ALBANY — A state tax department policy of not enforcing tax collections on Indian cigarette sales was officially rescinded in February by the Paterson administration. But it will still take approval of a new set of regulations before the tax-free sales are halted.

Gov. David A. Paterson announced a proposed set of rules to break the decades-long dispute over tax-free tobacco sales, which critics say could be costing the state as much as $1 billion a year in revenues. The new plan envisions the tax being collected “upstream” at the wholesale level and not at Indian retail shops.

The proposed rules require cigarette manufacturers to sell cigarettes only to licensed stamping agents that certify they are not supplying tax-free retailers, such as the dozens of businesses on the Seneca Nation reservations, with cigarettes missing an official state tax stamp; they face perjury charges for lying.

The latest move comes as the State Senate Finance Committee is poised to issue subpoenas as early as today to a broad segment of the tobacco industry.

Sen. Carl Kruger, a Brooklyn Democrat who has railed against the lost tobacco excise taxes because of Indian and bootleg sales, is targeting nearly every aspect of the cigarette supply chain with a legal request for information that “could fill a dump truck,” said one government source.

The lawmaker wants to get details on the extent of the state’s untaxed cigarette industry; one state estimate has claimed nearly 40 percent of smokers buy untaxed or low-tax cigarettes “regularly.”

The Paterson administration today also will propose legislation to put in statute its new plan to permit a set number of tax-free cigarette sales to the state’s nine tribes for personal consumption by their members.

It would bypass a law already on the books that calls for coupons to be used by Indians to buy their own tax-free cigarettes. The legislation would lift a current injunction imposed by a state court judge in Buffalo against the state’s enforcement of the coupon-based law.

The release of the proposed rules kicks off a 45-day comment period and a review period that could see enactment in six months, according to an administration official. Government sources said any agreements struck in the coming months to resolve the issue with individual Indian tribes could supersede the new rules.

The proposal comes as Paterson also is trying to push through a $1-per-pack excise tax increase, to $3.75, the nation’s highest. The move would further increase the profitability of bootleg and Indian cigarette sales unless a new collection mechanism is adopted.

The new regulations would result in licensed stamping agents, which basically serve as middlemen between manufacturers and retailers, paying the taxes to Albany. Besides certifying they are making only legal, taxable sales, wholesalers would have to list the source of their cigarettes with the tax department.

Manufacturers would have a legal burden, as well, because they would have to collect the certifications from wholesalers — meaning they could not sell their products to any wholesaler unless that supplier has certified to the tobacco companies that they do not sell any illegal tax-free cigarettes.

The Seneca Nation did not comment on the proposal.

“It seems reasonable to me,” Russell Sciandra, director of the Center for a Tobacco Free New York, said of the proposed rules.

The plan also calls for an “adequate” number of cigarettes to be supplied tax-free to Indian tribes for personal consumption of its members. In the case of the Senecas’ 7,967 members, it would mean a total of 167,000 tax-free packs being supplied to the tribe every quarter — or 21 packs every three months for every man, woman and child enrolled as a Seneca.

In all, the state’s nine tribes—with a total of 31,000 members — would receive 648,000 packs of tax-free cigarettes per quarter. Licensed stamping agents would be in violation of state law if they supply an amount beyond the approved allotment for each tribe.