NY appeals court halts state plan to tax reservation cigarettes sold to non-Indian customers

NY appeals court halts Indian cigarette tax plan

CATTARAUGUS INDIAN RESERVATION, N.Y. — The latest in a tangled series of state and federal court decisions has halted New York state’s plan to collect taxes on cigarettes sold by Native American retailers to non-Indian customers.

A state appellate court judge in western New York on Wednesday restored an order stopping the collections, Gov. David Paterson’s office said. An earlier order had been lifted Monday by a state judge, a decision appealed by the Seneca and Cayuga nations.

Those tribes won a separate federal court order Tuesday temporarily barring collections against them. But the state had said it would start imposing the $4.35 per pack levy on other reservation retailers starting Wednesday.

“We are disappointed today that the appellate division has stayed the implementation of our statute and regulations with respect to licensed stamping agents,” Paterson spokeswoman Jessica Bassett said. “Despite this ruling, we believe the state’s legal arguments are sound and we believe that ultimately the state will prevail in this matter.”

The Indians’ challenges are in multiple courts because they’re attacking the taxation on several levels. The Senecas’ federal court suit, which the Cayugas joined, seeks to invalidate the state tax law by arguing New York lacks jurisiction to regulate Indian nations within their territories. The tribes’ state court challenge, meanwhile, opposes the expedited way New York tax officials chose to adopt the regulations to implement the law, not the law itself.

Attempts to collect the tax in the 1990s resulted in sometimes-violent protests and fires on Seneca territories, which at one point shut down the New York State Thruway where it bisects the Senecas’ Cattaraugus reservation. State officials have been reluctant to push the issue since.

But with New York facing a fiscal crisis, the governor and state lawmakers vowed in June to go after what they view as a potential $200 million revenue source by requiring cigarette wholesalers, effective Sept. 1, to prepay the sales taxes before supplying reservation stores.

Last week, a sign was spotted on an overpass on the Tonawanda Band of Senecas’ reservation reading: “NYS declares war 9-1-2010. Let the fires begin!”

About 100 people rallied Wednesday on Seneca land along the Thruway, saying they wanted the issue settled peacefully in court, but could be pushed only so far.

“Watch for what we’re ready to do. Watch for the other side of the sword, that’s all I’m saying,” speaker Ross John said as passing tractor-trailers honked in apparent support. “Nobody’s going to get hurt unless you try to keep us from enforcing our laws.”

Arthur “Sugar” Montour said, “This is not a tax issue. This is about sovereignty. This is about the state of New York and federal government constantly trying to take pieces of our sovereignty so they can slowly, absolutely, commit genocide against our people.

“Today, we’re looking at economic genocide,” Montour said.

Cigarette makers sold 24 million cartons of non-native-brand cigarettes to tribes in New York in 2009, with the Senecas buying the most at 10.2 million, the state Department of Taxation and Finance said. Tribes also sell millions of cartons of American Indian brands.

Free of the state sales tax, Indian retailers have a huge competitive edge over off-reservation sellers. Native American stores were recently offering cartons of Marlboros for $50.99, compared with the $100 price tag in off-reservation stores in New York.

“It’s definitely the price,” Bill Speckenbach of New City in Rockland County, said Wednesday as he shopped at the Shinnecock Trading Post on Long Island. “They’re spending money in Albany like it’s water and then they go and get the revenue back by raising taxes.”

Smoke shop owners, meanwhile, said their customers were more likely to go out of state or to the black market than pay New York prices should the state prevail in the tax fight.

“People are going to smoke; they’re going to try to find the cheapest cigarette. So whether it’s trips to Virginia, trips to North Carolina,” said Lance Gumbs, a Shinnecock tribal trustee and smoke shop owner.

“The state is not losing this money to the tribes,” he said.

In Niagara County, personnel at the Niagara Falls Air Reserve Station were told by e-mail to limit their travels in and around Indian reservations, The Buffalo News reported.

“If travel through these areas is unavoidable, members should maintain heightened situational awareness to malicious activity,” the e-mail said.

Associated Press Writer Frank Eltman in Southampton, N.Y., contributed to this report.