Judge blocks NY's bid to tax cigarette sales

ALBANY - A federal judge Tuesday blocked temporarily the state's latest attempt to collect sales tax on cigarettes sold by Indians to non-Indians, though it was unclear whether the decision applies to all tribes.

The temporary restraining order, from U.S. District Court Judge Richard Arcara in Buffalo, came hours before the 12:01 a.m. start of a new tax payment system. Hoping to prevail in the courts and avoid past violence on reservations, New York wants to collect the $4.35-per-pack tax from non-Indian wholesalers - through sale of tax stamps - before cigarettes reach Indian retailers.

Arcara only mentioned the Seneca and Cayuga tribes that brought the lawsuit, which alleges New York is infringing on Indian sovereignty.

The Unkechaug of Mastic filed a separate suit before the same judge but no restraining order has been issued, according to court documents. A lawyer for the Unkechaug did not immediately return messages.

Lance Gumbs, a trustee of the Shinnecock of Southampton and smokeshop owner, said he believed the Seneca-Cayuga order applied statewide.

Lawyers for the Seneca and Cayuga, through a spokeswoman, disagreed, saying the judge's decision only affects them. They said the restraining order covered at least two weeks.

Aides to Gov. David A. Paterson were vague about whether the ruling applies to all tribes.

"We believe that ultimately the state will prevail in this matter," said spokeswoman Jessica Bassett. "Starting [today], it will be against the law for licensed stamping agents to sell unstamped cigarettes to any nation or tribe other than the Seneca and Cayuga."

However, it wasn't clear whether New York would enforce the law after years of not doing so. Tax Department spokesman Brad Maione said only "we will abide by the judge's decision."

Seneca leader Barry Snyder Sr. called the collections "an illegal, ill-conceived attempt by New York State to use the Seneca Nation, and other Indian nations located within its boundaries, as piggy banks to balance the state budget."

Paterson proposed in January collecting tax on Indian cigarette sales as a way of raising more than $100 million to close a $9.2-billion deficit. Lawmakers approved the plan in June as part of this year's $136-billion budget. The same legislation also raised New York's cigarette tax by $1.60 per pack to $4.35, the nation's highest.

That hike has further accelerated the exodus of shoppers from non-Indian retailers to those on reservations, who charge far less for cigarettes because state tax isn't tacked on.

"Without closing off the channels for smokers to dodge the tax, the state is hurting convenience stores and other sellers not on Indian land," said James Calvin, president of the state Association of Convenience Stores. "There has to be fairness, the law has to be enforced."

With Mark Harrington