Smokers dodge new taxes online, on reservations

Jack Kurtz/The Arizona Republic

J.D. Fulker of Tempe looks for cigarettes Thursday at the On-Auk-Mor smoke shop on the Salt River Reservation.

Alia Beard Rau The Arizona Republic Dec. 7, 2002 12:00 AM

Arizona's new cigarette tax hasn't persuaded Tempe resident Don Kassel to drop his pack-a-day habit.

It has just made him and many other smokers more willing to go out of their way in search of better deals at Indian reservation smoke shops and online cigarette stores.

"They'll have to pry the cigarette from my cold, dead fingers before I'll ever quit," Kassel said, finishing up the last cigarette in his pack and heading into the Akimel O'Othham smoke shop on the Gila River Reservation. "I'm a slave to them."

Richard Urrea, who runs the 3-year-old Cycocigs.com, an online cigarette store based in Albuquerque, says he already has some Arizona customers and expects the number to rise since the 60-cent-a-pack, $10-a-carton, Arizona tax took effect Nov. 26.

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"Every time a state adds a tax like that, we see a spike in sales," he said. "We have some Arizona customers who mainly buy discount brands, but there are still a lot of people who aren't aware that you can buy cigarettes online."

He said more and more states are considering cigarette taxes during these tight economic times. This year alone 19 states, including Arizona, increased their cigarette taxes.

The Arizona tax is expected to earn the state $150 million a year to help fund health care, hospitals and anti-smoking campaigns. "Smokers are an easy target because so many people hate smokers and say, 'Let them pay,' " he said. "Plus, it's a political issue for politicians looking to get votes."

Kassel, who voted against the tax approved by 67 percent of voters in the Nov. 5 general election, says reservation stores save him money.

Those stores have tacked on the new cigarette tax and collect federal taxes, but they can charge less because they don't have to collect the state sales tax. Right now, their prices are about 50 cents a pack and about $3 a carton under grocery store prices on major brands.

"They are still saving a few cents," said Cheryl Malin, general manager of On-Auk-Mor discount cigarette centers on the Salt River Reservation, where business is up.

Before the tax took effect, Pete Lopez of Casa Grande said he'd just stop by the closest grocery store and pick up a pack each day. Now he plans to stop at the reservation store for a carton a week. "I have to drive all the way from Casa Grande, and it's worth it," he said. Urrea, the online dealer, said the demonization of smoking has made some people afraid to buy cigarettes in public.

He also said the largest brands, like Marlboro and Camel, often buy most of the space on grocery and convenience store shelves, leaving no room for the cheaper generic brands such as USA Gold, one of the better sellers.

He said online business is just starting to take off in an industry that he said expects to see $5 billion in sales by 2005. Last year, his three-employee company brought in $5 million in sales.

"It will only grow as people work out their legal concerns," he said.

Urrea said that legally no state can limit Internet or interstate commerce. He said a 1992 U.S. Supreme Court decision held that a state cannot place an undue burden on a company that isn't based in that state, meaning his company is not required to pay state taxes or even report sales.

Jeff Kros, a Arizona Department of Revenue spokesman, agreed.

"As far as we understand right now, if you buy cigarettes online for personal use, there is no problem," he said. "But if you are a retailer and try to buy online without going through an Arizona distributor, that is illegal."

Most Web sites require a minimum order of two cartons, accept credit cards and deliver by mail or by a shipping company within about five days.

Some waive shipping fees. Others will let customers automatically have cartons shipped and charged to their credit card at regular intervals.

All of the sites include statements saying that only those over age 18 can purchase cigarettes, but they require no confirmation of age.

Bob Maes, Arizona spokesman for the U.S. Postal Inspection Service, said shipping or purchasing cigarettes online violates no postal laws.

But Urrea said customers need to watch out for some online companies, estimating that maybe 10 are aboveboard.

"Some companies are selling products that are usually a couple of years old and stale," he said.