Bid to tax Native American cigarettes stalls

Last summer, smokers who bought their cigarettes on Native American reservations were stocking up, anticipating the state’s promised clampdown on untaxed cigarette sales.

The Seneca Nation was urging its members to remain calm and avoid the highway barricades of burning tires that had lent the conflict both an iconic image and an acrid stench in previous decades.

Politicians were rattling their sabers and even, in the case of New York City Mayor Michael Bloomberg, resorting to highly charged pronouncements bordering on racial slurs.

And then?

The only movement in the conflict has been a thickening of already heavy court files at the state and federal levels. While the Second U.S. Circuit Court of Appeals ponders its next ruling — perhaps pivotal, perhaps not — millions of cigarettes are still being sold on reservations to non-Indian individuals who want to avoid $5 a pack in state and local taxes.

Last week on the Tonawanda Seneca Nation territory, which straddles the border of Genesee and Erie counties, a steady stream of off-reservation customers was visiting the shops there.

“We’re just spinning our wheels,” said James Calvin, president of the New York Association of Convenience Stores. His organization has long urged the state to level the playing field for non-Indian cigarette sellers who must pay the taxes and by necessity charge their customers more.

“Nothing has changed,” said Robert Odawi Porter, president of the Seneca Nation.

And that’s despite the inclusion by new Gov. Andrew M. Cuomo of $130 million in Indian cigarette sales taxes in his $132.9 billion state budget proposal. The taxes — if they’re collected — would support less than one-tenth of 1 percent of the budget.

“We’ve had governors include revenue projections in the budget in the past,” Porter said. None, starting with the current governor’s father, has succeeded in collecting taxes on Indian cigarette sales.

Various tax collection strategies have been proposed and new state legislation has been passed, but the Native American nations say treaties with the federal government ensure they and their members are free to conduct commerce on their territories without interference or taxes from state and local governments.

While the federal appeals court mulls the issue, the state is banned from enforcing the law, said Brad Maione, spokesman for the state Department of Taxation and Finance. Beyond that, there was little he could say except, “The next step is to wait until the next court activity.”

Advocates of the tax have chipped away at the issue, currently proposing an indirect method of tax by charging the wholesalers who supply the reservations. The state would apply a formula using wholesale purchases to estimate the portion of retail sales being made to non-Indian customers.

Meanwhile, Native nations and individuals have been just as devoted to finding ways around the state. Some dealers have started making their own cigarettes or buying a larger portion of their cigarettes from other native manufacturers. The Oneida Nation relocated a cigarette plant to its territory in September.

Several historic meetings have taken place among the various Haudenosaunee communities, which are sometimes deeply divided, to share information on the taxation issue. And three business associations made up of smoke shop owners have sprung up on the Seneca and Tuscarora reservations in western New York, bringing independent cigarette sellers closer together on and between reservations.

“You have a stronger voice as a group than you do as individuals,” said Marty Ground, president of the merchant association at Tonawanda, which represents 10 of the 12 smoke shops there, including his 49 Express Pit Stop.

The state’s attempt to reduce smoking in New York ended up driving more business to the reservations or to other states, said Calvin, the convenience store executive, because the state raised the tax 58 percent in 2010, widening the price gap between reservation stores and non-reservation stores.

“The tax went up but the other side of the equation was put on hold,” Calvin said. “Our members lost anywhere from 25 to 40 percent of their cigarette (sales) volume overnight and it hasn’t come back. Certainly 25 to 40 percent of the smokers haven’t stopped smoking.”

On Thursday, outside The Rez smoke shop on Bloomingdale Road on the Tonawanda territory, Eric Keeton of Cheektowaga described the situation from a buyer’s perspective.

“I said ‘hell no,'” he recalled about the time the taxes jumped in 2010. A smoker for about two years, he switched from buying at a local 7-Eleven to driving to The Rez and stocking up. “It’s cheaper for me and a lot of other people, too,” Keeton said.

“People are getting fed up with the high cost of cigarettes on the outside,” Ground said.

Calvin said people may see the issue as affecting only cigarette buyers and sellers, but an analysis his organization commissioned before the cigarette tax rose reports that taxpayers were missing out on $1 billion annually because of reservation sales. (Other estimates put the amount at a fraction of that.)

“It’s especially not fair to non-smoking citizens because they’re essentially subsidizing the non-taxed purchases of the citizens who smoke,” Calvin said.

Here’s where he and Porter part company the furthest. Porter said the money that consumers don’t pay in the form of cigarette taxes is spent off the reservation and generates taxes.

It also supports income of people who work in smoke shops and use their pay to buy taxed products and services off the reservations.

“That’s a very interesting theory,” Calvin responded. “My mom always told me, ‘Don’t let anybody ever tell you that the grass is blue, the sky is green or that tax evasion is economic development.'”

To which Porter countered that it’s hypocritical for the state to abate taxes for corporations in the name of economic development, yet insist that untaxed Indiancigarette sales on sovereign territories are an abuse.

Porter said native nations can’t be blamed for all of the state’s budgetary and taxation woes, either.

“If our economy somehow disappeared tomorrow, New York would still have a gaping enforcement problem,” he said, noting that cigarette sellers in Pennsylvania enjoy a similar bonanza from New York customers because of a $3 tax difference per pack.

“Money is the issue,” said Ground, who added that he sees new faces at his store all the time. If big-brand cigarettes cost $100 a carton off the reservation and half of that on, “you don’t have to be a rocket scientist to figure that out.”

By Diana Louise Carter

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