Judge temporarily halts state tax on reservation sales of cigarettes

Local News

September 1, 2010

By Carolyn Thompson Associated Press Wed Sep 01, 2010, 01:31 AM EDT

BUFFALO — A federal judge on Tuesday temporarily blocked New York state’s plans to tax cigarette sales by two American Indian nations to non-Indian customers while the tribes challenge the policy shift as a threat to sovereignty and their financial well-being.

Judge Richard Arcara granted the Seneca and Cayuga nations’ request for a court order that stops the state from imposing a $4.35 per pack sales tax on cigarettes sold by reservation retailers starting Wednesday. The duration of the order wasn’t immediately clear; another hearing in the case was set for Thursday.

The Senecas are the biggest player in the business, but a number of other tribes retail cigarettes. Gov. David Paterson said the sales tax would still be applied as planned to cigarettes sold by tribes that aren’t covered by the temporary restraining order.

“We are disappointed with the judge’s ruling, but the state’s legal argument is sound, and we believe that ultimately the state will prevail in this matter,” the governor said.

The St. Regis Mohawk Tribe sued last week over the tax plan in another federal court in northern New York. Their lawyers didn’t respond to requests for comment Tuesday.

Attempts to collect the tax in the 1990s resulted in sometimes-violent protests and fires on Seneca territories and a reluctance by state officials since then to push the issue.

But with New York facing its worst fiscal crisis since the Great Depression, the governor and state lawmakers vowed in June to go after the potential $200 million revenue source by requiring cigarette wholesalers to prepay the taxes before supplying reservation stores.

That would force Indian retailers — whose tax-free sales have given them a huge competitive edge over off-reservation competitors — to significantly boost their prices.

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.

Seneca President Barry Snyder Sr. has said the tribe wants to avoid the violence of the past, choosing to fight the tax in the government’s own arena, in courtrooms and the Capitol. Tribal leaders also have been meeting with federal, state and local law enforcement agencies to keep the lines of communication open, he said.

Nevertheless, tensions have been rising on tribal territories.

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!” The band operates independently of the Seneca Indian Nation.

After lawyers lost a bid in state Supreme Court to block the sales tax on Monday, Snyder said the nation would appeal, continuing the legal challenges in both state and federal courts.

“It is our intention to block the New York state from ever collecting a penny of tax on sales of tobacco by the Seneca nation or any other Native American nation under this ill-conceived taxing scheme,” he said.

Besides the legal challenges, the Senecas have set up an out-of-state supply system intended to keep tribal wholesalers and retailers stocked if the court action should fail, tribal councilor J.C. Seneca said.

“We’re not going to be tax collectors for New York state,” he said. “We’re just not going to buy from New York state wholesalers.”

The governor’s office, meanwhile, said no troopers would be sent to the reservations and other tribal land, dismissing rumors of troopers showing up in force. Paterson had said that he received repeated reports by state police that there could be violence, but that he expected none if the state was allowed to good ahead with the collection plan.

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