taxation – Page 38 – Turtle Talk

The City of New York has brought an Amended Complaint against the above-captioned defendants, [2] cigarette wholesalers who are state-licensed cigarette stamping agents. The principal contention of the City is that the wholesalers violated the Contraband Cigarette Trafficking Act (“CCTA”), 18 U.S.C. § 2341 et seq., by shipping in excess of 10,000 unstamped cigarettes to Native American reservation retailers who re-sold the cigarettes to the public. According to the City, the former version New York Tax Law § 471 applied a tax to cigarettes sold to reservation retailers for re-sale to the public, and the defendant agents violated that provision by distributing large quantities of cigarettes to reservation retailers without purchasing and affixing the requisite state tax stamps. The City currently seeks civil penalties or disgorgement of profits pursuant to the CCTA, and also brings state law claims for public nuisance and violations of the Cigarette Marketing Standards Act (“CMSA”), New York Tax Law § 484. The parties have engaged in multiple rounds of motion practice, as well as some discovery, and now cross-move for summary judgment.

The defendants’ principal contentions are that the City lacks standing to pursue this action against them, that they were not legally required to [3] affix state tax stamps to the cigarettes at issue, and that they lack the requisite scienter for liability. The City counters that the defendants’ arguments can all be rejected as a matter of law, and that there are no outstanding issues of material fact regarding its entitlement to monetary relief under the CCTA.

For the reasons stated below, the Court grants summary judgment to Day Wholesale, Inc. on the grounds that the City has failed to put forth sufficient evidence that it suffered an injury-in-fact from Day’s sales of unstamped cigarettes. The Court concludes that the City is entitled to summary judgment on the issue of the liability of defendants Gutlove & Shirvint, Inc. and Mauro Pennisi, Inc. for CCTA violations, and that some amount of civil penalties is appropriate. The Court will hold a further hearing for the purpose of assessing the penalty amount. The Court denies the cross-motions as to the City’s CMSA claim, and deems the public nuisance claim withdrawn.