Tobacco company in $3 million dispute with feds

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LOUISVILLE, Ky. (AP) - A Kentucky-based tobacco company that makes Golden Harvest, Millennium and Red Buck cigars is asking a judge to prevent the government from taking its equipment to settle a disputed $3 million tax bill.

Tantus Tobacco of Russell Springs, Ky., wants a federal judge to prevent the U.S. Treasury Department from putting liens on or seizing its equipment to settle the debt, which it says it does not owe.

U.S. District Judge Joseph McKinley Jr. has scheduled a hearing for March 25 in Bowling Green on a request by Tantus Tobacco for a temporary injunction against the Treasury Department.

The dispute, laid out in a lawsuit and accompanying letters and memos filed in U.S. District Court in Louisville on Friday, centers on whether Tantus properly set prices for its products from September 2009 through November 2011 and paid the proper amount of excise taxes on the sales. Tantus Tobacco works through two companies - Tantus Manufacturing, which makes the smokes, and Tantus Sales, which markets and sells the products.

Tantus paid $182,570,213 in federal excise tax on tobacco products manufactured at its Kentucky facility since September 2009.

Tantus Tobacco sells its cigarettes and cigars through Tantus Sales and three customers that buy the products and sell them on their own. Florida State Distributors sells the Stampede brand cigar, Wholesale Outlet has the rights to the Millennium brand name and Rouseco Inc. has the rights to Golden Harvest Cigars. Tantus Sales sells Red Buck and Richwood cigars.

Tantus Manufacturing began selling Richwood and Red Buck brand large cigars in September 2009. Company officials asked the Treasury Department if it was properly computing the excise taxes using its sale price to Tantus Sales and basing it on the price of virtually identical cigars sold by other distributors affiliated with Tantus Tobacco and independent of the company.

In an email sent to Tantus Tobacco on March 3, 2009, the district director of the Treasury’s Alcohol & Tobacco Tax & Trade Bureau signed off on the pricing methods.

“This determination could change based on any findings from subsequent audits by TTB,” wrote district director Sheila R. Stears in Washington, D.C.

Three weeks later, the Treasury Department reversed itself and told Tantus it hadn’t properly priced or paid taxes on the large cigars it was selling. Two years later, the Alcohol & Tobacco Tax & Trade Bureau conducted an audit of Tantus Tobacco and determined it owed $3,066,979 in tax, penalties and interest because of the incorrect pricing and excise tax payments on Red Buck and Richwood cigar brands.

In a letter dated Feb. 5, Ronald Hancock, the deputy assistant administrator for the taxing agency, wrote that the audit did not establish “clearly applicable” prices for the large cigars at the center of the dispute.

“While TTB remains willing to discuss other possible grounds for resolution, absent any agreement, TTB will explore its collection alternatives,” Hancock wrote.

Tantus Tobacco protested the determination and offered to settle the dispute with the Treasury Department for $1.3 million, payable in installments of $25,000 a month.

“I think that this offer is not only a credible offer submitted for the purpose of resolving the pending Notices of Demand but also one that (the Treasury) should accept,” Mark Loyd, an attorney representing Tantus Tobacco, wrote to the Alcohol & Tobacco Tax & Trade Bureau on Feb. 25.

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