Native Americans’ unfiltered business success at risk

From Salamanca to the St. Lawrence River, and from Long Island to Niagara Falls, if you want cigarettes at a fraction of the regular cigspackprice, you go to a Native American reservation.

The main thoroughfares through or past most reservations are dotted with smoke shops; you’ll see a dozen on the tiny Tonawanda reservation saddling the Genesee-Erie county line. Before online sales were outlawed a few years ago, the three Seneca Nation territories in the Southern Tier had 172 cigarette dealers, equaling one for every 23 resident Senecas.

“That’s the beaver pelt of the modern era,” quipped Robert Odawi Porter, president of the Seneca Nation.

Though the trade has taken hits from federal and state lawmakers, Native American smoke shops still thrive, taking advantage of sovereign immunity to state taxes. The shops run the gamut from repurposed trailers to multimillion-dollar enterprises with restaurants, warehouses, gas stations and manufacturing plants. Cut-price cigarettes are also sold in upscale Native-owned casinos and resorts.

The shops attract smokers from all over New York and adjoining states to scoop up cartons of heavily discounted cigarettes. The price break stems from the fact that at least until now, New York state has never collected taxes on reservation lands.

Countless Native entrepreneurs over the last 30 years have enjoyed the tax break, which has only grown bigger and bigger as New York raised its cigarette taxes, now at $4.35 a pack and the highest in the nation.

Porter cited a federal study of online cigarette sales from several years ago that found 80 percent of online cigarette sales in the United States were originating on the Seneca Nation. But over the last two years, as federal laws changed to prohibit online sales and postal service delivery of cigarettes, by his estimate Seneca businesses lost about 60 percent of their trade.

Earlier this month, New York won a federal court decision saying the state can collect the taxes on the cigarettes, or at least collect from the wholesalers distributing them to Native sellers.

Enforcement is temporarily stayed while a judge considers the Senecas’ claim that the state hasn’t followed its own rule for making new regulations. However that decision goes, though, Native American communities are planning to continue selling cigarettes to non-Native smokers by trying to outmaneuver outside governments once again.

‘An easy sell’

Marty Ground had a good paying job and benefits at a radiator plant in Lockport when the opportunity to sell cigarettes came up 20 or 25 years ago. But the same couldn’t be said for many other residents of the poverty-stricken Tonawanda Seneca Reservation, which lies between the town of Basom in Genesee County and Akron in Erie County. Ground, now 65, had some extra money he could invest, and he had relatives who needed work, work that didn’t require a lengthy commute. When he started his 49 Express Pit Stop, there were just three other smoke shops on the reservation, which is home to a community of about 400.

“The marketplace and the outlook at that time were favorable,” Ground said recently. “It wasn’t the corner pizza store competing with 50 other pizza stores in the same neighborhood. It was an easy sell.”

The cigarette business, he explained, doesn’t require a large initial investment. Getting a business loan can be difficult for reservation residents as the unique nature of their land ownership can prevent them from qualifying for a bank loan.

In the 1990s, Rochester smokers were driving 90 to 100 miles to visit Smokin’ Joes, a shop on the Tuscarora Nation reservation near Niagara Falls, in order to save $1 a pack.

With just a little initial advertising on television — the only advertising Ground said he’s ever had to do — a lot of the Rochester market started drifting toward the Tonawanda Seneca community, a little more than half the distance to Tuscarora. “We became the stopping point for them,” Ground said.

Though the number of smoke shops at the Tonawanda Seneca reservation has tripled since Ground set up shop, “The business for each shop is well enough to take care of your employees and yourself and upgrade if you have to and stock a little higher in your warehouse,” he said.

Native-made brands, such as the pioneer Mohawk and Seneca brands manufactured at Canada’s Six Nations Reserve by a partnership including Amerks and Knighthawks owner Curt Styres, took off after major cigarette manufacturers started raising their prices regularly, Ground said. Now made on several New York reservations, Native-made brands generally sell for around $20 a carton, or about one-fifth of the cost of Marlboros off the reservation.

“The consumer is not a loyal customer to a brand, they’re loyal to a price,” Ground said. “You could buy two or three Native-brand cigarettes to one national brand.” Hence, as much as 75 percent of Ground’s sales are Native-made brands.

Over the years, Ground said he hasn’t had to do much to grow his business. Word of mouth keeps smokers coming.

“I basically sat still and they came.”

Dispute evolving

Native Americans in New York maintain that centuries-old treaties they made with the U.S. government guarantee they’ll be free of interference or taxation by state government. The state government, of course, has felt otherwise for at least 20 years, continually trying to find the right place in the cigarette industry to siphon off taxes.

In 2008, Seneca and Cayuga county officials raided shops operated by the Cayuga Nation, confiscating thousands of cartons of tobacco products. Nine months later a state appellate court ruled that the Cayuga Nation could continue selling the cigarettes, since the state law wasn’t being enforced yet, and the state had backed off from a coupon scheme in 2006.

For the last several years the state has attempted to collect the tax before sales by tapping wholesalers who distribute to the reservation shops. As this plan has worked its way through state and federal courts and various appeals, Native businesses have responded by cutting out the non-Native wholesalers.

The Oneida Nation bought a plant making Niagara brand cigarettes several years ago and moved it to its reservation last year, where it can supply 12 nation-owned convenience stores and other outlets. Smokin’ Joe’s at Tuscarora has made its own cigarettes, sold under several brands, for years. Individual Senecas and Mohawks run cigarette plants at their reservations.

The Onondaga Nation, which operates one store on behalf of the tribe, is making plans for manufacturing its own cigarettes. Just last month, the Cayuga Nation opened its own federally licensed cigarette plant in Seneca Falls to supply its two smoke shops in Union Springs, Cayuga County, and Seneca Falls, Seneca County. The nation has some other fledgling enterprises — raising Black Angus and vegetables, bottling water and towing — but cigarette sales are its oldest business.

“Selling cigarettes is the fastest way to make revenue,” Cayuga tribal representative Clint Halftown said. The nation’s location, away from major urban centers, is an obstacle to success for other ventures, such as restaurants, which also require greater overhead. Cigarettes, though, overcome the location issue by offering a bigger price advantage to customers.

“Would you go to Walmart, where you can pay $110 a carton, or come to our nation?” he asked. Cayuga prices are a bit higher than the Onondagas’ just to the east, Halftown said, but gas prices have worked in the smaller nation’s favor for customers from Ithaca, Seneca Falls, Auburn, Geneva, Waterloo and even Rochester, he said.

“As far as my nation, we’re going to continue to fight” to sell cigarettes, he said. No matter the court rulings, Native individuals will be able to buy cigarettes on their territories tax-free, Halftown said. “The fight is for the non-Natives. I just wish more of the non-Natives would stand up and speak.”

‘Economic battle’

Seneca President Porter said state and federal governments have the ability to end the fight right now by simply outlawing cigarettes for health and safety reasons. But he suspects a ban like that would be only as successful as Prohibition was for alcohol sales in the 1920s.

“It’s an economic battle over a lawful commodity that historically is sold,” Porter said.

The major cigarette manufacturers’ involvement in lobbying against Native American sales mechanisms, such as the online trade that proliferated in the last decade until federal bans ended it, tends to bolster Porter’s point. “This is about non-Indians not liking Indians making money and undercutting their profits,” he said. Convenience stores, for instance, have long argued that the taxes should be collected on reservation sales in order to level the playing field.

The debate, though, along with the easy money available from cigarette sales has kept both Native American nations and individual Native businesspeople surrounded by tobacco smoke. Even those Native communities that eschew gambling, such as the Onondagas and Tonawanda Band of Senecas (they’re separate from the Seneca Nation), have relied on cigarettes for income.

“So much time has been spent by the nation and business on tobacco and by the nation on gaming, that it has stunted our development in other areas.” Porter said of the Seneca Nation. “Maturing the economy is a real challenge now.”

By Diana Louise Carter, [email protected]

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