Investigators who searched a pair of Queens storage facilities said they also seized more than 100 cartons of counterfeit Marlboro cigarettes made in China.
"This type of fraud could cost taxpayers in New York up to hundreds of millions of dollars each year in lost revenue, and we will not tolerate it," Brooklyn District Attorney Charles Hynes said.
Tax stamps, which must be affixed by distributors to packs of legal cigarettes, cost $3 each in New York City, $1.50 in the rest of the state and $2.57 in New Jersey.
Prosecutors said Rafea Al-Nablisi offered them for 4.5 cents apiece to state tax investigators who had been posing as dirty tobacco distributors.
Al-Nablisi, 40, who had been living in Queens, was arrested in the sting on Feb. 29 and has pleaded not guilty. Prosecutors said they waited to announce the case because the investigation was ongoing.
Al-Nablisi's attorney, Howard Greenberg, said his client is no smuggling kingpin.
"Even in the light most favorable to the DA's office, my guy is a nobody," Greenberg said.
Investigators who searched the Queens storage rooms said they also found stamps from Pennsylvania, Virginia and Kentucky.
State excise tax investigator Marybeth Cherubino, who was the lead agent on the case, said that, besides dealing in counterfeit tax stamps, Al-Nablisi bought 375,000 packs of untaxed cigarettes in February from undercover investigators.
"He wanted as much as we could supply," she said.
Prosecutors said that Chinese-made knockoff cigarettes pose a special hazard, because there is no way for smokers to know whether they are laced with toxins even more dangerous than those ordinarily found in cigarettes.
"There may be pollutants in there, like heavy metals or lead," said Michael Vecchione, chief of the Brooklyn district attorney's rackets division.
The arrest comes as some authorities voice concern about whether New York state's planned $1.25-per-pack hike in tobacco taxes, taking the price of a pack in the city to about $9, will fuel demand for contraband cigarettes.
Health surveys have found that more than a third of New York state smokers already regularly buy cigarettes from untaxed sources.
State Department of Taxation and Finance Commissioner Robert L. Megna said his agency has stepped up its campaign against contraband cigarette trafficking over the past year.
