The trend could undercut efforts by cash-strapped states to raise revenues by hiking cigarette taxes. In Massachusetts lawmakers recently approved a 75-cent hike on a pack of cigarettes, a move officials hope will bring in an extra $190 million annually. In Illinois, the state boosted cigarette taxes by 40 cents to a total of 98 cents a pack.
New Jersey and New York both have a $1.50 per pack tax, the nation's highest. Washington is third, at $1.42.
Federal law requires Internet cigarette sellers to provide state revenue officials with names and addresses of their customers. The officials can then pursue the buyers to make sure they pay local sales taxes.
But Internet cigarette vendors openly flout the law, known as the Jenkins Act, according to a report by the U.S. General Accounting Office to be released Tuesday.
"Our Internet search efforts identified 147 Web site addresses for Internet cigarette vendors based in the United States; none of the Web sites posted information that indicated the vendors complied with the Jenkins Act," the report said.
In fact, according to the report, 78 percent of the sites indicated that the vendors do not comply with the law.
The report recommends shifting primary enforcement of the law from the FBI to the Bureau of Alcohol, Tobacco and Firearms, in part because of the FBI's heightened focus on terrorism.
Calls to several Internet cigarette vendors advertising "tax free cigarettes" were not returned to The Associated Press on Monday. One Web site told buyers "We do not report to tax authorities in ANY state. 100% confidential."
The cost to states can run into the millions, according to the report.
Officials in California estimated a tax loss of approximately $13 million from May, 1999 through September, 2001 because of the failure of Internet cigarette vendors to comply with the federal law.
By 2005, Internet tobacco sales in the United States could exceed $5 billion and states could lose about $1.4 billion in revenues, according to the report.
U.S. Rep. Martin Meehan, D-Mass., requested the report, which he said reveals a burgeoning market of online cigarette sales.
The lack of oversight lets children illegally purchase cigarettes online, said Meehan, who plans to file a bill requiring Internet cigarette shops to verify the age, address and identity of purchasers before shipping tobacco products.
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