How It Hurts Texas
In fiscal 2013, Texas cigarette and tobacco tax collections totaled $1.6 billion. These funds support vital services, including:
- public education,
- property tax relief fund, and
- general revenue for state operations
Case News Release
October 25, 2013: Hisham Mahmoud Rashid, 50, was convicted of Trafficking in Contraband Cigarettes, a violation of 18 U.S.C. 2342(a), and Receipt of Counterfeit Securities, a violation of 18 U.S.C. 2315, upon pleas of guilty. Rashid was sentenced to serve 4 years of federal probation, and to pay $389,858 in restitution jointly and severally with Iyad Hussein Elaydi to the Texas Comptroller of Public Accounts. Rashid was also ordered to forfeit $65,988 to the U.S. Government in accordance with 21 U.S.C. 853(a). The case was jointly investigated by the Bureau of Alcohol, Tobacco, Firearms, and Explosives, the Euless Police Department, and the Criminal Investigation Division of the Texas Comptroller of Public Accounts. It was prosecuted as cause number 2012-CR-00375 in U.S. District Court for the Northern District of Texas.
Cigarette and Tobacco Tax Investigations
Cigarette and tobacco taxes are set by the Legislature and collected by the Comptroller of Public Accounts. Cigarette tax crimes are described in Texas Tax Code Chapter 154, Subchapter I. These statutes define prohibited conduct for individuals and businesses participating in the cigarette industry, and apply to those with state permits as well as illegal participants.
Cigar and tobacco tax crimes are described in Tax Code Chapter 155, Subchapter G and, again, apply both to those with permits and those operating illegally.
Texas law defines both felony and misdemeanor crimes relating to these products. Felony crimes range up to second-degree felonies (punishable by two to 20 years in prison and a fine of up to $10,000). These offenses include:
- Counterfeiting Tax Stamps (§154.520), a second-degree felony. Because the vast majority of Texas cigarette tax revenue is derived from the sale of cigarette tax stamps, which are affixed to cigarette packs to show the tax has been paid, counterfeit stamps pose a significant threat to this tax;
- Refusing to Permit Inspection by the Comptroller (§154.512 and §155.210), a third-degree felony. The Comptroller has administrative search authority under Chapters 154 and 155 to inspect the premises and records of locations listed in this statute;
- Offenses Related to Books and Records (§154.516 and §155.212), a third-degree felony. These crimes include knowingly making false returns, destroying records or failing to keep records for the required period of time; and
- Possession when Tax Due is over $50 (§155.211), a third-degree felony. This penalizes the possession of a taxable product on which tax amounting to more than $50 has not been paid.
Other Consequences in Addition to Criminal Punishment
- A person can be required to reimburse the state for the costs of the criminal investigation as an additional penalty (see §154.301 and §155.181).
- A person who sold unstamped cigarettes may be ordered to pay double the amount of stamp tax due (see §154.302).
- A person who sold tobacco products untaxed may be ordered to pay double the amount of tax due (see §155.182).
- The Comptroller may deny, suspend or revoke permits relating to cigarette and tobacco products (those issued under Chapter 154 or 155) if the applicant or permit holder has violated a provision of the chapter relating to the permit. Under some circumstances, this may occur without a prior hearing (see §154.1141 and §155.0591).
Venue of Case Prosecutions
Although criminal cases normally are prosecuted in the county where the offense occurred, some special rules pertain to tobacco products crimes.
Counterfeit tax stamp cases are prosecuted in Travis County (see §154.520[c]). Other cigarette tax cases are prosecuted either in the county in which the offense occurred or in Travis County (see §154.519).
Cigar and tobacco products tax misdemeanors are prosecuted in the county in which the offense occurred. Felony cases may be prosecuted in the county where the offense occurred or in Travis County (see §155.215).