BUFFALO — New York state cleared one legal hurdle Tuesday in its efforts to begin taxing cigarettes sold on Indian reservations to non-Indian customers, but the dominant tribe in the tax-free cigarette market remained temporarily immune from the tax while pressing forward with another lawsuit.
State officials did not immediately say whether they would begin implementing a new law requiring cigarette wholesalers to apply the state’s $4.35-per-pack sales tax on cigarettes destined for tribal retailers after a state appellate court declined to block the law’s enforcement.
“We are pleased with the decision and will determine the next steps in coming days,” said Brad Maione, spokesman for the state Department of Taxation and Finance.
If collections do begin in the near future, they will not apply to the Seneca Indian Nation, the state’s largest tribal seller of tax-free cigarettes, or the nearby Cayuga nation. Both are temporarily exempt through Sept. 28 under a federal judge’s order.
As the appellate decision was handed up in Rochester, lawyers for the two western New York tribes were in federal court in Buffalo seeking to expand the temporary order while they challenge the tax law in court.
A Seneca official testified that the state’s tax system would disrupt the tribe’s well-run internal cigarette regulatory structure, which imposes a 75-cent-per-carton fee and generates more than $13 million a year for things like reservation health and education services.
“It is something the state scheme does not respect,” said Robert Odawai Porter, the Senecas’ senior policy adviser and counsel.
New York state officials, facing a $9.2 billion budget deficit, voted in June to begin collecting sales and excise taxes on the millions of cartons sold on reservation smokeshops to non-Indian customers, abandoning a policy known as forbearance adopted by a string of governors who declined to enforce state laws requiring the taxation of sales to the general public.
Nine New York tribes operate tax-free cigarette businesses.
The state anticipates $110 million in revenue for the remainder of this fiscal year and $200 million a year after that by requiring cigarette wholesalers to prepay the sales taxes before supplying reservation stores. Wholesalers would pass along the levy to tribal retailers, who would have to raise their prices.
Tribal leaders say the $4.35-per-pack tax would blunt their competitive edge over off-reservation sellers and devastate their economies while violating their sovereignty and rights of self-government.
The 7,800-member Seneca nation says it is further protected by historic treaties guaranteeing the “free use and enjoyment” of its territories.
The last time the state tried to collect the tax, in 1997, protesters lit tire fires and shut down a 30-mile stretch of the New York state Thruway that bisects Seneca land near the Pennsylvania line.
Seneca leaders, who have said they would not condone violence, did not immediately comment on Tuesday’s appellate court ruling.
A spokesman for the Oneida Nation said it would seek an injunction in federal court in the near future in hopes of blocking the state from enforcing the tax on the central New York tribe. The Oneidas and St. Regis Mohawk tribes have filed federal challenges to the law in New York’s northern judicial district but the cases have yet to be heard by a judge.
In the meantime, Oneida spokesman Mark Emery said, the nation is well-stocked with cigarette inventory and continues to manufacture two tribal brands on its territory.
“As a result, our customers will not experience any change in any of our retail outlets for the foreseeable future,” Emery said.
Cigarette makers sold 24 million cartons of non-native-brand cigarettes to tribes in New York in 2009, with the Senecas buying the most at 10.2 million, the state Department of Taxation and Finance said. Tribes also sell millions of cartons of American Indian brands.