Internet Cigarette Sales: Limited Compliance and Enforcement of the Jenkins Act Result in Loss of State Tax Revenue
Published: 2003-05-01T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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. 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. 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.

section_title: Letter
paragraphs: I am pleased to be here today to discuss our work on the extent of  compliance by Internet cigarette vendors with the Jenkins Act. 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.
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.
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. 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  states 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.
subsections: section_title: Background
paragraphs: 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.
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,  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.
section_title: Limited Federal Involvement with the Jenkins Act and Internet Cigarette Sales
paragraphs: 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.
subsections: section_title: FBI Has Primary Investigative Jurisdiction
paragraphs: 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. 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  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.
section_title: ATF Has Ancillary Enforcement Authority
paragraphs: ATF, which enforces federal excise tax and criminal laws and regulations  related to tobacco products, has ancillary authority to enforce the Jenkins  Act. 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). 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.
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. 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.
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.
section_title: States Have Taken Action to Promote Jenkins Act Compliance by Internet Cigarette Vendors, but Results Were Limited
paragraphs: 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.
subsections: section_title: States’ Efforts Produced Limited Results
paragraphs: 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. 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  Washington that the vendor would not report sales because the Internet  Tax Freedom Act relieved the vendor of Jenkins Act reporting  requirements.
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  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.
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  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.
section_title: States Concerned about Internet Vendors’ Noncompliance and Believe Greater Federal Action Is Needed
paragraphs: 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.
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.
section_title: Most Internet Cigarette Vendors Do Not Comply with the Jenkins Act or Notify Consumers of Their Responsibilities
paragraphs: 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. 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.
subsections: section_title: Majority of Web sites Indicate that Vendors Do Not Comply with the Jenkins Act
paragraphs: 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. 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. Thirty- three Web sites (22 percent) provided no indication about whether or not  the vendors comply with the act.
section_title: Reasons Cited for Noncompliance with the Jenkins Act
paragraphs: 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.
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. One of the 5 representatives said that  the vendor recently started to file Jenkins Act sales reports with one  state. However, the other 4 said that they do not comply with the act and  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 Act  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 self- governance 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.
section_title: Few Web sites Provide Notice of the Vendors’ Reporting Responsibilities, but Some Provide Notice of Customer Cigarette Tax Liability
paragraphs: 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.
section_title: Conclusions
paragraphs: 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  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.