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New York Appeals Court Lifts Stays on Cigarette Taxes

A federal appeals court ruling giving New York State the green light to implement its latest cigarette tax-collecting scheme on sovereign American Indian land contravenes the U.N. Declaration on the Rights of Indigenous Peoples, a Seneca Nation leader said.

A three-judge panel of the U.S. court of Appeals for the 2nd Circuit in New York City issued a ruling May 9 lifting injunctions that were blocking the state from applying a law passed last year that requires wholesalers to pay for and affix a $4.35-apack tax stamp on all cigarettes sold in the state. Indian nations would have to pre-pay the tax on all cigarettes coming onto their reservations, and then apply to the state for reimbursement of the taxes paid on cigarettes sold to Indians. Indian leaders said they will continue to oppose the state’s efforts to infringe on their nations’ sovereign rights.

Richard Nephew, council chairman of the Seneca Nation of Indians, said the ruling “is also contrary to the UN Declaration on the Rights of Indigenous Peoples. The world community has recognized the rights of Native nations such as ours. We maintain the basic right to survival, including the right to an economy, and to have our treaties recognized and enforced.”

The right of indigenous peoples to develop their economies is stated explicitly throughout the preamble and in the articles of the Declaration. Article 20, for example, states that “Indigenous peoples have the right to maintain and develop their political, economic and social systems or institutions, to be secure in the enjoyment of their own means of subsistence and development, and to engage freely in all their traditional and other economic activities.” The Indian tobacco economy has not only given Indian governments the revenue to provide their citizens with health, education, and housing services, but has also poured hundreds of millions of dollars into the New York State economy each year.

President Obama declared the U.S. support for the international indigenous human rights Declaration at the second White House Tribal Nations Conference last December. The U.S., New Zealand, Australia and Canada were the only four nations to vote against adoption of the Declaration at the General Assembly in September 2007.

Gov. Andrew Cuomo’s office did not respond to a request for the governor’s perspective on the U.S.-endorsed international Declaration with regard to the sovereign Indian nations whose lands are contiguous to or surrounded by New York State.

Facing a state budget deficit of $9.2 billion, Cuomo, who was attorney general when the nations’ lawsuits were filed last year, told CNBC that the state “will now begin the implementation phase as we move to collect these taxes.” It’s not clear how that will be done. Past attempts to collect taxes by physically trespassing on Indian land resulted in violent confrontations between state police and Indian nation citizens. The new tax scheme avoids the need to enter Indian country by taxing cigarettes “upstream” before they reach the reservations.

Attorney General Eric T. Schneiderman said in a statement that the 2nd Circuit ruling “recognized that New York’s law carefully balances the interests of Tribal sovereignty with the State’s legitimate interests in taxing all cigarette sales made to non-Tribal members.” He did not clarify how the ruling takes into consideration “the interests of tribal sovereignty.” Schneiderman estimates the decision will enable the state to collect approximately $500,000 per day in additional tax revenue.

The circuit court panel said in its 53-page ruling that the five Indian nations challenging the state’s tax plan – the Seneca Nation of Indians, Oneida Indian Nation, St. Regis Mohawk Tribe, Unkechaug Indian Nation, and the Cayuga Indian Nation -- have not demonstrated that they’re likely to win their case based on their arguments that the tax system “imposes an undue and unnecessary economic burden on tribal retailers,” and interferes with their rights of self government. The panel lifted the stays from two district courts and a preliminary injunction from another and remanded the cases back to the lower courts “for further proceedings consistent with this opinion.”

The circuit court panel said that New York Western District Court Judge Richard Arcara “correctly rejected” requests last fall by the Seneca, Cayuga, Mohawk and Unkechaug nations for preliminary injunctions against the state. Arcara had issued a stay of his ruling pending the 2nd Circuit appeal.

Seneca President Robert Odawi Porter said the nation would continue to protect its sovereignty and treaty rights. “While today’s decision by the U.S. Court of Appeals is disappointing, we will continue fighting against this overreaching action by the state to protect our treaty rights, tobacco commerce and all the jobs it supports. The Seneca Nation will not be New York State’s tax collector,” Porter said.

Seneca’s 1842 Treaty of Buffalo with the federal government says, in part, that the U.S. “will protect such lands of the Seneca Indians, within the State of New York, as may from time to time remain in their possession from all taxes, and assessments for roads, highways, or any other purpose.” The nation says the treaty’s plain language means the state has no taxing authority on any transactions on Seneca territory.

In contract to Arcara’s ruling, the New York’s Northern U.S. District Court Judge David Hurd issued a preliminary injunction last fall in a case filed by the Oneida Indian Nation against former Gov. David Paterson and other state officials, asking the court to declare illegal the state’s new laws to collect cigarette taxes from Indian businesses. Hurd agreed with Oneida that the law would impose irreparable harm by requiring the nation to pay the $4.35-a-pack tax, which he deemed “unconstitutional,” because the tribe is “an untaxable entity.” He also agreed that the tax imposes more than “minimal burdens reasonably tailored to the collection of valid taxes from non-Indians” and, therefore, the nation was likely to be successful in a trial on the merits of its case. Hurd noted that under the new tax law, Oneida would have to pay out around $3.5 million to maintain its inventory of around 80,000 cartons for its retail businesses, plus at least $208,000 a year in financing costs

But the 2nd Circuit panel rejected Hurd’s reasoning, saying “the Northern District committed legal error in determining that both of these arguments were likely to succeed, and thus abused its discretion in granting the Oneida nation’s motion for preliminary injunction.”

An Oneida spokesman said the nation will continue selling tax-free cigarettes that are manufactured on its sovereign land. “The court's ruling against the tobacco distributors does not impact our ability to sell cigarettes at a reduced cost,” said Mark Emery, director of media relations for the Oneida Nation. “We will continue to provide our customers with a selection of cigarette brands like Niagara's, Bishop, Great Country and Cool Harbor as they are manufactured on the Oneida homelands and not subject to state taxes. We will sell the remaining inventory of cigarette brands not manufactured on the Oneida Indian land."

On May 10, the Supreme Court granted the Seneca Indian Nation a TRO following the news of the Appeals Court.