Trouble brewing for online vendors of cigarettes

Not since the dot-com bust have so many sites gone south so quickly.Two weeks after credit card companies announced they would no longer acc...

Not since the dot-com bust have so many sites gone south so quickly.

Two weeks after credit card companies announced they would no longer accept payment for tobacco products bought online, scores of Internet cigarette merchants have effectively lost the means to do business profitably, and are either limping along or have shut down their operations altogether.

Visa International, MasterCard International, American Express, eBay’s PayPal service and others cut off the online tobacconists last month after being told by a coalition of states and representatives of the federal Bureau of Alcohol, Tobacco and Firearms that virtually all such sales were illegal. Government officials said merchants had not done enough to comply with age verification practices or to register sales with governments to insure the collection of state taxes.

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Now, most merchants are reduced to accepting electronic or paper checks, and fewer customers may be willing to wait for those checks to clear before their orders are shipped. Meanwhile, some online merchants say they have been wrongfully singled out by authorities.

Maxine Jimerson of Ron’s Smoke Shop said her company had gone to great lengths to verify customers’ ages, contracting with a special vendor and requiring buyers to send in a copy of a government-issued picture ID, with age and signature, before a purchase could be made. Customer signatures at the time of delivery had to match the signatures on file.

But federal and state authorities said online cigarette merchants did not do enough to insure the collection of taxes. In particular, they did not comply with the Jenkins Act, a federal law that requires sellers to register purchases in states where customers live. Like many other online sellers operating on Indian territory, Ron’s Smoke Shop did not comply with such strictures because it argued that the law did not apply to it. If there were online companies that complied with all state and federal regulations, ‘‘it’s news to us,’’ said Marc Violette, a spokesman for the office of Eliot Spitzer, the attorney general of New York, where all online cigarette sales are considered illegal.

State officials had for years tried unsuccessfully to collect cigarette tax revenues from online merchants, and had redoubled such efforts as budget deficits skyrocketed in recent years. By using the credit card companies as leverage, though, they appear to have made progress in the fight. — NYT