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Leaf Home arrow The News arrow North East News arrow FedEx sued over cigarette taxes
FedEx sued over cigarette taxes
Written by Administrator   
Thursday, 03 April 2014
FedEx sued over cigarette taxes
By Dan Freedman, Hearst Newspapers
March 30, 2014

FedEx has cheated New York state out of more than $10 million in taxes by shipping more than 400,000 cartons of untaxed cigarettes to New York residents between 2006 and 2012, Attorney General Eric Schneiderman alleged in lawsuit filed Sunday.

The suit, joined by New York City's corporation counsel Zachary Carter, seeks $70 million to compensate for lost revenues and damages.

FedEx shipped 80 million cigarettes to New Yorkers even though it reached an agreement with New York state officials in 2006 to halt such shipments, the complaint alleged.

"Not only has FedEx cheated the state out of millions in tax dollars, but many of these cigarettes may have ended up in the hands of teenagers, who are particularly vulnerable to low-priced cigarettes," Schneiderman said in a statement. "Illness and death caused by cigarette smoking is the number-one preventable public health epidemic of our day. If we can make cheap cigarettes less widely available, we can go great lengths toward discouraging young people from smoking and limit this public health disaster." The complaint cites state tax and public health laws, as well as federal laws including the 2010 PACT (Prevent All Cigarette Trafficking) Act, which requires distributors of cigarettes and smokeless tobacco to register with states for tax purposes and pay taxes up front.

Although the law is aimed primarily at wholesalers, it imposes obligations on the carrier as well, according to Schneiderman's deputy press secretary, Nicholas Benson.

Cigarette deliveries in New York did not bear a legally required warning that the packages contained cigarettes or tax stamps proving that applicable taxes had been paid, the complaint stated. FedEx knew or should have known the deliveries contained cigarettes, it said.

In a statement, FedEx spokesperson Jesse Bull wrote that the company prohibits the shipment of tobacco direct to consumers.

"We have and will continue to stop doing business with shippers identified as shipping prohibited tobacco products," Bull wrote.

On March 14, FedEx settled with New York City for $2.4 million to resolve accusations that it delivered 160,000 cartons of untaxed cigarettes that city residents ordered online from CigarettesDirect2U.com, based in Louisville, Ky.

CigarettesDirec2U.com is one of four cigarette distributors for which FedEx made deliveries in New York state, Schneiderman's lawsuit states. The others are Native Made Tobacco in Palm Springs, Calif., FOW Enterprises in Elizabethtown, Ky., and Shinnecock Smoke Shop, located on the Shinnecock Indian reservation on Long Island.

Along with other Indian tribes in New York and elsewhere, the Shinnecock Indian Nation has claimed its sovereign status means it does not have to abide by state and local tax regulations.

Between 2007 and 2012, the Shinnecock Smoke Shop shipped more than 100,000 cartons of cigarettes throughout New York state, the complaint said.

New York is accusing FedEx of engaging in a pattern of racketeering activity, which Schneiderman claims entitles New York to triple damages under the federal Racketeer Influence and Corrupt Organizations Act. Penalties under the act would amount to nearly $35 million, the press release accompanying the lawsuit said.

Also, the 2006 agreement with FedEx stipulated the company would have to pay a penalty of $1,000 per violation, amounting to approximately $34 million, the release said.

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