Cigarette tax wars continue

NEW YORK – There was no let up last year in the ongoing cigarette taxes war between the state of New York and Indian nations with tobacco economies.

The beginning of 2008 saw the battle raised a notch after New York Gov. David Paterson signed a bill intended to force the collection of state sales taxes on tobacco products sold to non-Indians in Indian country.

The bill would force wholesalers to sign an oath, under penalty of perjury, which would be filed with both the state and tobacco companies, saying the cigarettes they sell would not be resold untaxed in violation of state law.

A state appeals court placed an injunction against a similar law passed in 2006 because the state tax department had not worked out a coupon system for reservation retailers to claim tax refunds on cigarettes sold to tribal members.

The new law was going to be an end run around that obstacle, Paterson said.

“Seeing that we can’t get around that encumbrance, (legislators) introduced legislation that we will now ask for certification under penalty of law to those wholesalers that sell without collecting taxes. That’s in simple (terms) what the bill does. This is a new approach and we hope this will be an effective approach to solve this problem.”

Tribal leaders reject the role of state tax collector, maintaining that sovereignty and treaty rights exempt the nations from any obligation to collect state taxes. A state law clearly says non-tribal customers are obligated to pay taxes on reservation purchases whether the goods are purchased “through the Internet, by catalog, from television shopping channels or on an Indian reservation.”

But the tobacco war persists, 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. Legislators claim the “lost taxes” range from tens of millions to billions of dollars each year.

A spokesman for the Oneida Indian Nation, the publisher of Indian Country Today, threatened to challenge the new law in court, but by the end of January, State Supreme Court Justice Rose Sconiers had issued an injunction stopping the state, and anyone charged with enforcing the state’s tax laws, from restricting state stamping agents from selling unstamped cigarettes to reservation cigarette sellers, or restricting reservation retailers from selling unstamped cigarettes to tribal and non-tribal members until the state Department of Taxation and Finance comes up with a viable system to distribute tax exempt coupons for sales to tribal members.

The Unkechaug Nation continued to be embroiled in seemingly endless tobacco litigation in 2009. New York City Mayor Michael Bloomberg filed a federal lawsuit in the fall of 2008, accusing eight Unkechaug reservation smoke shops of breaking state and federal laws by selling cigarettes in bulk to bootleggers who resell them in the city.

And the nation was also in the midst of a federal lawsuit filed by New York tycoon John A. Catsimatidis, a businessman and politician who claims that tax-free cigarette sales at the Unkechaug reservation on Long Island undermined profits at his supermarket empire of more than 50 Gristedes stores.

In October, a federal judge tossed out all of Catsimatidis’ charges and ruled that the Unkechaug Nation meets the common law definition of a tribe – even though it is not federally recognized – and is therefore a sovereign nation with immunity from being sued. The ruling said Unkechaug Chief Harry Wallace could only be sued as an individual.

In October, leaders from the Seneca Nation of Indians explained to state senators at a hearing in New York that the nation’s 1842 Treaty of Buffalo with the federal government protects it from any and all attempts by the state to impose any kind of taxation on Seneca land. The nation’s tobacco economy pours millions of dollars into the local western New York economy every year.

But New York lawmakers, in collaboration with tobacco company Philip Morris, are determined to bring the Indian tobacco trade to its knees. In the week before Christmas, members of New York’s congressional delegation were trying to “hotline” the Prevent All Cigarette Trafficking Act – to push it through the Senate by consensus instead of a vote. The act would prohibit the U.S. Postal Service from delivering cigarettes. A few years ago, former New York Gov. Eliot Spitzer forced UPS, FedEx and other independent delivery services to “volunteer” to give up delivering cigarettes.

The PACT Act would devastate Indian tobacco sales that depend on mail order deliveries.
By Gale Courey Toensing
Jan 13, 2010

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