Lawsuit: State lost millions in cigarette tax because of UPS

AP News
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Posted: Feb 18, 2015 2:27 PM

ALBANY, N.Y. (AP) — UPS deprived New York of millions of dollars in revenue by shipping nearly 700,000 cartons of untaxed cigarettes from Indian reservations to smokers statewide despite an earlier agreement to stop, according to a federal lawsuit filed Wednesday.

Attorney General Eric Schneiderman and New York City Corporation Counsel Zachary Carter are seeking $180 million from Atlanta-based UPS, saying the cheap cigarettes increased smoking by New Yorkers while also costing $29.7 million in lost excise tax revenue from the state and $4.7 million from the city.

UPS denied it knowingly shipped cigarettes, saying it agreed in 2005 to stop delivering cigarettes to consumers nationwide in a policy that exceeded requirements of federal and state law.

The civil suit filed in Manhattan claims UPS shipped unstamped cigarettes to and from "numerous" contraband cigarette enterprises on Indian reservations in New York from 2010 to 2014, naming eight smoke shops or distributors. It seeks an injunction to halt the shipping along with damages and penalties for contraband cigarette trafficking and additional damages for enterprise corruption.

"UPS has deliberately turned a blind eye to the fact that millions of dollars' worth of untaxed cigarettes are shipped each year through its facilities," Carter said. Authorities said the lawsuit was based on documents subpoenaed from the company.

Schneiderman said in order to limit smoking, "the No. 1 preventable public health crisis today," officials have to stop the flow of illegal low-cost cigarettes. The suit cites federal reports showing smoking kills more than 400,000 people in the U.S. annually and that a 10 percent price increase cuts adult smoking by 3 to 5 percent and youth smoking by 6 or 7 percent.

The state excise tax on cigarettes rose in 2010 from $2.75 to $4.35 for a pack containing 20. The city tax is $1.50 per pack. That's $58.50 altogether for a 10-pack carton.

"Since 2005, UPS has continued to work with regulators on this issue. In fact, UPS agreed to stop delivering cigarettes to consumers nationwide at that time," company spokeswoman Susan Rosenberg said. "UPS tobacco policy strictly prohibits the shipment of cigarettes to consumers and unlicensed dealers or distributors, and we terminate service under that contract program if that policy is violated."

The 2005 UPS agreement with New York's attorney general, following an investigation of residential deliveries, required the company to take steps to ensure its drivers and other employees look for indications a package might contain cigarettes, keep a database of cigarette shippers and end relationships with those that tried to unlawfully use UPS to ship them.

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Information from: Times Union, http://www.timesunion.com