VERONA — Thursday’s news that the Oneida Indian Nation has purchased a cigarette manufacturing plant and will start making its own cigarettes generated criticism from the American Cancer Society and others that the move is illegal.
NCD - a company whose stock is owned by the Oneida Nation - has entered into an agreement to acquire the stock of D Cube, which does business as Sovereign Tobacco Co.
At a plant in Erie County, Sovereign Tobacco manufactures Niagara’s and Bishop discount cigarette brands that sell at Indian-owned stores for $30 a carton, about half the cost of taxed, name-brand cigarettes sold in non-Indian outlets.
The purchase - for $6.6 million - is to be completed in October 2010.
According to the American Cancer Society, the move makes the Nation no different than cigarette manufacturers such as Phillip Morris and RJ Reynolds.
“By purchasing this factory, the Oneida Indian Nation has become a tobacco company,” said Lisa Smith, regional vice president of the cancer society.
She urged federal and state lawmakers to take steps to ensure laws governing collection of cigarette taxes are upheld, since such taxes deter some people from using tobacco products.
“By manufacturing and selling cigarettes on tribal land, the Oneida Indian Nation is preemptively evading a law the American Cancer Society has been working to get enforced - a law that would prohibit manufacturers from selling tobacco products to retailers who don’t collect sales tax, i.e. sovereign nations,” Smith said.
Nation spokesman Mark Emery declined to comment Thursday on the new development. He would not say how it could affect the Nation’s finances nor discuss the reasoning behind the acquisition.
The Nation already runs Turning Stone Resort and Casino, a dozen SavOn gas station-convenience stores, a gaming software company and five golf courses.
It sells about $34 million of untaxed cigarettes a year at its stores.
Assemblyman David Townsend, R-Sylvan Beach, questioned whether the Oneidas will now be allowed to sell their own cigarettes without charging taxes.
“If they produced an automobile, could they go sell a car tax-free?” Townsend said. “It’s just another way they’re trying to figure out how to circumvent the law.”
He raised the possibility of legal action.
For many years, the state has failed to collect cigarette taxes on products sold by Indian businesses to non-Indians despite court rulings that such tax collections are legal. The Oneida Indian Nation and other tribes, however, maintain they are sovereign entities and therefore exempt from paying such taxes.
This past December in Utica, Gov. David Paterson signed a law intended to enforce the collection of such taxes. The measure was projected to bring with it $65 million in this year’s budget.
But the state backed off, adding Paterson to a growing number of governors who have promised but failed to collect.
Jim Calvin, president of the New York Association of Convenience Stores, said the Oneidas’ action shines a light on the problem New York is facing.
“The state’s inaction on collecting these taxes has enriched and empowered the sellers of untaxed cigarettes that they are now manufacturing their own product,” he said. “Our suspicion is that they are trying to protect their untaxed cigarette business in the event that the state begins to collect taxes on their sales to non-Indian customers.”
Bob Hilburger, director of business development for NCD LLC, said he didn’t know why the Oneidas decided to purchase the cigarette plant.
“I don’t know their strategy — it’s almost like a third-party relationship I have with them,” Hilburger said. “I really don’t know what’s going on in their mind, or what the advantages are.”
The agreement will also allow for expansion of the Niagara’s cigarette brand, he said.
The cigarette plant in Angola, located about 20 miles from Buffalo, employs about 28 people and sold 1.4 million cartons of cigarettes last year. It distributed them mostly to about 60 Native American outlets in Upstate New York.
There are plans to add 20 more employees before the end of 2010, according to the company.
State Sen. Joseph Griffo, R-Rome, said the Oneidas’ purchase raises numerous questions.
“While it makes good business sense to try to manufacture your own product instead of counting on suppliers, cigarette manufacturers are held to a strict federal standard,” Griffo said. “Will that still be adhered to?”
Griffo also said he’s urging his colleague, state Sen. Craig Johnson, to include this new twist when the Senate Investigations Committee begins its public hearings on Indian sales tax collection issues later this year.
State Assemblywoman RoAnn Destito, D-Rome, did not return phone calls Thursday.
“With her calendar today, I don’t believe she’ll be getting back to you,” a representative from her office said.
Her husband, Christopher Destito, does substantial business through alcohol catering permits allowing his restaurant to serve liquor at Turning Stone Resort and Casino restaurants and events.
Sep 17, 2009