N.Y. to Begin Ban on Web, Mail Sales of Cigarettes

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N.Y. to Begin Ban on Web, Mail Sales of Cigarettes

ALBANY, N.Y. -- Three years after being passed into law, a state ban on Internet and mail-order sales of cigarettes will be enforced beginning next week, over the objections of online retailers, including Seneca Nation of Indians businesses that have been flourishing on the Web. The state Department of Taxation and Finance has sent notices to shippers and retailers warning them that the Internet sales ban, punishable with large civil fines and jail time for violators, will be enforced as of June 18.

Some Seneca business owners, dozens of whom operate Internet or mail-order cigarette operations, have vowed to ignore any attempt by the state to collect taxes on their tobacco products. The U.S. General Accounting Office last year found that half of the nation's 150 cigarette Web sites are based at Indian reservations in Western New York, The Buffalo News reported.

Enforcement of the law, approved in 2000, had been delayed by a tobacco industry lawsuit. A federal appeals court in February sided with the state, ruling that the law does not violate protections of interstate commerce. In the months after the decision, health groups and non-Indian retailers urged quick implementation of the law. Since violent protests by Senecas in 1997, the Pataki administration has been reluctant to deal with the long-controversial issue of sales tax for Indian merchants. Since February, Internet retailers and shipping interests have filed two lawsuits seeking to block the law.

The enforcement of the 2000 law also comes just weeks after the State Legislature, in adopting the 2003 state budget, ordered the Pataki administration to draw up new regulations to collect sales taxes on the cigarettes and gasoline products sold by Indian retailers to non-Indians. Lawmakers think that this will mean $400 million a year for the fiscally stressed state by 2004. The regulations target smoke shops, convenience stores and other Indian-run outlets that sell now-untaxed products to non-Indians. Seneca business owners, in a recent rally in Albany, vowed that the sales taxes would never be collected, according to the report.

Representatives of Indian retailers said the 2000 law on Internet sales violates Indian sovereignty. Delivery companies, which face legal penalties for shipping untaxed cigarettes sold over the Internet, say the law places too high a burden on them to determine whether their customers are complying with the restrictions. Indian representatives also say the Pataki administration's move to enforce the law conflicts with recent statements made by the governor over the Legislature's separate Indian tax-collection law passed last month.

In 2000, Pataki praised the Internet cigarette ban when he signed it into law. Four months ago, he praised a federal appeals court for upholding the "landmark" law in a ruling he called "a tremendous victory for the children of New York State." Seneca President Rickey Armstrong declined to comment, saying he had not heard of the forthcoming enforcement of the 2000 Internet law.

Non-Indian retailers praised the decision to move ahead. "This law and the enforcement of this law are going to be a major step in the direction of leveling the playing field for cigarette retailers in New York," said James Calvin, executive director of the New York State Association of Convenience Stores.

Native American retailers have cited a loophole in the law that does not specifically bar them from shipping cigarettes via the U.S. Postal Service; a federal judge in February, however, noted her strong objection to the existence of any such loophole, the report said.

There is no precise number on the sales tax revenues lost to Internet cigarette sales. But a study released by an industry trade group earlier this year estimated that upward of 40 percent of all cigarettes sold in the state are obtained through Indian smoke shops, the Internet, bootlegging operations and other means of tax avoidance. They estimated that New York State lost $900 million in cigarette sales taxes last year.