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Appeals court affirms Cayuga’s untaxed cigarette sales

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Wednesday, 19 May 2010

Appeals court affirms Cayuga’s untaxed cigarette sales By Gale Courey Toensing Story Published: May 18, 2010 NEW YORK – New York’s highest court has ruled that the Cayuga Indian Nation can sell untaxed cigarettes at its convenience stores without threat of prosecution by county officials.The Court of Appeals issued a 4-3 decision May 11, upholding a lower court ruling that said the Cayuga Nation does not have to pay state sales taxes on cigarettes sold at its Lake Side Trading convenience stores in Union Springs and Seneca Falls because the stores are on qualified reservation land. The ruling also affirms the lower court decision stopping Seneca and Cayuga county district attorneys from seeking criminal tax evasion charges against the Cayuga Nation, because the state does not have a tax collecting mechanism in place that addresses the federally protected right of Indian nations to sell untaxed products on sovereign Indian land. The Cayuga Nation filed the lawsuit after a raid on their convenience stores in late 2008 in which the counties’ sheriffs seized 17,600 cartons of cigarettes worth more than $500,000. The counties claimed that because the nation did not have an official reservation, they were violating state tax law. The Cayugas claimed that the stores lie within their former ancestral homeland. They argue that the territory is a reservation established by federal treaty and that it has never been disestablished. The appeals court ruling affirms the Cayugas’ argument. Daniel French, an attorney for the Cayugas, said the nation was “extraordinarily pleased” with the decision. He told the Associated Press that the nation has always been willing to negotiate these issues with the counties. “Now there’s a half-million dollars of spoiled product and the Cayuga Nation fully intends to litigate for those expenses,” he said of the seized cigarettes. The appeals court ruling also affirms that consumers – not Indian retailers on reservation lands – are responsible for paying cigarette sales taxes. “The ultimate obligation to pay cigarette sales taxes rests on the consumer, although in most cases that duty is fulfilled, consistent with the tax stamping scheme, by payment of the tax to the retailer, who passes it up to the distributor and wholesaler, who remits it to the department through the purchase of tax stamps. If, for any reason, a sales tax that is properly owed is not collected in this manner, the consumer remains under the obligation to remit it through other means,” the majority wrote. Although the state law imposes a sales tax on cigarettes sold in New York, “the question is how the tax is to be assessed and collected in the unique retail market presented here (on reservations) and from whom,” the majority wrote. A section of state tax law that would protect the right of Indian nations to sell untaxed cigarettes to its citizens by issuing coupons that for tax-exempt sales to Indian nation citizens is “not in effect,” the majority wrote. “Thus, the issue in this case is not whether sales taxes are due when non-Indian consumers purchase cigarettes from Indian retailers – they are. The issue is whether Indian retailers can be criminally prosecuted for failing to collect the sales taxes from consumers and forward them to the Department (of Taxation and Finances). In the absence of a methodology developed by the state that respects the federally protected right to sell untaxed cigarettes to members of the nation while at the same time providing for the calculation and collection of the tax relating to retail sales to non-Indian consumers, we answer this question in the negative,” the majority wrote. The Court of Appeals ruling in effect maintains the status quo and reasserts the state’s long time “forbearance policy,” which acknowledges that taxes are due on cigarettes sold to non-Indian consumers on reservations, but the state will not try to collect them from the nations. The Oneida Indian Nation welcomed the appeals court decision. “Although these complex issues are best resolved through a fair and honest negotiated settlement, we are gratified the Appeals Court has reaffirmed the lower court’s decision,” said Mark F. Emery, director of media relations. “The appeals court ruling is good news for everyone,” said attorney Margaret Murphy, who represents Day Wholesale Inc., a wholesaler and stamping agent. “But this decision only represents common sense. It’s not an easy issue, but the Court of Appeals looked at the law and maintained what’s been the law for 70 years from the first day that New York state started taxing and collecting taxes by the use of tax stamps.” The appeals court ruling maintains an injunction put in place by the State Supreme Court in January 2009 that stops the state, and anyone charged with enforcing the state’s tax laws, from restricting state stamping agents from selling unstamped cigarettes to reservation cigarette sellers, or restricting reservation retailers from selling unstamped cigarettes to tribal and non-tribal members until the state Department of Taxation and Finance comes up with a viable system to distribute tax exempt coupons for sales to tribal members. The injunction came in response to a lawsuit Murphy filed on behalf of her clients, Day Wholesale Inc., and Scott B. Maybee, an enrolled member of the Seneca Nation of Indians who owns and operates wholesale and retail tobacco businesses licensed by the nation. Murphy sought the injunction against a bill Gov. David Paterson signed into law in late 2008 that would have required stamping agents to sign an affidavit under penalty of perjury saying they would not resell unstamped cigarettes in violation of the state’s tax law. That attempted law fell off the radar screen and was superseded by a set of proposed regulations issued by the tax department earlier this year that would determine “quotas” of untaxed cigarettes to be sold to reservations quarterly. Murphy said the proposed regulations are not likely to go anywhere any time soon for a number of reasons, including the fact that the tax department is not authorized to issue such regulations. http://www.indiancountrytoday.com/national/94101514.html

 

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