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Attorney General Lockyer Files Lawsuits Against Five Retailers for Internet Sales to Minors

Companies Also Evading Reporting Requirements, Depriving State of Excise Taxes
Tuesday, April 1, 2003
Contact: (415) 703-5837

(SAN DIEGO) – Attorney General Bill Lockyer today filed lawsuits against five out-of-state tobacco retailers for selling cigarettes to minors via the Internet, failing to report tobacco sales to California tax authorities and depriving the state of excise taxes. "These retailers have harmed California and its citizens in two ways," said Lockyer. "They have helped hook our children on a deadly, addictive product. And they have deprived our state of revenue it can ill-afford to lose as it struggles to solve a fiscal crisis of unprecedented proportions." On behalf of the people of California, Lockyer filed separate complaints against five companies. They include: Dirt Cheap Cigarettes Inc., based in Missouri; smokin 4 less, based in Virginia; Cyco.net Inc., based in New Mexico; eSmokes, based in Florida; and LLP Enterprises/CigOutlet, based in Virginia.

The lawsuits ask the court to permanently prohibit the defendants from engaging in the alleged unlawful conduct. In addition, the complaints seek a combined total of at least $1 million in civil penalties.

The California Penal Code prohibits retailers from selling cigarettes to minors. The complaints allege the defendants have sold cigarettes to minors through their Internet web sites. Even after being notified by the state that their cigarettes were being sold and delivered to minors, the defendants failed to implement measures to prevent such sales, according to the complaints. A sting operation conducted by state investigators revealed the defendants did not verify age on delivery, did not require a signature on delivery, and often merely tossed cigarettes on porches.

"Specifically, defendants fail or refuse to put in place effective safeguards so as to prevent or seriously discourage further sales to minors," the complaints allege. By failing to stop sales to children, the complaints add, the defendants are "undermining the state's eforts to reduce smoking by minors."

Smoking by minors ranks as one of the most serious public health problems facing California and the nation. The lawsuits note more than 80 percent of regular smokers started smoking as children, and that 2,000 additional minors begin smoking every day. One-third of those children, studies show, will die of a tobacco-related disease.

The complaints also allege the defendants have violated California laws that govern payment of excise taxes on Internet cigarette sales, and federal statutes that require out-of-state sellers to report such sales to California tax agencies.

The federal Jenkins Act requires out-of-state vendors to report to the Board of Equalization (BOE) sales of cigarettes to California recipients other than licensed distributors. The defendants have failed to comply with that reporting requirement, the complaints allege.

Additionally, state law requires out-of-state retailers either to pay the excise tax on cigarette sales themselves, or if they do not, inform California customers they are responsible for paying the tax. The lawsuits allege the defendants have wrongfully denied the state revenue by doing neither. The defendants' failure to notify consumers of their obligation to pay taxes constitutes deceptive advertising, according to the complaints.

The complaints contend the violation of tax laws by the defendants and other retailers "has resulted in a huge loss of income to the state." The BOE estimates tax evasion by out-of-state cigarette retailers selling over the Internet, by mail order and other means has deprived California of $53.9 million.

In 1999, Lockyer established a full-time Tobacco Litigation and Enforcement Section to enforce California laws regarding the sale and marketing of tobacco products. The section also enforces the national Master Settlement Agreement (MSA), reached with tobacco companies in November 1998. Californians who suspect violations of state tobacco laws or the MSA can file complaints by calling (916) 565-6486 at any time, or by writing to the Tobacco Litigation and Enforcement Section at P.O. Box 944255, Sacramento, CA 94244-2550. Additional information is available on the Attorney General's web site at http://www.ag.ca.gov/tobacco/.

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