Eighteen states raised cigarette taxes in 2002, according to an American Lung Association analysis released in August, just one day before the General Accounting Office told Congress that online cigarette vendors and their customers are skirting tax compliance, cheating states out of millions of dollars.

While the cigarette tax hikes are intended to generate revenue for cash-strapped states, the GAO predicts that Internet cigarette sales will increase because of the tax hikes.

The GAO said states could lose as much as $1.4 billion in 2005 tax revenues if the federal government does not start enforcing the Jenkins Act, which requires vendors who sell and ship cigarettes into another state to anyone other than a licensed distributor to report the name and address of the person receiving the shipment as well as the brands and quantities of cigarettes shipped to the buyer's state tobacco tax administrator.

On the same day the GAO report was released, the New York Post reported that up to $250 million a year in cigarette taxes have gone uncollected in New York from out-of-state vendor sales.

The Department of Justice is responsible for enforcing the Jenkins Act, which was enacted in 1949, and the FBI is the primary investigative authority. But the GAO suggests Congress should transfer primary investigative jurisdiction to the Bureau of Alcohol, Tobacco and Firearms, particularly because of the FBI's role in fighting terrorism.

While consumers who purchase cigarettes from online vendors are liable for their own state's cigarette excise, sales and use taxes, states find out about the purchases through vendor compliance with the Jenkins Act. The GAO identified 147 U.S.-based Internet cigarette vendors, including some with Native American status; 78 percent of those indicated on their Web sites that they do not comply with the Jenkins Act. Some vendors wrongly believe the 1998 Internet Tax Freedom Act, which placed a tax moratorium on e-commerce, exempts them from the Jenkins Act.

In 1999, about 200 Alaska residents were notified that they owed taxes for cigarettes they had purchased from out-of-state vendors. Vendors involved in those purchases had turned in the customer information required under the Jenkins Act to the state revenue department.