Court OKs taxation of Indian cigarettes

ALBANY - A federal appeals court on Monday cleared the way for New York State to begin collecting hundreds of millions of dollars in taxes on cigarettes sold on American Indian reservations.

The ruling by the U.S. Second Circuit Court of Appeals in Manhattan allows the state Department of Taxation and Finance to collect taxes from the Unkechaug tribe in Mastic and the Seneca, Mohawk, Cayuga and Oneida tribes across the state. In doing so, the court unanimously said the tribes were unlikely to ultimately win their legal fight against the state. The court also said tribal sovereignty claims do not apply to the issue.

Gov. Andrew M. Cuomo welcomed the decision and said New York would begin collecting the taxes "immediately."

"The [U.S.] Supreme Court has long recognized that Indian tribes possess attributes of sovereignty over both their members and their territory," Judge Richard Wesley wrote for the court. "The situation is different, however, when a state seeks to tax non-Native Americans who engage in economic transactions on a reservation.

"A state's interest in ensuring collection of taxes on cigarette sales to non-Indians continues to outweigh a tribe's countervailing interests . . . " Wesley said.

With the state excise tax at $4.35 per pack, hundreds of millions of dollars are at stake. This year's state budget counts on collecting at least $100 million in revenue from reservation sales.

The Oneidas said they will move to sell only brands made on their own homelands. Those are not subject to the tax, even when sold to non-Indians.

The attorney for the Unkechaug could not be reached to comment.

The Unkechaug Nation has 25 licensed smoke shops on its lands in Mastic, according to court papers. In trying to calculate what he called the proliferation of cigarette-tax evasion, Wesley wrote that Unkechaug retailers bought about 5 million cartons of untaxed cigarettes from wholesalers in 2009, and 3.5 million from January to June in 2010.

Jim Calvin, president of the New York Association of Convenience Stores, noted that the tribes can apply to bring the case to the U.S. Supreme Court but thinks the ruling will be a landmark in the long running tax fight.

"We're reasonably confident the state will begin collecting the taxes as soon as it can," Calvin said.