Illinois: INVESTIGATION UNCOVERS MODERN-DAY BOOTLEGGING

Mark Willingham Uncategorized

Illinois: INVESTIGATION UNCOVERS MODERN-DAY BOOTLEGGING (Additional Coverage)

Illegal alcohol sales cost State of Illinois nearly $30M a year

Source: Res Publica

Adam Mesirow

June 12, 2015

An investigation by the Wine and Spirits Distributors of Illinois (“WSDI”) has found rampant violations of state and federal laws governing the delivery and sale of alcohol – violations that cost Illinois nearly $30 million each year in lost tax revenues.

WSDI identified several Illinois stores that have not made a purchase from an Illinois alcohol distributor in several years, but which continue to have a full supply of wine, spirits and beer lining their shelves. WSDI then began monitoring select Indiana stores, where employees were observed selling hundreds of cases of alcohol to be transported for sale at Illinois stores. Bypassing licensed Illinois distributors to smuggle alcohol across state lines not only allows those businesses to evade state taxes, it can be a Class 4 felony for those involved.

“This is modern-day bootlegging,” said Karin Lijana Matura, executive director of WSDI, the trade association that represents alcohol distributors throughout Illinois. “It’s happening right out in the open – people aren’t even trying to hide it – and it costs Illinois millions of dollars in lost tax revenues and jobs. It also creates serious safety concerns for the public, because no one has any idea where these products have been before they land on the shelves of Illinois stores.”

Though the Illinois Liquor Control Commission issues roughly 28,000 liquor licenses each year, it has incurred deep budget cuts in recent years, with only 16 investigators available to monitor activities at those businesses. Yet according to an Illinois Department of Revenue memo, one budget-cutting proposal is to eliminate many ILCC duties by merging staff and responsibilities with other state departments, meaning even fewer staff dedicated to enforcing these laws and collecting the proper taxes.

“The number of investigators who can look into these complaints has already been drastically cut because of the state’s budget problems and the people engaging in these illegal activities take advantage of that,” Matura said. “WSDI is hopeful that the state will dedicate resources for the stronger regulation of alcohol and enforcement of tax collections. That would translate into more tax dollars coming to Illinois, while also ensuring that safe products are available for consumers.”

WSDI first raised concerns about these regulatory abuses to Indiana and Illinois officials in 2013. A lack of action in response to those concerns led WSDI to conduct its own months-long investigation. The group has now turned over its findings to both the ILCC and the Indiana Alcohol and Tobacco Commission for further action.

Among those abuses WSDI found are mailers sent from a Hammond, Ind. liquor store to Illinois liquor stores. The mailers offer to sell cases of liquor to those Illinois stores at a cheaper rate than they would pay if they legally purchased the items through an Illinois distributor. Employees at that liquor store and another Hammond, Indiana liquor store were seen on numerous occasions filling SUVs, trucks and vans with dozens of cases of liquor, before those items were then driven across the state line and delivered to Illinois stores.

But the greatest losses in tax revenues for the State of Illinois come as a result of online sales. Through a Freedom of Information Act request, WSDI obtained monthly shipping reports provided to the state by FedEx and UPS. Those reports showed, for instance, that in December 2013, there were more than 100,000 unlicensed deliveries of alcohol into Illinois. With each shipment averaging a half-case or six bottles of high-end wine or liquor, that month alone cost the state more than $5 million in lost tax revenues.

When presented the evidence at a recent ILCC meeting, commissioners acknowledged that the problem is “much, much larger than – much larger, multiple times – than what” was believed to be occurring and asked the state’s 16 investigators to take steps to curb the illegal activity.

In addition, the ILCC has conducted follow-up inquiries, resulting in more than 200 cease-and-desist letters being sent to online companies identified as illegally shipping alcohol into Illinois and not paying state taxes. The ILCC has ordered those companies to become licensed distributors in Illinois or to halt future shipments. Only licensed dealers can ship wine into Illinois, but spirits and beer are prohibited from being shipped in by any company.

According to State regulations, unless the amount of the Use Tax is set out as separate charge on the receipt, it is presumed that the seller is not remitting that tax to the State. WSDI’s investigation into these illegal wine shipments determined that the proper amount of taxes payable to the State and thus local government is not occurring. The bootlegging across state lines likewise raises the question whether the proper amount of Sales/Use tax and excise taxes are being paid to the State of Illinois.

WSDI is a not-for-profit trade association promoting the general welfare of the beverage alcohol industry in Illinois and encouraging a high standard of ethics and moral responsibility among all persons engaged in the industry. The organization represents one tier on what is known as the three-tier system, a system established after Prohibition, which ensures fair business practices among manufacturers, distributors and retailers of alcohol, protecting public safety and the fair collection of taxes.