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Judge blocks cigarette tax law

BUFFALO, N.Y. – A cigarette tax bill aimed at forcing reservation smoke shops to collect taxes for the state has been blown away – at least temporarily – with a state Supreme Court ruling blocking the plan.

State Supreme Court Justice Rose Sconiers issued a temporary restraining order (TRO) Dec. 24, that bars the state of New York, Attorney General Andrew Cuomo, and the Department of Taxation and Finance from enforcing state tax law “in a manner that would restrict the sale of unstamped cigarettes from being sold at wholesale to reservation cigarette sellers.”

The ruling resulted from a lawsuit filed by attorney Margaret Murphy on behalf of her clients, Day Wholesale Inc., a wholesaler and stamping agent, and Scott B. Maybee, an enrolled member of the Seneca Nation of Indians who owns and operates wholesale and retail tobacco businesses licensed by the nation, but the TRO applies universally across the state to all distributors and reservation smoke shops.

“I’m pretty happy about it. I feel pretty good about this,” Murphy told Indian Country Today.

Murphy sought a preliminary injunction against the state law that Gov. David Paterson signed Dec. 15, after months of pressure from state legislators in fever pitch over the state’s $15 billion budget deficit.

“In fashioning a new direction on this issue, I start with the recognition that it is essential that tribal sovereignty be respected. That means, among other things, recognizing that the state of New York lacks authority to tax products sold on native land for tribal use or for consumption by tribal members,” Paterson said in a signing statement that accompanied the bill.

The politicians hope to fill some of the budget gaps by forcing reservation smoke shops to collect state taxes on cigarettes sold to non-Indians. The law would prohibit cigarette manufacturers from selling unstamped cigarettes to stamping agents who had not signed an affidavit, under penalty of perjury, that the cigarettes would not be resold in violation of Article 20, the state’s tax law. The law was scheduled to go into effect in February, 60 days from the signing.

The Dec. 24 hearing was not held in open court, Murphy said.

“We didn’t do anything in the court room. We did it all behind closed doors.

Sconiers has put “a lot of time and effort” into the issue over the years, Murphy said.

“She’s listened to everybody, she’s heard all sides of the issues – the convenience store lobby, the tribal nations. She’s heard the whole picture. Everybody else is just listening to a partial picture,” Murphy said.

For Murphy and her clients, Sconiers’ TRO was déjà vu all over again.

A state appellate court slapped a preliminary injunction against a similar 2006 law after Murphy brought a court challenge on behalf of Day Wholesale Inc. vs. State of New York.

The bill Paterson signed – S. 8146-B – is similar to the 2006 tax law amendment that would have required all cigarettes sold on reservations to be tax stamped and imposed a coupon system for tribal retailers to get tax refunds on cigarettes sold to tribal members. Tribal members are exempt from cigarette taxes purchased at reservation shops.

But the tax department never worked out a coupon system for the refunds, so the law never went into effect. The appellate court found that without having a mechanism in place that allows tax exempt sales between tribal members, there was no mechanism that would allow for the collection of taxes from non-tribal members. And the court reaffirmed the injunction last spring.

Sconiers has scheduled a “show cause” hearing Jan. 27 at which the state must show why its proposed law should go into effect.

If the state’s arguments fail to convince the judge, she will issue a modified preliminary injunction that will have a broader reach and protection for tribal businesses.

According to Sconiers’ ruling, the preliminary injunction would enjoin “the Defendants and anyone charged with the enforcement of Article 20 of the New York Tax law from restricting New York state stamping agents from selling at wholesale unstamped cigarettes to reservation cigarette sellers or restricting reservation cigarette sellers from selling at retail unstamped cigarettes to tribal and non-tribal members until the New York State Department of Taxation and Finance. … has taken the necessary action including, but not limited to, distributing Indian tax-exemption coupons to the recognized governing bodies of the Cayuga Indian Nation of New York, Oneida Indian Nation of New York, Onondaga Nation of Indians, Poospatuck or Unkechauge Nation, St. Regis Mohawk, Seneca nation of Indians, and has adopted the necessary rules and regulations to implement the Indian tax-exemption coupon system.”

The governor’s office did not respond to an e-mail seeking comment, but Paterson’s spokesman Morgan Hook was quoted in the Utica Observer Dispatch as saying that the state will comply with the temporary restraining order while reviewing it.