City Tries to Curtail Cigarette Sales From Reservation

Published: October 28, 2008
Bootleg cigarette traffic from Long Island’s tiny Poospatuck reservation to New York City is brisk, so much so that some cigarette dealers on the reservation don’t even bother to set up storefronts, according to a motion filed in federal court on Tuesday.

Instead, the dealers take telephone orders for bulk shipments of untaxed cigarettes. Millions of them are delivered to the city by van and distributed through an underground network that dramatically undercuts tax collection, the city alleged.

The Bloomberg administration asked a federal judge in Brooklyn to bar the reservation’s eight largest dealers from selling untaxed cigarettes to the public. Those dealers, named as defendants in a federal lawsuit filed by the city last month, control 95 percent of the sales on the reservation, the city said.

Officials estimate that untaxed cigarette sales by the eight dealers have cut city revenues by nearly $195 million a year, an amount the city can ill afford during a financial crisis. In addition, bootleg cigarette traffic undermines a Bloomberg administration anti-smoking campaign.

“In making off-reservation sales, including bulk transactions in which defendants sell vanloads of cigarettes on a daily basis, which are then trafficked into New York City for resale, defendants grow rich at the expense of tax-paying retailers and city and state taxpayers,” lawyers for the city said in the 43-page memorandum requesting a preliminary injunction against the tribal dealers.

State and city taxes of $4.25 a pack push cigarettes to more than $9 a pack in the city, but the bootleg cigarettes are often sold for $5 by street peddlers, known as $5 men.

The city corporation counsel, Michael A. Cardozo, described the burgeoning cigarette businesses on the reservation in the papers filed in United States District Court in Brooklyn.

The State Department of Taxation and Finance said that the Poospatuck cigarette trade grew to 11.3 million cartons last year, up from 406,000 cartons in 1996. The court papers said that 24 million cartons of cigarettes had been sold by the Poospatuck reservation’s eight largest businesses since 2004.

The cigarette dealers claim they are within their rights because Indian sales are exempt from state taxation. “It’s just interfering and trying to interfere with the lawful retail trade on our land,” said Harry Wallace, chief of the Poospatuck tribe, who attended a hearing Monday on the issue.

But the exemption, city lawyers argue, does not apply to sales to the public, only to reservation residents. Moreover, they say that many of the proprietors are not members of the tribe.

Noting that only 279 Poospatucks live on the reservation, Eric Proshansky, a lawyer for the city, argued in an affidavit filed with the memorandum that, “If defendants’ 2007 purchases of 9,780,469 cartons were disposed of in reservation sales, every man, woman and child on the reservation would have had to consume approximately 960 packs of cigarettes a day, a patent absurdity.”

In the past 10 months, 49 new entities had been established to sell cigarettes from the reservation, the court papers said.

Some of the businesses are owned by the same people, and investigators have suggested that the new businesses were set up to thwart limits on sales established by cigarette manufacturers to allow for age verification.

The court papers detailed several specific shipments from reservation dealers that were observed by either confidential informants or state investigators working with the city.

One of them occurred on July 17, when the Nassau County police intercepted a van containing 1,200 cartons of unstamped cigarettes, apparently on its way to the city. A state investigator saw the van driver pick up the shipment at Smoking Arrow Smoke Shop, one of the larger businesses on the reservation and a defendant in the lawsuit. The owner of Smoking Arrow was not immediately available to respond to the allegations.

Another defendant, TDM Discount Cigarettes, does not maintain a storefront, a fact that indicates that TDM “engaged entirely in bulk sales,” the court papers said. A confidential informant said that TDM made deliveries to a storage location in Queens owned by cigarette resellers in the city, according to the court papers. A lawyer for TDM could not be reached for comment.

In addition to supplying cigarettes, some of the reservation cigarette dealers gave drivers tips for eluding police and, in other cases, provided escorts to help get the distributors off the reservation, the papers say.