Lots of smokes, but little fire at auction

TUPELO – Tuesday’s black-market tobacco auction here fell as flat as a 6-year-old Marlboro, Mississippi-wise.
With nearly 1 million cartons of cigarettes and small cigars on the sales block, weeks ago state officials hoped to rack up as much as $5 million for public coffers.
Total sale: $277,635.
Total federal excise taxes: $1.6 million-plus.
Total state sales taxes: Undetermined, but less than the federal excise tax.
“We were hoping to get more revenue,” said Alice Gorman, deputy director for the Mississippi Tax Commission, who oversaw the sale in the U.S. Highway 178 warehouse where many of the contraband tobacco products were discovered during an April 14 raid.
Mississippi-based Hudsons Salvage of Ellisville took center stage with a $75,000 sale-ending bid for 750,428 cartons of assorted cigarettes and small cigars.
Hudson President Myles Hudson said he plans to ship them for sale in the Phillippines.
Had he kept them in Mississippi, the state tax would have exceeded $5 million and the federal bill more than $7.5 million.
State Auditor Stacey Pickering, who revealed the warehouse location two weeks ago, was disappointed that Mississippi didn’t get to keep the federal tax, as his office requested of the Alcohol and Tobacco Tax and Trade Bureau.
“The request was denied by the TTB,” he said, “resulting in the federal government taking the majority of the proceeds of today’s sale.”
Proceeds will be divided, minus confiscation costs, by a formula among Mississippi’s general fund, the U.S. Department of Treasury and local agencies, such as Tupelo Police Department and Marshall County Sheriff’s Office, which aided the two-year investigation.
MTC spokeswoman Kathy Waterbury, who said it may take a couple of days to figure the state sales tax gained, said state law mandates that local law enforcement get 2 percent of the final number, divided by its level of participation.
The sale’s goods came from two Tupelo-area raids on warehouses holding untaxed tobacco products.
Pickering and other law enforcement agents termed their investigation multi-state and multi-country when they announced the auction date.
Twenty-three buyers registered before the 10 a.m. auction.
The air hung heavy with the acrid odors of tobacco and other chemicals. Some people didn’t tolerate it long. Others toughed it out in hopes of success.
“I’m here to buy for me,” said Chasity Hester of Tupelo, looking for Marlboro Lite bargains to feed her two-carton-per-month habit.
Her friend, who introduced herself just as Teresa, said she smokes four or five cartons a month and hoped she wouldn’t get outbid by the pros.
When the smoke cleared, neither woman had bid.
Auctioneer Danny Sheffield, supervisor of the Tax Commission’s Tupelo District, began the event with spirited tones.
“If you’re here to bid on the contents of the entire warehouse, we have a minimum price, $5.2 million,” Sheffield told the crowd of about 50.
“We will clean it out today.”
No one budged.
What about $500,000? $450,000?
“Anybody want to make a bid for the entire warehouse?” Sheffield repeated over a bullhorn at the center of the building.
Hudson bid four times, stopping at $200,000. Not high enough, MTC officials decided.
From then on, Sheffield’s bid pleas approached begging as few bit.
Over the next three hours, buyers rejected six of the seven lots, then showed minimal interest when the lots were broken by brands.
“Did anybody come to bid today?” Sheffield implored.
One bidder, who declined to give his name, summed it up: “There aren’t any bargains here,” when the taxes get figured in.
Mississippi adds $6.80 cents to a carton of 20-pack cigarettes and $8.50 cents to a carton of 25-packs. A carton holds 10 packs. Federal excise tax adds $10.07 to a carton.
Jeremy Sikes, director of North American sales for A&T Tobacco in East Dundee, Ill., said he bought back company products to keep them off the market.
“We need to maintain quality,” Sikes explained.
Many of the crates showed shipping dates as far back as 2004.
The products have a shelf life of about 12 months, said auction-watcher Tommy Stine with Long Distribution, one of the state’s largest convenience store distributors.
Auction officials weren’t guaranteeing quality.
“You can buy new product for just a little more,” said Long’s Rusty Boone.
Buyers weren’t the only ones at the much-publicized event.
State Sen. Gray Tollison of Oxford was there, saying he “represented a client,” although he declined to say who.
Nov. 24, Tupeloan Jerry G. Burke, who once owned one of the raided warehouses, will plead guilty for his part in the contraband operation.
Whether anyone else will do the same or face federal indictment in the case, nobody’s talking.

Contact Patsy R. Brumfield at (662) 678-1596 or patsy.brumfield@djournal.com.

Patsy R. Brumfield/NEMS Daily Journal