Business Week

All the Tar and None of the Taxes

by Larry Armstrong
December 13, 1999

It turns out sex isn't the only vice thriving on the Web. In five years, the Net should account for 20% of all U.S. cigarette sales, a $40 billion market. So says Gary Kirschner, a former tobacco company executive and CEO of If he's right, give part of the credit--or blame--to 19th century land claim settlements between the government and Native Americans.

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Most Web smoke shops are located on Indian reservations or in tobacco-producing states. Stores on reservations don't have to collect state excise taxes, while sites in low-tax states such as North Carolina collect only the local levy. When online stores ship to customers in California, which raised its tax to 87 cents a pack starting Jan. 1, savings can add up quickly. Online sales are legal, but many states require residents to declare their purchases and pay up. Most smokers who buy online, however, simply ignore the law and don't pay.

The number of Web cigarette stores has more than doubled over the past year: The site has links to more than 50. That growth suggests that many smokers who don't like high sin taxes would rather fight than quit.