City Files Suit Over Internet Cigarette Sales

New York City has filed a federal lawsuit against 32 residents it accused of ordering hundreds — and in some cases, thousands — of cartons of cigarettes online and reselling them illegally, avoiding millions of dollars in city cigarette taxes.

The suit, filed on Wednesday, accuses the residents and Chavez Inc., a tobacco dealer based in Kentucky that sold tobacco products over the Internet, of violating the law by selling or conspiring to sell cigarettes without a New York City tax stamp between 2003 and 2009. Chavez was also named as a defendant.

The city, which has a $1.50-a-pack tax, is seeking $6.5 million in lost revenues for 437,721 cartons of cigarettes it says Chavez sold to city residents during those six years. In addition, it seeks penalties of $13 million. The company was raided in 2009 by federal officials and has been effectively shut down since.

“Illegal cigarettes cost our city and state billions of dollars,” Mayor Michael R. Bloomberg said in a statement, “through increased health care costs and by cheating law-abiding small businesses out of customers and cheating taxpayers out of much needed tax revenue.”

“We will continue working with our partners in the federal government to protect the public health and fiscal health of our city and state,” the mayor added.

In addition to the city tax, there is a $4.35 state tax per pack and 61-cent sales tax.

New York City has been cracking down on the purchase of cigarettes over the Internet or at nearby Indian reservations and their illegal resale in the city. The city currently has a suit pending against cigarette vendors on the Poospatuck Indian reservation on eastern Long Island, who are accused of selling the cigarettes to people who then return to the city and sell them.

One defendant, Roza Budansky, is accused of having nearly $1 million worth of cigarette cartons — 32,232 cartons of 22 brands — shipped to an apartment in Brooklyn between 2006 and 2009.

Reached by phone, Ms. Budansky said she briefly worked as a dispatcher for a limousine company in late 2005 and early 2006 and ordered a few cartons of cigarettes for what she believed was the drivers’ personal use “maybe two or three times.” They were to be sent to an apartment in Brooklyn that someone else owned, she said.

That was the last she had heard of the matter, she said, until the lawsuit, and she said someone must have continued ordering cigarettes under her name.

“I didn’t even know at that time it was illegal,” Ms. Budansky said. “I was just a dispatcher. I was ordering for drivers.”

Eric Proshansky, a lawyer for the city, said the suit was aimed at individuals who it believes bought cigarettes with the intent to resell them.

“It’s not people who purchased a couple of cartons — they bought thousands of cartons,” Mr. Proshansky said. “The main takeaway is: If you evade cigarette taxes, you’re potentially liable for legal action from the city.”