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    New York City Sues Tobacco Wholesalers

    Unpaid taxes make government and retailers grumble.

    NEW YORK, N.Y. -- The New York City government has filed a suit against seven tobacco wholesalers, claiming that their cigarettes have been distributed to Indian reservations without collecting the necessary taxes, resulting in millions of dollars lost to uncollected taxes, The Associated Press reported.

    The compliant, filed in a Brooklyn federal court, states that six New York state and one Vermont wholesaler sold cigarettes at a 50 percent discount when they excluded the $35 in taxes per carton. The AP reported that state and local governments estimate they lose more than $500 million a year from untaxed cigarettes.

    "These wholesalers' practices hurt all New Yorkers by shortchanging both the city and the state of tax dollars received from these sales that fund vital governmental programs," city lawyer Michael Cardozo said in a statement.

    Once sold to the reservations, the suit claims that the same cigarettes are sold in stores, over the internet, or on the street, the AP reported. Some "are routinely trucked back into the city for subsequent resale to city residents, either at retail locations or by street corner 'buttleggers,'" the complaint said.

    The government is seeking a court order barring the practice and an unspecified amount of damages.

    "[Business is practiced] under the auspices of the New York state Department of Taxation and Finance, and we've been doing it for 20 years," Peter Day told the AP. Day, the owner of Day Wholesale Inc. -- one of the wholesalers the city is suing -- told the AP that he had not seen the lawsuit.

    This lawsuit follows a suit filed by the New York Association of Convenience Stores (NYACS) against the state's tax department, Gov. Pataki and the distributors that sell untaxed products to Native American retailers. The initial court appearance was on June 30. According to James Calvin president of NYACS, the tax department has not collected any of the cigarette taxes, and is essentially "disregarding the law that went into effect March 1,” he said.

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