Perhaps the title of this week's column should be "Let the taxes begin." That is certainly what New York state might as well use as its new motto beginning on Dec. 1. Albany, desperate for revenue, is ramping up efforts to force Indian businesses to collect state taxes on sales of gasoline and tobacco products to non-Indian customers.
Before adjourning for the summer last June, the state legislature directed the Department of Taxation and Finance, the state's tax collection agency, to adopt rules to enable the collection of taxes on reservation sales to non-Indians. In early September, the department issued its proposed regulation, requiring wholesale distributors of cigarettes to deliver only taxed cigarettes to Indian vendors. December 1 represents the end of a 60-day public comment period, after which the regulation becomes law.
"What we developed was an 'Indian tax-exemption coupon system,'" explained Tom Bergin, tax department spokesman, who provided Indian Country Today with a summary and a "regulatory impact statement" regarding the new rule.
Briefly, here's how this system is designed to work (smokes are the example, but the process is similar with gas):
Cigarettes arrive at the reservation retailer with state tax stamps affixed, meaning that the wholesaler or distributor has already paid the requisite taxes. The retailer then presents the wholesaler with tax-exemption coupons in the amount of his purchase. This serves two purposes: 1) it enables the retailer to buy the cigarettes without paying the tax; and 2) it provides a mechanism through which the wholesaler may redeem the coupons to the state for a refund on the taxes he paid.
Tribes will distribute coupons to all reservation-based retailers of fuel and tobacco products in quantities sufficient for both tribal members' use and to cover retail sales to non-Indians. "It is estimated that the nations and tribes and reservation sellers will incur minimal costs with respect to the distribution and safeguarding of the coupons," says the impact statement.
The retailer would then include the tax within the retail purchase price. Non-Indian customers would have to pay the tax, which the vendor would then presumably be required to remit to the state. Indian customers, purchasing cigarettes on their home reservations (and for their own use) would be exempt from taxes, but would be required to pay taxes on smokes purchased at other reservations or from a non-Indian vendor.
"It levels the playing field for off-reservation retailers that are nearby," Bergin said, adding that this year's state income tax forms will include the means for non-Indians to declare and report purchases of untaxed fuel or tobacco made on reservations. "Keep in mind that a consumer in New York state is legally responsible for paying use or sales taxes that are not charged at the point of purchase, where ever that is."
"This coupon system was developed to respect the sovereignty of the Indian nations and tribes within their reservations," according to the regulatory impact statement. "There are no tax liability costs to regulated parties [meaning wholesalers and distributors] ? There are also no tax liability costs to the Indian nations and tribes or to their members."
The proposed rule "will benefit Indian nations and tribes and their members by ? ensur[ing] that adequate quantities of tax-free cigarettes, motor fuel and diesel motor fuel are available to them for official nation or tribal use and for their members' own use or consumption," according to language in the impact statement. The amount of coupons allocated to each tribe will generally be based upon census data and the number of retailers operating on reservation lands.
While this appears to be a good-faith effort by the tax department to avoid forcing Indian entrepreneurs and customers to actually pay the taxes, compelling on-reservation businesses to act as collection agents of the state is not likely to sit well with the tribes. As Indian-owned retail establishments would be collecting taxes on behalf of the state, they would presumably have to apply for tax identification status, fill out quarterly tax-related paperwork, track and safeguard coupons, and remit collected funds to Albany. It was unclear whether officials from any of the New York tribes were consulted or in any way involved with designing the coupon system.
"The Oneida Nation considers any attempt by the state of New York to tax reservation-based enterprises to be illegal and an affront to the sovereignty of all Haudenosaunee nations," said spokesman Mark Emery in a statement. While adding that the Nation "will resist all efforts by the state to tax its enterprises," Emery said that the Oneidas are willing to negotiate tax issues with the state on a government-to-government basis.
"We are not in the State of New York - New York built its state around us," Barry E. Snyder Sr. told the Buffalo News on Sept. 13. Snyder is a member of the Seneca Tribal Council and owns smoke shops and gasoline stations on the tribe's two reservations. Aside from the Seneca-Niagara Casino, which opened last Dec. 31, such enterprises comprise the bulk of economic activity among Seneca Nation members.
In 1997, when the state made its most recent attempts to collect taxes on reservation sales, members of the Seneca Nation blocked the state Thruway (Interstate 90) in protest. The state eventually backed down. This time, however, the state faces a $10 billion budgetary shortfall and appears more determined to grab money where it can.
Estimates in the tax department's impact statement claim that tax collection will increase by $20 million during the fiscal year ending March 31, 2004, and by $64.5 million during the fiscal year ending March 31, 2005.
As the Oneida Nation spokesman noted above, that tribe is willing to negotiate tax issues with the state and there is in fact precedent for such negotiations in New York. Last May, Governor George Pataki reached a comprehensive agreement with the St. Regis Mohawk Tribe, part of which included a "price parity" provision designed to "level the playing field" between Mohawk and non-Indian retailers. While that agreement was never ratified and the tribal government that negotiated it was subsequently voted out of office, the rejected deal does reveal that discussion is possible and that agreements can be reached.
When sovereigns negotiate and compromise on a government-to-government basis, everybody can win. When one tries to impose its will on the other, problems arise. Tribal leaders and business owners unhappy with the proposed rule have 60 days in which to comment. We hope the state is listening.