Court lifts order against NY Indian cigarette tax

New York's decades-old quest to tax the millions of cartons of cigarettes sold by Indian tribes to non-Native customers was revived on Tuesday after an appeals court lifted an order blocking collection of the $4.35-per-pack tax.

The Appellate Division of state Supreme Court in Rochester vacated a temporary restraining order that's been in place since June 10 and denied a request by the Seneca Indian Nation, New York's largest tribal tobacco retailer, for a preliminary injunction while it challenges Tax Department regulations.

State officials did not indicate when collections might begin.

“The administration will move aggressively to collect the taxes,” a statement from Gov. Andrew Cuomo's office said.

The state anticipated collecting $500,000 a day in new tax revenue beginning Sept. 1, 2010, but has been stalled by legal challenges from at least five Indian nations. The Seneca case before the court was the latest stumbling block.

Seneca Nation President Robert Odawi Porter said Tuesday the nation would ask the state's highest court, the Court of Appeals, to review the decision.

“In our treaties with the United States, we gave up most of our land to retain the `free use and enjoyment' to conduct business in our remaining territories free from the state's taxes,” Porter said in a statement. “New York will never collect a cent of revenue from tobacco sales occurring in our territories, and revenue projections so indicating are foolishness.”

Owners of non-Native American convenience stores, who've watched the reservation cigarette business flourish as New York has increased its cigarette tax to the highest in the country, urged the state to act immediately. Free of taxes, Native smoke shops charge about half the $10 off-reservation price for name-brand cigarettes and even less for brands manufactured on reservations.

The state has talked about taxing cigarette sales to the general public since 1988 but instead has largely followed a policy known as forbearance. Attempts to collect the tax in the 1990s resulted in sometimes violent protests and fires on Seneca territories and a reluctance by state officials since then to push the issue. Then last June, lawmakers, faced with a $9.2 billion budget deficit, voted to move forward with collections.

“Today's appellate court ruling adds yet another judicial decision affirming that the state can collect these taxes, close this loophole and finally provide our retailers with the fairness they have been seeking for decades,” said Jim Calvin, president of the New York Association of Convenience Stores.

Cigarette wholesalers would be required to pay the sales taxes up front and then pass along the levy to the tribal retailers they supply. Some wholesalers have already indicated they would stop supplying reservation stores if the tax is enforced.

Porter said the nation, which has about 172 retail operations, would rely on tribally manufactured cigarettes to sustain its tobacco economy, a sentiment echoed by the Oneida Nation of central New York.

“Today marks the beginning of a new era in the nation's tobacco trade and exercise of our sovereignty,” Porter said.

“While the state may be able to embargo through taxation premium brands from entering our territory, it cannot tax the brands made in our territory or any of the Six Nations,” Porter said. “We will never stop fighting the state's predatory actions.”