Seneca make case against taxing cigarettes

By Carolyn Thompson
Buffalo, New York (AP) June 2011

A judge extended a temporary order preventing New York state from following through with plans to tax cigarettes sold on American Indian reservations to non-Indian customers while she considers the Seneca Nation’s challenge to the regulations that would govern collections.

The Senecas want Erie County Judge Donna Siwek to throw out the regulations and force the state taxation department to rewrite them. Seneca attorney Carol Heckman argued that the department didn’t follow its own rules in creating them because it didn’t consider the negative impact they would have on the western New York tribe and its businesses.

The hearing didn’t address the tribe’s longstanding opposition to the tax itself.

“If the procedures are not followed, the regulations are null and void,” Heckman said.

Andrew Bing, an attorney for the state, said tax officials did follow the rules. Any impact to the nation’s economy or jobs picture would be the result of the Legislature’s decision to impose the $4.35-per-pack sales tax, not the rules the department would use to enforce it, he said.

“The impacts that are alleged are the result of statutory choices the Legislature has made,” he said.

Siwek said she would issue a written decision within a week.

Last month, just as Gov. Andrew Cuomo’s administration was preparing to begin collecting tax on smoke shop sales statewide, anticipating $500,000 a day in revenue, the Senecas won the temporary restraining order now in place.

It’s the latest face-off in a dispute between New York and American Indian tribes that dates to 1988. The Indian nations argue that as sovereign nations they’re exempt from taxation, while the state says it has the right to tax non-Indian customers.

The Native American cigarette business has flourished as New York has made its cigarette tax the highest in the country. Native smoke shops charge about half the $10 that non-Native convenience stores charge for name-brand cigarettes and even less for brands manufactured on reservations. 

The state plans to tax Native American sales without going onto reservations by requiring cigarette wholesalers to pay the sales taxes before they supply reservation stores. Wholesalers would pass along the levy to tribal retailers, who would have to raise their prices.