Judge rules online cigarette sales are taxable

A three-year legal battle over the sale of tax-free cigarettes on the Internet is over.

U.S. District Judge Richard J. Arcara ended the fight when he dismissed the last remaining lawsuit from a Seneca Nation business challenging the 2010 federal law restricting the sale of cigarettes on the web.

Arcara's decision means the Prevent All Cigarette Trafficking Act can now be fully enforced. It also ends an injunction that prevented the government from collecting state sales taxes on cigarettes sold on the web.

Other provisions of the law, including a ban on shipping cigarettes through the U.S. Postal Service, have been in effect for years, forcing retailers to find other ways to deliver.

"The federal government can now begin to enforce the full breadth and scope of the PACT Act and help ensure that our nation's children are protected from the sales of cigarettes to minors," U.S. Attorney William J. Hochul Jr. said in a statement.

The Seneca Free Trade Association, which represents more than 140 Seneca tobacco shops, dropped its legal challenge in April and Arcara followed with his ruling ending a similar challenge by Red Earth LLC, which does business as Seneca Smoke Shop in Irving.

Hochul said Arcara's ruling stemmed from an agreement between his office and Red Earth, but he declined to provide details of the agreement.

Signed into law by President Obama in 2010, the PACT Act is designed to end a practice that cost governments billions of dollars a year in lost taxes. It also is intended to prevent underage smokers from obtaining cigarettes through the mail.

The law also requires cigarette businesses to register with the state where they are headquartered and make periodic reports to state tax departments. It also requires that they check the age and identification of customers who buy tobacco products.

"The PACT Act was passed to combat interstate trafficking in untaxed tobacco which has been found to deprive governments of billions of tax dollars and to fund organized criminal activity," Joseph A. Anarumo, Special Agent in Charge of the Alcohol, Tobacco, Firearms and Explosives office in New York, said in a statement.

Shortly after the law took effect, Seneca business owners challenged it in federal court, contending it was unconstitutional and discriminatory.

In July of 2010, Arcara upheld the federal government's right to ban the mailing of cigarettes by Seneca businesses but rejected for the time being the collection of taxes on those cigarettes.

Both sides appealed to the Second Circuit Court of Appeals which upheld Arcara's preliminary injunction and referred the case back to the district court for trial.

Meanwhile, other Native American retailers, such as Smokin' Joe's on the Tuscarora Reservation, have made provisions to collect taxes on tobacco products and continue to take Internet orders.

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Copyright 2013 - The Buffalo News, N.Y.

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