New York Sues Online Cigarette Business for Evading Taxes

New York City sued an upstate online cigarette business for allegedly evading taxes, saying that sales of non-tax-stamped cigarettes deprive the state and city of millions of dollars in lost revenue.

Robert and Marcia Gordon, of Salamanca, New York, who operate “All of Our Butts,” a website that purports to sell “tax free” cigarettes, were named as defendants in a complaint filed today in federal court in Manhattan.

The Gordons are accused of violating the federal Contraband Cigarette Trafficking Act and the Prevent All Cigarette Trafficking Act, or PACT act, by making deliveries of cigarettes to New York City without appropriate tax stamps and failing to comply with federal age-verification regulations.

“Businesses that flout the law injure the public health and evade taxes used to pay for vital public services,” Michael Cardozo, the city’s Corporation Counsel, said in a statement. “They can expect further enforcement actions directed against them.”

Repeated Sales

The Gordons also are alleged to have violated federal racketeering laws by engaging in repeated sales of cigarettes on which state and city taxes haven’t been paid. Regional Integrated Logistics Inc., a Buffalo, New York-based company that arranges for deliveries of cigarettes into New York, was named as a co-conspirator in the Gordons’ racketeering scheme.

Robert Gordon sued the U.S. in Washington in 2010, seeking to block the PACT act. A federal judge there upheld portions of the law as enforceable, while blocking enforcement of some provisions, city officials said. That ruling is now being appealed.

New York City Mayor Michael Bloomberg, with support from the City Council, has banned cigarette smoking in restaurants, bars, workplaces and parks during the past 10 years.

He also sought to garner uncollected cigarette taxes in a city-funded investigation last year that he said found American Indian reservations selling tax-free cigarettes to retailers. In 2003, the city sued 15 websites that sold cigarettes on the Internet, alleging a “massive tax evasion scheme.”

Sales, Deliveries

Today’s complaint seeks a court order blocking continuing illegal sales and deliveries into New York as well as compensation for tax revenue lost as a result of the defendants’ unlawful activities.

The city projects a $3 billion deficit, or about 4 percent of the $72.3 billion budget plan for the 2014 fiscal year, which begins July 1, 2013. Budget negotiations for the fiscal year that starts next month are under way now, with Bloomberg and City Council members arguing over cuts the mayor has proposed for child care, libraries and the fire department.

The mayor is the founder and majority owner of Bloomberg LP, the parent of Bloomberg News.

The case is the City of New York v. Robert Gordon, 12- cv-4838, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net; Henry Goldman in New York at hgoldman@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.