"The DOJ is responsible for enforcing the Jenkins Act
, and the Federal
Bureau of Investigation (FBI) is the primary investigative authority.
However, DOJ and FBI headquarters officials did not identify any actions
taken to enforce the Jenkins Act with respect to Internet cigarette sales.
"ATF has ancillary authority to enforce the Jenkins Act.4 Since 1997, ATF
has initiated three investigations of Internet cigarette vendors for cigarette smuggling, a felony offense, which included the investigation of potential
Jenkins Act violations. One investigation is ongoing, another was referred
to state authorities who obtained Jenkins Act compliance by the vendor
without prosecution, and a third was not pursued by a grand jury. ATF is
planning other actions to promote compliance with the act and address
the growing issue of Internet cigarette sales. ATF officials said
consideration should be given to transferring primary jurisdiction for
investigating Jenkins Act violations from the FBI to ATF. According to the
officials, having primary jurisdiction would give ATF comprehensive
authority to enforce federal laws involving interstate cigarette distribution.
The officials said ATF would use resources to specifically conduct Jenkins
Act investigations, which should result in increased enforcement.
"Overall, seven of nine selected states had made some effort to promote
Jenkins Act compliance by Internet cigarette vendors. These efforts
consisted of contacting Internet vendors and U.S. Attorneys' Offices, but
they produced few results. Six of the seven states, for example, contacted
Internet vendors to inform them of their Jenkins Act reporting
responsibilities. However, some vendors told state officials that they did
not have to comply with the Jenkins Act. For those Internet vendors that
did respond by reporting cigarette sales, the states generally collected
small amounts of cigarette taxes from consumers. In addition, two of the
seven states asked U.S. Attorneys to help promote Jenkins Act compliance
by sending letters to Internet cigarette vendors informing them of the
Jenkins Act reporting requirements. The U.S. Attorneys, however, did not
provide the requested assistance.
"Officials in all nine states expressed concern that Internet cigarette sales
would continue to increase in the future, with a growing and substantial
negative effect on their tax revenues. Officials in one state, California,
estimated a tax loss of approximately $13 million from May 1999 through
September 2001 because of Internet cigarette vendors not complying with
the Jenkins Act. However, officials in each of the states said that they lack
the legal authority to successfully address this problem on their own and
that greater federal action is needed to enforce the Jenkins Act. Officials in
four of the states said that they believe ATF should be the federal agency
with primary jurisdiction for enforcing the act.
"Our Internet search efforts identified 147 Web site addresses for Internet
cigarette vendors based in the United States (see app. II). None of the Web sites posted information that indicated the vendors complied with the
Jenkins Act.5 Conversely, information posted on 78 percent of the Web
sites indicated the vendors do not comply with the act. For example, 31
percent of the Web sites stated the vendors either do not report cigarette
sales or do not comply with the Jenkins Act. Sixteen percent of the Web
sites and four vendor representatives cited their Native American status,
the Internet Tax Freedom Act, and other laws as reasons for not
complying with the act. However, our review of the laws cited, as well as
the Jenkins Act and its legislative history, indicates that neither Native
American status nor any of the laws cited relieve Internet vendors of their
Jenkins Act responsibilities. Only 5 percent of the Web sites posted notices
of the vendors' reporting responsibilities under the Jenkins Act, and those
that did also indicated that the vendors do not comply. Twenty-one
percent of the Web sites contained statements notifying customers of their
potential state tax liability for cigarette purchases or the customers'
responsibility for complying with state cigarette laws."
