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Bootleg booze: A NH to NY pipeline

New Hampshire Union Leader

January 14. 2018 3:55AM
Bottles of Hennessy Cognac line a shelf at the state liquor store on Elm Street in Manchester. (David Lane/Union Leader)

MANCHESTER - Prohibition is long gone, but liquor and tax authorities in two states believe there is a growing pipeline of cheaply bought liquor here that is smuggled over to New York, so end users in clandestine markets can avoid paying their own high excise taxes.

Juncheng Chen, a 45-year-old man from Flushing, N.Y., became the poster child for this conspiracy theory after a New York state trooper pulled him over on Nov. 10 for a moving violation in Rye, N.Y.

Inside Chen's van, troopers found stacked floor to ceiling 757 liters of high-priced liquor bought at five different New Hampshire liquor stores.

Much of the liquor was Hennessy Cognac and there were also cases of other big-selling labels like Beefeater's Gin and Bailey's Irish Cream.

New York's Acting Tax Commissioner Nonie Manion said Chen evaded nearly $1,300 in New York liquor taxes with that Granite State shopping spree, and she said the Empire State isn't standing for it.

"Alcohol-related tax evasion, as this case clearly shows, is on our radar," Manion said. "We'll work with all levels of law enforcement to tackle the problem head-on."

N.Y. State Department of Taxation and Finance Authorities say Juncheng Chen, 45, of Flushing, N.Y., had 757 liters of liquor, much of it Hennessy Cognac, bought at five New Hampshire state liquor stores when he was pulled over in Rye, N.Y., on Nov. 10.

New Hampshire sold the most liquor per capita of any state in the country by a significant margin - 1.96 gallons for every person - according to the National Institute of Alcohol Abuse and Alcoholism in 2015.

New Hampshire was third in sales of wine per capita, and first in beer sales, according to the national group.

New Hampshire State Liquor Commission Chairman Joseph Mollica said this performance is built on a foundation as a welcoming state for liquor sales to tourists and that includes not spying on them once the product has been legally bought.

"When people buy the product in New Hampshire, as long as they fall under the threshold, they aren't breaking any law in New Hampshire," Mollica said.

"I am not in the business of following consumers, looking into what they do when they leave New Hampshire. If he bought it and purchased it in the state, and he followed our policy, then the state of New Hampshire is covered. And I am sure we did."

Vermont Commissioner of Liquor Control Patrick Delaney told the New Hampshire Sunday News that New York tax commission authorities asked his agency last year to look out for bootlegging activity.

"They asked us if we could raise our awareness when we are patrolling the border area and have a bit more attention to the issue," Delaney said.

Vermont authorities seized two shipments in the last six months. 

"In one case, there was about $40,000 worth of product. In another case, about $28,000 worth of product," Delaney said. "Now, how often does this occur? That's really somewhat difficult to say, but my inclination is that it occurs on a somewhat regular basis."

Delaney said in both cases the liquor was bound for Chinese restaurants in Manhattan.

Vermont's existing maximum fine of $1,000 for transporting too much liquor isn't a sufficient deterrent, he said, so he has asked his state's Legislature to raise that to $5,000.

The Vermont regulator admits New Hampshire has done a masterful job marketing itself as the "wine and spirits supermarket for the whole Northeast region of the United States."

N.H. leads U.S.

New Hampshire and Wyoming are the only states in the country that price their liquor so low they aren't considered to have any excise taxes at all.

By contrast, Vermont's excise tax is $7.75 a gallon, the 16th highest in the country, according to the Tax Foundation. 

New York is not far behind at $6.44; Maine's tax is $5.86 per gallon; and the $4.05-per-gallon tax in Massachusetts is lower than 34 other states' taxes.

"I can tell you we haven't heard from anybody in another state in so far as bootlegging goes," Mollica said.

Vermont's Delaney said he spoke with unidentified New Hampshire officials after his state's crackdown.

Mollica said New York and Vermont authorities would be advised to price liquor competitively rather than try to punish those who come to New Hampshire to get it because it's far cheaper.

"If Vermont wants to fine their residents into submission, that is their decision," Mollica said. "For years and years, we have taken this very seriously. We are a tourist state. We love our visitors and embrace them as part of the fabric and family of the state. We're not ever going to get into the business of interrogating them."

"If those states don't get it, then shame on them."

Gift card discount

Liquor-selling professionals in New Hampshire say these bootlegging practices exist and can boost the bottom line for distributors.

A broker who did not want to be identified pointed out that while Hennessy aggressively markets cognac nationwide, its demographic is not strong in New England.

Yet at times during the winter, Hennessy is the No. 1 selling liquor in New Hampshire, especially during gift or rebate card season.

Starting in early November, someone buying $125 of liquor in state stores gets a $25 gift card. 

"It is no tax here and when there is the gift card or rebate program, the price differential with the New York wholesale price is substantial," the broker told the Sunday News.

"When the gift card is available, the bootleggers come out of the woodwork and flood the store."

Mollica said New Hampshire parallels federal law and allows someone without documentation to purchase no more than $10,000 worth of liquor in cash.

Above that amount, the buyer has to fill out significant paperwork.

"We track every purchase and every cash purchase," Mollica said.

But the broker said it's common to see what Chen from New York is accused of doing - a large-volume shopper cruising up the interstate and buying the maximum in cash at store after store.

"They come in and buy $9,000 of cognac at one store and they go down the road to the next store and do the same thing," the broker said.

"We are surprised the bubble has not burst."

Vermont liquor regulator Delaney said while this is not an enforcement priority for his state, an Internal Revenue Service agent recently contacted him about New Hampshire.

"It was his impression that this activity had been going on for a long time," Delaney said.

"One of their concerns was this illegal bootlegging was funding other activities. The issue was: Where were these proceeds going and were they trying to provide resources for other illegal activities?"

Bootlegging is not a new issue and not one limited to the New Hampshire liquor market.

Starting Jan. 1, Illinois made it a felony for anyone to import 45 liters of liquor into the state without a license.

The penalty includes a minimum one-year prison term.

Lawmakers admit this crackdown is to close off the flood of Illinois residents going over the border to buy bulk liquor in Indiana, where it can cost five times less.

In 2016, New York targeted sales in the Interstate 95 corridor in Cecil County, Md., with a federal wire fraud indictment accusing one liquor wholesaler and three employees of smuggling $9 million worth of liquor bought in lower-taxed Maryland and transported back to sell in New York.

"The reality is that where there is a profit incentive for illegal importation - it could be tobacco, drugs, alcohol - it does present the motivation for ways to circumvent the legal system and capitalize," Delaney said.

"I would think some type of ethical framework should exist to whether this in the long term makes some sense," he said. "That clearly is an issue New Hampshire is going to have to come to grips with."

Mollica said the Washington Post judged New Hampshire's operation to be the best run in the nation, and in his view, there is nothing to fix.

"I would like to thank Mr. Delaney and his kudos for how we run our businesses here," Mollica summed up.

"We run a solid business; it's been that way for a long time."

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