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Highlights

State and federal officials are concerned that as Internet cigarette sales continue to grow and as states' cigarette taxes increase, so will the amount of lost state tax revenue due to noncompliance with the Jenkins Act. The act requires any person who sells and ships cigarettes across a state line to a buyer, other than a licensed distributor, to report the sale to the buyer's state tobacco tax administrator. The Department of Justice (DOJ) is responsible for enforcing the Jenkins Act, and the Federal Bureau of Investigation (FBI) is the primary investigative authority. However, GAO found that DOJ and FBI headquarters officials did not identify any actions taken to enforce the Jenkins Act with respect to Internet cigarette sales. Since 1997, the Bureau of Alcohol, Tobacco, and Firearms (ATF) has begun three investigations of Internet cigarette vendors for cigarette smuggling that included the investigation of potential Jenkins Act violations. Overall, seven of nine selected states have made some effort to promote Jenkins Act compliance by Internet cigarette vendors by contacting Internet vendors and U.S. Attorneys' Offices, but they produced few results. GAO's Internet search efforts identified 147 website addresses for Internet cigarette vendors based in the United States. None of the websites posted information indicating the vendors' compliance with the Jenkins Act. Conversely, information posted on 78 percent of the websites indicated the vendors do not comply with the act.

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Recommendations

Matter for Congressional Consideration

Matter Status
To improve the federal government's efforts in enforcing the Jenkins Act and promoting compliance with the act by Internet cigarette vendors, which may lead to increased state tax revenues from cigarette sales, Congress may wish to consider providing ATF with primary jurisdiction to investigate violations of the Jenkins Act.
Closed - Implemented

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