Indian cigarette sales thrive as New York works on regulations

By Diana Louise Carter
Irving, New York (AP) May 2010

J. Conrad Seneca started selling cigarettes in the late 1980s out of a little trailer alongside Route 20 as it runs through the Cattaraugus Seneca Reservation.

Today, he employs 120 people, most of them non-Indians who live near the reservation about 25 miles southwest of Buffalo.

On the land where Seneca’s trailer was once parked, he now has his Native Pride Travel Plaza, including a smoke shop and convenience store, full-service gasoline station and restaurant. Out back are his U.S. Customs-bonded warehouse for cigarette imports, Six Nations Manufacturing cigarette factory, licensed stamping operation for his sales in Florida, and a trucking company that delivers cigarettes and motor fuel.

Like many Native American entrepreneurs, Seneca, 50, took advantage of the fact New York state doesn’t collect taxes on the sovereign territories of the Indian nations within its borders. That’s a big advantage now that state taxes are $2.75 a pack.

In recent months, though, the state has been working to end that advantage and find new revenue, echoing the efforts of three former Albany administrations. A comment period ended late last month on proposed regulations that would limit the numbers of cigarettes that wholesalers could deliver to reservations without state taxes, but the regulations haven’t been issued or enforced yet.

And history suggests it’s questionable whether these latest ones will be, either.

“For over 25 years we’ve had various administrations and various legislatures promulgate regulations. It’s made a lot of lawyers rich and the state hasn’t collected a nickel,” said Syracuse attorney Joseph Heath, who represents the Onondaga Nation.

Non-Indian convenience stores, health-related organizations, state legislators and even major cigarette companies all support the latest effort to collect taxes on Indian cigarette sales to non-Indians. Their arguments include the need to create a “level playing field,” provide financial incentives that discourage smoking and generate much-needed tax revenue.

Seneca Nation of Indians is leading the campaign against the effort, citing federal treaties that arguably prohibit the collection of state taxes on Indian lands.

“We have our treaties with the United States that guarantee us certain rights. It doesn’t matter whether a treaty was made in 1842 or 1794, or New York state is $8 billion in the hole,” said Seneca, who is a member of the Seneca Nation’s council and the son of a former Seneca Nation president. “It doesn’t say in the treaty ‘until New York state needs money from you.”’

By at least one estimate, half the cigarettes consumed in New York are purchased from Native Americans who don’t collect and pay state taxes. Seneca, who is a spokesman for the Seneca Nation on this issue, specializes in discount brands that sell for as low as $21.50 a carton. He also carries premium name brands for about $50 a carton. The same cigarettes would cost 50 percent more off reservations.

Estimates of how much potential revenue the state is missing vary wildly. The state’s estimates range from $90 million to $220 million a year, the latter figure supplied by the Department of Taxation and Finance.

Julianne Hart, New York advocacy director for the American Heart Association, uses a figure of $600 million a year. James Calvin, president of the New York Association of Convenience Stores, puts the figure at $1 billion a year. Calvin said the state is using old formulas, tabulated when taxes were a fraction of today’s.

While four state administrations haven’t yet collected taxes from Native American cigarette dealers, they have affected their business, whittling away at delivery methods, stamping agents and use of credit cards for Internet sales. Some sellers went out of business, but Seneca diversified. Half of his sales are now in Florida, where regulations are friendlier, and he makes 1,000 to 2,000 cases of cigarettes a month at Cattaraugus.

“I wanted to put my destiny in my own control,” Seneca said of his diversification. “To do what I needed to do to protect (my business) so I could sustain any encroachment from an outside interest, such as New York state.”