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Tax ruling could affirm sovereignty

NEW YORK - In a turnaround from previous promises - or threats - to collect state taxes on tribal cigarette sales, the New York state attorney general's office is seeking a declaratory judgment verifying that tribal nations and the distributors who sell them cigarettes are exempt from paying tobacco excise taxes.

The ruling, if granted, could be a de facto affirmation of tribal sovereignty and immunity; but tribal leaders expressed wariness in their response to the legal action - perhaps understandably, since the state's motion is not necessarily

motivated by a pure intention to support Indian sovereignty and immunity, but appears to be a tactic driven by the desire to avoid further lawsuits from the big tobacco companies.

A positive ruling could put to rest years of struggles between the tribes and state for tax sovereignty, and reaffirm previous court decisions. The tribes have steadily upheld their position of tribal sovereignty and immunity concerning trade on their lands, while state officials on a pendulum swing have vacillated between the somewhat sympathetic - or laissez faire - attitude of former Gov. George Pataki to the hot-and-cold running position of Gov. Eliot Spitzer, who ratcheted up the pressure on reservation cigarette sales before last year's November elections, but later moderated his stance.

Andrew Cuomo, the new state attorney general, filed the motion for a declaratory judgment Feb. 5 in state Supreme Court in New York City. The motion, written by Assistant Attorney General Louis Willenken, names three categories of defendants: Philip Morris and more than 50 other big tobacco companies that signed the $246 billion tobacco Master Settlement Agreement of 1998; more than two dozen tobacco companies and distributors, such as Smokin' Joe and the Native Wholesale Supply Co., which did not sign the MSA; and the Cayuga, Oneida, Onondaga, Seneca, St. Regis Mohawk, Tonawanda Band of Senecas, Tuscarora, Shinnecock and Unkechaug tribal nations.

As background, Philip Morris and the other signatories to the tobacco settlement, known as the PM defendants, or participating manufacturers, are required by the state's Public Health Law that implemented the MSA to pay millions of dollars each year to the state government.

Companies that sell cigarettes in New York but didn't sign the MSA are known as the NPM, or nonparticipating manufacturers. The companies are required to make annual escrow deposits of funds, based on the ''units sold'' - the number of individual cigarettes - in the state on which the state collects taxes in case a future court ruling requires these companies have to make MSA-like payments to offset smoking-related illnesses.

The NPM companies are not required to pay taxes or set aide escrow funds on the cigarettes they sell to tribal nations.

The American Indian defendants are those with tribal lands in New York state, which ''has a policy of recognizing the sovereignty of Native American Defendants that existed prior to the passage'' of the state Public Health Law, the motion says. The state also has a ''long history of taking the position that it is improper for the State of New York to place any burden [tax , escrow or otherwise] on the sale of cigarettes by Native Americans,'' the motion says.

But Philip Morris and the other big PM tobacco companies are now going after the state for not requiring the NPM companies to put money into escrow on the cigarettes they sell to the nations.

''PM defendants have advised New York that they take the position that New York does not properly enforce [the Public Health Law] because New York does not require escrow deposits on PM cigarette sales on Native American lands,'' the motion says.

The attorney general disagrees. If Philip Morris and the other big tobacco companies are correct, the motion says, it would increase both the cost and price of the cigarettes NPM defendants sell to the tribes and those sold on tribal lands.

''In addition, the correct interpretation of [the] Public Health Law impacts on the relationship between the State of New York and Native American Tribes in New York,'' the motion says.

Both the attorney general's office and Philip Morris declined to comment on the pending legal action.

Chief Harry Wallace of the Unkechaug Indian Nation of Poospatuck Indians questioned the purpose of the legal action:

''So, the attorney general, if you can believe this, looks like he's on our side, right? Obviously, there is a level of suspicion and disbelief when any government officials, especially attorneys general, argue that Indian nations are sovereign and not subject to taxes. You have to wonder why.''

The obvious explanation, Wallace said, is that the state wants to avoid the not-so-veiled threat by Philip Morris of another protracted and expensive lawsuit.

''Philip Morris is angling not to pay or to renegotiate their terms under the MSA. They're using allegations of noncompliance by these nonparticipating wholesalers and manufacturers as leverage to reduce their commitment. The new CEO is a bean-counter. That's the obvious answer. The not-so-obvious answer is why would he [the attorney general] be so specific in reference to Indian tribes? Why would he seek this declaratory action? What does he hope to gain from it apart from avoiding another lawsuit?''

Joseph Crangle, a former Seneca attorney who has handled several of the state's lawsuits against the tribe, said the motion for declaratory judgment is ''certainly recognition of the state's lack of civil regulatory jurisdiction over activities on the Seneca and other reservations.''

''Maybe it's the power of the Holy Spirit and they're wising up and understand they're not going to be successful in legal actions,'' he quipped.

A positive ruling on the request for declaratory judgment would reiterate the tribal sovereignty and immunity that is already established state law, Crangle said, citing a 1999 case filed by an association of convenience stores against the state to try to force the state tax on Indian sales of cigarettes.

''In his decision, and I'm quoting him directly, the judge said: 'Tribes possess substantial attributes of sovereignty. Indian tribes have immunity from suit and cannot be sued to accomplish tax collections. This immunity extends to tribal retailers.' You can't get anything stronger than that,'' Crangle said.

The decision withstood appeals all the way up to the U.S. Supreme Court, which denied the convenience store group's petition.

''So that is the law of New York state,'' Crangle said, and the request for declaratory motion, if granted, will reaffirm it.

Other tribes declined to comment, citing the pending litigation.