tocacco plant Native American Tobaccoo flower, leaves, and buds

tocacco Tobacco is an annual or bi-annual growing 1-3 meters tall with large sticky leaves that contain nicotine. Native to the Americas, tobacco has a long history of use as a shamanic inebriant and stimulant. It is extremely popular and well-known for its addictive potential.

tocacco nicotina Nicotiana tabacum

tocacco Nicotiana rustica leaves. Nicotiana rustica leaves have a nicotine content as high as 9%, whereas Nicotiana tabacum (common tobacco) leaves contain about 1 to 3%

tocacco cigar A cigar is a tightly rolled bundle of dried and fermented tobacco which is ignited so that its smoke may be drawn into the mouth. Cigar tobacco is grown in significant quantities in Brazil, Cameroon, Cuba, Dominican Republic, Honduras, Indonesia, Mexico, Nicaragua, Sumatra, Philippines, and the Eastern United States.

tocacco Tobacco is an agricultural product processed from the fresh leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it may be in the form of cigarettes smoking, snuffing, chewing, dipping tobacco, or snus.

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Oklahoma may miss $1M in taxes on tobacco

The Oklahoma Tax Commission is missing out on more than $1 million a month in tax collections by refusing to strongly enforce state tobacco tax laws, an Oklahoma City wholesaler has alleged.

“Legitimate distributors are being forced out of business,” said tobacco wholesaler Alan Beck, who operates a wholesale business at 2305 S Agnew Ave.

Beck said he has complained to Tax Commission officials for more than four years about the “blatantly illegal” sale of untaxed tobacco products by a few dishonest Oklahoma wholesale operators.

Beck said he has repeatedly provided the Tax Commission with the names of businesses committing tax fraud, explained how their schemes work and told authorities how tax auditors can document the illegal conduct.

Beck said a few of those businesses got their wrists slapped by the Tax Commission, but he has little else to show for his efforts other than having his own business audited.

Another wholesaler said he had much the same experience. “We recognize that it’s a problem based on our confiscations,” said Marjorie Welch, an attorney with the Oklahoma Tax Commission.

Tax Commission officials said they have confiscated tobacco products on 83 occasions this year, seizing about 38 pallets of tobacco products worth an estimated $538,700 from wholesalers and retailers who can’t prove that taxes have been paid.

Welch, however, questions whether illegal tobacco sales are as extensive as Beck is claiming.

“I have no confirmation that it’s that large,” she said. “Our confiscations wouldn’t indicate that it’s that large.”

Welch said Tax Commission officials investigate every tobacco tax fraud complaint they receive, including those that have been made by Beck.

She said license revocations are a matter of public record, but Beck may not know about many other enforcement actions the Tax Commission has taken in response to his complaints because state tax laws require that assessments and many other actions be kept private.

The Tax Commission provided The Oklahoman with a list of businesses that have had their tobacco licenses revoked. The list includes some of the companies against which Beck has registered complaints.

“Things are happening,” she said.

Beck said he is aware that licenses of some of the smaller companies have been revoked, but he added that certain large abusers continue to operate with impunity.

“I think they may be afraid of them,” Beck said.

A northeastern Oklahoma wholesaler said he sometimes wonders if certain illegal wholesalers are being protected.

Beck said he is aware of one large wholesaler who had his license revoked but said a relative just took over the operation.

Welch said Tax Commission attorneys would have objected if they were aware of any such relationship.

Beck said dishonest wholesalers are using several schemes to avoid tobacco taxes.

Wholesalers are supposed to buy tax stamps and affix them to every pack before selling them, Beck said.

Manufactures give the commission documents showing how many cartons they ship to each wholesaler, providing an audit trail, he said.

Dishonest wholesalers, however, are buying cigarettes from importers and other sources, then selling the unstamped cigarettes to retailers for cash at discount prices, he said. The retailers then sell the unstamped packs to regular customers or to customers who come in at night or on weekends when store owners don’t think enforcement officers are working, he said.

Welch said enforcement officers sometimes work on nights and weekends to try to thwart such schemes and have an array of other investigative techniques they also use.

Beck said fraud is even more rampant on other tobacco products such as cigars, snuff and chewing tobacco because there is no tax stamp system for those products to help monitor compliance.

One common scheme is to keep an old invoice on hand to show to auditors when they check to see whether taxes have been paid on tobacco inventories in their warehouses.

Some tobacco products, such as Copenhagen, carry date stamps, and investigators could detect the fraud if they would match the dates on products with invoices, he said.

If investigators would conduct surveillance or sit in wholesalers’ businesses for a month and monitor all the shipments as they arrive, they also could quickly confirm that fraud is rampant at certain businesses, Beck said.

One wholesaler is so bold that it has advertised cartons of Clipper cigars to retailers for $13.99 a carton, when the tax alone on those cigars is $24 a carton, Beck said.

Welch said that could have been an honest mistake because the cigars in the ad were only slightly larger than cigars classified as “small cigars,” which carry a tax of $7.20 a carton. When such problems are discovered, the Tax Commission sends out assessments for additional taxes, and the wholesalers wind up suffering financial losses, she said.

Welch said it wouldn’t be effective to place auditors in a business for a month to monitor incoming shipments, because dishonest wholesalers would just move their operations offsite and continue business as usual. Surveillance and other investigative techniques are sometimes used, she said.

Tax fraud involving the sale of tobacco products at American Indian tribal smoke shops also is a problem in Oklahoma.

A federal court case is pending in Kansas in which Sunflower Supply Co., Discount Tobacco Warehouse, Rebel Industries and eight individuals are accused of conspiring to defraud the state of Oklahoma and various American Indian tribes out of about $25 million in taxes due from the sale of cigarettes to retailers throughout Oklahoma.

Tobacco tax fraud is also a problem in other states.

In Illinois, a person named Omar Dahla was ordered to serve 15 months in prison and pay $5.4 million in restitution earlier this year for participation in a tobacco tax fraud scheme.

Beck said Dahla was buying tobacco products from the same Pennsylvania wholesaler that at least three dishonest Oklahoma wholesalers are currently using.

The Chicago Tribune recently published a story documenting the rampant sale of unstamped cigarette packs in that city.

A tobacco distributor told The Oklahoman he operates in eight states, and the problem is worse in Oklahoma than it is in any of the other states where he does business.

October 18, 2009 Newsok

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