NEW YORK – State lawmakers at a public hearing heard claims of “lost” tax revenues ranging from tens of millions to billions of dollars from untaxed cigarette sales on Indian reservations.
While none of the witnesses backed up their claims with substantive evidence, the Seneca Nation of Indians presented officials with a three-inch thick document on its treaty rights, legal history, and an economic study by a Harvard economist that pinpointed how – and how much – the nation’s tobacco-based economy benefits the state.
The hearing, which was chaired by Sen. Craig Johnson, D-N.Y., was an all day – and sometimes heated – event at Manhattan Community College Oct. 27. The aim was to investigate why the state has failed in its attempts to collect cigarette taxes from reservation cigarette sales to non-Natives.
J.C. Seneca, a Seneca Nation tribal councilor, testifying on behalf of the nation, addressed that question at the beginning of his testimony.
“The answer to that question, put simply, is that your government has no authority to do so, that the United States government has promised the Seneca Nation that your taxes would not apply to our territory, and, perhaps most importantly, you cannot force the Nation and the Seneca people to be the state’s tax collectors,” Seneca said.
The hearing was the latest battle in a cigarette tax war that has ebbed and flowed through two decades, characterized by lawsuits and a “forbearance policy” in which the state claims entitlement to collect taxes from cigarettes sold to non-Indians on Indian land, but declines to do so.
The hearing comes on the heels of a letter Gov. David Paterson wrote to federal prosecutors, asking for a “threat assessment” on the potential for violence if the state tries again to collect the taxes.
More than 100 citizens from Seneca and other Indian nations across the state attended, responding freely to the witnesses’ testimony with cheers, applause or rebukes.
Seneca and Robert Porter, the nation’s general counsel, said the plain language meaning of the nation’s 1842 Treaty of Buffalo – which says, in part, that the U.S. “will protect such lands of the Seneca Indians, within the State of New York, as may from time to time remain in their possession from all taxes, and assessments for roads, highways, or any other purpose.”
Johnson suggested the treaty language could mean the state is only prohibited from assessing real estate taxes. He asked why the nation has never taken the issue to court.
“It seems to me that would put an end once and for all to the question of whether or not New York state can collect sales tax on cigarette sales to non-Native Americans,” he said.
“We wouldn’t trust the court to rule in our favor,” Seneca said, adding that the nation determines the meaning of its treaties, not the courts.
Porter noted that the nation’s gaming compact does not concede jurisdiction to courts, but instead stipulates an arbitration process in the case of unresolved conflicts.
The notion that the nation would trust the state’s courts to resolve a dispute is just as unlikely as the state trusting the nation’s courts to resolve a dispute, Porter said.
“We’re dealing here with international law; we’re dealing with a treaty to which you are not even a party. You are simply obligated under your law to adhere to those treaties. We need to go to the United Nations to achieve the proper degree of involvement in our internal disputes. If that is the direction you’re going in, we’ll gladly invoke that as well as we have with the president of the United States.”
Sen. Martin Golden tried to persuade Seneca that it would only be “fair” to share the nation’s “taxes” with New York tax payers.
“If you agree that most of this (the sale of untaxed cigarettes) is going on across the borders you should have no problem in allowing state regulators to be part of the Seneca Nation and other nations to monitor (your sales). … We want fairness, you want fairness. Let’s get together so those dollars that are part of Indian nations are equally shared with the tax payers, especially when it comes to those non-tribal members that are purchasing 49 cartons of cigarettes,” Golden said.
Seneca replied that a taxation agreement has already been made – the Treaty of 1842.
Golden insisted that the state needs to “collect those taxes “before it falls into greater debt” – a theme reiterated by several senators.
Sen. George Maziarz said he wants to “dissociate” himself from Golden and comments by other lawmakers who said Indians take social services from the state, but give nothing back.
“I’m probably the only one who has grown up and lived and currently lives next to a Native American community. We all went to public schools, they went to the Indian school and they were not equal, I can tell you. The roads on the rez were always the last to be paved. Health care was almost nonexistent.”
Sen. Michael Nozzolio raised the issue of Paterson’s “threat assessment” letter and told Seneca he hoped the nation “would not condone violence.”
“Indian people struggle every day to fight for what we have and we’re going to continue to fight. When violence happened in the past, it was precipitated by the state. Seneca people weren’t armed. We didn’t have guns. We didn’t have clubs. We didn’t invade anybody’s territory,” Seneca said.
Sen. Eric Adams stood up for the nation’s right to defend itself.
There was no consensus on the estimated “lost taxes.”
William Comiskey, the tax and finance department’s deputy commissioner, said losses could be as much as $225 million annually, “assuming full compliance.”
But full compliance can’t be assumed because it’s impossible to calculate the number of untaxed cigarettes distributed through non-state licensed sources, he said.
Stephen Rosenthal described himself as “the largest distributor of tobacco and cigarettes in New York” until untaxed cigarette sales drove him out of business. He claimed with no evidence that the state’s loss is $1.6 billion.
Seneca pointed out that the nation is one of the largest employers in western New York, providing jobs with benefits for more than 6,300 mostly non-Native people.
Harvard economist Jonathan Taylor’s study detailed how every $1 of gross profits accrued to the nation’s tobacco businesses provides the state economy with $1.67. In 2007 alone, the nation’s combined tobacco and gas businesses generated an estimated $313 million and spun off nearly $200 million into the economy. The nation’s economic activities have contributed more than $1.1 billion to the statewide economy over the last decade, he said.
So even if the nation is not subject to taxation, the ripple effect of its economy benefits the state, Seneca said.
The committee will review all the testimonies and additional material that may be submitted and issue a report by the end of the year or early next year.
By Gale Courey Toensing
November 5, 2009