Store cheap cigarettes

ALBANY - With New York's budget strained and spending demands seemingly unrelenting, state officials are looking to a lucrative though controversial source of raising revenues: taxing tobacco and gasoline sold by Indian tribes.
Top state lawmakers have resurrected a revenue-raising plan that in the past was met with resentment and violence by some Native American tribes, notably the Seneca Nation of Indians.

Lawmakers - prodded by non-Indian retailers as well as groups looking for more funding in a year when the budget deficit is nearing $12 billion - believe hundreds of millions of dollars - maybe as much as $1 billion - could be gained by taxing the sharply increasing sales of tobacco and gasoline products by Indian retailers to non-Indians. "It's still very much on the negotiating table," said one legislative source involved in the budget talks at the Capitol.

The U.S. Supreme Court, in a 1994 ruling, backed the state's authority to collect such taxes.
The tax collections were tried by Gov. George E. Pataki in 1997, but the Senecas and Mohawks balked. The controversy spun out of control that April when a series of protests by Senecas resulted in several days of violence that left a dozen state troopers injured, more than two dozen people - mostly Indians - arrested, and a portion of the state Thruway shut down.
But much has changed since then. The Internet has flourished as a source for Indians, especially Senecas, to sell cigarettes at about one-third the price of those at non-Indian retailers. The state, meanwhile, has pushed its cigarette excise tax from 56 cents in the late 1990s to $1.50 per pack today, creating a thriving business for Indian retailers.
Meanwhile, proponents of taxing Indian sales - including Senate Majority Leader Joseph Bruno, the Legislature's top Republican - have watched the state cut deals to allow creation of six new Indian-owned casinos.

A number of factors have combined to make the Indian tax plan a priority, including the dire condition of the state budget, demands by the Legislature to add $1.9 billion to Pataki's budget and the need to find revenues to fund restorations to education and health care programs.
"The timing is perfect," said State Sen. Michael Nozzolio, a Seneca County Republican who has introduced legislation to tax the sale of cigarettes and gasoline products sold on Indian reservations. "This is not just raising revenue for the state, but it levels the playing field for thousands of taxpaying businesses across the state that are in direct competition and are placed at a disadvantage because they're in competition with sales at Indian reservations."
However, Pataki has shown only reluctance on the issue. Critics say that he is overly fearful of another violent protest by Indians, and that he favors the rights of Indian retailers to skip paying the tax at the expense of non-Indian retailers.
Pataki's strategy, though it hasn't worked, has been to try to raise the issue in negotiations over Indian casino deals. He briefly tried, sources say, linking the tax issue in casino compact talks with the Senecas, but was quickly rebuffed, and he backed down.

Now, sources say, he is pushing for tax deals with other tribes trying to develop casinos in the Catskills; but his hand in those talks has been weakened by his inability to close a tax deal with the Senecas.
The Pataki administration declined to reveal its position on the Indian tax issue. Kevin Quinn, a Pataki budget spokesman, said the administration has not seen details of any legislative plans to tax the Indian sales. "So it makes it impossible to make any kind of judgment," he said.
Bruno, often Pataki's chief GOP ally at the Capitol, has said the only thing stopping the state from collecting the taxes is "the will" to do so. For weeks, when asked what revenue-raising ideas could be tapped, Indian tax collections has been one of the handful he has regularly mentioned.
Tribal leaders concerned

For Indian business owners, the situation is so serious that tribal leaders from five Indian nations across the state met at the Senecas' Niagara Falls casino last week for what they called "an anti-tax summit" and will meet again this week in Albany to devise strategies to beat back the tax idea.
Seneca President Rickey Armstrong declined to comment. A lawyer for a group of about 100 Seneca retailers said the organization recently hired Patricia Lynch, a close friend of Assembly Speaker Sheldon Silver, to lobby on their behalf in Albany.

Joseph Crangle, a Buffalo lawyer who represents the Seneca retailers, said he'd be surprised if any tax scheme state officials might embrace would work, "given the history of the Indian nations refusing" to embrace any such tax. He said taxing the Indian retailers would violate their sovereignty.
"It would be like saying to Canada, "You should give us some taxes over here because we're in tough shape.' It doesn't work that way," Crangle said.
There are two basic ways the tax collection could operate. Under one scenario, taxes would be collected "upstream," as the industry calls it, which means getting it in advance by charging the tax at the wholesale or distributor level. Cigarettes are sold by manufacturers to distributors, who, before selling to retailers, must pay for the tax stamps that are affixed to packs or cartons of cigarettes.
But cigarettes destined for Indian retailers simply don't get the tax stamps. The plan would call for the state to require distributors to affix tax stamps on cigarettes destined for Indian reservations. Tax-free cigarettes would still be available to Indians for their own consumption.
The other plan would require Indian support. It envisions deals with Indian retailers to get them to charge the state excise tax, though they would not have to send the tax dollars they collect to the state. By doing so, the price of Indian retailer cigarettes would rise to that of their non-Indian competitors, thereby leveling the playing field and, presumably, bringing more business to non-Indians whose products are taxed by the state.
Both plans carry their own thorny political problems, both on and off the reservations.
Not a new tax

But proponents say that of all the tax plans on the table in Albany - from imposing a surcharge on people who make more than $100,000 a year to raising the state sales tax - the Indian cigarette and gasoline tax would be met by the lowest chorus of complaint from taxpayers.
"This is not a new tax on anybody. This is simply enforcing the tax law as it currently exists," said James Calvin, head of the New York Association of Convenience Stores, the leading proponent of collecting the taxes.
The convenience stores, once alone in fighting for the Indian taxes, have been joined by an unusual coalition of allies, from top state lawmakers to health groups.
They argue the state is just letting hundreds of millions in taxes slip by without any fight and at a time when the Pataki administration is working on deals to let Indian tribes open more Las Vegas-style casinos. "To passively let this continue is bad for public health and bad for the state budget," said Russell Sciandra, head of the Center for a Tobacco Free New York.
With states across the nation facing huge deficits, others are looking to begin collecting taxes that many government officials believe are theirs to collect.
"New York may be alone in the states that, for now, has thrown in the towel," said Gregory Scott, a Washington, D.C., lawyer who represents convenience stores and independent gas stations.
A question of fairness

Proponents of collecting the taxes say it comes down to fairness. "We should have a uniform tax collection in this state," said Arthur Katz, a lobbyist for the Association of Wholesale Marketers and Distributors, the trade group for about 50 cigarette distributors around the state. "If I live in New York City or Buffalo, why should I be disadvantaged against someone living in Plattsburg?"
Katz said Indians who don't own the smoke shops should be just as outraged. "Indians aren't getting the money. Indians are still living in poverty, yet they're selling billions and billions in untaxed cigarettes," he said.