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As FedEx Bans Domestic Tobacco Shipments, NY State Lawsuit May Force UPS To Follow Suit

Yesterday, September 24, news broke that FedEx has announced that as of January 2016, it will discontinue shipping of tobacco products within the United States. FedEx is describing the move as a consequence of “a complex regulatory environment and a declining market for tobacco products.” Although it is unlikely that consumers will notice any changes, and the change will not affect the current international tobacco shipping policies, US manufacturers and retailers will most definitely be negatively affected. FedEx's policy change stems from the filing of a $235 million lawsuit in March 2014 by the New York State attorney general who charged FedEx with "violating state and federal law by delivering more than 400,000 cartons of cheap and untaxed cigarettes to consumers across New York State" costing the state a "direct tax loss of more than $10 million," according to the New York Daily News.

However, as reported by Reuters last week, a federal judge has declared that New York State and New York City may pursue a lawsuit accusing United Parcel Service Inc. (UPS) of illegally delivering more than 683,000 cartons of untaxed cigarettes in the state, depriving them of millions of dollars in taxes. This lawsuit is seeking more than $181 million in damages and penalties. UPS argued that the lawsuit did not properly allege that it delivered contraband cigarettes to unauthorized recipients, or did so deliberately; however, this argument was rejected by a US district judge.

UPS was accused of illegal shipping activities since 2010 - having shipped unstamped cigarette cartons to unlicensed wholesalers and retailers, which is supposedly in clear violation of an October 2005 agreement between UPS and New York State to discontinue shipments of cigarettes to unlicensed dealers and individual consumers. Many of these shipments may have also contained other tobacco products, including cigars. In addition, there are alleged violations of a federal racketeering law (the Contraband Cigarette Trafficking Act), as well as various other state laws.

Many cigar manufacturers use UPS to ship products to retailers. However, many mail order retailers use UPS to ship to consumers, so it is likely that cigar enthusiasts will certainly be affected should this lawsuit force the company to discontinue domestic shipping of tobacco products.

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