ALBANY, N.Y. - The coupon system first proposed in the early 1990s is coming around again in the New York state tax regulations for reservation sales scheduled to take effect Dec. 1.
The State Department of Taxation and Finances issued the new regulations Sept. 10 on the orders of the New York state legislature. Lobbied heavily by convenience store and gas station associations, the legislature tried to close part of a massive state budget deficit by going after revenue allegedly lost through untaxed reservation sales to non-Indians.
The state tax department responded by reviving a system in which the state estimates what the demand would be from the tax-exempt Indian market and then issues coupons to the "recognized governing body" of the reservation to be redeemed from wholesalers.
The wholesalers are allowed to ship cigarettes without tax stamps or untaxed motor vehicle fuels up to the amount of the coupons. In the case of cigarettes, the state takes the number of "qualified Indians" who smoke and multiplies it by the average national consumption. Reservation governments can apply for a higher quota if they can produce evidence of higher demand, such as "a verifiable record of previous sales to qualified Indians or other statistical evidence."
The coupons would come in two parts. The wholesaler would keep one and remit the second to the state tax department for a refund, after filling in detailed information about the reservation sales.
The regulations admit that the state has no authority to tax "qualified Indians on qualified reservations," but they squarely attack the thriving retail economy on reservations that offer non-Indians a potential savings by not collecting state sales taxes.
Non-Indian retail organizations have complained vehemently for years that reservation stores have an "unfair" advantage over their members. These complaints overlook the limited impact of this competition, which occurs only at eight locations in the state. Some of the reservations closest to highly-populated areas, such as the Onondaga Nation near Nedrow, south of Syracuse, and the two state-recognized Long Island tribes, have only one or two stores each.
The state regulations also undercut another answer to the convenience store lobby, "tax-parity" or near parity agreements. In this approach, an Indian nation would charge a nation sales tax close to the state level that would reduce its price advantage. But the sales tax would go to Indian government revenues instead of the state, thus eliminating the infringement on tribal sovereignty.
The regulations might have an out, however. Buried deep in each section is a provision that if a tribe reaches a tax agreement with the state, "the terms of such agreement shall take precedence over the provisions of this Part, and the sale or distribution, including transportation, of any cigarettes to the nation's or tribe's qualified reservation shall be in accordance with the provisions of such agreement."
The state apparently modeled the new regulations on the earlier set that survived the U.S. Supreme Court's 1994 Attea decision. But that case dealt with a fairly limited question, whether the federal Indian Traders Statutes allowed room for any state regulations. Justice Steven's opinion made clear there would be plenty of room for further challenges to the application of the regs (his emphasis), if they imposed an excessive burden on the tribes.