SAN FRANCISCO -- Erna Mueksch, a smoker for 63 years, grows animated as she recalls how she took up the habit, hoping to attract the attention of the good-looking guys at dance halls in her native Estonia.
Mueksch, 83, is still smoking all these years later, but has cut back from a pack to half a pack a day, complaining that taxes have doubled prices in the last five years.
"It's no use; you can't fight city hall," the California woman said. "I am a second-class citizen."
But many other smokers are fighting back by going online to find bargain prices for cigarettes, a practice that is angering states, health campaigners, traditional retailers and the big tobacco companies themselves.
"Cigarettes are an ideal product for distribution through the Internet," said Ali Davoudi, founder of eSmokes.com and president of the Online Tobacco Retailers Association. "The average person out there shopping for cigarettes online is your average, hard-working, blue-collar American, looking to save money on a product that, for whatever reason, no matter what you say, is an addictive product. They're addicted."
The savings available via the Internet may also prove to be addictive. A carton of Marlboros from Yesmoke.com in Switzerland costs only $14.95, postage included, whereas the average cost of a 10-pack carton in the United States is $37. The tab is even higher in New York City, where smokers pay more than $3.50 a pack just in taxes, which can mean a retail price tag of $75 per carton.
U.S. smokers are catching on to the savings. Forrester Research estimates Internet cigarettes sales will be $5 billion in 2005, more than double what is expected this year. That means states could lose $1.4 billion in tax revenue, the study found.
Big tobacco companies, state and federal governments and health advocates are up in arms about this flourishing corner of the Internet and are launching an ever-growing legal assault.
California, the latest to enter the fray, this month sued five online and out-of-state cigarette vendors, accusing them of costing the state $54 million in lost tax revenue and of selling to minors.
"It is substantial and growing," state Attorney General Bill Lockyer said in an interview. "In California we do surveys of kids to find out where they are getting cigarettes, and the number of illegal purchases is growing."
"We estimate that about 20 percent of minors are purchasing illegally, and the revenue lost to state and local government is fairly substantial.... There is no effort, on delivery, to check identification or age, or getting someone to sign for the delivery."
Current rules leave it up to the buyer, not the retailer, to pay state sales tax on online cigarettes. Few do.
"The Internet is a boon to us all," said Ray Domkus, 58, a semiretired autoworker in Burbank, California, who has smoked for 40 years. "We don't want to pay the high taxes that the states want us to pay."
"Many of us are on fixed incomes and I would say a good half of us are buying from out of state," said Domkus, who is also head of a California smokers' rights group.
States are fighting back, and courts are seeing many cases like the one filed by California against online tobacco merchants.
In January, New York City sued several Web sites for evading the city's steep taxes, and a number of states also have taken legal action. As of March, Philip Morris USA had filed 18 lawsuits against Internet retailers, and it has sent warning letters to 80 others.
Philip Morris says it has surveyed 500 sites selling online cigarettes to American customers and found that not a single one complies with basic standards of tax reporting or safeguards against sales to minors.
"Overall, the number of people purchasing cigarettes (online) is still relatively small, but growing at a rather alarming rate," said Tom Ryan, a Philip Morris USA spokesman. "Alarming, I say, because much of that growth is based on illegal sales."
"The long-term effect is decidedly negative on our business," said Ryan, whose company controls 62 percent of the name-brand U.S. cigarette market. "We have invested enormous resources of our own into the legitimate distribution of our products."
The Online Tobacco Retailers Association said such complaints are based on fears of shrinking market share. Online sales are one factor helping little-known discount brands get to market, much to the annoyance of big tobacco, Davoudi said.
"We are not out there selling a product that is illegal," he said. "It's a product that, for whatever reason, yes, is damaging, but it is a legal product."
Philip Morris says discount brands now have a market share of 10 percent, up from only 3 percent in 1997.
Davoudi said his group's members refuse to sell to anyone younger than age 21.
"We have a much better, much more reliable way of making sure that cigarettes get into the hands of adults," he said.
"There is nothing you can do to prevent a kid from walking up to somebody standing outside a store and saying, 'Here's 10 bucks, buy me a pack of cigarettes and you keep the change.'"
