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New cigarette tax law: ‘It’s never going to happen,’ attorney says

Editor’s note: As this story was going to press on Dec. 24, New York Supreme Court Judge Rose Sconiers issued a Temporary Restraining Order Dec. 24, prohibiting the state from stopping stamping agents from selling unstamped cigarettes to reservation retailers or restricting reservation retailers from selling unstamped cigarettes to tribal members and non-Indians until the state distributes tax-exempt coupons to the nine Indian tribes within state borders.

ALBANY, N.Y. – In signing a bill intended to collect state cigarette taxes on reservation sales to non-Indians, Gov. David Paterson stressed two points: the importance of tribal sovereignty and the fact that the bill will do little or nothing to solve the state’s massive budget deficit.

Paterson signed the controversial bill – Assembly bill 11258A/Senate bill 8146-B – Dec. 15. It will go into effect in 60 days unless the governor can arrive at an alternate negotiated agreement with the nations.

“In fashioning a new direction on this issue, I start with the recognition that it is essential that tribal sovereignty be respected. That means, among other things, recognizing that the state of New York lacks authority to tax products sold on native land for tribal use or for consumption by tribal members,” Paterson said in a signing statement that accompanied the bill.

The bill 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. The stamping agents will have to send copies of the affidavit to the manufacturers and the state.

Legal experts representing some of the nations say they doubt that the bill will not be implemented.

“My personal opinion is it will not and probably the governor doesn’t think it’s going to go anywhere either. I think he signed the bill merely to appease the legislators,” said Thomas Moll, an attorney who represents the Seneca Free Trade Association, a nonprofit cooperative of more than 200 businesses licensed by the Seneca Nation of Indians.

Paterson’s spokesman shares insight
Gov. David Paterson is in Iraq for the holidays, but Morgan Hook, one of his spokesman, agreed to answer the following questions submitted by Indian Country Today: Indian Country Today: Isn’t this legislation an insult to New York voters (who according to a 2006 Zogby Intl. survey support the sovereignty of Indian nations by a 2-1 margin) and the Indian nations who have come to the table to negotiate?

Morgan Hook: The Nozzolio-Magee (Sen. Michale Nozzolio and Assemblyman William Magee who co-sponsored the bill) only applies to manufacturers and stamping agents in New York state, and does not infringe on the sovereignty of any Indian nation. Gov. Paterson strongly supports the sovereign rights of all of New York’s Indian nations, and is hopeful that a negotiated global settlement can be reached that is fair and equitable to both the state and nations. ICT: The legislation is intended to collect taxes from the Indian cigarette manufacturing industry, and has been pushed along as a solution to the state’s budget deficits. In your opinion, who is responsible for the fiscal management of New York state? MH: Gov. Paterson does not feel that the signing of this bill alone will close the state’s enormous budget deficit. Last Tuesday (Dec. 16), Gov. Paterson released his Executive Budget, which would eliminate the largest budget deficit in state history – a $1.7 billion current-year shortfall and a $13.7 billion 2009-10 deficit. This budget was announced more than one month prior to the state’s constitutional deadline. The proposal includes a series of difficult decisions across every area of state spending, as well as targeted increases in revenue, to address an unprecedented fiscal and economic crisis. The budget also includes several reforms that will increase government efficiency and lower taxpayer costs in the future. Gov. Paterson has stressed that in order to get through our current economic crisis, everyone must share in the sacrifice. ICT: What was the deciding factor in signing the bill after your earlier repeated position that you wanted to negotiate an agreement with the nations? MH: Please see attached signing statement. In the signing statement Paterson said, in part, “As I have stated in the past, it is my belief that the right approach to these issues in the first instance is to attempt to resolve them – as most other states have done – through negotiation. I see no reason why we cannot reach a global resolution to these issues through compacts that resolve the major elements of concern to all involved. But let me emphasize here the seriousness of my desire to reach a resolution on these issues as soon as possible. It is important for all to know that in the absence of an agreement that resolves these issues, I will be left with little choice but to move forward to enforce our tax laws fully as to those who do not reach agreement with the state. I look forward to working with all parties involved in the months ahead to seek a comprehensive negotiated solution to these issues. ICT: The treaties reiterate the nations’ inherent sovereignty and trade rights, and NY law unambiguously states the onus to pay taxes is on the individual who purchases taxable property or a taxable service (NY Dept. of Finance & Taxation publication 774). How do you justify a U.S. government violating the treaties again and this end run round the state’s own laws? MH: Gov. Paterson fully supports the sovereign rights of New York’s Indian nations. This bill is not a violation of any treaties and is intended as an enforcement mechanism of the state’s laws. The governor recognizes that the state of New York lacks authority to tax products sold on native land for tribal use or for consumption by tribal members. On the other hand, as the United States Supreme Court determined in 1994 in the Attea case, the state does have legal authority to collect taxes sold on reservations by tribal retailers to non-tribal consumers.



The bill plays stamping agents, who have enjoyed “very good trade” with the tribes, as the middle man in the state’s scramble to collect revenues, Moll said.

“And I don’t think they enjoy being in that position. The end game is to cause the Seneca Nation and all Indian retailers located within the border of New York to prepay the N.Y. state sales tax and then ultimately collect it from the consumer. That’s the end game that they want. It’s never going to happen,” Moll said.

In his signing statement, Paterson clearly conveyed the context in which he approached the bill’s signing – a budget deficit of almost $15.5 billion.

“I sign this legislation against the backdrop of an unprecedented financial crisis facing this State and, indeed, the Nation,” Paterson wrote. “On November 12, 2008, I announced a plan that looked to the spending side of our budget, and proposed a series of spending cuts totaling $5.2 billion. But as we all know, we cannot solve our financial problems through budget cuts alone. In times like these, raising taxes should be the last resort. Instead, on the revenue side of the equation, we should look first to opportunities to ensure that existing taxes are being appropriately collected through consistent and fair enforcement.”

The state has struggled unsuccessfully for years to try to figure out a way to collect the taxes on cigarettes sold on reservations to non-Indian consumers. The tribes say that as sovereign nations they are no more required to act as tax collectors for the state of New York than Canada or Oregon would be. Furthermore, the tribes said their free trade traditions are protected by treaties.

Although individual legislators don’t seem to grasp that aspect of tribal sovereignty, state law recognizes it. Article 20 said cigarettes sold by Indian retailers to non-Indians must be taxed. But nowhere does it say they must be taxed by Indian retailers doing business on sovereign tribal land. And a recent publication from the Department of Tax and Finance reiterates the long standing policy that 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.”

Paterson has been under an intense pressure from legislators since the summer to “do something” about what they refer to as “lost taxes.”

“Clearly, something needs to be done,” he wrote in his signing statement.

Article 20 was amended in 2006 to include Section 471e which would require all cigarettes sold on Indian reservations to have a tax stamp affixed and would have an imposed coupon system for Indian retailers to get tax refunds on cigarettes sold to tribal members.

But the tax department never devised a coupon system and the law never went into effect. Margaret Murphy, an attorney, challenged it in state court on behalf of her client Day Wholesale Inc. and Scott Maybee, a stamping agent, the court slapped an injunction against it that was reaffirmed last May.

Murphy was scheduled to appear in court again Dec. 24 to ask the same judge to rule that her clients are in compliance with the law.

“The law the governor signed says that wholesalers and stamping agents have to be in compliance with Article 20, Well, guess what? We’re complying with all provisions of Article 20. Section 471e is the only provision in Article 20 that talks about cigarettes sold on Indian reservations having to have a tax stamp but that law is not in effect,” Murphy said.

The nations have vowed to fight the new law. Seneca President Barry Snyder has written to Paterson objecting that the law “infringes on our treaty right to the free use and enjoyment of our lands. It is not an issue of tobacco. It is an issue of treaty rights.”

He noted that the law threatens to “cripple the Nation’s $313 million retail sector and endanger 1,000 jobs.”

Snyder suggested that the nation and governor use the 60 day grace period before the law takes effect to find a solution “that is respectful of the Nation’s treaty rights.”

Paterson vowed to work toward a settlement in his signing statement.

“It is my belief that the right approach to these issues in the first instance is to attempt to resolve them – as most other states have done – through negotiation. I see no reason why we cannot reach a global resolution to these issues through compacts that resolve the major elements of concern to all involved,” he wrote.

But he reminded everyone that he’s carrying a big stick.

“It is important for all to know that in the absence of an agreement that resolves these issues, I will be left with little choice but to move forward to enforce our tax laws fully as to those who do not reach agreement with the state. I look forward to working with all parties involved in the months ahead to seek a comprehensive negotiated solution to these issues.”

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