A state appellate court blocked a new tax on Indian reservation cigarettes that tribal members were calling a drag on their economy.
The court’s temporary restraining order, issued on August 31, prevents the state from collecting the $4.35 excise tax from the Seneca and Cayuga reservations. The tax would have gone into effect on September 1 and officials said it could have handed the state almost $200 million in tax revenue.
The Seneca and Cayuga reservations said the new tax uses them like a “piggy bank” and would damage their livelihood and take away their sovereignty by forcing them to charge non-tribal members more for a pack of smokes.
Governor David A. Paterson disagreed and said the new Indian reservation tax would generate funds desperately needed by the cash strapped state.
“We are disappointed today that the appellate division has stayed the implementation of our statute and regulations with respect to licensed stamping agents,” said Paterson. “Despite this ruling, we believe the state’s legal arguments are sound and we believe that ultimately the state will prevail in this matter.”
Since the state’s tax on Indian reservations was blocked, the New York Association of Convenience Stores (NYACS) asked the governor to issue an executive order suspending the 58 percent tax hike on cigarettes that took effect on July 1.
"The double-edged bargain you made with the legislature in June was to sharply increase the cigarette tax rate on July 1, but to mitigate its negative effect on tax-collecting retailers by capturing taxes on tribal sales to non-Indians starting September 1,” said NYACS President James Calvin. “If one side of this bargain has been placed on hold, it’s only fair that the other should be put on hold as well."
NYACS said that mom-and-pop stores have lost 25 to 45 percent of their cigarette sales since the tax hike and the ensuing wave of tax evasion it triggered.
However, the state will implement the new tax on other smaller tribes, and require cigarette agents and wholesalers to affix a tax stamp to packs – forcing Indian tribes to pay wholesalers for the prepaid tax.
“The new system regulates the conduct of New York’s licensed cigarette agents and wholesalers by prohibiting them from selling cigarettes that do not bear a tax stamp to reservation sellers,” said New York State Department of Taxation and Finance Acting Commissioner Jamie Woodward.
Seneca and Cayuga nations are exempt from the law for two weeks so that they may argue their case to an appeals court.
