SMOKE SHOPS BUSTED FOR NOT COLLECTING TAXES

Federal and state officials made good Thursday on warnings to crack down on
operators of Oklahoma smoke shops who fail to pay state taxes on cigarettes
and other tobacco products.

About 40 federal and state law enforcement agents seized more than 2,300
cartons of unstamped cigarettes at two Kay County smoke shops and at a
Kansas distribution company.

The two smoke shops were among more than 20 where warning letters were sent
five months ago advising them to pay state taxes on cigarettes sold to
non-American Indians, officials said. Kansas wholesalers also were warned.

Oklahoma requires tobacco distributors to collect taxes on cigarettes sold
to retailers.

A two-year investigation by state and federal officials showed the "vast
majority" of cigarettes sold at the shops were to non-Indians, officials said.

Tribes in Oklahoma can sell tobacco products to tribe members tax-free.
However, sales to non-Indians are taxable.

Operators of Buddy's Smoke Shop near Ponca City and the Stateline Smoke
Shop near Newkirk allegedly avoided paying taxes owed the state by buying
cigarettes from a Kansas distributor, said Steve Steele, a special agent
with the U.S. Bureau of Alcohol, Tobacco and Firearms.

"What these shops have been doing is going to Kansas to get their tobacco
and selling it down here tax-free, which then created a contraband
situation under federal law," he said.

Scotty Simpson, an operator at Buddy's Smoke Shop, was arrested for
possessing two firearms, Steele said. Simpson, a convicted felon, was
turned over to federal marshals in Oklahoma City.

"Our intentions weren't really to arrest anybody," Steele said. "Our desire
is to get compliance on the tax laws."

More arrests are possible later, he said. Items seized in Thursday's action
will be turned over to the U.S. attorney's office. Officials there will
decide whether to pursue prosecution, he said.

Officers also seized a pickup, a sport-utility vehicle and a flatbed
trailer allegedly used to haul cigarettes from C&J Distributing in El
Dorado, Kan. C&J is a wholesale dealer.

They also took in two assault rifles and numerous records.

Bureau of Alcohol, Tobacco and Firearms agents, Oklahoma Highway Patrol
troopers and state Tax Commission officials took part in the seizure of
cigarettes, Steele said.

It appears Simpson, a member of the Ponca tribe, operates Buddy's Smoke
Shop, Steele said. It's believed the Tonkawa tribe operates Stateline Smoke
Shop.

Tonkawa tribal Chairman Don Patterson did not return telephone calls.

Both shops were closed for business after Thursday's visit by law officers.

"If they're prepared to comply with the laws, they're going to be able to
reopen," Steele said.

Oklahoma reportedly loses about $27 million a year because of cigarette
taxes not paid by smoke shops, officials said.

The bureau was involved because possession of more than 60,000 cigarettes,
or 300 cartons, is illegal under federal law if state taxes have not been
paid on them. Steele said each of the two Kay County smoke shops sold more
than 60,000 cigarettes during the course of the investigation.

"Most smoke shops and wholesale dealers did change their way of business,"
Steele said. "These did not."

In order to make it easier for tribal smoke shops to collect state taxes,
the state tax commission in 1993 created a compact with participating
tribes. Of 39 tribes in the state, 27 belong to the compact.

Under the compact, tribes receive a tax break. Tribes are required to pay
25 percent of the state tax. The state tax is 23 cents on each pack of
cigarettes.

U.S. Rep. Ernest Istook, R-Warr Acres, praised the Bureau of Alcohol,
Tobacco and Firearms and Oklahoma law enforcement action. Istook played a
key role in getting funding for ATF to look into smoke shops and retailers
not paying state sales taxes.

It is a national problem, he said.

Ron Jackson in the Lawton Bureau contributed to this report.

Checked-by: Pat Dolan