For Immediate Release
September 10, 2007
Comptroller Investigations Lead to Tobacco Tax Fraud Indictments
AUSTIN —Comptroller Susan Combs has obtained grand jury indictments against five business owners accused of tax law violations that could have cost the state more than $10 million in tobacco tax revenue. It is the first prosecution for tobacco tax fraud since a tobacco tax increase took effect Jan. 1.
“When the state cigarette tax increased from 41 cents to $1.41 per pack, we anticipated an increase in tax evasion attempts,” Combs said. “We continue to closely monitor sales of tobacco products and cigarette tax stamps, and we will investigate all suspicious activity.”
A Travis County Grand Jury indicted Mike Kimzey and Richard H. Russo of Louisville, Kentucky, on 12 counts of tampering with a governmental record. When Kimzey and Russo purchased an unusually large number of cigarette tax stamps between August and December 2006, agents of the Comptroller’s Criminal Investigation Division suspected that they intended to illegally re-sell the stamps. According to the indictments, Kimzey and Russo falsified records of their company’s cigarette purchases and the number of Texas tax stamps they placed on packs of cigarettes. The Comptroller’s office recovered $9.8 million worth of cigarette tax stamps in Kentucky and Southeast Texas. In addition, unpaid taxes on seized cigarettes and unpaid inventory tax that was due at the time of the tobacco tax increase added up to $320,400.
A Travis County Grand Jury indicted Tariq Majeed of Austin for possession of untaxed tobacco products. In July 2005, when the Comptroller’s investigators assisted federal agents executing a search warrant at Majeed’s business for an unrelated offense, they discovered $5,646 worth of tobacco products on which tax had not been paid. The tax value of the seizure is $1,988.
The grand jury indicted Mohammed Khawar Jamshed, a Breckenridge convenience store owner, on two counts of tampering with a governmental record. The indictment alleges Jamshed falsified cigarette inventory reports. The underreported inventory was worth $69,900 in state tobacco tax.
The grand jury also indicted another convenience store owner, Lazaro Ramirez of El Paso, for failing to maintain books and records as required by the Tax Code. In May, the Comptroller’s investigators seized more than 300 packs of “grey market” cigarettes from Ramirez’s store. Ramirez had no records for the cigarettes. Grey market cigarettes are labeled “U.S. TAX EXEMPT, FOR SALE OUTSIDE U.S.,” and are tax-exempt as long as they are exported to foreign markets. The cigarettes sometimes make their way back into the U.S. and are illegally sold, often at discount prices because no tax has been paid. The cigarettes seized from Ramirez’s store had a tax value of $427.
“These indictments represent many hours of hard work by investigators in our Criminal Investigations Division,” Combs said. “I commend the Travis County District Attorney’s office for helping us enforce state tax laws and ensure all businesses meet their tax obligations.”
More tax fraud investigations are ongoing, and the Comptroller expects additional indictments.