Nations will fight governor’s cigarette tax bill

BUFFALO, N.Y. – A day after Gov. David Paterson signed a cigarette tax bill in the state’s latest attempt to squeeze tax revenues from the Indian tobacco trade, tribal leaders said they will fight the proposal in whatever ways they can.

Harry Wallace, the chief of the Unkechaug Indian Nation summed up the tribes’ position succinctly.

“Our position is very simple and it is simply this: We cannot be compelled or forced or coerced or threatened to collect New York state taxes without our consent. Nothing that they do will ever achieve that goal,” Wallace told Indian Country Today.

Paterson signed a bill – Assembly bill 11258A/Senate bill 8146-B – at a “ceremony” in Utica Dec. 15, according to the governor’s press release.

The legislation makes cigarette manufacturers and stamping agents accountable for sales of untaxed cigarettes by Indians to non-Indians, the release said.

“Under Article 20 of the Tax Law, cigarettes sold by Indian retailers to non-Indians must be taxed. The bill signed by Governor Paterson today will prohibit cigarette manufacturers from selling unstamped cigarettes to stamping agents who have not provided them with a certification, under penalty of perjury, that the cigarettes will not be resold in violation of Article 20.”

The law would require the agents to provide a certificate to both the manufacturer – such as Philip Morris and other big tobacco companies – and the state’s Department of Finance and Taxation.

But the new law is riddled with unanswered questions, unenforceable requirements, and outright contractions with existing law, tribal leaders said.

Unkechaug would “definitely” be affected by the new law if it were to be implemented, Wallace said.

More than 100 people – around half of the tribal members on the reservation – are involved in the tobacco trade. There are no manufacturers on the tribe’s reservation or Internet sales. There are 12 retailers who sell directly to customers. Wallace runs a smoke shop that employs 18 people.

At the end of September, New York Mayor Michael Bloomberg filed a lawsuit against the Unkechaug Indian Nation alleging that “massive quantities” of illegal cigarettes are being sold at reservation smoke shops. That lawsuit is pending, but the new law may require additional action.

“We have to explore all possible avenues and litigation is one of them,” Wallace said.

Cigarette sales to tribal members on reservations are not taxable. While New York law requires that “cigarettes sold to non-Indians must be taxed,” there is no law that says they must be taxed by Indians, and the tribes say as sovereign nations they are not required to act as tax collectors for the state.

The new law even contradicts the state’s own position that specifically says purchasers are responsible for paying the taxes on cigarettes bought on tribal land.

A pamphlet called “Purchaser’s Obligations to Pay Sales and Use Taxes Directly to the Tax Department,” published earlier this year by the tax department says, “You (the purchaser) owe state and local sales and use tax if you purchase taxable property or a taxable service that is delivered to you in New York State without payment of New York State and local tax to the seller, such as through the Internet, by catalog, from television shopping channels or on an Indian reservation.”

The state’s tax department will have 60 days to issue a certification form and prepare to receive the certifications that will be submitted, the governor said in his press release.

But the tribes are not likely to submit certifications any time soon, said attorney Thomas Moll, who represents the Seneca Free Trade Association, an alliance of more than 230 Seneca Licensed businesses.

“I assure you that no Indian wholesaler or stamping agent will provide any type of certification to New York state,” Moll said.

The nations are not prohibited from purchasing tobacco products from elsewhere, and will likely do so, Moll said.

“I expect Indian wholesalers and stamping agents to utilize their contacts across the country to fulfill their tobacco needs. I do not think Haudenosaunee Indian Nations, like the Seneca Nation, are legally required to purchase their cigarettes and/or tobacco products from New York state wholesalers/stamping agents. These Indian Nations are in fact independent sovereigns who have the legal right to exercise the power of self-government. The only connection between Haudenosaunee Territories and New York state is that these Indian Territories are landlocked within New York’s borders,” Moll said.

Even if New York had a legal right to impose a tax on cigarette sales by Indian retailers to non-Indians – which it doesn’t, Moll and tribal leaders said – it would have no legal right to impose a tax on cigarette sales from Indian retailers to non-Indian consumers outside New York state. The vast majority of cigarette sales by the Seneca are made to consumers outside of the state.

Legislators have pushed the governor to sign, claiming the state could capture $62 million a year or more in “lost taxes.”

But that amount is “grossly over exaggerated,” Moll said.

“New York ignores a fundamental principle of taxation, that being, the states have no legal right to tax interstate commerce. The states are limited to imposing a tax on intrastate commerce,” Moll said.

Seneca Nation President Barry Snyder said the issue is about protecting treaty rights.

The governor’s action “is a threat to the Seneca Nation and we have no choice but to explore all of our options,” Snyder said.

The day after signing the bill, Paterson unveiled his 2009-2010 draft budget of $121.1 billion, which increases spending by 1.1 percent and relies on cuts and higher taxes and fees to close a $15.4 billion budget deficit.

The budget crisis is behind the governor’s action, said David Staddon, public information director for the St. Regis Mohawk Tribe.

“I think it’s political posturing on the governor’s part. There’s been so much pressure on him. The state is scrambling for money because Albany spends it a lot better than it conserves it, and there’s the meltdown on Wall Street and their tax base is reduced. We think that by signing this bill the governor is trying to give himself some leverage both with the tribes for negotiating a settlement and the legislators in negotiating the budget,” Staddon said.

One of several unanswered questions is how non-Indian cigarette manufacturers and stamping agents who only sell off reservation will respond to having to sign a certificate under penalty of perjury.

“Technically, from what I’ve determined, it affects the whole tobacco industry in the State of New York whether the sales are on Indian land or not. But the state’s ability to enforce this law is a lot less on Indian land than it is for wholesalers like R.J. Reynolds and Philip Morris simply because the state has no way of enforcing it short of coming on the reservation with state troopers, which doesn’t work in New York,” Staddon said, alluding to a confrontation between the Seneca Nation and the state in the 1990s when the nation blocked off a major highway that runs through its territory.

Mohawk leaders said in a press release that the new cigarette tax bill has the potential to impact 400-500 jobs in the area. There are nine individually owned cigarette manufacturing businesses on the reservation, which employ non-tribal members from the surrounding communities and a reduction in business at the reservation would affect the neighboring economies that depend on each other,” Chief Monica Jacobs said.

“It would be like another General Motors closure,” said tribal council Chief James Ransom.

The tribe provides $2 million a year to local counties from its casino revenues.

Paterson said he will continue “to seek a comprehensive negotiated solution with all of New York’s Indian nations.”

The Mohawk chiefs said Paterson’s office had contacted the tribal council about meeting with the governor in early 2009 to discuss cigarette taxation and other issues that affect tribal-state relations.