New York takes aim, again, at tax-free reservation tobacco sales
New law would put pressure on cigarette manufacturers
ALBANY — The state will try a new tactic in an effort to collect taxes on sales of tax-free cigarettes sold by Indian retailers.
Negotiators said Friday a legislative deal that will be ready for passage Monday in the Senate and Assembly would make it illegal for a tobacco manufacturer to sell cigarettes to any wholesaler who has failed to agree to stop selling tax-free cigarettes to Indian retailers, such as those on Seneca Nation reservations.
The question is, if the measure is approved and signed by Gov. David A. Paterson, will it be enforced? Or, like another similar law approved several years ago, will the administration ignore collection of the tax?
Supporters believe the law could result in the state reaping more than $400 million in cigarette excise taxes currently lost to tax-free sales.
Tax-avoidance schemes are expected to worsen since the state this month raised its excise tax by $1.25 to $2.75 per pack and even higher in New York City — a prime destination for many Seneca Nation products — where taxable packs of cigarettes are selling for more than $8.
The cigarette bill was stalled in recent days, and sources said Paterson administration officials sent signals to the Legislature not to act on the controversial issue in the waning days of the 2008 session. A bill making it illegal for manufacturers to sell tax-free cigarettes had been on hold for several weeks.
But Friday, negotiators unexpectedly came up with a new approach that was drafted into a bill to be introduced by the end of the day Friday and ready for voting on Monday when the Legislature returns for its final day, or days, of the current session.
The new provision states that manufacturers cannot sell tobacco products to a wholesaler unless the wholesaler provides a certification to the tobacco company and the state Department of Taxation that it is not supplying a tax-free retailer. The wholesaler would be subject to criminal perjury charges if the certification is false.
Assemblyman William Magee, D-Nelson, who has pushed the tax collection effort for years, said Friday that there have been discussions with the Paterson administration on the issue.
“Hopefully, we’re going to do something that they’re on board with,” he said.
Paterson earlier this year said he wanted to devise a plan to bring in the uncollected tax money — especially with the state facing a $21 billion projected deficit over the next three years.
The Paterson administration said Friday that talks are under way on addressing the issue for a final bill before lawmakers leave town.
“We believe the current statutory enforcement provisions are flawed and should be amended, including placing greater restrictions on manufacturers,” said Risa Heller, a Paterson spokeswoman. “This needs to be done in a way that is workable, and we are working with the Legislature to achieve that goal.”
Magee said he expects the measure to pass both houses before they break next week.
“The need for the legislation is to enforce the law,” he said. “Yes, Native Americans themselves don’t have to pay taxes, but the courts have ruled that there’s no reason why they should be allowed to sell tax-free cigarettes to others — and certainly in these economic times, we should collect all taxes.”
Russell Sciandra, director of the Center for a Tobacco Free New York, called the measure “a very good tool” to collect the tax.
“But still, every law needs to be enforced,” he said.
James Calvin, executive director of the New York Association of Convenience Stores, said he is wary that the new measure leaves it up to the Tax Department to create a certificate letter that wholesalers would have to sign to confirm they are not selling to tax-free retailers. He noted the tax agency has failed to follow a previous law involving tobacco tax collections.
“If we couldn’t count on the Tax Department to follow the last law, how do we count on them to follow up on this? If the Tax Department chooses to drag its feet into eternity, then nothing happens,” Calvin said.
Seneca Nation leaders have vowed to not be part of any cigarette tax collection effort and say such moves by the state violate Native American sovereignty. They point to treaties going back to George Washington that give them special rights to sell goods tax free.
Seneca officials did not respond to attempts for comment Friday.
