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ALBANY – New York’s failure to impose excise taxes on Indian reservation cigarette sales does not relax the financial obligation of the nation’s largest tobacco company under a landmark 1998 settlement by the cigarette industry and 46 states, a three-judge arbitration panel ruled Wednesday.

The decision means tobacco companies, which alleged they were put at a competitive disadvantage because of Albany’s refusal to tax Indian cigarette sales, will have to pay $92 million they withheld in settlement payments due to the state for 2003.

The ruling was hailed by Attorney General Eric Schneiderman, whose office defended the state against the claims by a who’s who of tobacco companies, including Philip Morris USA, R.J. Reynolds and more than a dozen large cigarette makers.

“Big tobacco companies contribute to the deaths of thousands of people every year, in large part by luring more and more young people onto cigarettes. Finally, these companies will be required to reimburse the state for money spent treating New Yorkers made ill by their deadly product,” Schneiderman said.

The case could be a favorable precedent for the state, which is still facing arbitration challenges by the tobacco industry for every year since 2003. The $92 million award affects only the payments due the state for that one year.

At issue is a claim by the tobacco companies – which signed onto a historic 1998 settlement that has driven more than $70 billion in payments to the 46 states – that New York failed to “diligently enforce” the law through its failure to collect taxes on Indian reservation cigarette sales. Since 1998, “participating manufacturers” in that settlement have seen their sales volume in New York drop while Native Americans, especially those on the Seneca Nation reservations, have experienced a financial bonanza by both not having to pay excise taxes or to make any annual payments to New York like those signing onto the 1998 deal.

The decision Wednesday by a panel of three retired judges involved New York and 14 other states. But the panel’s ruling said “New York is in a class by itself” because it is the only one where the contested issue involves failing to impose taxes on Indian sales.

In writing for the three-member panel, Fern Smith, who is from San Francisco, said “New York cannot be faulted for not collecting escrow on untaxed cigarettes when the statute on its face did not require collection of escrow on cigarettes that were not taxed.” She said New York has a history of “forbearance” in not collecting taxes on Indian tribes dating back to the 1930s.

Moreover, she noted the trouble that arose when New York did try to collect the taxes; the last such effort was in 1997 when then-Gov. George E. Pataki briefly tried to enforce a tax law. He backed off after violent battles between state troopers and Senecas and others along the Thruway.

New York and localities have gotten about $11.5 billion in settlement proceeds since the 1998 agreement.

David Sutton, a spokesman at Virginia-based Altria Group, parent company of Philip Morris, the world’s largest tobacco company, noted that the company won six of the 15 arbitration cases on Wednesday and will be credited with $145 million in overpayments. Moreover, he noted the company already paid New York the full amount owed in 2003 so that no new money will actually be coming the state’s way as a result of the ruling.

email: tprecious@buffnews.com