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Second Circuit rejects Indian tax challenge

The U.S. Court of Appeals for the Second Circuit has lifted stays that blocked New York’s effort to collect taxes on cigarette sales by Indian-owned businesses to non-Indians.

In a ruling Monday, the court ruled against Indian tribes and upheld state authority to collect taxes on cigarette sales on reservation land to nonmembers of the tribe. The appeals court upheld a lower court ruling.

According to a press release from the Office of the New York StateAttorney General, it is estimated that the decision will enable the state to collect approximately $500,000 per day in additional tax revenue.

“[The] decision respects tribal rights and at the same time represents an important victory for the state to collect deserved revenue and to protect public health,” said Attorney General Eric Schneiderman. “[It] closes an enormous tax-evasion loophole that was depriving New York of hundreds of millions of dollars in tax revenue.” 

In 2010, the New York Legislature passed a law requiring the collection of cigarette taxes on cigarette sales to non-Tribal members. The law provided Indian tribes with several options for collecting those taxes while ensuring that cigarette sales to qualified tribal members would remain tax free.

The law, intended to take effect last September, allows tribes to keep sales to their members free of the $4.35-per-pack tax but requires it in sales to others. In August 2010, several Indian tribes sued the state in federal district court to enjoin enforcement of the new law. The tribes asserted that the law violated their tribal sovereignty and caused them irreparable harm.

Two federal trial courts stayed the enforcement of the law. The state AG’s office filed an expedited appeal with the Second Circuit.

Seneca Nation President Robert Porter said they “will continue fighting” to protect their treaty rights, tobacco business and jobs.

Porter said the Seneca Nation will not be the state’s tax collector.