NY top court hears arguments over tax claims on Indian cigarettes; tribes stage protest

NY top court weighs tax claim on Indian cigarettes

SYRACUSE, N.Y. — State and county lawyers told New York’s top court Thursday that officials can tax Indian cigarettes and prosecute sellers of untaxed smokes.

But David DeBruin, a lawyer for the Cayuga Indian Nation, countered that authorities would be encroaching on tribal rights and that the Cayugas do not have to collect the tax for the state from non-Indian smokers.

“The liability for the tax is on the consumer,” he said.

About 100 Indian protesters gathered across from the courthouse in Syracuse where the Court of Appeals heard the case. They included Cayugas, as well as Senecas and Mohawks from western and northern New York. A few protesters drummed and chanted, while many carried placards. Some read: “Break a treaty, break a law” and “Whether we are poor or prosperous the treaties still stand.”

Nearly a dozen speakers addressed the gathering.

“Those lands have never lost what they meant. Our people were born to this land,” said Arthur Montour Jr. of the Seneca Nation. “We are being attacked today. We are nontaxable. We are not under the thumb of New York state. It’s up to us to decide. There is nothing to negotiate, no matter what those black robes say. We will be there to defend.”

More than one-third of the cigarettes sold in New York by licensed agents go without tax stamps to Native American merchants, according to state officials. If all were stamped and taxed, New York would have collected $825 million more in 2008.

Seneca and Cayuga county officials estimate the Cayugas’s LakeSide Trading stores in Union Springs and Seneca Falls owe $485,000 in state excise taxes.

The court is expected to rule next month.

Indian smoke shops have enjoyed a huge business in cigarettes since the mid-1990s partly because of a string of governors who have refused to enforce state laws that were supposed to set up a system for taxing sales to the general public.

Now Gov. David Paterson’s administration is proposing enforcement rules that would limit supplies of tax-free reservation cigarettes to those for personal use by tribe members.

The Cayugas bought the two stores in central New York and began selling untaxed cigarettes in 2003, the same year the New York Legislature passed a measure to tax reservation cigarette sales to non-Indians.

“We are selling unstamped cigarettes. We don’t deny that. We don’t hide that,” DeBruin said.

Seneca and Cayuga county officials seized 176,000 cartons of unstamped cigarettes in 2008, leading to the lawsuit by the Cayugas. They want the cigarettes back and pending indictments thrown out.

Attorney Philip Spellane, representing both counties, argued before the court that the two Cayuga shops, while located among 64,000 acres that once were tribal lands, were relatively recent purchases and not actual reservation property with sovereign Indian rights.

Deputy Solicitor General Andrew Bing, representing the state, said even if the Cayuga land qualified as reservation, taxes were still owed for non-Indian sales. He agreed with Spellane that the two stores don’t qualify as reservation and should pay state excise taxes of $2.75 per pack on all sales, like most cigarette retailers.

In August, a trial judge refused to order the return of the seized cigarettes at the Cayugas’ two upstate New York convenience stores.

Supreme Court Justice Kenneth Fisher, who had initially ruled that the tribe could not sell untaxed cigarettes, said that while a midlevel court’s reversal of his decision changed the landscape somewhat, the cigarettes were still evidence seized as part of a criminal action and didn’t have to be returned with the appeal pending.

Fisher also denied the tribe’s request that the counties put up a bond to cover the value of the cigarettes, estimated at more than $500,000.

A divided midlevel Appellate Division court then concluded the Cayuga stores are on reservation land and cited 2005 amendments to the state law with a coupon program for tax-free tribal cigarettes that regulators failed to implement.

Virtanen reported from Albany, N.Y.