Discount tobacco firm faces fines

Tuesday, Aug. 8, 2000 | 10:14 a.m.

CARSON CITY -- The Nevada Tax Commission decided Monday against a maximum $1.8 million fine against a wholesale company that sold "gray market" cigarettes at below cost in violation of the state's price-fixing law.

The commission decided that a much lower fine, possibly of a few thousand dollars, will be levied against Dood Enterprises Inc., formerly of Las Vegas and now of California.

Dood is being fined by the commission for selling cartons of "repatriated cigarettes" at $6 below cost. At issue is a law enacted in the early 1990s that forbids cigarette wholesalers to engage in predatory pricing, or selling at less than the basic price.

Dood bought cigarettes made by Philip Morris overseas at discounted prices and shipped them back to the United States for discounted resales.

At a previous meeting, the commission revoked Dood's state license.

John Collier, Dood's Reno attorney, claiming the law might be unconstitutional, said a suit challenging it may be filed in District Court after the commission's final decision.

"Philip Morris didn't like it because we're selling their own cigarettes at less than what they want us to sell them at," Collier said. "The law, as it exists, artificially inflates the price of cigarettes and that's the constitutional problem."

It's Philip Morris that sets the basic price of its cigarettes that governs the sales price to retailers, Collier said

The 1999 Legislature outlawed the sale of what is called "gray market" cigarettes effective in January this year. But Dood was accused of selling the discounted cigarettes from April to July 1999 before the ban went into place.

Deputy Attorney General Sonia Taggart told the commission the basic wholesale price was $22.30 cents a carton while Dood sold its cartons at an average of $16.08. She estimated Dood may have sold 36,000 cartons during the three-month period.

The maximum fine of $50 a carton added up to $1.8 million.

As a compromise, Taggart suggested that a fine of $6 -- or the amount of the reduced price -- could be imposed on the 36,000 cartons, coming to about $210,000.

Collier called the proposed fines "outrageous." He suggested, and the commission agreed, that the fine be based on the number of invoices, not cartons.

At a prior hearing, 13 invoices were presented by the company which, at a maximum fine, would be $650. Collier said outside the hearing the fines may be a couple of thousand dollars.

Taggart, arguing that thousands of cartons could be sold on one invoice, said the method of fines levied against the invoices only and not on the cartons would not discourage future violations of the law.

The commission, on a 5-2 vote, ordered the staff of the Taxation Department to do an audit to determine how many invoices were used by Dood during the three-month period. Commission Chairwoman Barbara Smith Campbell and member Candace Evart sided with the department in wanting to impose a fine on the number of cartons.

In other action, the commission delayed at least until its Sept. 11 meeting final approval on the proposed regulation, giving personal property and sales tax exemptions to casinos and others who publicly display fine art.