A ruling Monday by a federal appeals court prompted state officials to begin planning to collect taxes on cigarette sales from Indians to non-Indian customers.
The effort announced by Gov. Andrew M. Cuomo sets up a potential confrontation between the state and Native Americans who call the taxation an assault on their sovereignty and economic well-being.
The state Tax Department was expected to post tax-collection guidelines on its website Monday night — the first legal step for what Cuomo administration officials said will be an immediate requirement that wholesalers charge the state’s $4.35-per-pack excise tax on every pack of cigarettes sold to Indian retailers.
“We will now begin the implementation phase as we move to collect these taxes,” said Cuomo, whose new budget projects more than $100 million in revenues from collections.
“I have always said that taxes on cigarettes sold to nontribal members must be collected because this is revenue rightly owed to the state, and with this decision, my administration will move to do so expeditiously.”
The ruling will enable the state to collect about $500,000 a day from Indian retailers, Attorney General Eric T. Schneiderman said.
The Seneca Nation of Indians vows to keep resisting the effort to collect the taxes.
“We will continue fighting against this overreaching action by the state to protect our treaty rights, tobacco commerce and all the jobs it supports,” Seneca President Robert Odawi Porter said. “The Seneca Nation will not be New York State’s tax collector.”
State officials have wanted to tax Indian tobacco sales since the 1980s but have held off because of a combination of court rulings and fears that a tax crackdown would spark violence on Indian reservations.
“Today’s decision respects tribal rights and at the same time represents an important victory for the state to collect deserved revenue and to protect public health,” Schneiderman said. “The decision closes an enormous tax-evasion loophole that was depriving New York of hundreds of millions of dollars in tax revenue.”
In its 53-page opinion, the Second Circuit Court of Appeals, based in New York City, said U.S. District Judge Richard J. Arcara of Buffalo ruled correctly last October when he denied a request by the Seneca Nation and other Indian tribes for an injunction against the state.
Lawyers for the Indian tribes asked Arcara to issue a preliminary injunction banning the state from taxing on-reservation cigarette sales from Indian-owned businesses to non-Indian customers.
Arcara refused, and he was right, the appeals court stated.
Indian tribes contend that the state’s efforts would violate the tribes’ sovereign rights to govern themselves, but the appeals court — based on past U.S. Supreme Court rulings — turned aside that argument.
“At this pre-enforcement stage, [Indian nations] have not demonstrated that they are likely to prevail on their claim that the amended tax law infringes tribal sovereignty or unduly burdens tribal retailers,” the appeals court wrote.
Representatives for non-Native American retailers hailed the decision and said they believe that Cuomo will become the first governor to collect the taxes. “We think it’s a victory for taxpayers and the fundamental principle of fairness,” said James S. Calvin, executive director of the New York Association of Convenience Stores.
Calvin said he believes that one or more Indian tribes may try to press the matter to the U.S. Supreme Court.
but noted that the court Monday repeatedly referenced the 1994 case involving a Buffalo tobacco wholesaler that first authorized the state to collect the tax on cigarette sales by Indian retailers to non-Indians.
While Porter did not give specifics on how the Senecas plan to fight state tax collections, Seneca leaders have stated in the past that they would go all the way to the Supreme Court.
“We’re going to meet with our lawyers, get their analysis of what this decision means and what the state plans to do, and go from there,” said J.C. Seneca, of Irving, a major Seneca tobacco retailer and manufacturer who also serves on the Tribal Council. “We’re never going to succumb to the state collecting taxes from us.”
But if the state ultimately prevails in the courts, Seneca said, he and other Indian retailers may move to selling only Indian-made cigarettes, which he said are not subject to taxation.
He said he would like to stop selling major brands, such as Marlboro and Winston, altogether, and only sell cigarettes that his own Native Pride company makes.
“I’m a manufacturer, and that may be all we’ll do someday - sell native-made products,” Seneca said. “I know the major brands have a following, but we’re doing very well with our own brands.”
Similar comments came late Monday from Mark F. Emery, a spokesman for the Oneida Indians, based in Verona, where they run the popular Turning Stone Casino. They, too, make their own cigarettes, which are cheaper than the major brands, and there is a big market for them, Emery said.
“The court’s ruling against the tobacco distributors does not impact our ability to sell cigarettes at a reduced cost,” the Oneida spokesman said.
Seneca said he does not foresee any violent reactions by Senecas against state officials if they try to collect the taxes. “It has been the state that has been aggressive, and the state that has brought violence to our territories,” he said. “Not us.”
In 1997, when the state tried to collect the tax, the Senecas shut down parts of the Thruway running through their territory.