FOR IMMEDIATE RELEASE
September 29, 2008
MAYOR BLOOMBERG AND CORPORATION COUNSEL CARDOZO SUE TO STOP ILLEGAL CIGARETTE SALES AT EIGHT LONG ISLAND INDIAN SMOKE SHOPS THAT HAVE COST NEW YORK TAXPAYERS $720 MILLION IN LOST REVENUE
Indian Reservations are Tax Exempt for Personal Use Only – But Sales Data Correspond to Every Man, Woman, and Child in Tribe Smoking 19,200 Cigarettes Each and Every DayAs City Tightens Budgets and Debates Rescinding Property Tax Cut, City’s Lost Tax Revenue Would Pay One Year’s Salary, Benefits and Training for 2,700 Police Officers or 2,800 Firefighters or 3,000 Teachers
“Last week, we announced half a billion dollars in reductions to this year’s budget and another billion dollar in reductions for next year,” said Mayor Bloomberg. “We’ve done a good job of saving surpluses for tough times and cutting costs, but we owe it to taxpayers to be just as tough on the tax collection side. As we all pull together to do more with less, it’s just grossly unfair to hardworking taxpayers to leave hundreds of millions of dollars of tax revenue on the table uncollected.”
“This suit further demonstrates the City’s commitment to curtail illegal cigarette trafficking,” said Corporation Counsel Michel A. Cardozo of the New York City Law Department. “Mayor Bloomberg has made it a top priority to end the bootlegging of cigarettes into the City, which undermines our revenues and our health programs.” As another example of the City’s efforts, the Corporation Counsel pointed to a related legal action in which the City is seeking to enjoin cigarette wholesalers from providing reservation retailers like those in the present suit with supplies of unstamped cigarettes. Judge Carol B. Amon of the Federal District Court for the Eastern District of New York recently ruled that cigarette wholesalers are potentially liable for violations of the Contraband Cigarette Trafficking Act for such sales. See City of New York v. Milhelm Attea & Bros., Inc., 2008 U.S. Dist. LEXIS 35465 (E.D.N.Y. 2008). In addition, earlier this month the Second Circuit Court of Appeals overruled a lower court and allowed four civil RICO (Racketeer Influenced and Corrupt Organizations Act) cases brought by the City against numerous out-of-state Internet cigarette retailers to move forward. The cases are based on alleged mail and wire fraud connected to the defendants’ failure to file federally required tax documentation. See City of New York v. Smokes-Spirits.com, Inc., 2008. U.S. App. LEXIS 18930 (2nd Cir. 2008) .
Native Americans are permitted by law to purchase and possess unstamped cigarettes on which taxes have not been pre-paid, but only for personal use or re-sale on the reservation to other tribe members. The defendants in today’s suit purchase cigarettes under the guise that they are for personal use on the reservation, but then illegally sell the cigarettes to the public in sales that are subject to taxation. According to the United States Census Bureau, the Poospatuck Reservation has a population of 279 people. If all of the 960 packs of cigarettes containing a total of 19,200 cigarettes sold there each day were for personal use on the reservation, every reservation resident would have to smoke more than 13 cigarettes every minute 24 hours a day, seven days a week.
Across New York, some $1 billion a year in cigarette taxes are left uncollected because of the State’s failure to enforce its tax laws on cigarettes sold on Indian reservations. The $195 million that New York City lost from these eight smoke shops alone could have paid for the modernization of a public hospital, or a year’s salary and benefits for 2,675 new NYPD police officers, 2,848 new FDNY firefighters, 3,324 new sanitation workers, or 3,073 new teachers. It’s also nearly equivalent to three-quarters of the annual operating budget of the Parks Department.
Today’s lawsuit, seeks to halt the businesses and their operators from continuing the longstanding, illegal sale of millions of cartons of “unstamped” cigarettes on which State and City taxes have not been paid. The defendant businesses sell in bulk to cigarette bootleggers, who truck the cigarettes into the City on a daily basis. Undercover investigators found that the businesses willingly sell bulk quantities of cigarettes knowing that the cigarettes will be trafficked into the City – and even assist traffickers in avoiding detection by law enforcement.
“We respect the right of Native Americans to sell cigarettes to reservation residents tax free,” said Finance Commissioner Martha Stark. “However, reservations must collect tax for non-members or provide us with information so we can collect taxes.”
The Federal Contraband Cigarette Trafficking Act, 18 U.S.C. § 2341, makes it a felony – and also gives rise to civil liability – for selling cigarettes without tax stamps in States where the cigarettes are subject to tax. The New York Cigarette Marketing Standards Act also gives rise to civil liability for selling cigarettes without including amounts for all taxes required by law. Cigarettes sold by Native Americans to the public are taxable and by law must bear tax stamps in New York. Defendants violate both statutes, as a result of which the City is empowered to seek both injunctive relief and damages.
The cigarette bootlegging from the Poospatuck Reservation was revealed recently by the conviction of one of the present defendants, Rodney Morrison, owner of the Peace Pipe Smoke Shop, on federal racketeering charges for cigarette trafficking. The businesses are extraordinarily lucrative, with court records showing the Peace Pipe Smoke Shop grossed $36 million in the first half of 2006.
The current lawsuit is part of a comprehensive effort by the Bloomberg Administration to halt all forms of cigarette bootlegging into the City and limit the health impacts of smoking. “When people evade cigarette taxes, they cheat society and they increase their risk of death from smoking,” said Health & Mental Hygiene Commissioner Dr. Thomas R. Frieden. Finance Commissioner Stark also noted that bootlegging injures the businesses of those retailers who are abiding by the law.
The 18 defendants are located on the Poospatuck Indian Reservation (also called the Unkechauge Indian Reservation) are:
Law Department attorneys Eric Proshansky, Gail Rubin and William Miller are leading the litigation. The New York City Law Department acts as legal counsel for the Mayor, elected officials, the City and its agencies.
Stu Loeser / Jason Post (212) 788-2958
Kate O’Brien Ahlers (Law)
Owen Stone (Finance)
Jessica Scaperotti (Health)
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