Tax-Free Cigarette Sales May Go Up in Smoke

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Tax-Free Cigarette Sales May Go Up in Smoke

ALBANY, NY -- Smokers in central New York are buying more than $50 million worth of tax-free cigarettes each year from Native American stores. But that may change by the end of the year, when regulations kick in requiring wholesalers to pre-pay $15 in state excise for each carton sold to retailers doing business on Native American territories.

The Post-Standard in Syracuse estimates New York is losing approximately $24 million per year in excise taxes and $4 million in state and local sales taxes on cigarette sales to residents of Onondaga, Madison, Oneida, Cayuga and Cortland counties alone. State inspectors are expected to begin stopping trucks used to distribute cigarettes to ensure they are branded with tax stamps before they reach Native American-run stores.

"'I don't think any wholesaler's going to ship to Native Americans unless the Native Americans agree to pay the tax. It would come out of your own pocket if you do," Dan Finkle, an Albany wholesaler, told The Post-Standard.

But the state regulation would devastate Native American businesses that sell tax-free cigarettes, countered Rickey Armstrong Jr., president of the Seneca Nation of New York. The Seneca cigarette operations employ 1,500 people.

None of the state's Native American nations are willing to pay taxes to New York, even if the tax is paid indirectly through a wholesaler, Onondaga Nation Chief Irving Powless told the newspaper. Paying these taxes, he said, would weaken the nation's sovereignty.

"New York State doesn't collect excise taxes on cigarette sales in Pennsylvania and the other border states because they're not in New York. Neither are we," Powless said. "We're surrounded by New York State, but we are not part of it. Never have been."

A 1994 U.S. Supreme Court ruling made sales by businesses on Native American territories to non-native customers taxable. The state now requires wholesalers to file monthly reports revealing untaxed cigarette sales, but the governor's office and state tax department will not disclose that information, the newspaper reported.

Still, tax officials projected enforcement of cigarette and gasoline taxation will bring in $20 million for the state this year, $64.5 million next year. The state legislature claimed New York will collect $165 million this year and $330 million next year. When vetoing the Legislature's budget last spring (a veto that was later overridden), New York Gov. George Pataki said the taxation would "have devastating consequences for the state's relationship with Native Americans."

One Buffalo wholesaler told The Post-Standard his company sells $150 million in tax-free cigarettes each year to the Onondaga, Seneca, Tuscarora, Tonawanda Band of Senecas and the Unkechaug Indians on Long Island. If he pre-pays $15 per carton in excise taxes, and his Native American customers won't pay him, the wholesaler said he'd be forced to close his 70-year-old family business, which employs 40 people.

One Native American nation, the Oneidas, buys cigarettes directly from such manufacturers and ships them to a nation warehouse, then to its Turning Stone Casino Resort, 12 SavOn convenience stores and two smoke shops. Although New York cigarette wholesalers are licensed by the state, Oneida Wholesale isn't, nation tax attorney Eric Facer told The Post-Standard.

However, the Oneidas and the state are near a deal that calls for the nation to charge its own taxes equal to New York's, then keep the money for services. Prices would rise by nearly $8 a carton. Still, the price increase is expected to cost the nation millions in sales, Facer said, who told the newspaper if the deal falls through, the Oneidas may make its own cigarettes, putting its stores outside the state taxing authority.