The owner of a Burbank-based tobacco wholesaler has been charged with 37 counts of mail fraud and is accused of owing the state $554,000 in unpaid taxes.
The indictment, which the U.S. Attorney's Office unsealed Monday, alleges that between May 2006 and August 2008, Wholesale Palace defrauded the state of excise tax revenue with the purchase and sale of "other tobacco products," including cigars, chewing and leaf tobacco.
California law requires that when the distributor sells the untaxed tobacco products, it must collect the excise tax from the purchasers. The distributor must submit monthly reports to the California State Board of Equalization on the amount of product purchased, the amount of excise tax owed and payment.
Wholesale Palace, located on West Burbank Boulevard, allegedly purchased the tobacco products from an out-of-state distributor, who was not identified by the U.S. Attorney's Office, under its own name and "Kim's Supplies."
According to the indictment, company Chief Executive Jack Haroun would pay by check for products purchased in the name of Wholesale Palace, but would pay by cash or money order for products purchased under the name Kim's Supplies.
Horoun purchased large amounts of untaxed tobacco products from out-of-state manufacturers, distributors and suppliers, and "substantially under-reported these purchases and the resulting tax to the California Board of Equalization," according to the indictment.
Horoun declined to comment on Wednesday.
During the scheme, Wholesale Palace allegedly purchased and sold approximately $1.8 million in untaxed tobacco products, but only paid taxes on about $547,000.
Authorities are seeking $554,000 in unpaid excise tax to the state.
The Burbank business is among 15 people and three businesses indicted as part of a joint three-year investigation by the Bureau of Alcohol, Tobacco, Firearms and Explosives, federal and state prosecutors and the California State Board of Equalization.
In a statement announcing the arrests, Jerome E. Horton, vice chairman of the 4th District of Los Angeles for the California State Board of Equalization, said they showed "the length and breadth to which criminals will go to violate state and federal laws, and the difficulty we all have in bringing them to justice."
A spokesman for the agency said officials would not comment beyond the statement because of the case was ongoing.
Tobacco smuggling and tax evasion schemes has deprived the state and county health care programs of $34 million, officials said. Approximately $1.3 million in tobacco products and other assets have already been ordered forfeited, and another $21.5 million in seized products and other assets are pending, authorities said.
"Participants in that industry who might be tempted to short-change the state of California should take note of the indictments announced," U.S. Attorney Benjamin B. Wagner said in a statement. "[They] should understand that our investigations are not over."