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Where there's smoke, there's fire

New York governor wants to tax tribal cigarette sales

ALBANY, N.Y - New York Gov. David Paterson, just a few weeks after taking office, is already thinking about collecting sales taxes on cigarettes sold by tribes. It's a path many of his predecessors have unsuccessfully pursued, and several tribal leaders predict Paterson, too, will likely face challenges.

In a late April appearance on a Syracuse radio station, Paterson said the state's massive budget shortfalls make it necessary for him to seek ways to collect sales taxes on cigarettes sold on reservations.

''This is not the area I know the greatest amount about, but right now because of the economic plight of this state, we are going have to look into trying to collect taxes in those places,'' he said on the program.

''We're going to have to because we don't have really many options and though it is sacred land and not part of New York state government, it interacts with a lot of New York state citizens and in that respect our courts have directed us to follow up and we will try to do that.''

Morgan Hook, a spokesman for the governor, clarified the governor's remarks to Indian Country Today, noting that Paterson ''didn't necessarily give a plan,'' but it is an area he wants to explore.

''It's something that the public is demanding in various regions,'' Hook said, ''and the governor has acknowledged that it's something his administration is going to take a look at.''

Hook added that the ''administration is going to work hard to reach some kind of reasonable accommodation with'' tribal leaders in the state. He said the governor's staff has reached out to various tribes since Paterson began leading the state government March 17 after Gov. Eliot Spitzer resigned amid scandal.

Budget experts have estimated the state could gain between $120 million and $140 million in new revenue this year as a result of taxing tribally sold cigarettes.

Going all the way back to Gov. Mario Cuomo's administration in the early 1990s, state leaders have been unsuccessful in collecting taxes on cigarettes sold on tribal lands. Collection efforts by both Cuomo and Gov. George Pataki met with intense demonstrations marked by violence between Indian protesters and state police. The U.S. Supreme Court ruled in 1994 that the state could collect taxes on sales to non-Indians. Still, the state has never successfully carried out a tax plan.

It came close last year with the implementation of a controversial law that would have required Indian nations to collect sales taxes on cigarettes sold to non-Indians; however, a state Supreme Court judge soon placed an injunction on the law, saying that the state failed to create a fair tax exemption system for cigarettes sold to American Indians. The injunction is still in effect to this day, so it is unknown at this point how Paterson might find a way around it.

Before Spitzer resigned from office, he crafted a plan to make it illegal for cigarette manufacturers to supply retailers that don't collect taxes on cigarette sales. The state Senate supported the measure, but the Assembly opposed it. Spitzer had also been toiling on a tax-sharing proposal that would allow state tax monies collected from reservation cigarette sales to be shared with tribes.

It's unknown at this point whether Paterson would try to craft similar measures, or if they could gain legislative support. Whatever the governor's intentions turn out to be, many tribal leaders around the state said they were disappointed that Paterson might be open to treading on tribal sovereignty.

''The St. Regis Mohawk Tribe is sensitive to the economic woes of the state,'' according to a statement released by the tribe's council in response to Paterson's radio remarks. ''However, the state should not be trying to bail itself out on the backs of Indian tribes [and] nations in the state.''

Mohawk council leaders also said they do not believe the governor should be making public comments concerning tribes without first reaching out to tribes to discuss his concerns. ''That is counterproductive to building positive government-to-government relationships between us,'' according to the statement.

Oneida Nation Representative and CEO of Nation Enterprises Ray Halbritter noted that the nation has had a relationship with Paterson that dates back to his time as minority leader in the state Senate.

''We are hopeful that a move to the second floor doesn't distort his view of the Oneida people and their historical and continuing contribution to this state,'' he said, adding that ''this is an issue between New York state and New York state retailers.

''People have found ways around the tax for decades, like receiving cigarettes through the mail, getting them from states like North Carolina and military bases. Blaming the Indians is misdirected.''

Halbritter is the publisher of ICT.

Harry Wallace, chief of the Unkechaug Indian Nation of Poospatuck Indians, said he thought it was quite revealing that Paterson said in the radio interview that he doesn't know much about the issue. ''We've reached out to his office, just as we've reached out to many governors before him,'' Wallace said. ''We're willing to have a rational and reasonable dialogue.''

Cayuga Nation leaders are also open to talking with Paterson. ''As with the Pataki administration and with the Spitzer administration, the Cayuga Indian Nation welcomes the opportunity to discuss these and other issues with the governor's office, at his convenience,'' said Daniel French, a lawyer for the tribe. He said that no one has reached out from Paterson's office to the tribe.

Joseph Heath, a lawyer for the Onondaga Nation, requested in a letter sent recently to Paterson that the governor take his time when considering matters involving Indian nations.

''I think it's encouraging that the governor is willing to admit that cigarette taxes are not an area he knows that well,'' Heath said, noting that the Onondagas worked closely with Pataki on cigarette-pricing issues.

''We're not surprised, though, that every time there's a budget deficit, there's a rattling from Albany that they want to collect taxes on tribal lands,'' he added. ''But there just isn't the kind of revenue here that everybody keeps saying there is ... this is like raiding your son's piggy bank to pay off your mortgage.''

Monies garnered from Onondaga smokeshops are a major source of income for that nation and help pay for elderly housing, healing and language programs, as well as other educational projects and cultural activities.

''They ought to recognize some sovereignty here,'' Heath said. ''This money isn't just going into some millionaire's pocket, the way it would if the convenience stores were to get our business.''

Representatives of the Shinnecock Indian Nation said they wanted to take a wait-and-see approach regarding Paterson's plans. Maurice John, president of the Seneca Nation, could not be reached for comment. On the matter of tax collection, though, John has said previously, ''It is non-negotiable. We take a tough stand on this because we take seriously our position as Keepers of the Western Door. This is about maintaining our sovereignty and what we have left.''

With attention from tribal leaders piqued, the New York public is growing increasingly aware that cigarettes are much cheaper when purchased from Indian smokeshops, convenience stores and online outlets. There is overwhelming statewide public support for Indian tax sovereignty, according to a 2006 poll conducted by Zogby International.

The differences are only going to become more pronounced as a result of a recent decision by state lawmakers to raise the cigarette tax by $1.25 per pack, meaning that June 3, when the hike goes into effect, a person who buys a carton of cigarettes from a non-Indian outlet will be paying upwards of $30 in taxes alone. The tax increase will make New York cigarettes the most expensive in the nation.