What is the PACT Act of 2010?
The PACT Act stands for Prevent All Cigarette Tracking and aims to crack down on mail order cigarettes, interstate cigarette trafficking and other tax evading measures. The Act became law on March 31, 2010. The primary motivation for the crackdown on cigarette tax dodging is new provisions in the 2009 Children’s Health Insurance Program Reauthorization Act (which was part of the healthcare reform agenda) that raised the federal tax on packs of cigarettes to $1.01 from 39 cents. The funds from the tax increase went to extending coverage for the State Children’s Health Insurance Program from only impoverished children to most middle class and a few children from higher income families living in New York and New Jersey. This tax, combined with state and local tobacco taxes makes the tax burden on cigarettes rather high.
What are the provisions of the PACT Act?
Under the PACT Act, the United States Postal Service and several private delivery companies may no longer deliver most tobacco products as this is the most common method of evading tax laws. Organizations that sell mail order or other tax-free cigarettes are now subject to a crackdown. Cigarettes are not to be smuggled between states so as to avoid higher local taxes.
What does the PACT Act provide for in detail?
Section 1 – Congress states its findings that detail that smuggling has decreased tax revenue by a number of “billions” for all three levels of government mostly due to cigarettes sold on the internet that evade taxation.
Additionally Part B (2) states that terrorist organizations derive profit from the trafficking of illegal cigarettes and that they will continue to profit unless stricter measures are taken. Section 1 goes on to state concerns about the ease by which minors can obtain cigarettes through the internet/phone/mail, the effect of smuggling on honest retailers and do not comply with federal regulations. It then goes on to state that Congress derives the authority to legislate on this matter due to its involvement in “interstate commerce.”
Lastly, Part C of section states that the purpose of this legislation is to increase penalties on cigarette smugglers, increase cigarette tax collection and to force remote sellers of cigarettes to comply with Federal rules and regulations.
Section 1 continues to define the terms that will be used in the rest of the PACT Act.
Part B of the definitions sections now addresses amendments to the Jenkins Act; a little known law that forces a company that ships cigarettes nationally must file month reports with state tax authorities. The amendment increases the scope of the original Act, now applying it to Native American tribes that had run successful tax-free cigarette operations and increasing the prohibition to smokeless tobacco as well.
Section 2 – The next section of the legislation focuses on the delivery of tobacco products that now requires the package to be labeled with the following warning:
`CIGARETTES/SMOKELESS TOBACCO: FEDERAL LAW REQUIRES THE PAYMENT OF ALL APPLICABLE EXCISE TAXES, AND COMPLIANCE WITH APPLICABLE LICENSING AND TAX-STAMPING OBLIGATIONS’.
It imposed a weight limit of 10 pounds on single deliveries of tobacco products and now requires remote sellers to verify age before shipping the product to the consumer.
Part C of the Definitions section requires remote sellers to keep records of delivery sales, organized by state for easy access by tobacco tax administrators and other authorities.
Part D enforces regulations on delivery requiring that relevant taxes be paid to the state and proof of tax payment is affixed to the package.
Part E allows for the US Attorney General to compile a list of non-compliant sellers, updated every four months and distribute this list to state officials, the postal service, and others that can sanction the organization as a form of enforcement. This part also prohibits the delivery of tobacco products for any of the sellers on the compiled list and includes major companies such as Fed Ex, UPS and DHL.
This section provides for the penalties for violating the PACT Act and includes a provision to collect 50% of criminal and civil penalties to further pay for enforcement of the Act.
Section 3 – This section reclassifies some tobacco products as non-mailable materials unless in specific circumstances. Cigars and mailings with Alaska and Hawaii are exempt. Mailings for noncommercial purposes and product testing (by manufacturers or the government) are also allowed. Otherwise, the USPS must reject all mail it suspects contains tobacco products. There are civil penalties involved for mailing tobacco products illegally. 50% of these funds are returned to the Postmaster General to help with enforcement of the PACT Act.
Section 4 – Allows for the Bureau of Alcohol Tobacco and Firearms to inspect records and collect information on tobacco products sold at any business establishment. There is a civil penalty for non-compliance
Section 5 – Reiterates the enforcement of this act in Native American territory and ensures that to provisions remain uniform in this jurisdiction
Section 6 – Sets the date (90 days after becoming) by which the provisions in the Act go into effect, with the provisions regard ATF searches becoming effective immediately.
Section 7 – Insures that if any part of this act becomes invalid, the rest of the provisions stay in effect.
Section 8 – States that this Act does not affect efforts by States to impose taxes on out-of-state cigarette sellers. Also reiterates the intention of this Act to protect youth, help states collect taxes and hand authority to investigate these matters to the Department of Justice and the ATF.