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NY Court: Cigarette Tax Law Harms Indian Economy, but Regulation is Lawful

In a case brought by the Seneca Nation of Indians, a New York appellate court has ruled that the negative economic impact to Indian reservations from the state’s cigarette tax law is caused by the law itself and not by the regulations adopted to control the law and, therefore, the regulations were correctly adopted.

The Appellate Division of the Supreme Court of New York, Fourth Department, issued the latest ruling November 18 in the case Seneca Nation of Indians v. State of New York, State Department of Taxation and Finance, and named New York officials. The case is rooted in amendments to the state’s tax law and companion regulations that were promulgated by the Department of Taxation and Finance in early 2010 to force Indian tobacco businesses to collect cigarettes taxes for the state by requiring all cigarettes sold to reservations to have an affixed cigarette stamp. Seneca’s original lawsuit challenging the legality of the amendments and regulations was filed in August 2010. The Fourth Division court’s most recent decision responds to an appeal Seneca filed after a lower court denied the Nation’s motion for summary judgment and vacated a temporary restraining order against the state’s tax collection law. The case deals with a matter of law in the state Administrative Procedure Act.

Seneca had argued that a quota system imposed by the cigarette tax collection regulations (or rule) that limits the number of tax-exempt cigarettes sold to an Indian nation based on the number of enrolled tribal members would adversely impact the approximately 3,000 individuals employed in the Seneca tobacco economy and, therefore, the Finance Department was required by law to issue a Job Impact Statement. The Nation also argued that the Regulatory Impact Statement and a Regulatory Flexibility Analysis that were performed were “deficient based on the Department's failure to discuss the adverse impact of the rule on Indian nations, members, and small businesses such as reservation cigarette sellers,” according to the court document.

The Fourth Division rejected Seneca’s arguments while acknowledged the harm done to Indian nations, businesses and people by the law. “We reject those contentions, inasmuch as the adverse impact of which plaintiff complains, i.e., the negative economic effect of a limited supply of tax-exempt cigarettes available for sale, is a direct result of the relevant statutes, not the rule itself,” the Fourth Division said. “We conclude that the Department substantially complied with the requirements of State Administrative Procedure Act.”

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Carol Heckman, attorney for the Seneca Nation, said the Nation “strongly disagrees” with the Fourth Division ruling. “They’re saying the impacts caused by the regulatory changes really come from the statute, not the regulations, therefore, there’s no need to analyze them.” She declined to comment on the logic of the ruling. The Nation has not yet decided whether to appeal the Fourth Division ruling, Heckman said. “We have 30 days to make that decision so it’s still being reviewed, Heckman said.