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Post date: August 17 1999

Judge Rules For State In Major Tax Case

Attorney General Spitzer today praised the decision of a State Supreme Court judge that is expected to pave the way for the recovery of millions of dollars in back taxes by New York State.

Albany County Supreme Court Judge Harold J. Hughes granted the Attorney General's motion that International Fidelity Insurance Company (IFIC), of Newark, New Jersey, should be forced to pay nearly $6 million to the State in a case involving a bond guaranteeing the payment of cigarette tax stamps.

"This office firmly believes that justice will prevail and that the taxpayers of New York State will not be forced to foot the bill in this case," Spitzer said. "This decision upholds the position of this office for the past nine years that IFIC should be required to abide by its part of the deal and should not be absolved of its responsibilities."

In 1990, Golden Distributors, Ltd. of Hauppauge, made several credit purchases of tax stamps worth over $8.5 million. According to state law, in order to make credit purchases, a distributor must first obtain a credit bond approved by the Department of Taxation and Finance. Golden Distributors had obtained seven bonds from IFIC for this purpose. Within weeks, however, the checks for the tax stamps were dishonored and Golden Distributors declared bankruptcy.

In December, 1990, the State Tax Department then turned to IFIC to recover the cost of the tax stamps. IFIC refused payment maintaining it had canceled the bonds guaranteeing payment. Since that time, negotiations have successfully rendered nearly $6.4 million in payments to the state from two other surety bond companies.

The judge ruled that IFIC had not provided to the court any evidence to support their position, and therefore, owed the state the amount of the remaining bonds, $3.35 million, plus more than $2.6 million in interest.

This case is being handled by Attorney John J. Nowak of the Civil Recoveries Bureau.

At this time, the case is being appealed to the Third Department of the State Appellate Division. It will be handled by the Attorney General's Office of Appeals.