Wake schools to get $3m windfall from cigarette tax case settlement

RALEIGH -- In these parsimonious times when many government agencies are pondering staffing cuts to deal with budget deficits, the Wake County schools just got an unexpected $3 million windfall.Cigarette taxes should be paid otherwise there can be big problems for those who don't.

As part of a plea arrangement entered this morning in Wake County Superior Court, two South Carolina cigarette distributors agreed to pay $6.5 million in restitution and fines to settle a protracted and complicated tax fraud case that could have resulted in prison time.

Larry Phillips, 62, and John M. June Jr., 38, each entered Alford pleas to two counts of obtaining property by false pretense.

Under the arrangement, Phillips and June did not admit guilt, but acknowledged that prosecutors had sufficient evidence to bring convictions.

Initially the men were charged with criminal conspiracy and attempting to evade state taxes.

June and Phillips, who operated J & E Distributors Inc.and Tobaccoville USA Inc., were accused of trying to avoid a 2005 state cigarette tax increase in a complicated scheme in which sales records and invoices were created to show they sold 958,000 cartons of cigarettes in August 2005 shortly before the tax jumped from 50 cents per carton to $3.00 per carton.

Prosecutors said the men overstated their 2005 cigarette sales and understated their 2006 sales to sidestep the tax increase.

In court today, Joseph B. Cheshire V and Thomas Manning, two Raleigh attorneys representing the men, said the distributors had gotten a five-page letter from a different attorney in 2005 who told them what they did was legal.

Judge Donald Stephens, the chief resident Wake County Superior Court judge, said today he took an active role in helping prosecutors and defense lawyers arrange a plea that both sides could accept.

Phillips and June have already paid $2.5 million to the state Department of Revenue and made a $1 million contribution to a state trust fund set up to deal with tobacco-related health claims.

The men also had a $3 million check for the the Wake County courts, which will be forwarded to Wake County schools as court fines routinely are.

"This whole fight has been about money, and I'm going to resolve it with money," Stephens said. "Sometimes, when you make bad business decisions, the best way to resolve it is by paying a heck of a lot of money."

The men, who made no comments after their pleas, will be on unsupervised probation for 18 months.

Stephens said under his calculations the $3 million fine could help save the jobs of 50 to 60 Wake teachers.

"Everybody benefits from this decision," Stephens said from the bench. "Hopefully the board of education finds some rational way to spend the $3 million."