State appeals court allows Indian cigarette tax

BUFFALO - A New York appeals court yesterday lifted a temporary order blocking the state from collecting taxes on cigarettes sold by Native American stores to non-Indian customers, but the impact of the decision was unclear.

On Sept. 1, a state appellate judge in Rochester restored a restraining order that barred the state from collecting the $4.35-per-pack tax. But the court's five-judge panel, which took up the case last week, ruled that the state properly approved regulations for the levy.

A federal judge in Buffalo has already temporarily blocked tax collections from two Indian nations - the Senecas and Cayugas - and was holding a hearing yesterday in that case.

Gov. David A. Paterson's administration last night didn't appear poised to begin collecting the taxes. Asked for a response to the appellate court decision, Tax Department spokesman Brad Maione said, "We are pleased with the decision and will determine the next steps in the coming days."

Tribal leaders say the $4.35-per-pack tax would blunt their competitive edge over off-reservation sellers and devastate their economies.

Unkechaug Indian Nation chief Harry Wallace, who also owns the Poospatuck Trading Post and Smoke Shop, said Tuesday he had not received notice of the lifting of the restraining order. But he pointed to a separate case the Unkechaugs have filed in Western District Court, asking for an injunction to block the taxes. A judge has withheld ruling on the tribe's request until the state appeals court rules on requests by upstate Indian tribes' requests for an injunction.

Wallace said the Unkechaug's will file a formal request for a temporary restraining order with the federal judge today. Until then, he said, "We will continue to carry on as we've always done." Poospatuck smoke shops do not levy the $4.35 state cigarette tax to customers at its Mastic shops.

With Mark Harrington and James T. Madore