Breaking Down the PACT Act

Convenience store owners scored a major victory in March when the House and Senate passed the Prevent All Cigarette Trafficking (PACT) Act in a near unanimous vote, which forbids the U.S. Postal Service from delivering cigarettes directly to consumers. At presstime, President Obama was expected to sign the bill into law.

The PACT Act aims to stop the sale of cigarettes and smokeless tobacco products over the Internet by requiring the collection of state cigarette and OTP taxes and mandating age verification procedures to prevent minors from obtaining access to tobacco products by Internet sellers.

PACT will benefit retailers in states like New York, Pennsylvania and Oklahoma, all of which have lost millions of dollars in sales to Native Americans selling tax-free tobacco products. Supporters also said it will make it harder for kids to light up and stop smokers from dodging state taxes.

The post office has been the primary means of delivery since UPS, DHL and FedEx agreed with the New York Attorney General several years ago not to ship cigarettes nationwide.

“We are very pleased both the Senate and the House approved the bill. This is going to help small businesses and public health as well as state and local governments, so it’s a win-win for New York State,” said James Calvin, president of the New York Association of Convenience Stores (NYACS).

“Cigarettes are a legal product and smokers are going to continue to buy them,” Calvin said. “Congress made a sensible choice to have them sold in a controlled environment where there is verifiable compliance with tax, age verification and other laws designed to protect public health.”

Leveling the Playing Field
However, Indian leaders, who have repeatedly rebuffed any attempt to level the playing field for tobacco sales, said the new law is an attempt by the government to gain control over tribes and their economies.

“This is a sucker punch to our federal treaty rights,” Seneca Nation President Barry Snyder said. “This is a direct assault on our economy and our people. And it will have a devastating ripple effect on the western New York economy.”

Calvin, however, blasted that logic saying the Seneca Nation’s claim that PACT will cost 1,000 jobs assumes that all their customers will immediately stop buying cigarettes altogether, when in reality there will be a shift in sales and jobs back to licensed, regulated retail outlets.

“It’s ludicrous for anyone to claim that helping smokers circumvent tax and age verification laws is a form of economic development,” Calvin said.

Calvin cited a study conducted by economist Brian O’Connor showing that if cigarette tax collection laws were being enforced fully and fairly in New York State, there would actually be a net increase of more than 1,300 jobs and $35 million in higher earnings in the retail cigarette market. 

“Now that Congress has acted, the next step (in New York) is for Gov. Paterson to proceed with collecting state taxes on cigarettes sold by Native American-run stores to non-Indian customers,” Calvin said.

A state law mandating this collection was enacted four years ago, but no move has been made to enforce the law. Due to this inertia, O’Connor estimated the state is losing $1 billion a year in tax revenue.

Fran Duskiewicz, senior executive vice president for Nice and Easy Grocery Shoppes, said that while PACT is a step in the right direction, until New York starts collecting state taxes on cigarettes sold by Native Americans, it’s not going to help his business. He remains decidedly cynical that laws to tax these sales will be enforced in the near future. “Lawsuits have been won, the Supreme Court ruled in our favor and laws have been passed, but nothing has been enforced,” he said.

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