ALBANY, N.Y. – The ongoing sovereignty battle over untaxed cigarette sales on tribal land heated up again recently when the New York state legislature passed a bill intended to enforce the collection of state sales taxes on tobacco products sold to non-Indians in Indian country.
But if S. 8146-B, which the Senate passed Aug. 8 during a special legislative session, provoked an outcry of opposition from the nations – and it did – a newly introduced bill that was drafted with the help of tobacco giant Philip Morris USA is likely to draw even more fire.
S. 8146-B, which has not yet been signed into law by Gov. David Paterson, would prohibit tobacco companies from selling cigarettes without tax stamps to any wholesaler who had not provided certification, under penalty of perjury, to both the state and the tobacco companies saying that the cigarettes would not be resold untaxed in violation of the state tax law.
State legislators have tried for years to force the nations to collect state taxes on products sold to non-Indians. Tribal members are not required to pay taxes on cigarettes they purchase from tribal retailers; and the tribal nations say that, as sovereign entities, they are not required to act as tax collectors for the state. Non-Indian purchasers are obligated to pay the tax, according to state law.
S. 8146-B is similar to a 2006 tax law amendment that would have required all cigarettes sold on reservations to be tax stamped and would have imposed a coupon system for tribal retailers to get tax refunds on cigarette s sold to tribal members.
But a state appellate court slapped a preliminary injunction against the 2006 law after a court challenge brought by attorney Margaret Murphy on behalf of her client Day Wholesale Inc. vs. State of New York.
New York Assemblyman Bill Magee explains proposed cigarette tax bill
“The court agreed with us that the law hadn’t gone into effect and enjoined the state from enforcing the law until it takes the necessary steps to put the law in 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,” Murphy said.
Some legislators assume that S. 8146-B would force wholesalers to place tax stamps on all cigarettes sold to reservations. But if the bill is signed into law, Murphy said she’ll go back to the same judge that issued the injunction against the 2006 law and seek a declaration saying that her wholesaler clients can still sell unstamped cigarettes under the existing law.
S. 8146-B was introduced into the Assembly in June by Democratic Assemblyman William Magee, amended twice and passed by the Senate. Five days later on Aug. 13, Magee introduced another Assembly bill – A. 11834 – that would repeal S. 8146 and put in its place a law that would require wholesalers to affix tax stamps to all cigarettes sold to tribal nations.
A. 11834 provides that within 30 days after the end of each month, Indian retailers “may file a return” for taxes paid on cigarettes sold to tribal members. The retailer would have to attach an affidavit testifying to the number of cigarettes sold “and any other documentation that the [tax] department may specify.”
In an attempt at an end run around the type of court injunction on the 2006 law, the proposed bill says that if the tax department fails to issue the forms to be used to file for refunds, the retailers can submit letters and other documentation.
“The changes we made were basically at the request of the tobacco people, and the convenience store people – those that are supporting the idea of collecting these taxes,” Magee told Indian Country Today.
Magee confirmed a statement by Philip Morris USA spokesman David Sutton that the giant tobacco company had helped draft the bill.
"Yes, they were supportive of it, yes,” Magee said.
Sutton said the corporation opposed S. 8146-B, because it didn’t change the status quo and would be “mired in litigation. That’s why we proposed this alternative bill. We think it’s fair to everybody in the system, even the American Indians, because nobody is saying even under this approach that the legitimate tribal sales should not be conducted in a tax free manner, hence this refund system,” Sutton said.
The new bill, said state Sen. George Maziarz, “is a hundred times worse than the first bill.”
Maziarz was one of two senators who opposed the first bill, S. 8146-B.
“Some of my colleagues looked at this as an easy way to increase taxes in order to increase spending, and I wanted to focus on cutting spending, not increasing taxes,” Maziarz said.
He said he will oppose A. 11834 if it is brought forward.
“It’s almost degrading the way it is, almost insulting. I happen to be of Polish heritage. Can you imagine if I went to a deli to buy something and because I’m Polish I had to send a stamp back to get a refund. It’s almost humorous but it’s really insulting.”
Asked if it was now standard operating procedure for large corporations to write the laws, Maziarz said, “It’s not SOP with the state Senate, I can guarantee you that.”
Murphy criticized the corporate intrusion into state law.
“It’s amazing to me how cheaply you can buy the influence of a member of the New York legislature and his [Magee’s] comments definitely reflect that he has sponsored bills that the convenient store lobby and tobacco manufacturers want him to support and that’s reflected in the financial contributions he’s filed with the State Board of Elections.”
He said the proposed bill is unconstitutional and predicted that the tribes would strenuously oppose it.
“This bill is a greater threat to tribal sovereignty than the bill that’s pending now before the governor. It’s placing a discriminatory burden on tribal nations and businesses licensed by tribal nations. There have never been state laws that put that kind of discriminatory burden on anyone.”
Under the proposed law, the state of New York would knowingly “pre-collect a tax that they cannot constitutionally impose, not only against tribal members, not only against Native Americans who are members of the same confederacy, but also against out of state residents [who purchase cigarettes over the Internet] over whom they no tax collecting jurisdiction.
“If the law gets passed, it will be challenged,” Murphy said.