taxes on e-commerce did not include the collection of existing taxes, such 

as state excise, sales, and use taxes. 

Additionally, nothing in the Jenkins Act or its legislative history implies 

that cigarette sales for personal use, or Native American cigarette sales, 

are exempt. In examining a statute, such as the Jenkins Act, that is silent 

on its applicability to Native American Indian tribes, courts have 

consistently applied a three-part analysis. Under this analysis, if the act 

uses general terms that are broad enough to include tribes, the statute will 

ordinarily apply unless (1) the law touches “exclusive rights of selfgovernance in purely intramural matters;” (2) the application of the law to 

the tribe would abrogate rights guaranteed by Indian treaties; or (3) there 

is proof by legislative history or some other means that Congress intended 

the law not to apply to Indians on their reservations. Our review of the 

case law did not locate any case law applying this analysis to the Jenkins 

Act. DOJ said that it also could not locate any case law applying the 

analysis to the Jenkins Act, and DOJ generally concluded that an Indian 

tribe may be subject to the act’s requirements. DOJ noted, however, that 

considering the lack of case law on this issue, this conclusion is somewhat 

speculative. ATF has stated that sales or shipments of cigarettes from 

Native American reservations are not exempt from the requirements of the 

Jenkins Act.18

 17P.L. 105-277, Div. C, Title XI, Oct. 21, 1998. 

18Industry Circular, No. 99-2, Bureau of Alcohol, Tobacco and Firearms, June 6, 1999. 
Page 15 GAO-03-714T 

Only 8 (5 percent) of the 147 Web sites we reviewed notified customers 

that the Jenkins Act requires the vendor to report cigarette sales to state 

tax authorities, which could result in potential customer tax liability. 

However, in each of these cases, the Web sites that provided notices of 

Jenkins Act responsibilities also followed the notice with a statement 

challenging the applicability of the act and indicating that the vendor does 

not comply. Twenty-eight Web sites (19 percent) either provided notice of 

potential customer tax liability for Internet cigarette purchases or 

recommended that customers contact their state tax authorities to 

determine if they are liable for taxes on such purchases. Three other sites 

(2 percent) notified customers that they are responsible for complying 

with cigarette laws in their state, but did not specifically mention taxes. Of 

the 147 Web sites we reviewed, 108 (73 percent) did not provide notice of 

either the vendors’ Jenkins Act reporting responsibilities or the customers’ 

responsibilities, including potential tax liability, with regard to their states. 

Our report concluded that states are hampered in attempting to promote 

Jenkins Act compliance because they lack authority to enforce the act. In 

addition, violation of the act is a misdemeanor, and U.S. Attorneys’ 

reluctance to pursue misdemeanor violations could be contributing to 

limited enforcement. Transferring primary investigative jurisdiction from 

the FBI to ATF would give ATF comprehensive authority at the federal 

level to enforce the Jenkins Act and should result in more enforcement. 

ATF’s ability to couple Jenkins Act and CCTA enforcement may increase 

the likelihood it will detect and investigate violators and that U.S. 

Attorneys will prosecute them. This could lead to improved reporting of 

interstate cigarette sales, thereby helping to prevent the loss of state 

cigarette tax revenues. Transferring primary investigative jurisdiction is 

also appropriate at this time because of the FBI’s new challenges and 

priorities related to the threat of terrorism and the FBI’s increased 

counterterrorism efforts. 

To improve the federal government’s efforts in enforcing the Jenkins Act 

and promoting compliance with the act by Internet cigarette vendors, 

which may lead to increased state tax revenues from cigarette sales, our 

report suggested that the Congress should consider providing ATF with 

primary jurisdiction to investigate violations of the Jenkins Act (15 U.S.C. 

§375-378). In view of the fact that ATF was recently transferred from the 

Treasury Department to DOJ, it may now be possible for the Attorney 

General to administratively transfer primary Jenkins Act enforcement 

authority from the FBI to ATF without involving the Congress in the 

Few Web sites Provide 

Notice of the Vendors’ 

Reporting Responsibilities, 

but Some Provide Notice 

of Customer Cigarette Tax 

Liability 

Conclusions 
Page 16 GAO-03-714T 

matter. We believe that this possibility deserves further investigation on 

the part of DOJ. 

Mr. Chairman, this completes my prepared statement. I would be happy to 

respond to any questions you or other Members of the Subcommittee may 

have at this time. 

For further information, please call me at (202) 512-8777. Other key 

contributors to this testimony were Darryl W. Dutton, Ronald G. Viereck, 

Katherine M. Davis, and Shirley Jones. 

(440202) 
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