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Scheme to dodge excise tax lands retailer 18 months in prison

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    As of 2007, the California Board of Equalization (BOE) has estimated a loss of approximately $90 million in unstamped tobacco excise taxes and approximately $120 million in excise taxes for taxed stamped tobacco. However, through a joint effort by the U.S. Attorney’s office, CA Attorney General’s office, and the CA BOE, 15 individuals have been charged with tax evasion that diverted some $34 million from state and county healthcare programs and the state’s general fund. The three-year investigation uncovered rampant fraud among tobacco distributors with estimated tax losses of more than $80 million.

    Among those charged was Mehdi Humkar of Simi Valley using the name M&D Tobacco. On September 24, Humkar was found guilty for his role in a scheme to avoid paying $528,000 in state tobacco excise taxes. He was sentenced to 18 months in prison, ordered to repay the tax loss, and fined an additional $10,000. Under California law, tobacco distributors of unstamped tobacco products must be licensed and report monthly in-state sales to the CA BOE. Thereafter, an excise tax of 46% of the wholesale price is due. According to court documents, Humkar was not licensed to possess untaxed tobacco and did not report any purchases or subsequent sales to the BOE.

    In 2008, the task force issued a search warrant against Ideal Tobacco, a large Nevada distributor. Using information seized, agents tracked down Ideal’s largest customers selling tobacco in California but failing to pay the state’s tobacco tax. The investigation revealed that from 2006 to 2008, Humkar ordered large shipments of tobacco products from Ideal. However, rather than shipments going to Humkar’s place of business, they were routed to a truck depot in the Los Angeles area instead. It was also learned that Humkar never kept any invoices from the purchases as required by state law. By conducting business in this manner, Humkar avoided paying the tobacco excise taxes owed on the tobacco sold in California.

    Since California has a relatively high excise tax rate, it is a frequent target for tax evaders.


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