New York sues FedEx for unpaid taxes on cigarette shipments

Firm accused of creating a public nuisance by shipping untaxed goods

PUBLISHED : Tuesday, 31 December, 2013, 9:39pm
UPDATED : Wednesday, 01 January, 2014, 3:04am

New York is suing FedEx, accusing it of illegally delivering millions of contraband cigarettes to people's homes and is seeking US$52 million in fines and unpaid taxes.

The lawsuit, filed in US District Court in Manhattan, marks one of the last acts by the administration of Mayor Michael Bloomberg, whose more than decade-old campaign to ban smoking in various public and private places has been credited with saving thousands of lives and become a blueprint for other cities.

According to the city, package delivery company FedEx created a "public nuisance" through its partnership with Shinnecock Smoke Shop, located on the Shinnecock Indian Nation reservation in Southampton, New York, to ship untaxed cigarettes to residential homes.

FedEx believes the claims made by the city are … not founded in law

FedEx allegedly did so despite, and even while negotiating, a February 2006 agreement with New York State's then attorney general, Eliot Spitzer, to stop such deliveries in the state, an agreement later expanded to cover deliveries throughout the country.

The city said FedEx delivered about 55,000 cartons of cigarettes to city residents in 9,900 shipments from 2005 to 2012 and deprived it of a US$15 excise tax on each carton. A typical carton has 200 cigarettes.

FedEx's activity violated various federal and state laws, including an anti-racketeering statute, the complaint said.

The city wants FedEx to pay a US$49.5 million fine, equal to US$5,000 per shipment, plus US$2.48 million representing triple the lost tax revenue.

It also wants FedEx to hire an independent monitor to ensure future compliance and provide training.

In a statement, Memphis, Tennessee-based FedEx said it has stopped doing business with known shippers of untaxed cigarettes.

"Through its contracts with customers, FedEx prohibits the shipment of tobacco direct to consumers and believes the claims made by the city are overstated and not founded in law," it said. "FedEx intends to defend this case while continuing to work with authorities to stop prohibited tobacco shipments."

City and state officials have long fought in court to collect taxes on cigarettes sold by Indian-owned businesses.

The lawsuit came two days before New York Mayor-elect Bill de Blasio took office, ending Bloomberg's 12-year run as city mayor.