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State Judge Lifts Block on Cigarette Taxes

Seneca Promises to Appeal Ruling

A New York State Supreme Court judge has lifted a temporary restraining order that she had imposed three weeks ago, which blocked the state from collecting taxes on cigarettes sold to non Indians on sovereign Indian land. The Seneca Nation of Indians immediately promised to appeal the ruling.

In a decision issued June 8, Supreme Court Justice Donna Siwek rejected a motion by the Seneca Nation that the state tax department had violated state procedural requirements in adopting regulations last year that would require wholesalers to pay for and affix a $4.35-a-pack tax stamp on all cigarettes sold in the state, including those sold to Indian nations on sovereign reservation lands. “We believe the Department of Taxation and Finance substantially complied with the requirements of the State Administrative Procedure Act,” Siwek wrote in her 10-page decision, lifting the temporary restraining order she had imposed on May 10.

Seneca Nation President Robert Odawi Porter said the nation would appeal, seeking another injunction against the state implementing its tax law. “This ruling was not a surprise. In anticipation, the Nation will be immediately filing papers with the Appellate Division of State Supreme Court to stay the decision and eventually see it overturned,” Porter said.

The judge noted that her ruling does not address the broader issue surrounding the state’s claimed right to collect taxes from Indian reservation, but only addresses whether the tax department complied with the state's Administrative Procedure Act in promulgating the regulation.

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If the state eventually allows New York’s tax law to stand, hundreds of good paying retail jobs selling a legal product in Western New York will be lost, Porter said, but the Senecas will not change their “stand that (the nation) will never collect or impose sales taxes for New York State. If the Nation’s businesses need to shift their product mix to render such onerous tax laws moot, they will.”

The Senecas and other nations have moved increasingly to sales of reservation-produced cigarettes, dropping brand-name cigarettes from the Big Tobacco companies. Opponents of Indian cigarette sales, particularly the convenience stores lobby that has pushed the state to collect taxes from the reservations, claim that reservation-made cigarettes are subject to the same taxes as brand name smokes, which may indicate their next line of attack. But that approach would be met with strong resistance from the nations. “No one should underestimate the Nation’s resolve to defend and protect its sovereign rights,” Porter said. “Immunity from taxes by federal treaty is the law of the land. Our people survived state encroachment before and triumphed for centuries as an independent and successful people. That will not change now.”

Jim Calvin, president of the New New York Association of Convenience Stores, lauded the latest court ruling in a statement posted on the the National Association of Convenience Stores website. “It is conceivable that the Senecas will appeal this ruling, commence some new legal action, or try some other maneuver to prevent the state from moving forward with enforcement,” Calvin said, “but ultimately the law is the law, and the state has the right to collect these taxes.”

Although the stores realize that increased taxes have pushed customers to reservation retailers, they tend to blame the Indians for selling tax free cigarettes rather than the government for imposing the high taxes. “Sales of cigarettes in tax-collecting stores have plummeted over the last 10 years as a series of state excise tax hike increases drove more and more non-Indian smokers into the arms of tribal competitors who enjoyed a dramatic and artificial price advantage because they excluded over $5.00 a pack in state taxes,” the statement says.

The judge’s ruling punctuates the latest skirmish in the ongoing tobacco war between the state and the indigenous nations whose sovereign lands are surrounded by or contiguous to New York State. A decades-long “forbearance policy” in which the state claimed authority to collect cigarette taxes from the nations but declined to do so, was abandoned last year by former Gov. David Paterson. The nations have rejected all efforts to collect taxes on their sovereign lands, insisting that both treaties and their inherent sovereignty exempt them from being tax collectors for the state.