PACT Act: A Big Victory for Most, but Devastating Blow to Tribal Tobacco Makers

Divisive issues within the tobacco industry are nothing new - the Master Settlement Agreement pitted the interests of a handful of major cigarette producers against a wide field of smaller and newer manufacturers who were competitively hobbled by a defacto cartel.

For Native American Tribal Nations, who have become successful producers of cigarettes in recent years, their rise has not been without controversy, in this case the fact that they do not collect taxes on merchandise sold to non-reservation residents. But to lump them in with illegal tobacco sellers goes to far, they say.

“While there is a huge illicit global tobacco trade, Indian tobacco sales are not part of it: Indian nations are sovereign entities with inherent rights to trade, including the sale of cigarettes, and to issue their own licenses, fees and regulations regarding trade,” writes Indian Country Today. “Seneca [Nation], for example, has a state-of-the-art stamping and enforcement mechanism that ensures compliance with its internal regulations, including retailer authorization, minimum pricing, and a ban on sale to minors. The nation works in close partnership with the Federal Bureau of Alcohol, Tobacco and Firearms Enforcement.”

The ”Prevent All Cigarette Trafficking Act” (PACT Act) has been signed into law. The National Association of Tobacco Outlets (NATO), and the American Wholesale Marketers Association (AWMA) both worked with the Coalition to Stop Contraband Tobacco, a coalition of trade associations, businesses, and individuals, to support passage of the PACT Act. Enactment of the bill capped a 10-plus year effort by retailers to close loopholes that placed significant competitive disadvantages on brick-and-mortar retailers.

Effective immediately, the Bureau of Alcohol, Tobacco, Firearms and Explosives has the authority to inspect distributors of cigarettes and levy a penalty against those who refuse inspection. Effective June 30, 2010, the act:

  • Strengthens the Jenkins Act by making it a federal offense for any seller making a tobacco sale via telephone, the mail or the Internet to fail to comply with all state tax laws. State attorneys general can now seek injunctive relief and civil penalties against out-of-state sellers who distribute product to end users in their states.

  • Requires Internet and other remote sellers to verify the purchaser’s age and identity through easily accessible databases; person accepting delivery must verify their age.

  • Prevents the United States Postal Service (USPS) from shipping all cigarettes and smokeless tobacco products.
According to NATO, the PACT Act should result in a significant reduction in the purchase of cigarettes and smokeless tobacco products over the Internet because the price advantage for those website retailers that have not collected state cigarette and smokeless tobacco taxes will no longer exist.

“The PACT Act will help combat illegal, online cigarette sales that have siphoned hundreds of millions of dollars in tax revenues away from state governments and undermined state laws that prevent America’s youth from gaining access to tobacco products,” says NACS senior vice president of Government Relations Lyle Beckwith, who called it a win for law-abiding retailers.

Tribal Nations contend they are not part of the problem, but will suffer greatly as a result of PACT Act, with the Seneca nation estimating a 65 percent loss in import/export revenue and the elimination of up to 3,000 tobacco and tobacco-related jobs in western New York.

- E. Edward Hoyt III