ALBANY -- Just two days after seizing a truck owned by a Seneca Nation businessman and the thousands of cartons of untaxed cigarettes inside it, the state tax department backed down Wednesday.

Amid mounting criticism by Seneca leaders, the Paterson administration retreated and said it would return the truck and the cigarettes to Aaron J. Pierce following the seizure Monday by agents along a rural road between the tribe's Allegany and Cattaraugus reservations.

"The department determined that while the stop and seizure were indeed lawful, a review of the facts we've obtained in the last 48 hours has led us to advise their counsel that the vehicle and their contents are going to be returned," said Brad Maione, a tax department spokesman.

Maione said there will be no prosecution of the truck owner, contrary to the suggestion he made a day earlier after what he said was the transportation of illegal cigarettes on public roads off the reservation.

"We were investigating, and some facts came to light since we seized the vehicle, and it was determined that it was within our discretion to return it to the owner," he said.

Maione would not specify which facts had surfaced.

Seneca leaders said the state had no legal right to stop the flow of commerce between its reservations. The small truck was taking tax-free cigarettes -- embossed with Seneca Nation stamps but not state tax stamps -- from the Cattaraugus Reservation to the Allegany and Oil Springs reservations.

The seizure came as the state is gearing up to put an end to tax-free cigarette sales on Indian reservations as soon as Sept. 1 under a new law passed this legislative session in Albany.

"I think it was a wise decision on their part to back down," said J.C. Seneca, a Seneca Nation tribal councillor and tobacco businessman.

"It should open the eyes of a lot of people that the state's continued aggression in regard to trying to stop our commerce here on the territory is just continuing. Hopefully at some point, they're going to realize this is not a path that is going to be productive, that they are going down a path of conflict."

Seneca said that after the seizure of the truck owned by AJ's Wholesale, the state tried to blame the federal government, but the federal government said it had no knowledge of the seizure. Seneca said the governor's office told Seneca representatives it knew nothing about the incident.

"Everybody was finger-pointing everybody else," he said.

Seneca said he was giving the state "the benefit of the doubt" that the seizure was not planned in advance and may have involved what he called a "rogue" agent.

But he said the agents involved confiscated the truck and cigarettes, leaving the driver and a pile of candy bars that had been in the truck stranded along a country road between the Cattaraugus and Allegany reservations.

A lawyer for Pierce did not return calls to comment. Pierce has been among the Seneca business owners challenging a new federal law cracking down on mail-order, tax-free cigarette sales.

The state is set to start collecting taxes on Indian cigarette sales to non-Indians on Sept. 1. The state, in its 2010 budget, is banking on at least $150 million in revenues from the collection effort. Seneca leaders have said they will not cooperate with the latest bid to stop the tax-free sales and say their businesses are protected by treaties dating back to George Washington.

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