The lawsuit against King Mountain Tobacco Company and its president, Delbert Wheeler, was filed Friday in U.S. District Court for the Eastern District of New York.
Attorney General Eric Schneiderman said in a statement the company sells and distributes its cigarettes in New York without shipping them to a state licensed stamping agent as required by New York tax laws. King Mountain is Indian-owned and is located on the Yakama reservation in Washington.
"These illegal sales deprive the state of hundreds of thousands of dollars of much needed tax revenue and put law-abiding businesses at a competitive disadvantage, Schneiderman said.
He said licensed stamping agents are the only entities in the state authorized by the New York Department of Taxation and Finance to affix a tax stamp and collect the excise tax due. On-reservation cigarette sales to tribal members can be made tax-free, he said, but those cigarettes must have the tax stamp affixed by a licensed agent.
On Nov. 6, investigators from the attorney general's office purchased unstamped King Mountain cigarettes from a smoke shop on the Poospatuck Reservation in Mastic on Long Island, the lawsuit said.
In another incident, state police stopped a truck on Dec. 3 in Clinton County carrying 84,000 packs of unstamped King Mountain cigarettes, a potential tax loss to the state of more than $365,000, prosecutors said.
Wheeler and his company face up to $25,000 in fines, and he could also face up to five years in prison, Schneiderman said.
Messages left Saturday seeking comment from Wheeler and King Mountain were not immediately returned.