FedEx Faces $235 Million Lawsuit Over Untaxed Cigarettes

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FedEx Corporation (NYSE:FDX) is facing a $235 million lawsuit filed by the New York Attorney General’s Office for allegedly violating state and federal law for delivering 400,000 cartons of cheap and untaxed cigarettes to consumers in the state.

The New York Attorney General’s office argued in its lawsuit that FedEx Corporation (NYSE:FDX) violated a 2006 agreement that it would stop its practice of delivering untaxed cigarettes. Some of the contraband cigarettes were allegedly purchased by consumers from Indian reservations including Shinnecock Smoke Shop in Southhampton, Long Island.

New York City implements an excise tax of $15 per carton of cigarettes, but Indian tribes in the city such as the Shinnecock Indian Nation claimed that their cigarette shops are not subject to local and state cigarette taxes.

Blatant disregard of agreement

New York Attorney General Eric Schneiderman said FedEx Corporation (NYSE:FDX) blatantly disregarded its long-standing agreement with New York as well as the state and federal laws. According to him, the company “enabled tens of millions of cheap, untaxed cigarettes to be shipped to New Yorkers.”

The Attorney General’s Office joined the racketeering lawsuit filed by New York City late last year. The city accused FedEx Corporation (NYSE:FDX) of “engaging in a pattern of racketeering activity with various cigarette retailers” over the past several years.

In its lawsuit, the Attorney General’s Office indicated that “Shinnecock Smoke Shop shipped, transported, sold, and/or distributed more than a hundred thousand cartons of unstamped cigarettes to consumers throughout New York State” between 2007 and 2012.

The lawsuit emphasized that FedEx Corporation (NYSE:FDX) violated the Assurance of Compliance agreement it signed with the Attorney General’s Office in 2006, and the 2010 federal law mandating the labeling of all cigarette shipments.

Direct tax loss

The Attorney General’s Office argued that FedEx Corporation (NYSE:FDX) looked the other way when it was shipping the 140 tons of untaxed cigarettes. The lawsuit indicated that the shipments cost New York more than $10 million in “direct tax loss.”

Attorney General Schneiderman said, “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.”

On the other hand, Jesse Bull, spokesperson for FedEx Corporation (NYSE:FDX) said, “FedEx prohibits the shipment of tobacco direct to consumers. We have and will continue to stop doing business with shippers identified as shipping prohibited tobacco products.” The company believed that the allegations of New York City are “overstated and not founded in law.”

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