US judge continues to bar New York Indian cigarette tax

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By Carolyn Thompson
Buffalo, New York (AP) September 2010

A federal judge during early September extended his order blocking the state from taxing two Indian nations’ cigarette sales to non-Indian customers while legal challenges to the state’s plans continued to mount.

U.S. District Judge Richard Arcara scheduled a hearing for Sept. 14 on a lawsuit by the Seneca and Cayuga nations which seeks to prevent the state from imposing its $4.35-per-pack sales tax on cigarettes destined for reservation smokeshops. In the meantime, the judge extended a temporary order issued last week barring collections at least through next week’s hearing. The order had been set to expire Sept. 13.

The Oneida Indian Nation of central New York also began its own federal challenge of the state tax law, filing a case in New York’s northern judicial district, where the St. Regis Mohawk tribe also has a lawsuit pending.

State tax officials had planned to tax reservation sales to non-Native customers beginning Sept. 1 as a way to bring in $110 million in revenue this fiscal year and $200 million a year after that.

Indian nations oppose the plan as an attack on tribal sovereignty and treaty rights.

The state’s last attempts to tax reservation sales, in 1997, led protesters to set fires that stopped traffic on the New York State Thruway where it runs through the Senecas’ Cattaraugus territory.

The current efforts seek to keep tax officials off the reservations by having cigarette wholesalers prepay the sales taxes before supplying Native American stores. Wholesalers would pass along the charge to tribal retailers, who in turn would have to raise their prices and lose their competitive edge over off-reservation convenience stores.

Although Arcara’s order covers only the two western New York tribes, a separate order by a state judge continues to bar the tax for all nine New York tribes in the tax-free cigarette business. A five-judge appellate panel in Rochester is scheduled to take up that case Thursday.

The state case was brought by a Seneca retailer and a non-Indian cigarette wholesaler. The wholesaler said he would lose business if forced to collect the tax on cigarettes he supplies to reservation stores.