Although Nucky Thompson had refused to continue selling alcohol to Gyp Rosetti on December 31, 1922, Rosetti managed to extort one last monthly shipment after taking over the strategic village of Tabor Heights, New Jersey and blocking the trade route between Thompson's Atlantic City and Arnold Rothstein in New York City. However, a misunderstanding during the delivery of that shipment was taken as a personal insult by Rosetti, who then decided to return to Tabor Heights, kill local Sheriff Victor Sickles, steal Thompson's shipments as they pass through town (killing 11 of Nucky's men the first time) and eventually begin his own import operation in Tabor Heights after buying the new Sheriff Ramsey, stealing Thompson's market share in the process.
Thompson appealed for help to Rothstein who, despite his anger at Thompson's ineffective way of doing business and fear of going to war with Rosetti's backer, Joe Masseria, decided to back Thompson. Rothstein met with Rosetti at the Tabor Heights diner pretending to be interested in a deal with him, and after Rosetti carelessly gave his room at the Kinneret Lodge to a paperboy, Rothstein arranged for Benny Siegel to pose as a second paperboy and murder Rosetti in his sleep.
Benny Siegel arrives in Tabor Heights armed with a semi-automatic pistol and a revolver with the serial numbers filed off. He hides the pistol under some newspapers as he walks to the entrance of the Kinneret Lodge, which is guarded by Rosetti's second Tonino Sandrelli and a second man. While the other man distrusts Siegel and reachs for his gun, Tonino stops him and asks Siegel about the other paperboy that he saw at the diner. Siegel lies, saying that the other kid is sick and he is his substitute, and enters the building after handing Tonino a newspaper.
Siegel climbs the stairs in search of Gyp's room, the 207, where Rosetti is having sex with the waitress Roberta with a belt tied around his neck (Gyp performs autoerotic asphyxiation regularly). Siegel asks for Rosetti to another guard next to the room's door who says that he "will take it" in reference to the newspaper. Benny jockingly replies "suit yourself!" and shoots him in the head, alerting Rosetti and Roberta. Gyp orders her to untie him as he tries to reach for his gun (a revolver) over the bedside table, but neither is successful. Finding the door locked, Siegel shoots the lock and kicks the door open. The gunshots alert the two men guarding the Kinneret Lodge's entrance. Benny then shoots at Rosetti, who uses the woman as cover; Roberta is shot in the heart and dies instantly. A second bullet hits the wall behind as Gyp takes cover behind the bed and Roberta's body, and a third impacts the bed's pillow as Rosetti finally reaches his weapon. While still tied to the bedpost, he shoots twice as Siegel but he dodges the bullets and flees the room.
As he runs through the corridor Siegel happens upon the guards running to him and shoots the unidentified one in the head. Gyp, still naked and with the belt hanging from his neck, emerges from his room and shoots three times in the direction of Siegel, but he dodges them again; two bullets hit the wall and the third downs Tonino, who had just climbed the stairs. Siegel briefly turns back and makes one last shot without aiming at Rosetti, then runs around a corner as Rosetti shoots two times more at him. Reaching the entrance in the floor bellow, Siegel comes face to face with the real paperboy, who implores him to not shoot, but Benny shoots him in the head with his backup weapon. Exhultant, Siegel runs out of the place screaming a boards a car that is waiting for him. Gyp inspects the carnage still naked and upon seeing the dead paperboy he realizes that Rothstein set him up.
Though the hit fails to kill Gyp Rosetti, he is forced out of Tabor Heights and the supply route between Thompson and Rothstein is momentarily restored. The small town is seized by the New Jersey State Police and its chief Norman Schwarzkopf takes over Ramsey's office as they conduct an investigation on the massacre, but this is soon abandoned.
Back in Manhattan, Gyp and Tonino (who has survived his wound) must address the losses experimented by their New York City business in their absence. Their protector, Joe Masseria, considers eliminating Gyp Rosetti as having him around has proved to be more trouble than profitable. However, Rosetti convinces him to give him a second chance, and with it the men and weapons necessary to return to Tabor Heights and eventually wrestle Atlantic City itself out of Nucky's grip.
The air view shot of Gyp Rosetti walking through the hallway after the shootout is reminiscent of the movie Taxi Driver (1976), directed by Boardwalk Empire's executive producer Martin Scorsese. The movie's climax, featuring an awkward war veteran violently breaking into a brothel to rescue a child is homaged in the Season 3 finale, "Margate Sands".