Last month, the United States District Court for the Eastern District of New York held that three Indian smoke shops are required to pay over $10 million in taxes to New York City for trafficking untaxed cigarettes.

In September 2008, the City filed a complaint in District Court against eight smoke shops as well as individuals who owned and operated the smoke shops.  The eight corporate defendants include: (1) Peace Pipe Smoke Shop; (2) Red Dot & Feather Smoke Shop; (3) TDM Discount Cigarettes; (4) Monique’s Smoke Shop; (5) Smoking Arrow Smoke Shop; (6) Golden Feather Smokes, Inc.; (7) Kimo Smoke Shop, Inc.; and (8) Smoke & Rolls.  The City alleged that the defendants violated the Contraband Cigarette Trafficking Act by selling cigarettes on which the State and City taxes had not been paid.

Once the lawsuit began, five of the smoke shops voluntarily stopped operations.  The City sought to enjoin the remaining defendants from selling untaxed cigarettes.  These defendants included Peace Pipe, Red Dot & Feather and TDM.

In its opinion, the District Court stated that “the City presented extensive evidence that unstamped cigarettes sold by these defendants were trafficked in large quantities into the City from Poospatuck Reservation for many years.”  The District Court found that these unstamped cigarettes entered New York City without payment of the city cigarette tax.  New York City’s cigarette tax is the highest tax rate in the country at $5.85 per pack.

The District Court ordered Peace Pipe pay $10,041,075 and TDM pay $450,000 in damages to the City.  The amount of Red Dot & Feather’s fine will be decided at a later hearing.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.