New York Fumes Over Illegal Cigarettes; Sues FedEx for $235M

Source: Thinkstock

Source: Thinkstock

New York state has joined New York City in a lawsuit against FedEx Corp. (NYSE:FDX), which it says has been shipping untaxed cigarettes throughout the state. FedEx has responded by saying it was simply respecting consumer privacy by not checking packages without good reason, according to The Wall Street Journal.

Allegedly, FedEx was engaged in a partnership with the Shinnecock Smoke Shop to deliver untaxed cigarettes to consumer’s homes. New York City has called the company a “public nuisance,” according to the Chicago Tribune. The delivery company has apparently shipped about 80 million untaxed cigarettes.

“Not only has FedEx cheated the state out of millions of tax dollars — but many of these cigarettes have ended up in the hands of teenagers, who are particularly vulnerable to low-priced cigarettes,” said New York attorney general Eric Schneiderman.

Additionally, the shipments of untaxed cigarettes are allegedly a violation of an earlier agreement the company made with the state of New York in which it agreed stop shipping untaxed cigarettes throughout the state and the rest of the U.S.

“FedEx’s blatant disregard for its long-standing agreement with New York, as well as federal and state law, enabled tens of millions of cheap, untaxed cigarettes to be shipped to New Yorkers,” said the attorney general.

Prosecutors are seeking $70 million for the illegally shipped cigarettes, along with $165 million in additional penalties. FedEx has supposedly cheated the state out of $15, $27.50 or $43.50 on each carton of untaxed cigarettes, Reuters reports. Previously, the state had said that the company deprived it of $15 a carton.

FedEx says it is “vigorously defending itself” and requested that the court dismiss or “substantially narrow” New York City’s complaint, according to Reuters. The company claims that the case is lacking “legal foundation.”

“While we work closely with all legal and regulatory authorities to ensure our networks are not inappropriately used for the shipment of prohibited items, we must also protect the privacy of our customers and will not open packages to determine their contents without reason,” the company said in a statement e-mailed to The Wall Street Journal.

The company also complained that other companies had been found guilty of the same charge, but were not been prosecuted in the case. ”While the lawsuit identifies several shippers of untaxed cigarettes with which we stopped doing business, those shippers are not being sued in this case, nor are any of the recipients who evaded paying applicable taxes,” FedEx spokesperson Perry Colosimo said in a statement e-mailed to Reuters.

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