By John Moritz - jmoritz@star-telegram.com
Fort Worth Star-Telegram
Published: 07-30-08
AUSTIN — In 2007 the first year that a $1-a-pack cigarette-tax increase was in effect Texas was No. 1 in the nation in the volume of cigarettes sold online according to a market study on behalf of the largest U.S. tobacco company.
The study by ComScore Inc. which compiles data on how people use the Internet found that about 17 percent of all online purchases of cigarettes in 2007 were made by customers in Texas.
What’s amazing is that before Texas added the $1-a-pack tax their Internet sales for cigarettes were about 1 or 2 percent of the total U.S. market said Bill Phelps a spokesman for Altria the parent company of Philip Morris.
The state sales tax on cigarettes is paid at the point of sale. Most Internet vendors don’t charge state or local taxes but purchasers are still technically required to pay them.
A 2006 lawsuit settlement made clear that states have the right to examine the books of Internet cigarette vendors but the effort to do so generally costs more than the amount of taxes that could be collected the Texas comptroller’s office has said.
In a 2006 special legislative session that overhauled the state’s public school financing lawmakers increased the cigarette sales tax from 41 cents per pack to $1.41. The tax took effect Jan. 1 2007.
At the time state revenue forecasters estimated that the tax would generate about $700 million annually for a few years but then tail off presuming that smokers would quit and fewer youngsters would take it up. Instead in 2007 the new tax brought in $1.35 billion and collections for the first six months of 2008 are running even higher.
The warning by some critics that the new tax could drive cigarette sales either underground or to the Internet might have merit according to the ComScore study. Texans’ online purchasing of cigarettes soared past California which has a larger population but taxes cigarettes at a lower rate.
In the study’s rankings New York was No. 2 with 11 percent of online purchases followed by New Jersey and Pennsylvania with each accounting for about 10 percent. New York and New Jersey have higher cigarette taxes than Texas.
The tax in Pennsylvania is slightly lower than in Texas.
A spokesman for ComScore said the study was based on information collected from more than 1 million Internet users who allow the company to monitor their online habits. Because the study was done for a private company ComScore declined to make the raw data public.
Phelps said policies that drive cigarette buyers to the Internet are generally unwise because they deprive governments of tax revenue. Philip Morris does not sell online to individuals and requires wholesalers to prove that they have safeguards to avoid selling to minors.
Eric Lindblom director of policy research for the Campaign for Tobacco-Free Kids disputed any notion that adding $1 to the tax on cigarettes in Texas was a bad idea.
The number of people who either quit smoking or refrained from ever starting to smoke is going to far exceed the number of people who are going online to buy cigarettes Lindblom said.
And when smoking rates go down so do the negative health consequences related to smoking. And that’s a public policy plus.
