Situational Sovereignty'

Tribes threaten legal action over tax collection in New York state

Greg Lindenberg, Editor, CSP

ALBANY, N.Y. -- Indian tribes across the state of New York are already threatening legal action to delay a measure signed into law Monday by Governor David A. Paterson to begin collecting taxes on cigarettes sold by Native American retailers, reported The Buffalo News.As reported yesterday in CSP Daily News, Paterson signed a bill to curb the sale of untaxed cigarettes to Indian retailers. The state Department of Taxation will have 60 days to issue a certification form and prepare to receive the certifications that will be submitted. (Click here for previous coverage.)Under state tax law, Article 20, cigarettes sold by Indian retailers to non-Indians must be taxed. The bill Paterson signed will prohibit cigarette manufacturers from selling unstamped cigarettes to stamping agents who have not provided them with a certification, under penalty of perjury, that the cigarettes will not be resold. Agents must provide the Tax Department with any certification they give to a manufacturer.Monday, Paterson said that it is "not acceptable to us" that non-Indian retailers are unable to compete with the tax-free operations, which are able to undercut competitors by at least the amount of the state's excise--$27.50 per carton. He said he is willing to continue talks with Indian leaders. "We're not trying to antagonize them as neighbors. We want them to understand the problems we have," Paterson said, "[but] we have the right to collect taxes when our citizens buy cigarettes."

John MacDougall, president of Canastota, N.Y.-based Nice-N-Easy Grocery Shoppes, said the legislation is long overdue. "I think it's a great day for Upstate New York and all of New York," he told The Utica Observer Dispatch. "It's something that is sorely needed to be done, and I think this will help Gov. Paterson help bring our finance situation under much better control."

There are 83 Nice-N-Easy stores in upstate New York, and the stores sell cigars and cigarettes, MacDougall said. Competing with the Indian nations isn't easy, MacDougall said. "It has been very difficult, when they have a huge advantage from a price standpoint," he added.

Seneca Nation President Barry E. Snyder Sr. said that "all options" are being considered and that "every aspect of our relationship with the state" will be revisited. That could affect everything from the revenue-sharing agreements between the state and the tribe's three casinos in Western New York to the Thruway that crosses 300 acres of Seneca land on the tribe's Cattaraugus reservation, a portion on which Seneca leaders in the past have threatened to erect their own toll system.

Paterson insisted that the state has the legal right to collect the tax, as determined by a 1994 U. S. Supreme Court ruling, and that it will reduce the consumption of cigarettes, and presumably their negative impact on health, by driving up prices for packs and cartons that are now tax-free. The law would affect the $2.75 in state excise taxes charged on each pack of cigarettes, but would not affect sales taxes, said the report.

The governor signed the bill one day before unveiling his plans to close a gap of about $15 billion in the state budget, a proposal that will include revenues from collecting the cigarette taxes.

Indian tribes vowed to block the tax-collection effort. "Attacking tax-free commerce in our territories is shortsighted and disastrous for us and all of Western New York," Snyder said of a Seneca industry that employs 1,000 people. "The nation has a complicated and intertwined relationship with the state. Since this is the direction that the governor wants to take things, then we have no choice but revisit every aspect of our relationship with the state."

Mark Emery, a spokesperson for the Oneida Nation, said, "The only thing assured by the bill being signed into law today is ongoing litigation."

"Threatening to sue is pretty typical," Jim Calvin, president of the New York Association of Convenience Stores (NYACS), told CSP Daily News. "Those who claim they're totally immune from New York State law suddenly try to hide behind New York State law to shield themselves from accountability. I call it situational sovereignty."

Critics said there are legal flaws to the new approach that could doom the collection effort. "It will not result in one dime of tax being collected on sales made on Indian reservations," attorney Margaret A. Murphy, who represents a Tupper Lake tobacco wholesaler, Day Wholesale, as well as Seneca tobacco merchant Scott Maybee, told the newspaper.

Murphy halted a previous effort by the state to collect taxes, successfully arguing that the state's failure to distribute coupons so Indians can still buy cigarettes tax-free was illegal. That injunction remains in place today against the 2005 law, and Murphy said the new law lacks the same provisions.

New York law and past Indian treaties, Murphy said, prohibit the state from taxing Indians on their reservations. To get around that, the law signed Monday requires wholesalers to provide, under penalty of perjury, certification to the state tax department that they have complied with state tobacco tax law.

Philip Morris, which supports the tax-collection effort, said that the new law will not work to resolve the situation. David Sutton, a company spokesperson, told the Buffalo News that wholesalers are being asked to certify that they will not violate a provision of the tax law, but that section of law has not been enforced by the state itself. "The law has simply not been put in place to collect these taxes," Sutton said.

A group representing New York tobacco wholesale agents said the state could simply require every pack of cigarettes to have a tax stamp affixed. "This is a first step," Arthur Katz, executive director of the Association of Wholesale Marketers & Distributors, told the paper. "Collect the taxes. The state's in bad shape," Katz said of the long-stalled attempt to end the dispute.

R. J. Reynolds Tobacco Co., in a November 25 letter to Seneca tobacco merchants, said that as of December 28, all of its products must have a state tax stamp affixed, the report said, and Philip Morris has recently stopped selling products to a Buffalo wholesaler that supplies Seneca merchants.

Over the years, state officials have raised concerns about renewed violence if the tax is collected. The last time the state tried, in 1997, protesters shut down the Thruway and engaged in violent clashes with state troopers.