Judge Dismisses Attempt to Collect Taxes

NYACS says ruling means "a governor is free to ignore a law made by the legislature"

ALBANY, N.Y. -- A judge's dismissal of a state legislator's attempt to compel the state of New York to recapture hundreds of millions of dollars in uncollected cigarette and motor fuel taxes has "alarming constitutional implications," according to the New York Association of Convenience Stores (NYACS). At issue, the group said, is the existing state law directing the state Department of Taxation & Finance to collect taxes on cigarettes and gasoline sold by Native American tribal stores to non-Indian customers. The law took effect March 1, 2006, but the department under governors Pataki, [image-nocss] Spitzer and Paterson has refused to implement it, according to NYACS.

Utica, N.Y.-area Assemblyman David R. Townsend Jr., who voted for the law, and Dabiew's Market in Bombay, N.Y., whose sales of cigarettes and gasoline have suffered due to "tax free" pricing by tribal stores on the nearby St. Regis Mohawk Indian reservation, filed the lawsuit in January against then-Governor Spitzer and the tax department. NYACS, which had repeatedly but unsuccessfully sued the state over this issue in the past, supported for the legal action financially.

On July 14 in Monticello, Sullivan County, State Supreme Court Justice Robert A. Sackett dismissed the case, not on the merits, but on the issue of "standing." He ruled that neither plaintiff had legal standing to bring the Article 78 action. This leaves Townsend completely unable to ensure that the intent of the law is fulfilled, NYACS said.

Judge Sackett said the grievances of Townsend and Dabiew were not "within the zone of interest sought to be promoted or protected" by the 2006 tax collection law. He said the main purpose of the law was to raise revenue. Townsend and Dabiew's Market had argued the law had a dual purpose—to raise revenue and to restore a level playing field for competing non-Indian retailers who collect and remit state taxes.

"The judicial branch just granted the executive branch the power to disregard an act of the legislative branch after it's signed into law," said NYACS president James Calvin. "This has alarming constitutional implications far beyond this particular case. The message is that if the legislature passes a law, and the governor signs it but just doesn't feel like implementing it, no one has legal recourse—not even a legislator who voted to enact the statute on behalf of his or constituents."

He added, "This ruling…declares that a governor is free to ignore a law made by the legislature, regardless of the consequences to New Yorkers, and there isn't a darn thing anyone can do about it."

The untaxed sale of cigarettes alone on Native American lands is costing the state upwards of $600 million a year in lost tax revenue, according to Brian O'Connor, an economist who analyzed the issue for NYACS in January 2008. The problem has grown worse since then, because the state excise tax increased another $1.25 per pack on June 3. Calvin said the new wave of tax evasion spawned by the tax hike has cost tax-collecting retailers and wholesalers 25% or more of their cigarette volume since June 3.

For a copy of the decision, click here.

For a chronology of the 14-year-long effort for fair tax collection, click here.