Law360, New York (April 2, 2015, 4:02 PM ET) -- Starbuzz Tobacco Inc. asked a California federal court Thursday to remove a levy imposed by the Alcohol and Tobacco Tax and Trade Bureau over $3.5 million in allegedly unpaid excise taxes, saying the misunderstanding is from a failure to report tax-exempt exports to the agency.
The TTB never gave Starbuzz a chance to explain the discrepancy before slapping a levy on the company’s assets and wiping out more than $1 million from one of its bank accounts, the complaint says. The agency also claimed that Starbuzz’ tax payments were in jeopardy because the company was close to insolvency, which allowed the TTB to place the levy without giving Starbuzz a chance to dispute it, according to the complaint. However, the company’s financial solvency is not threatened, Starbuzz says.
“TTB made the assessment at issue based on an alleged discrepancy between Starbuzz’s imports of pipe tobacco and the tax-paid tobacco removed from Starbuzz’s factory for domestic consumption,” the complaint states. “Had Starbuzz been given the usual opportunity to address TTB’s claims, Starbuzz would have promptly resolved the issue by showing that the discrepancy was caused by Starbuzz’s exports, which are exempt from federal excise taxes.”
Starbuzz says it had no indication there was a problem until it received a TTB notice in January saying the company had underreported nearly 1 million pounds of tobacco removed from its factory and owed $3.5 million in excise taxes.
The company says the TTB arrived at that figure by looking at the amounts of tobacco Starbuzz imported and manufactured, and assumed that the difference was for domestic sale. From January 2012 through July 2014, Starbuzz exported about the same amount of tobacco as the TTB claimed Starbuzz didn’t pay excise taxes on, so that probably accounts for the discrepancy, the suit says.
Immediately after receiving the notice, Starbuzz contacted the TTB to try to explain the alleged misunderstanding, but the agency levied Starbuzz’ accounts at two banks, emptying one account with more than $1 million, before responding to Starbuzz, the complaint says. The levies seriously compromised Starbuzz’ ability to do business, including paying its ongoing taxes, according to the suit.
The TTB also claimed that Starbuzz’ excise taxes were in jeopardy of not being paid because of Starbuzz's imminent insolvency, but there was no basis for that determination, according to the suit. The complaint claims the TTB provided evidence in a February letter, saying Starbuzz’ sole shareholder “appeared to be designing quickly to place Starbuzz’ property beyond the reach of the government.” But the TTB identified the wrong person as Starbuzz’s sole shareholder, and Salim Elhalwani, the true sole shareholder, has not transferred assets outside the U.S., is not exploring a sale and has no intention of filing for bankruptcy, the suit states.
The TTB never gave Starbuzz a chance to explain the discrepancy before slapping a levy on the company’s assets and wiping out more than $1 million from one of its bank accounts, the complaint says. The agency also claimed that Starbuzz’ tax payments were in jeopardy because the company was close to insolvency, which allowed the TTB to place the levy without giving Starbuzz a chance to dispute it, according to the complaint. However, the company’s financial solvency is not threatened, Starbuzz says.
“TTB made the assessment at issue based on an alleged discrepancy between Starbuzz’s imports of pipe tobacco and the tax-paid tobacco removed from Starbuzz’s factory for domestic consumption,” the complaint states. “Had Starbuzz been given the usual opportunity to address TTB’s claims, Starbuzz would have promptly resolved the issue by showing that the discrepancy was caused by Starbuzz’s exports, which are exempt from federal excise taxes.”
Starbuzz says it had no indication there was a problem until it received a TTB notice in January saying the company had underreported nearly 1 million pounds of tobacco removed from its factory and owed $3.5 million in excise taxes.
The company says the TTB arrived at that figure by looking at the amounts of tobacco Starbuzz imported and manufactured, and assumed that the difference was for domestic sale. From January 2012 through July 2014, Starbuzz exported about the same amount of tobacco as the TTB claimed Starbuzz didn’t pay excise taxes on, so that probably accounts for the discrepancy, the suit says.
Immediately after receiving the notice, Starbuzz contacted the TTB to try to explain the alleged misunderstanding, but the agency levied Starbuzz’ accounts at two banks, emptying one account with more than $1 million, before responding to Starbuzz, the complaint says. The levies seriously compromised Starbuzz’ ability to do business, including paying its ongoing taxes, according to the suit.
The TTB also claimed that Starbuzz’ excise taxes were in jeopardy of not being paid because of Starbuzz's imminent insolvency, but there was no basis for that determination, according to the suit. The complaint claims the TTB provided evidence in a February letter, saying Starbuzz’ sole shareholder “appeared to be designing quickly to place Starbuzz’ property beyond the reach of the government.” But the TTB identified the wrong person as Starbuzz’s sole shareholder, and Salim Elhalwani, the true sole shareholder, has not transferred assets outside the U.S., is not exploring a sale and has no intention of filing for bankruptcy, the suit states.
Starbuzz obtained a bond to cover the allegedly tax liabilities and stay the levies, but the levied funds have not been returned to the company in accordance with the law, the complaint says.
Starbuzz is represented by Bryan M. Haynes of Troutman Sanders LLP and Natu J. Patel of The Patel Law Firm PC.
Counsel information for the U.S. was not immediately available.
The case is Starbuzz Tobacco Inc. v. U.S., case number 8:15-cv-00505, in the U.S. District Court for the Central District of California.
Resource: http://www.law360.com/articles/638710/starbuzz-tobacco-fights-ttb-on-3-5m-excise-tax-levy
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