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FedEx Lawsuit Over Untaxed Smokes Joined by New York Stat

FedEx Jet Freighter
The deliveries of untaxed cigarettes were made in defiance of a 2006 agreement with the state in which FedEx Corp., the operator of the world’s largest cargo airline, pledged to cease the practice, lawyers for the city and state said in an amended complaint filed yesterday in Manhattan. Photographer: Luke Sharrett/Bloomberg

March 31 (Bloomberg) -- New York State joined a federal racketeering lawsuit filed by New York City that seeks at least $239 million in damages and penalties from FedEx Corp. for delivering more than 140 tons of untaxed cigarettes ordered over the Internet or by mail.

The deliveries were made in defiance of a 2006 agreement with the state in which FedEx, the operator of the world’s largest cargo airline, pledged to cease the practice, lawyers for the city and state said in an amended complaint filed yesterday in Manhattan.

FedEx showed “blatant disregard for its long-standing agreement with New York, as well as federal and state law,” New York Attorney General Eric Schneiderman said in a statement. “Not only has FedEx cheated the state out of millions in tax dollars -- but many of these cigarettes may have ended up in the hands of teenagers, who are particularly vulnerable to low-priced cigarettes.”

State and local governments charge cigarette taxes partly to raise retail prices and discourage smoking, according to the complaint. New York City imposes a $15 excise tax on each carton of cigarettes. The state imposes taxes that increased during the period to $43.50 per carton.

Some of the untaxed cigarettes came from the Shinnecock Smoke Shop in Southampton on New York’s Long Island, according to the complaint. New York Indian tribes, including the Shinnecock Indian Nation, have claimed that their smoke shops aren’t subject to state and local cigarette taxes.

UPS Competition

FedEx, based in Memphis, Tennessee, won’t open packages to determine their contents without a reason, said Perry Colosimo, a FedEx spokesman. The company, which competes for package deliveries with United Parcel Service Inc., will continue to cooperate with New York authorities to prevent illegal shipments while fighting the case, he said.

“The claims made by the city and state lack legal foundation,” Colosimo said in an e-mail. “The city and state have chosen to target us for our role as a carrier,” while the cigarette shippers and recipients weren’t named as defendants, he said.

“We fully support New York’s efforts and believe we would be most productive in this initiative working together,” Colosimo said.

California Shipments

Along with the Shinnecock reservation, FedEx made illegal cigarette shipments from vendors in California and Kentucky, according to Schneiderman, who said investigators reviewed documents from FedEx and the federal Bureau of Alcohol, Tobacco, Firearms and Explosives.

In addition to damages and penalties, the city and state are asking the court to appoint a monitor to oversee FedEx.

“The city is pleased to continue its partnership with Attorney General Schneiderman to eliminate trafficking in bootlegged cigarettes and fight on behalf of New Yorkers to recover millions of dollars in fines and unpaid taxes,” city Corporation Counsel Zachary W. Carter said in a statement.

The case is City of New York v. FedEx Ground Package System Inc., 13-cv-09173, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware at pmilford@bloomberg.net; Christie Smythe in Brooklyn at csmythe1@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Stephen Farr, Charles Carter

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