Pa. Attorney General files suit over 'tax-free' online cigarette sales operation

Pennsylvania Attorney General Kathleen Kane announced late last week a civil suit her office has filed against four people over allegations that the defendants sold cigarettes online strictly as a way to avoid paying tobacco taxes. The suit, filed on June 11 in federal court in Harrisburg, alleges that William Achord, Philip Jimerson, Heidi Jimerson and Wendy Boon sold cigarettes through various websites with instructions that consumers would not be subject to state taxes if they bought their product through the defendants’ companies. All purchases made on the websites were done through an entity called “SSO: The Private Cigarette Buyers Club,” or Sovran Solutions Online, according to the Attorney General’s Office. State investigators discovered that the Sovran Solutions website boasted that the company didn’t have to comply with the requirements of the Prevent All Cigarette Trafficking Act of 2009 because it was based in Panama. “Consumers were encouraged to set up accounts for the buyers’ club, but in reality, investigators say, payments to the ‘buyers’ club’ were deposited in a bank in Nebraska,” reads a press release from the Attorney General’s Office. “The cigarettes were then ordered from a warehouse in New York, and were shipped from facilities in Arkansas, Missouri, and Nebraska – not Panama.” The civil complaint alleges violations of a number of state and federal laws, including the Prevent All Cigarette Trafficking Act, the Contraband Cigarette Trafficking Act, the Tobacco Product Manufacturer Directory Act, the Unfair Trade Practices and Consumer Protection Law, the Cigarette Fire and Safety and Firefighter Protection Act, and the Pennsylvania Delivery Sales statute. Records show that on June 13, U.S. District Judge John E. Jones, sitting in the Middle District of Pennsylvania, granted a temporary restraining order freezing the defendants’ assets and forbidding further online cigarette sales. The lawsuit alleges that the defendants ignored rules and regulations with regard to how cigarettes may be legally sold in Pennsylvania, and that they misrepresented the legality of the sales and ignored the law having to do with the fire safety of cigarettes. According to the Attorney General’s Office, the cigarettes in question were sold through the following entities: NativeBlends.net, Savontobacco.com, SovranSolutionsOnline.com, Members Service Payment Center, Allegany Sales and Marketing, which is also known as Allegany Sales, and Cloud and Company. The complaint shows that defendant Achord resides in Nebraska, while Boon, as well as the husband-wife team of Philip and Heidi Jimerson, all live in New York State. The suit says that once a consumer placed a cigarette order online, the order would be packaged for the customer and labeled for delivery, with the defendants having had created a distribution chain and hired and made payments to a Pennsylvania-based delivery service. The defendants regularly conducted their business in the commonwealth between Dec. 6, 2010 and Dec. 31, 2012, the suit states, although the Attorney General’s Office contends the sales continue to the present, with the last known delivery being said to have taken place back in early April. The lawsuit claims that the defendants, through their scam, avoided paying the state’s 6 percent sales tax, the $16-per-carton cigarette excise tax, and escrow payments pursuant to the Tobacco Settlement Agreement that arose from the Big Tobacco litigation of the 1990s. “By offering to sell cigarettes to Pennsylvania consumers, which cigarettes are neither certified as fire safe, nor approved for sale on the Directory maintained by the Pennsylvania Attorney General, defendants implicitly represented to Pennsylvania consumers that it was legal to purchase such cigarettes,” the lawsuit reads. In addition to the injunctive relief, which was subsequently granted by Judge Jones, the commonwealth seeks civil penalties, back taxes owed to the state through the cigarette sales, the costs relating to the Attorney General’s Office’s investigation, and other equitable relief. The filing was submitted by Attorney General Kane, as well as Chief Deputy Attorney General Joel M. Ressler, Senior Deputy Attorney General John M. Abel, Deputy Attorney General Sharon K. Rogers, and attorney Daniel J. Gallagher. The various prosecutors work in the Attorney General’s Office’s Tobacco Enforcement Section in Harrisburg.   The federal case number is 1:13-cv-01553-JEJ.

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