Senate Passes Bill to Capture Illegal Cigarette Sales

Published January 1, 2004

The U.S. Senate passed on December 9 a bill (S. 1177) intended to curtail illegal cigarette trafficking and strengthen enforcement of cigarette tax collection from Internet vendors. The measure passed late in the evening by voice vote.

Senator Orrin G. Hatch (R-Utah), chairman of the Senate Judiciary Committee, and Senator Herb Kohl (D-Wisconsin) introduced the Prevent All Cigarette Trafficking (PACT) Act on June 3, 2003.

“Contraband cigarettes contribute heavily to the profits of organized crime syndicates, specifically global terrorist organizations,” stated Hatch at the bill introduction. “Furthermore, illegal cigarette trafficking has had a damaging impact on the economies of numerous states.”

“It is clear that cigarette trafficking is becoming a method of terrorist financing,” added Kohl. “This legislation will comprehensively combat tobacco smuggling. In reducing cigarette smuggling, we will simultaneously help deny terrorists a needed source of funding and help our financially struggling states collect their revenue.”

The PACT Act would:

  • Strengthen the reporting requirements for interstate cigarette sellers.
  • Lower the threshold for cigarettes to be treated as contraband from 60,000 to 10,000.
  • Make violating reporting requirements a felony.
  • Create a substantial civil penalty for violating reporting requirements.
  • Empower state attorneys general to prosecute violators.

The bill “is designed so that the profits of those currently benefitting from contraband cigarettes will go up in smoke,” Hatch said when the measure passed.

The legislation also gives state attorneys general the ability to bring action in federal court against Internet vendors who violate state laws by failing to report sales to state tax administrators.

“The PACT Act will give states the authority to collect millions of dollars in lost state tax revenue resulting from online and other remote sales of cigarettes and smokeless tobacco,” said Vermont Senator Patrick Leahy, ranking member of the Senate Judiciary Committee, during a July 31 hearing. “It also ensures that every tobacco retailer, whether a brick-and-mortar or remote retailer of tobacco products, plays by the same rules by equalizing the tax burdens.”

In the House, Reps. Martin Meehan (D-Massachusetts) and Mark Green (R-Wisconsin) have sponsored similar legislation.

Philip Morris USA, the largest cigarette company in the United States with nearly 50 percent of U.S. retail sales, supports legislation “aimed at stopping the illegal sale of cigarettes,” including stolen, illegally imported, counterfeit, and untaxed or under-taxed cigarettes that enter into or are diverted from the legal distribution chain through illegal means. According to the company’s Web site, “Illegal trade deprives governments of tax revenue and can result in stolen products, hijacked cigarette trucks, tarnished trademarks and brand reputations, and distortions in the legitimate market.

“As excise taxes and other costs increase,” the Web site statement continues, “many smokers are seeking lower-priced cigarettes through a variety of alternative venues and channels, many of which are illegal, creating a need for increased enforcement and more stringent penalties. Philip Morris USA is working to support legislation that can provide law enforcement authorities with additional tools to combat illegal trade in cigarettes.”

John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].

For more information …

The full text of S.1177, The PACT Act, is available through PolicyBot. Point your Web browser to, click on the PolicyBot icon, and search for document #14098.

The Philip Morris position statement on illegal trade in tobacco products is available online at