NEW YORK (Legal Newsline) - New York Attorney General Eric Schneiderman and New York City Corporation Counsel Michael Cardozo jointly filed a federal lawsuit on Tuesday against two cigarette companies for allegedly evading taxes.
The Brooklyn-based BB's Corner and Staten Island-based Nitecap Entertainment allegedly evaded taxes on cigarettes by giving customers loose tobacco, tubes of cigarette paper and access to machinery that produces finished cigarettes onsite for customers.
The roll-your-own cigarette businesses allegedly sell cigarettes in violation of tax and other regulatory statutes applicable to cigarettes by stating that they do not sell cigarettes but that they just facilitate the assembly of the cigarettes.
"Rather than playing by the rules, these stores and others like them are cheating the state and city of New York out of millions of dollars per year in legitimate tax revenue and endangering public health and safety while they're doing it," Schneiderman said.
"The illegally low prices these businesses are charging for their store-made machine-rolled cigarettes have been shown time and again to encourage people to take up smoking and to discourage smokers from quitting. Additionally, because cigarettes are the number one cause of deaths by fire in this country, New York state has long required that all cigarettes sold in the state be fire-safe; these cigarettes are not."
The lawsuit against BB's Corner and Nitecap, filed in U.S. District Court for the Southern District of New York, alleges that the businesses, their owners and their employees violated the New York state tax law, the Federal Contraband Cigarette Trafficking Act and the New York State Cigarette Marketing Standards Act by selling cigarettes on which required taxes were not paid. In addition, the lawsuit alleges that the defendants violated New York's Cigarette Fire Safety Act by selling cigarettes that were not certified as fire-safe, a requirement of New York state law.
The lawsuit alleges that customers at BB's Corner and Nitecap buy loose tobacco and packages of cigarette paper tubes with attached filters. Employees at the store assist customers in making the cigarettes on machines owned by and located in the store, Schneiderman says. The machines are used to fill the paper tubes with compacted tobacco to produce the completed cigarettes, Schneiderman says.
The customers then allegedly pay by the carton or the pack. The stores allegedly advertised 200 count cartons of cigarettes for "$29.95 per carton - less than half of the amount of taxes alone on a carton of cigarettes," despite claiming not to sell cigarettes.