Poospatuck Smoke Shops To Pay NYC $10.5 Million For Bootlegging Untaxed Cigarettes

NEW YORK - MARCH 30:  A woman smokes a cigarette March 30, 2009 in New York City. On April 1 a new federal excise tax on toba
NEW YORK - MARCH 30: A woman smokes a cigarette March 30, 2009 in New York City. On April 1 a new federal excise tax on tobacco will officially commence, driving the per-pack tax from 39 cents to $1.01.The tax will affect all tobacco products, including cigars and pipes, and the money earned will be used to expand health coverage for low-income children. (Photo by Spencer Platt/Getty Images)

A federal judge has ordered two smoke shops on the Poospatuck Indian Reservation in Mastic to pay New York City $10.5 million for bootlegging untaxed cigarettes into the city.

The decision last week by Judge Carol Bagley Amon awarding damages to the city for lost tax revenue follows a 2009 injunction issued in the suit brought by the city against various smoke shops. The injunction ordered smoke shops to stop selling untaxed cigarettes to non-Indians.

Federal and state law exempt Indians from paying taxes on cigarettes, but testimony in the case showed smoke shops on the reservation routinely sold to outsiders and trafficked large numbers of cigarettes far beyond Mastic.

That injunction and a later change in state tax law have shut off the flow of illegal cigarettes into the city, said Assistant Corporation Counsel Eric Proshansky, the city lawyer who led the litigation.

"Almost everything was coming from Poospatuck," he said. "We think we've reduced it considerably."

Although smoke shops often sell to outsiders at other reservations, Proshansky said most illegal cigarettes sold in the city came from the Poospatuck reservation because it's only 70 miles from Manhattan.

From 2004 to 2009, Peace Pipe sold more than 1 million cartons of cigarettes to city residents through traffickers, Amon wrote. She ruled that Peace Pipe and its owners owed the city more than $10 million.

Similarly, TDM Discount Cigarettes owes the city $450,000, Amon ruled.

Lawyers for the smoke shops did not respond to requests for comment. Other smoke shops earlier agreed to abide by the 2009 injunction.

The city argued during hearings in 2009 that the sale of bootlegged cigarettes had cheated it out of $200 million in tax revenue and had exacerbated the health problems caused by cigarettes by making them easier to get.

Proshansky said he wasn't sure how difficult it would be to collect the judgments from the smoke shops.

"We won't know until we try," he said. ___

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