NY Court Bans Sale Of Tax-Free Cigarettes By Tribes

NEW YORK - A New York State appeals court has unanimously upheld a 2010 state law requiring Native American tribes to charge state-levied taxes on cigarettes sold to patrons from off the reservations, according to Attorney General Eric Schneiderman.

The Southampton Press reports, the ruling lifts an injunction against enforcing the law, put in place after the Seneca Nation in upstate New York challenged the law’s constitutionality. Now, Native American cigarette sellers say that national tobacco companies are no longer delivering cigarettes to them unless taxes are collected.

“Right now, we’ll have to start looking at layoffs,” said Lance Gumbs, a Shinnecock Indian Nation member who operates a trading post and smoke shop on the reservation in Southampton. “What this does is, it puts us out of business. It won’t stop people from buying tax-free cigarettes—it will just create a black market, like during Prohibition.”

Attorney General Schneiderman applauded the court’s ruling in a statement issued Monday, saying the new law will close a legal loophole that was costing the state millions in lost tax revenue each year.

“Today’s decision respects tribal rights and at the same time represents an important victory for the state to collect deserved revenue and to protect public health,” he said. “The decision closes an enormous tax-evasion loophole that was depriving New York of hundreds of millions of dollars in tax revenue.”

The State Legislature approved the law in August 2010, requiring taxes to be collected from wholesalers who sell cigarettes to Native American tribes, rather from the sellers themselves. Native American tribes are considered sovereign nations and cannot be taxed themselves by the federal or state governments. The state estimates that nearly $500,000 in cigarette taxes go unpaid every day through the tax-free sale of cigarettes by Native Americans.

But tribe members said that the new law actually is an end-run around the constitutional exemption from taxes afforded to Native Americans that robs them of one of few economic opportunities for their members. They also claimed that the purported benefits of charging the tax is a red herring, because the state will not actually see increases in revenues: with no price advantage over traditional cigarette sellers, they say, Native American sellers will simply go out of business.

Harry Wallace, a former chief of the Unkechaug tribe in Mastic and owner of a cigarette shop on the Poospatuck Reservation, said he hopes to be able to continue his business either on the back of further litigation overturning this week’s court decision or by selling Native American-produced cigarette brands, which may be exempt from the tax legislation.

“We’re not trying to evade any laws, we’re just trying to protect our rights,” Mr. Wallace said. “A lot of the different nations have switched to just Native American brands. I think I will be able to continue.”

The state has claimed that even Native American brands of cigarettes must be taxed if they are to be sold to non-Indian buyers—a point that may be the subject of future litigation.

Mr. Gumbs said that the legislation was not driven by health concerns or because it was hurting small convenience stores, but by large tobacco companies like Phillip Morris who are trying to put Native American brands of cigarettes out of business because they are not bound to contribute money to a federal pact that makes tobacco companies pay for stop-smoking advertising.

“That’s what this thing is really all about—the tobacco companies want to put us out of business so they don’t have the competition,” Mr. Gumbs said. “They just have the state in their pockets. Phillip Morris wrote this legislation. They think they’re fooling everyone ...

“It’s not going to go away. Other people will just sneak [tobacco products] into the state. It won’t be the Indian tribes—it will be some other group, someone you don’t know and can’t see where the money goes.”