Judge halts tribes' cigarette sales tax collections

ALBANY - A state appellate judge Wednesday temporarily stopped New York from collecting taxes on cigarettes sold by Indians to non-Indians, expanding a prohibition that only affected two upstate tribes.

Associate Justice Samuel Green in Rochester suspended all collection efforts until a panel of judges hears arguments on Sept. 9 about whether to issue a preliminary injunction. His decision effectively blocks New York from implementing a new tax payment system, set to begin Wednesday, with all tribes, including the Unkechaug of Mastic and Shinnecock of Southampton.

The Seneca and Cayuga secured a temporary restraining order Tuesday from a federal judge in Buffalo. But U.S. District Court Judge Richard Arcara did not issue an order in a separate lawsuit brought by the Unkechaug.

Arcara is to meet Thursday with lawyers about a preliminary injunction.

The Tax Department acknowledged the court decisions had postponed collecting the cigarette tax, which was increased by $1.60 per pack to $4.35, starting July 1. "As of [Wednesday], the state will not be enforcing or implementing the 2010 statute and regulations," the department said on its website.

Responding to Green's ruling, spokeswoman for Gov. David A. Paterson, Jessica Bassett, said, "the state's legal arguments are sound and we believe that ultimately the state will prevail . . . We look forward to further procedures to lift this injunction."

Seneca president Barry Snyder Sr. responded, "Now all Indian nations within New York are protected from the state's collection efforts, while efforts continue in both state and federal courts to continue our challenge of the state's misguided taxing scheme."

Paterson hopes to raise more than $100 million from Indian cigarette sales to balance this year's $136-billion budget. His predecessors, Govs. Mario Cuomo and George Pataki, attempted to collect taxes on reservation sales but quickly retreated in the face of violent outbursts in 1992 and 1997.

The tribes, led by the largest cigarette seller, the Seneca, have denounced Paterson for allegedly undermining Indian sovereignty. About 100 people protested peacefully Wednesday on the Cattaraugus reservation, south of Buffalo.

Separately Wednesday, the state Association of Convenience Stores called on Paterson to suspend the higher cigarette tax for all retailers until the Indian controversy is resolved. The tax is the nation's highest and has driven more smokers to buy cigarettes from reservation stores.

"The double-edged bargain you made with the legislature in June was to sharply increase the cigarette tax rate . . . but to mitigate its negative effect on tax-collecting retailers by capturing taxes on tribal sales to non-Indians," said James Calvin, association president. "If one side of this bargain has been placed on hold, it's only fair that the other should be put on hold as well."