Overcoming tax time terrors
Unclaimed tax refunds for tax year 2009 state-by-state

Deliveries of untaxed cigarettes cost FedEx $2.4 million

New York City officials said the taxes absolutely, positively had to be paid.

Cigarette packsSo FedEx Ground has agreed to hand over to the Big Apple $2.4 million to settle a claim that it delivered untaxed cigarettes to city residents.

New York City's cigarette tax is $4.35 a pack, the highest cigarette tax in the country. So a lot of smokers have looked for ways around the tax.

Mail order cigarettes, directly delivered to bargain-seeking New York City smokers, seemed like the perfect option.

Not so fast.

While it appears to have worked for the smokers who got the tax-free cigarettes, New York City continued to track the missing revenue.

It has support from Uncle Sam. The federal Contraband Cigarette Trafficking Act forbids the delivery of untaxed cigarettes to anyone other than licensed stamping agents, such as cigarette wholesalers.

And the city is determined to get its tax money on illegally delievered cigarettes from someone.

That put the global delivery company smack in the New York City tax collection crosshairs.

New York City officials said that from 2006 to 2009, FedEx Ground delivered about 160,000 cartons of cigarettes that New Yorkers had ordered from CigarettesDirect2U.com. 

The $2.4 million in damages from FedEx is equivalent to the $15-a-carton tax that should have been paid to the city on those sales, Eric Proshansky, a lawyer for the city, told the New York Times' City Room column.

FedEx Ground admitted no wrongdoing in the settlement, but in a statement said it agreed to the settlement to avoid a longer, more expensive fight over the issue.

The shipping giant also said it supports the city's tobacco tax collection efforts and "is cooperating with New York City to ensure that shippers comply with our policy against illegal tobacco shipments."

Meanwhile, New York City's tobacco tax collection efforts continue.

Although the Kentucky-based CigarettesDirect2U.com website was shut down in 2009 by federal authorities for violating tobacco sale laws, New York City still has a lawsuit pending against the company.

The city alleges that the online cigarette site sold 400,000 tobacco tax-free cartons to New York City residents before it closed shop.

If my math is right, that's $6 million in unpaid cigarette taxes.

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