Judge issues new injunction against cigarette tax law

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BUFFALO, N.Y. – A New York judge has extended a ban against a cigarette tax bill aimed at forcing reservation smoke shops to collect taxes for the state.

At a hearing Jan. 27, State Supreme Court Justice Rose Sconiers granted a new preliminary injunction that stops the state, and anyone charged with enforcing the state’s tax laws, from restricting state stamping agents from selling unstamped cigarettes to reservation cigarette sellers, or restricting reservation retailers from selling unstamped cigarettes to tribal and non-tribal members until the state Department of Taxation and Finance comes up with a viable system to distribute tax exempt coupons for sales to tribal members.

The new ban extends the preliminary injunction Sconiers imposed to Dec. 24, 2009, in response to 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.

Murphy sought the injunction against a bill Gov. David Paterson signed into law Dec. 15. The law requires stamping agents in New York to sign an affidavit under penalty of perjury saying they will not resell unstamped cigarettes in violation of Article 20 of the state’s tax law – the section that deals with cigarette taxes.

Sconiers’ ruling is the latest action in a years-long tobacco war in which the state has tried to force tribal retailers to collect taxes on reservation cigarette sales to non-tribal consumers.

Tribal leaders have rejected the role of state tax collector, maintaining that sovereignty and treaty rights exempt the nations from any obligation to collect state taxes.

The state acknowledges that tribal members are exempt from paying taxes on reservation purchases. State law also says that non-tribal customers are obligated to pay taxes on reservations purchases. A recent publication from the Department of Tax and Finance says purchasers of untaxed goods in the state are responsible for paying the taxes whether the goods are purchased “through the Internet, by catalog, from television shopping channels or on an Indian reservation.”

Seneca Nation President Barry Snyder issued a statement expressing his pleasure at Sconiers’ latest ruling, saying it endorses the nation’s position.

“Judge Sconiers’ decisions continue to support our long-held belief in our treaty rights that make the Nation immune from state taxes.”

Earlier in the month, Snyder and the tribal council announced plans to start collecting tolls on the New York State Thruway that passes through the nation’s lands and hinted at other possible direct actions the tribe might take if the state went ahead with the new bill.

But Paterson reiterated his earlier offer to meet with Snyder and other tribal leaders about a range of tribal-state issues, and Snyder agreed to put the toll booth project on hold temporarily.

“For those talks to be meaningful and productive, however, Albany’s leaders might want to reconsider passing bills that ignore sovereign treaty rights and then seeing them repeatedly thwarted in the state’s courts. For some of the bills’ sponsors, this was a political attempt during re-election time to help solve the state’s financial mess on the backs of the Indian nations,” Snyder said.

The Seneca Nation has a $1 billion economy and employs 6,000 people, he said.

“The nation and the state will benefit and work more easily if these periodic but regular attempts to ignore our treaty rights end, and respectful and meaningful talks and agreements were to replace these frequent state attacks,” Snyder said.

This is the third time Sconiers has slapped an injunction against cigarette tax laws that would ultimately force reservation retailers to collect taxes from sales to non-tribal consumers.

“She gets it,” Murray said, referring to Sconiers’ understanding of the legal issues involved and the specific language in the new law that requires stamping agents to swear under oath that they will not violate Article 20 of the state’s tax law.

According to that language, a stamping agent could in all good conscience sign the affidavit saying he is complying with the law. The law that Paterson recently signed is similar to a 2006 tax law amendment that would have required all cigarettes sold on reservations to be tax stamped and instituted a coupon system for tribal retailers to get tax refunds on sales to tribal members.

But that law was never implemented. Murphy challenged the law and Sconiers issued an injunction against it, ruling that without a mechanism in place to allow tax exempt sales to tribal members, there is no mechanism allowing for the collection of taxes from non-tribal members. The appellate court upheld the ruling and reaffirmed the injunction last spring.

Assistant Attorney General Darren Long, who argued the state’s case, told the Associated Press the state would likely appeal the preliminary injunction.

“We’ve argued in the past that the (law) does allow for taxation on purchases of cigarettes on reservations by non-registered members of the reservation and that we can’t affect that without having the tax imposed at some level in the chain of custody,” he said. “The judge’s order is effectively going to prevent any action at this point by the state to put the tax in place at any part of the chain of custody.”

The state has until Feb. 26 to file a notice of appeal. If an appeal is brought forward, there will be oral arguments in front of a five-judge panel of the appellate court, which usually rules within 30 days.