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Post date: August 9 2012

A.G. Schneiderman & NYC Corporation Counsel Cardozo Announce Settlement With Two “Roll-Your-Own” Cigarette Businesses

Businesses Avoided Paying State Taxes By Falsely Claiming They Didn't Sell Cigarettes

Schneiderman: Tobacco Sellers Who Try To Evade The Rules Will Face Aggressive Enforcement Of The Law

NEW YORK- Attorney General Eric T. Schneiderman and New York City Corporation Counsel Michael A. Cardozo today announced the settlement of a federal lawsuit that the state and city brought against two "roll-your-own" (RYO) cigarette shops in New York City for evading cigarette taxes. The defendants have agreed to permanently discontinue their RYO businesses and to pay a combined monetary penalty of $15,000 to both the state and city.

BB’s Corner, located at 8415 18th Avenue in Brooklyn, and Nitecap Entertainment, at 690 Gulf Avenue in Staten Island, evaded cigarette taxes by providing customers with loose tobacco, tubes of cigarette paper, and access to machinery that instantly produces finished cigarettes for customers on-site.  Their claim that the sale of loose tobacco, cigarette paper tubes and access to the machines did not subject them to the cigarette regulatory scheme was unavailing. In addition, the cigarettes were not fire safe as required by New York State law.

Sales of non-taxed cigarettes not only deprive the state of tax revenue, but also hurt law-abiding small businesses and undercut public health measures designed to discourage smoking. 

"No one is above the law when it comes to paying taxes. These cigarette shops thought they could skirt the law by pretending not to sell cigarettes, when in fact that's exactly what they were doing," said Attorney General Schneiderman. "It is well-established that cheap cigarettes attract young smokers, and that smokers who pick up the habit when they are young have a far more difficult time quitting later on. Today's announcement sends a clear message to those who try to evade the rules: my office will aggressively enforce the laws of this state and protect consumers."

"These stores were designed as a way around important public health measures. They also hurt tax-paying, law-abiding New York City businesses," said Corporation Counsel Michael A. Cardozo of the New York City Law Department. "The Mayor's efforts have now succeeded in closing down all of these illegal businesses. We intend to continue our efforts to eliminate the illegal tobacco trade in all forms." 

As described by investigators, customers at the defendants' stores would purchase loose tobacco and packages of cigarette paper tubes with attached filters. Customers would then make cigarettes, sometimes with the assistance of store employees, on machines located in and owned by the stores. The machines would fill the paper tubes with compacted tobacco to produce completed cigarettes, which the customers would then pay for by the carton. The defendants charged as low as $29.95 per carton, a price which fell well under the minimum price per carton permitted by law and did not include the state cigarette tax.

The lawsuit alleged violations of the federal Contraband Cigarette Trafficking Act as well as New York's Cigarette Marketing Standards Act, Cigarette Fire Safety Act, and state tax and public health laws.

In June, Judge Forrest in the Southern District of New York issued a preliminary injunction prohibiting the defendants from continuing to possess, advertise, offer for sale, and/or distribute cigarettes that do not bear state and city tax stamps, including by providing customers with access to RYO machines which produce finished cigarettes. The injunction also prohibited the defendants from assisting any other person or entity in performing such acts.

The New York State case was represented by Assistant Attorney General Marc Konowitz, under the supervision of Tobacco Compliance Bureau Chief Dana Biberman and Executive Deputy Attorney General for Social Justice Janet Sabel.

New York Citywas represented by Deputy Chief Eric Proshansky and Assistant Corporation Counsel Leonard Braman of the New York City Law Department’s Affirmative Litigation Divisio

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