Two “roll-your-own” cigarette shops in New York City have agreed to pay a $15,000 penalty to the state and city for evading taxes under a settlement announced yesterday by Attorney General Eric Schneiderman and Corporation Counsel Michael Cardozo. According to the attorney general’s office, BB’s Corner in Brooklyn and Nitecap Entertainment on Staten Island were selling loose tobacco, tubes of cigarette paper and providing access to on-site machinery that would instantly yield finished cigarettes. The businesses were able to sell cartons of cigarettes, which cannot be sold for less than the state minimum of about $50, for less than $30, partially by avoiding taxes.

The state and city sued alleging violations of the federal Contraband Cigarette Trafficking Act, New York’s Cigarette Marketing Standards Act and other state public health and tax laws. In June, Southern District Judge Katherine Forrest (See Profile) issued a preliminary injunction (State of New York v. BB’s Corner, 12 Civ. 1828, NYLJ 1202562442699). Forrest deemed “meritless” the defendants’ claim that they were not selling cigarettes under the federal statutory definition. “It surely elevates form over substance to credit defendants’ argument that they are not in fact selling or distributing ‘cigarettes’ when they advertise cartons for sale, and customers walk out of their door with finished (albeit) unstamped cigarettes,” she wrote (NYLJ, July 12).