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AG reaches $800 million tobacco settlement

A panel of arbitrators Wednesday threw out an $800 million claim against New York and ordered tobacco companies to pay the state more than $92 million they wrongfully withheld from their 2003 annual payment under the 1998 landmark tobacco Master Settlement Agreement.

Attorney General Eric T. Schneiderman said the panel of three retired federal judges rejected “big tobacco’s” demand for a dramatic reduction in its annual payment to New York, finding instead that the state had fully complied with its agreement obligations and was entitled to its entire payment. He said the precedent-setting decision is expected to protect the state from many billions of dollars in future claims.

“This ruling is a huge victory for all New Yorkers and I applaud the panel for denying big tobacco’s efforts to avoid responsibility for illnesses caused by cigarettes — and paid for by taxpayers,” Schneiderman said in a release.

Under New York’s escrow statute, only sales of cigarettes on which New York state excise taxes have been paid trigger the escrow requirement. However, for more than 50 years, with the full knowledge of the participating manufacturers and specifically up to and including 2003, New York did not require state excise taxes to be paid on cigarette sales to or on Indian reservations.

Consequently, the state did not seek to have non-participating manufacturers make escrow deposits for their untaxed sales in the state. In rejecting the tobacco companies’ claims, the panel fully recognized New York’s long-standing policy of not taxing cigarette sales on Indian reservations.

The dispute hinged entirely on the construction of a New York statute: Whether untaxed reservation sales of cigarettes to the public were subject to escrow collection under New York’s escrow statute. The statute specifically requires that non-participating manufacturers make escrow deposits for every “unit sold” in the state in that sales year and defines a “unit sold” as a cigarette on which state excise taxes were paid and excise tax stamps were affixed.

Schneiderman said the tobacco companies are still making claims against the state for other years and continue to withhold hundreds of millions of dollars.