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Action on Smoking and Health
A National Legal-Action Antismoking Organization Entirely Supported by Tax-Deductible Contributions
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Online Cigarette Vendors Feeling Credit Card Changes [04/19-4]
Excerpts from: Online cigarette vendors feeling credit card changes
By CAROLYN THOMPSON AP [04/18/05]
For years, getting a deal on cigarettes was as easy as plugging a credit card
number into any one of hundreds of discount Internet sites.
But things have been anything but easy lately for the sellers who have raked in tens of millions of dollars from the online sales.
It's been a month since major credit card companies announced they would no longer take part in online tobacco purchases, after being convinced by states' attorneys general and the federal Bureau of Alcohol, Tobacco and Firearms that virtually all of the sales were illegal.
That sent online sellers either scrambling to set up for alternative payments, like check or money orders, or out of the Internet business altogether.
"A lot of people have lost their jobs. There's been a lot of layoffs," said Rick Jemison, spokesman for Seneca Sovereign Partnership, which represents the Seneca Indian Nation's business community.
Businesses on the 7,000-member tribe's two western New York reservations are among the nation's biggest online retailers. In 2003, 55 Seneca firms sold $347.5 million worth of tobacco products, more than half of them to out-of-state customers.
The tribe's sovereign status allows businesses to forgo charging the hefty state sales tax, giving them a price advantage over non-Indian competitors that has made the extra trip to an online store worthwhile. Cigarettes sell for $15-$28 per carton online, compared with the average of $48 charged off the reservation.
The credit card changes affect non-Indian online sites as well.
"We didn't have the ability to shut down the sites, but the credit card companies had the ability to deny those online retailers the ability to use their credit cards," said Marc Violette, spokesman for Attorney General Eliot Spitzer, who helped secure the agreement with American Express, Visa, Discover and other credit card companies.
The changes are reflected online, where some sites now ask for customers' patience for the longer processing time in clearing personal check orders. Other sites are no longer active.
Ron's Smoke Shop on the Allegany Reservation sold off its lucrative online business, laying off as many as 120 workers in the process, according to published reports. Owner Maxine Jimerson has said numerous other businesses are doing the same.
The exact number of workers affected is hard to measure since many of the businesses are small, family-owned operations.
A report prepared for the tribe a year ago said Seneca tobacco businesses employed 1,037 people in 2003 and kept an additional 1,700 suppliers and distributors working.
Seneca Nation President Barry Snyder has called the credit card agreement disappointing and said the Tribal Council would seek a dialogue with the state and federal governments.
In announcing the agreement, Spitzer said New York law prohibits the direct shipment of cigarettes to consumers, and that virtually all Internet cigarette sales violate state and federal laws, including tax laws.
The ATF estimated states lose more than $1 billion a year in tax revenue from Internet tobacco sales.
Spitzer also cited inadequate age-verification systems online that allow minors access to cigarettes.
Click here to view ASH Warns Parcel Delivery Companies Against Delivering Illegally Purchased Cigarettes
Click here to view ASH Warns Credit Card Companies About Internet Tobacco Sales
Click here to view ASH Urges Attorneys General to Go After Illegal Cigarette Sales Online
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