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Six Nations mobilize against state intrusion on tobacco trade

SALAMANCA, N.Y. – Business leaders in the Haudenosaunee (Iroquois) Confederacy will collaboratively battle any attempt by New York state to interfere in the Indian tobacco trade.

More than 100 business owners with representatives from all six nations of the confederacy – Mohawk, Oneida, Onondaga, Cayuga, Tuscarora and Seneca – held a meeting Aug. 27 at the Seneca Niagara Casino at which they agreed “to oppose any attempt by New York politicians to interfere with the indigenous sovereignty of the Haudenosaunee people.”

In a Sept. 5 press release, the group announced the re-establishment of the First Nations Business League, an association formed in 1996 to fight off an earlier attempt by the state’s politicians to force Indian business owners to collect cigarette taxes on sales to non-Indians on reservations.

Legislators claim the state could capture $400 million or more from reservation sales to help plug the state’s $50 billion-plus debt. Cigarette sales to tribal members on reservations are not taxable, and, according to New York law, non-tribal members who buy cigarettes on reservations are obligated to report and pay the taxes.

The Haudenosaunee have no intention of ever collecting taxes for the state, the league said.

“This is not and never has been an Indian issue; in reality, this longstanding dispute is between the government of New York state and its residents over the payment of cigarette taxes,” the league said.

Follow the (cigarette tax) money   In an Aug. 27 phone interview, Philip Morris USA spokesman David Sutton told Indian Country Today that the giant tobacco company wrote a bill – A-11834 – that New York Assemblyman William Magee introduced into the Assembly Aug. 13. The bill is intended to force Indian retailers to collect taxes on cigarettes they sell to non-Indian customers on sovereign tribal land. The bill would require all cigarettes sold to Indian reservations for resale by retailers to have tax stamps on them. Since tribal members are exempt from paying taxes on items purchased on tribal land, the retailers would have to file affidavits to the state each month, requesting a refund of the taxes on cigarettes sold to tribal members. The state would determine which refund requests were “reasonable” and when the refunds, if any, would be made. Legislators say the state could collect $400 million or more from cigarette sales on reservation. But why would Philip Morris USA be so eager to help New York state collect those taxes? Because Philip Morris USA and other big tobacco companies would profit from the bill by reducing or eliminating competition from Native tobacco companies, distributors and retailers, and gaining market share.   Here’s how it would work: In 1998, Philip Morris USA and other large tobacco companies signed the $246 billion Master Settlement Agreement to settle lawsuits brought by the attorneys general of 46 states to recover billions of dollars in costs associated with treating smoking-related illnesses. Under the terms of the MSA, the participating manufacturers – the tobacco manufacturers who signed the settlement – are required to pay millions of dollars each year to the participating states, including New York. The MSA requires participating states to enact and enforce a “qualifying escrow statute,” under which those tobacco manufacturers that sell cigarettes but didn’t sign the MSA (known as non-participating manufacturers) must make annual escrow deposits of funds based on “units sold,” meaning the number of individual cigarettes on which the state collects taxes. The purpose of the qualifying escrow statute is to protect the big tobacco companies from competition from tobacco companies that are not parties to the settlement. The escrow payments increase the cost of cigarettes sold by non-participating manufacturers so that they do not have a cost advantage over the participating manufacturers who make annual MSA payments. Escrow payments based on the units sold are equal to the MSA payments based on the volume sold by participating manufacturers.   The only cigarettes that may be sold in a settling state are brands manufactured by a participating manufacturer or by a non-participating manufacturer that has agreed to make escrow payments based on the “units sold.” The statute defines “units sold” to mean all cigarettes sold in the state with tax stamps affixed. Tax stamps can only be affixed to cigarettes that are manufactured by a participating manufacturer or a non-participating manufacturer that makes escrow payments. But there are more than two dozen tobacco companies and distributors, such as Smokin’ Joe and Native Wholesale Supply Co., that did not sign the MSA and are currently not required to make escrow payments because the cigarettes they sell to Indian reservations do not fall within the definition of “units sold” – they don’t have tax stamps affixed to them. Under the new bill, all cigarettes on an Indian reservation in New York would have to bear state tax stamps, and unstamped cigarettes would be considered contraband and subject to seizure either by the state or the federal government.   American Indian manufacturers, therefore, would have to make escrow payments on all cigarettes sold on Indian reservations. If they refused, they could not lawfully sell their cigarettes to Indian retailers on reservations. Even though New York does not have the authority to collect taxes on reservation sales between tribal members, the new bill would require the tax stamps to be affixed and taxes to be collected (although the tax would theoretically be refunded later). Consequently, Native-manufactured cigarettes could not be sold even to Native purchasers on tribal land under the new bill. The Native manufacturers would have to sell their cigarettes at the same price as the big tobacco companies, which would effectively put them – and Native retailers – out of business, leaving their market share for Philip Morris USA and the other big tobacco manufacturers to gobble up.

The league has scheduled a pro-sovereignty rally on Sept. 25 at 1 p.m. at the Seneca Niagara Casino in Seneca Territory, Niagara Falls.

The current controversy was sparked by two bills sponsored by Assemblyman William Magee. The first bill passed the Assembly and then the Senate as S. 8146-B on Aug. 8. It would force wholesalers to sign an oath, under penalty of perjury and which would be filed both with the state and tobacco companies, saying that the cigarettes would not be resold untaxed in violations of state law.

A state appeals court placed an injunction against a similar law passed in 2006 because the tax department had not worked out a coupon system for reservation retailers to claim tax refunds on cigarettes sold to tribal members.

Gov. David Paterson had not received S. 8146-B by Sept. 5, Morgan Hook, the governor’s deputy press secretary, told Indian Country Today. The Legislature has 45 days once a bill passes both houses to send it to the governor for action.

The league has indicated it will challenge the law on an international level if Paterson signs the bill.

“If Governor Paterson signs the current cigarette tax legislation, the First Nations Business League will declare this act to be in violation of both the indigenous sovereignty of the Haudenosaunee people and international law, and the league will take all necessary steps to resist this unlawful attack on the Haudenosaunee people,” the league said in its press rel ease.

A day after an Aug. 18 special legislative session where Paterson proposed $600 million in spending cuts, the governor published an editorial in the Albany Times Union newspaper indicating the unacceptable solutions to the state’s budget deficit – including remedies that would likely end up in court.

“Do not suggest using one-shot gimmicks, imposing new taxes, or relying on revenue sources that are likely to be tied up in years of litigation. These are not serious solutions to the urgent challenge of reducing our deficit now,” Paterson said.

Magee introduced the second bill, A-11834, to the Assembly Aug. 13. Both Magee and Philip Morris USA spokesman David Sutton confirmed that A-11834 was written by Philip Morris USA.

A-11834 would repeal the bill passed by the Senate on Aug. 8, and would require wholesalers to affix tax stamps to all cigarettes sold to reservations. To bypass the injunction placed on the 2006 bill because the state had not supplied refund coupons, the burden would be on retailers to file affidavits each month asking for a refund of taxes on the cigarettes sold to tribal members. The state could determine whether the request was “reasonable” and when the refund, if any, would be made.

Hook declined to comment on the Assembly bill.

“It’s our policy not to take a public position on something until it has passed both houses; otherwise, that’s all we’d be talking about because there are thousands of one house bills each year.” he said, and declined to comment on whether Paterson is aware that A-11834 was written by the giant tobacco company.

“When a bill is delivered to the governor’s desk, we have 10 days to take action on it – to veto it, sign it or not take action at all, which is another option – and we do our homework before we take any action on any bill.”

Meanwhile, the Seneca Free Trade Association, an association of more than 230 Seneca-licensed businesses, has sent an open letter to its “friends, neighbors and customers” assuring them that the nation’s tobacco trade will continue even if the governor signs “this illegal bill” and urging them to contact Paterson to oppose S. 8146-B.

Sally Snow, a Seneca business owner and chair of the Seneca Free Trade Association, said it’s apparent that lawmakers have not thought through the unintended consequences of the cigarette tax proposals.

“Who do you think it’s going to hurt if we can’t get the products or if we’re put out of business? It’s going to hurt the state. Our businesses, our smokeshops, our casinos are full of white people working. What are they going to do, line up at the unemployment office or get a job with Philip Morris?”

The Seneca Nation alone employs more than 6,000 people. The nation oversees a $313 million annual retail sector and paid $166 million in direct payments to New York state last year, according to a Buffalo Business First story searchable at