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PR- 389-09
August 26, 2009


Cigarette Sales are Tax Exempt for Reservation Members’ Personal Use Only – But Sales Data Suggests that Every Man, Woman, and Child in Tribe Are Smoking 19,200 Cigarettes Every Single Day

Mayor Michael R. Bloomberg today announced a victory in New York City's lawsuit against a group of Long Island Indian smoke shops illegally selling cigarettes. Judge Carol B. Amon of the Federal District Court in Brooklyn granted the City's motion for a preliminary injunction against owners and operators of cigarette businesses located on the Poospatuck Indian reservation in Mastic, Long Island. The injunction bars the sale of tax-free cigarettes to non-tribe members, which the City contends is illegal, and allows sales only to tribe members for personal use. A preliminary injunction is a remedy that directs a party refrain from a certain activity, until the court rules on the underlying legal matter. The injunction takes effect in thirty days, giving the defendants the opportunity to appeal.

"The City will go after every dollar that is owed to City taxpayers," said Mayor Bloomberg. "Based on the evidence introduced at the four-day hearing, the Court found that each business was selling huge quantities of cigarettes on which State and City taxes had not been paid.  It also found that such sales of unstamped cigarettes were likely to continue in the absence of the court's injunction - and that there is a substantial trade in unstamped cigarettes between the Poospatucks and New York City."

The Court issued the injunction after concluding that "the City has established a clear or substantial likelihood of success on the merits of its claim" that the defendant businesses' "receipt, possession, sale, distribution and purchase of quantities far in excess of 10,000 cigarettes, which do not bear New York tax stamps, under circumstances where such stamps are required" violates the Federal Contraband Cigarette Trafficking Act. 

The federal judge also held that the City had presented a clear or substantial likelihood of success on the merits of its claim that each defendant violated the New York Cigarette Marketing Standards Act by selling cigarettes at less than cost as defined by the statute, with the intent to avoid the payment of New York cigarette taxes. 
In yesterday's decision, the Court also rejected claims of sovereign immunity by the businesses and declined to follow an interpretation of state law by the New York State Appellate Division, Fourth Department, which had concluded that New York State does not presently require the payment of taxes on sales on Indian reservations.  The Federal Court found that the New York Court of Appeals - the state's highest court - would reject the reasoning of the Fourth Department majority as contrary to well-established principles of New York law, and conclude that New York law "imposes a tax on reservation sales of cigarettes to non-Tribe members."  

At the four-day preliminary injunction hearing, held in May, the City presented evidence of massive trafficking of unstamped cigarettes from the reservation into the City, including the testimony of former cigarette bootleggers who described the transport of thousands of cartons of unstamped cigarettes from the reservation into the City, where they re-sold the cigarettes to stores located throughout the City or vendors on the street.  The City's case included testimony by the investigators from the New York State Department of Taxation and Finance, who presented evidence of the substantial trade in unstamped cigarettes between the reservation and the City, and evidence of illegal sales.  The City's case also included expert testimony by former Department of Health and Mental Hygiene Commissioner Thomas Frieden that cigarette bootlegging injures the public health and interferes with the City's efforts to reduce smoking.  The Court credited all of this testimony in issuing the injunction.

While tribe members on Indian Reservations are permitted to buy cigarettes tax-free for personal use, the volume of cigarettes sold by the defendants translates to every resident of this reservation, including babies, each smoking 19,200 cigarettes every single day.  From 2004 to 2008, the unpaid taxes from the sales by the defendant businesses alone amount to more than $420 million in State taxes and up to an additional $420 million in City taxes.  It has been estimated that total tax losses to City and State taxpayers for illegal cigarette sales on Indian reservations across the entire State total over $1 billion a year.

"We are pleased that the Court ruled in the City's favor," said Corporation Counsel Michael A. Cardozo. "The Law Department will continue to support efforts to lawfully collect cigarette taxes and also to reduce smoking."

"The untaxed cigarettes flooding our streets create a competitive disadvantage for business owners who play by the rules; they also make cheap cigarettes available to minors and rob the City of revenue needed to provide vital services," said Acting Finance Commissioner Michael Hyman. "We respect the right of Native Americans to sell to reservation residents, but clearly that is not their intent - and we applaud Judge Amon's decision to bar shops on the Poospatuck reservation from selling untaxed cigarettes to non-residents."

The Department of Finance's Tax Enforcement Team provides investigative support on cigarette tax lawsuits.

"Cigarette taxes have helped New York City reach its lowest rate of smoking on record," said Health Commissioner Dr. Thomas A. Farley.  "Operations like this make it easier for young people to buy cigarettes and become addicted to smoking.  This legal victory is a big win for health."

The current lawsuit is part of an effort by the Administration to halt all forms of cigarette bootlegging into the City and limit the health impacts of smoking. In a related legal case in which the City is seeking to enjoin cigarette wholesalers from providing reservation retailers with supplies of unstamped cigarettes, Judge Amon also 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, the City's case under the Racketeer Influenced and Corrupt Organizations (RICO) Act brought against numerous out-of-state Internet cigarette sellers is to be argued this fall in the U.S. Supreme Court.  That case charges a pattern of mail and wire fraud because of the defendants' failure to file federally required tax documentation.  See City of New York v., Inc. , 2008 U.S. App. LEXIS  18930 (2nd Cir. 2008).

The defendants to whom yesterday's preliminary injunction applies, all located on the Poospatuck Indian Reservation (also called the Unkechauge Indian Reservation), are:

  • Monique's Smoke Shop - Mastic, NY
  • Jessey Watkins - Owner/operator of Monique's Smoke Shop
  • Ernestine Watkins - Owner/operator of Monique's Smoke Shop
  • Wayne Harris - Owner/operator of Monique's Smoke Shop
  • Peace Pipe Smoke Shop - Mastic, NY
  • Rodney Morrison, Sr. - Owner/Operator of Peace Pipe
  • Charlotte Morrison - Owner/Operator of Peace Pipe
  • Red Dot & Feather Smoke Shop, Inc. - Mastic, NY 
  • Raymond Hart - Owner/Operator of Red Dot
  • Smoking Arrow Smoke Shop - Mastic, NY
  • Denise Paschall - Owner/Operator of Smoking Arrow
  • Tony D. Phillips - Operator of Smoking Arrow
  • TDM, Inc. - Mastic, NY
  • Thomasina Mack - Owner/Operator of TDM

Law Department attorneys Eric Proshansky, Gail Rubin and William Miller are leading the litigation.


Stu Loeser / Jason Post   (212) 788-2958

Kate O’Brien Ahlers (Law)   (212) 788-0400

Sam Miller (Finance)   (212) 232-1863


Jessica Scaperotti (Health)   (212) 788-5290

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