Attorney General Eric T. Schneiderman's office has filed a lawsuit against two companies for selling contraband cigarettes without paying the required state excise taxes.
The lawsuit, which is the result of an ongoing investigation into contraband cigarette sales across the state, was filed in U.S. District Court for the Eastern District of New York against Grand River Enterprises based on Six Nations land in Ohsweken, Ontario, and its wholesaler, Native Wholesale Supply, located in Perrysburg.
The lawsuit charges that Grand River Enterprises avoided state taxes by illegally selling its products to Native Wholesale Supply instead of a New York state licensed stamping agent who would prepay the state cigarette excise tax and affix the state tax stamp, as required under the law.
On-reservation cigarette sales to tribal members can be made tax-free, but those cigarettes must nonetheless have the tax stamp affixed by a licensed stamping agent.
During the eight-month period from November 2011 to July 2012, Native Wholesale Supply paid $85 million to Grand River Enterprises for its cigarettes, which accounts for more than three million cartons of cigarettes and a potential tax loss to the state of more than $13.2 million. Under federal law, Grand River Enterprises could face a civil penalty of up to 2 percent of the gross sales of cigarettes for the year. Based on 2011-12 sales, the company's civil penalty could be tens of millions of dollars.
"The illegal sale of contraband cigarettes violates both state and federal laws, robs New Yorkers of the funds to pay for essential state services, places legitimate businesses that play by the rules at a competitive disadvantage, and makes it easier for young people to take up a deadly habit," said Schneiderman. "My office is committed to taking action to stop the illegal sale of contraband cigarettes to protect our state's fiscal and physical health, and ensure all businesses in New York are playing by one set of rules."
On Nov. 6, investigators from the Attorney General's office purchased unstamped Grand River Seneca brand cigarettes from a smoke shop on the Poospatuck Reservation in Mastic on Long Island. The purchases came as investigators spotted more than 50 cartons of Seneca brand cigarettes on display in the store.
On Jan. 16, as part of Schneiderman's investigation, ATF agents raided the Skydancer smoke shop in Seneca Falls where they seized, among other items, more than 16,230 cartons of unstamped Seneca brand cigarettes. With 10 packs in each carton, and 20 cigarettes in each pack, ATF agents seized more than 3 million contraband Seneca brand cigarettes at that one location.
The matter is being litigated by Tobacco Compliance Bureau Assistant Attorney General Sarah Evans under the supervision of Tobacco Compliance Bureau Chief Dana Biberman and First Deputy of Affirmative Litigation Janet Sabel.