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. Limited Federal Involvement with the Jenkins Act and Internet Cigarette Sales

The federal government has had limited involvement with the Jenkins Act  concerning Internet cigarette sales. States Have Taken Action to Promote Jenkins Act Compliance by Internet Cigarette Vendors, but Results Were Limited

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. 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. Most Internet Cigarette Vendors Do Not Comply with the Jenkins Act or Notify Consumers of Their Responsibilities

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. Some vendors cited reasons for not complying that we could not  substantiate. 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. ATF has stated that sales or shipments of cigarettes from  Native American reservations are not exempt from the requirements of the  Jenkins Act. Conclusions

Our report concluded that states are hampered in attempting to promote  Jenkins Act compliance because they lack authority to enforce the act. 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.
Why GAO Did This Study

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.

What GAO Found

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.