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New cigarette tax bill ‘100 times worse than first bill’

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
Assemblyman William Magee spoke with Indian Country Today Aug. 27 about his proposed bill to tax cigarettes sold on sovereign tribal lands to non-Indians. He introduced the bill into the Assembly Aug. 13, five days after his earlier bill to enforce the collection of taxes from tribal nations was passed by the Senate as S. 8146-B.
Indian Country Today: It appears that your new bill – A. 11834 – would repeal the bill that you originated which just passed Aug. 8 – S. 8146-B.
William Magee: No, I don’t think it does that. It makes some changes like chapter amendments to it.
ICT: Well, it actually says it would repeal the bill.
Magee: It does? Well, that was not the intent.
ICT: I also spoke to Philip Morris and they said they helped you draft this bill.
Magee: Yes, they were supportive of it, yes. … 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.
ICT: So the new bill – A. 11834 – would require tax stamps on all packages of cigarettes, right?
Magee: Yes.
ICT: Basically, the tribal nations would be fronting tax money to the state of New York that would later be refunded to them?
Magee: Yes, and we have farmers all across the state who do the same thing with gasoline and diesel fuel that they’re not supposed to pay taxes on. They pay it and then they have to request it returned from the tax department so it isn’t singling out the Indians. It’s giving them a mechanism to recover the taxes they paid and it’s easier to have refunded.
ICT: Part of the proposed bill says the tax department would determine whether the requests for refunds were reasonable. How would they make that determination?
Magee: I don’t know. The department would have to develop some regulations, which is not uncommon, to make it happen.
ICT: The former law that there’s an injunction against (Section 471e as amended in 2006) required the tax department to formulate some regulations about coupons, right? But they haven’t done that, so the law isn’t in effect.
Magee: No, I guess not.
ICT: What would motivate them to develop regulations to determine whether the request for a refund from a tribe was reasonable?
Magee: Well, this bill would, because the intent of the bill is for the department to develop a way to make the refunds that should be made to Native Americans – Indians.
ICT: Right, but how would they know –
Magee: How would they know what?
ICT: – if a tribe sends in a refund request, how would they know?
Magee: I don’t know! They’d have to check it just like any other refunds that people get if they wanted to check it, if they had questions about it.
ICT: But how would they check it if a tribe said I sold 10 cartons of cigarettes to tribal members – how would they check that?
Magee: I imagine they’d have to determine how many packs of cigarettes a certain number of people could consume and if it was way beyond that they’d say, ‘Oh, wait a minute, this isn’t right.’ You know?
ICT: Do you think this law is going to go forward?
Magee: I hope so, but I can’t tell you that. It’s got to be introduced in the Senate.
ICT: But, Assemblyman Magee, is it not odd that you would introduce a bill that would repeal a bill you just passed?
Magee: I don’t think that this really repeals the bill.
ICT: But that’s what the language says.
Magee: But it’s already passed. It happened. If there are some other changes that need to be made, perhaps we can add them again in another way, which is what this [new] bill does.
ICT: Right, but if the language of the bill actually says repeals.
Magee: OK, it repeals! Alright, if that’s the way you want it!
ICT: It’s not the way I want it. It’s what the language says.
Magee: That’s alright. You can interpret it any way you want.
ICT: And you don’t think it would be discriminatory to …
Magee: No.
ICT: … to require tribes to collect taxes for the state even though the law says the non-Indian people who purchase these cigarettes are actually responsible for paying the tax?
Magee: There is no dispute that Native Americans – Indians – shouldn’t pay taxes. We all accept that. But the courts have ruled that doesn’t give them the right to sell products to others and not pay taxes to the state just like if I owned a convenience store and didn’t remit my sales tax, I violated the law.
ICT: But you don’t ask other states to collect taxes for your state.
Magee: I don’t know what you’re talking about. That’s a whole other thing.

“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.