Internet Sales.PPT

State-Sponsored
Cigarette Trafficking
New York State’s Policy of Allowing An
Unlimited Supply of Unstamped Cigarettes To
New York Indian Reservations Creates A
National Market for Tax-avoidant Sales
New York City Litigation
City of New York v. Smokes-Spirits.Com, Inc., 541 F.3d 425 (2d Cir. 2008), cert. granted, 129 S. Ct.
2159 (May 4, 2009)
•
Holding: Failure to file Jenkins Act reports following internet cigarette sales constitutes
federal mail and wire fraud supporting a RICO claim
•
Supreme Court to determine whether lost opportunity to collect tax revenues constitutes
“property’ for purposes of RICO, 18 U.S.C. § 1961 et seq.
City of New York v. Milhelm Attea & Bros., Inc., et al, 550 F. Supp. 2d 332 (E.D.N.Y. 2008)
•
Holding: Sales of unstamped cigarettes by state-licensed wholesalers can violate the
Contraband Cigarette Trafficking Act, 18 U.S.C. § 2341 et seq., despite State’s noncollection of tax
City of New York v. Golden Feather Cigarette Express, Inc. et al., 2009 U.S. Dist. LEXIS 20953
(E.D.N.Y. 2009)
•
Holding: Sales of unstamped cigarettes by Native American sellers can violate the
Contraband Cigarette Trafficking Act despite State’s non-collection of tax
1
Where Do Customers of Internet Cigarette Sellers Reside?
Orders to a Virginia internet seller vary by the size of the tax in the buyers’ home state
350
NJ
NY
Per capita shipments (per million smokers)
300
MA
250
CT
RI
200
150
WA
100
VT
CA IL
MI
PA
WI
50
NC
AL
ID
DE
SC GA
0
0
2
IA TX
4
OH
6
OR
AZ
UT
DC
AK
8
10
HI
12
14
16
18
20
State Tax ($ per carton)
City v. Milhelm Attea, 550 F. Supp. 2d 332 (E.D.N.Y. 2008)
•
“The CCTA makes it ‘unlawful for any person knowingly to ship,
transport, receive, possess, sell, distribute, or purchase contraband
cigarettes’ 18 U.S.C. § 2342(a).”
•
“Contraband cigarettes are defined as ‘a quantity in excess of 10,000
cigarettes, which bear no evidence of the payment of applicable State
or local cigarette taxes in the State or locality where such cigarettes
are found ….’ 18 U.S.C. § 2341(2)”.
•
“The plain, mandatory phrasing of [New York Tax Law] sets forth a
requirement that stamping agents affix tax stamps to all cigarettes the
state has the power to tax, which includes those sold by reservation
retailers for re-sale to the public.”
•
“Whether the [NYS] Department [of Taxation and Finance] chooses to
enforce it in a particular instance does not nullify the statute's
requirements.”
2
Annual Purchases By Seneca Retailers
Seneca Reservation Deliveries By One Wholesaler
3
One of Two Wholesaler’s Deliveries to the
Poospatuck Reservation
Second of Two Wholesaler’s Deliveries to the
Poospatuck Reservation
4
Poospatuck Reservation -- Store Locations
Justin’s Smoke Shop -- Poospatuck Reservation
14,370 cartons Jan-June ‘08
5
Peaches Smoke Shop -- Poospatuck Reservation
13,360 cartons Jan-June ‘08
Residence of Arrestees Near the Poospatuck
Reservation
6
Location of Trafficking Arrests
Location of Trafficking Arrests
 NYC 1
hour
7
“I sell about 1200 cartons a day”
“This is my job”
 In 2007, the defendant businesses purchased
enough cigarettes to supply every man, woman
and child on the Poospatuck reservation with 960
packs per day.
 Since 2004, cigarette sales by Poospatuck sellers
alone amount to $360,000,000 in lost N.Y. State
taxes and up to an additional $360,000,000 in lost
N.Y. City taxes.
8