Tobacco News and Interesting Information

BUFFALO, N.Y. -- A state law intended to make non-Indians pay tax on cigarettes they buy from Indian retailers is not in effect because New York has yet to come up with a way to implement it, a judge ruled.

State Supreme Court Justice Rose Sconiers issued a preliminary injunction barring New York from enforcing the law that has been a source of confusion since it went on the books last March.

The Jan. 2 trial court decision was a victory for cigarette wholesalers and Indian retailers, who have argued that the state has not given them to the tools to comply with the law. For example, the statute exempts Indian customers from paying the state tax through special coupons, but no coupons have been issued.

"While the intent of the statute is to require that non-Indians who purchase cigarettes on Indian reservations pay the New York state stamp tax, the statute can only function if it properly exempts Indians purchasing cigarettes under circumstances where they are not lawfully required to pay such taxes," the decision said.

Lawyers for the state had argued that if Indian customers paid taxes in error, they could apply for a refund, but the judge countered that there is no system in place to process those refunds.

Gov. Eliot Spitzer said he would direct his tax department to implement the law to comply with the judge's ruling.

"I believe in both a level playing field in respect to competition in the market place ... and also appropriate respect for the sovereign nations," Spitzer said. "But I think the statute that was passed a couple years ago was an appropriate statute so we will be moving forward."

During his campaign, Spitzer indicated he would enforce the law by pulling the licenses of tax-stamping agents who ship unstamped cigarettes to reservations, while working with Indian leaders to ensure the law was enforced peacefully.

A 1997 attempt by the state to collect tax on reservation sales resulted in violent clashes between state police and tribal members. Indian tribes say historic treaties shield them from collecting state taxes on sovereign territories.

By offering reduced-price cigarettes, Seneca Indian Nation retailers sold $347.5 million worth of tobacco products in 2003, according to a tribal report. Seneca leaders say their tax-free gasoline and smoke shops sustain 1,000 jobs held by Indians and non-Indians.

An attorney for the Seneca businessman and Franklin County wholesaler who brought the case said the decision means that for now, wholesalers will continue to ship unstamped cigarettes to Indian retailers and the retailers will continue to sell them tax-free to all customers.

"It would appear that the (state Department of Taxation and Finance) is going to have to go through a rule-making process in which they talk about how the coupons will be allocated...not to mention the mechanism that's going to be used by the tribal governments in distributing these coupons," attorney Margaret Murphy said. "Until that time, it's business as usual."

The lawsuit was brought by Peter Day, owner of Day Wholesale in Tupper Lake, and Scott Maybee, who operates one of the largest mail-order cigarette businesses from Seneca territory in western New York.