Legislature moves to collect taxes on reservation cigarette sales
ALBANY — Surprising lobbyists on both sides of the issue, state lawmakers gave final passage Friday to a measure that would end tax-free cigarette sales by American Indian retailers to non-Indians.
The bill, which had died in the State Senate in June, unexpectedly was resurrected and passed without any debate Friday during a one-day special session of the Senate. It seeks to obtain what lawmakers say could be at least $400 million in taxes not now collected.
“The only thing worse than taxes are taxes that are unevenly collected,” said State Sen. Michael F. Nozzolio, RSeneca Falls, who sponsored the bill.
Late Friday, leaders of the Seneca Nation of Indians, considered the country’s kings of tax-free cigarette sales, already were threatening legal action, even though the measure still requires the signature of Gov. David A. Paterson.
“I think it’s going to be tough for the governor to be talking about cutting services and raising taxes and fees and not collecting at least $500 million that’s already due,” said Russell Sciandra, director of the Center for a Tobacco Free New York.
The governor, however, offered no insight on what he will do.
“We will review the bill and seek input from interested parties once it is sent to the governor,” said Risa Heller, a Paterson spokeswoman.
The bill could be sent to the governor next week, or next month, depending on Assembly Speaker Sheldon Silver, whose chamber now controls when the bill is delivered to Paterson.
In other action, the State Senate:
• Approved a package to limit annual property tax increases by school districts to 4 percent, or 120 percent of the inflation rate, whichever is lower. The action, however, was considered a symbolic effort in an election year because the Democratic-controlled Assembly already has said it will not approve such limits.
• Gave final passage to a bill encouraging the removal of lead paint hazards from homes built before 1978 through tax credits to cover 50 percent of the cost. The credits would be limited to $1,500 per property and $5,000 per taxpayer. It also includes expanded lead screenings for pregnant women and children younger than 2.
The cigarette legislation bans tobacco manufacturers from selling cigarettes without a state tax stamp to wholesalers who do not certify that they will not resell the cigarettes without applying the state tax. Wholesalers, however, still could supply untaxed cigarettes to Indian retailers for sale to Indians, who legally can purchase cigarettes tax free. How many of such untaxed cigarettes can be sold to Indians remained unclear.
Sources say efforts were under way to amend the measure approved Friday to ban all sales of untaxed cigarettes and to establish a refund system for Indian purchasers.
Lawmakers previously have approved measures to end tax-free sales. But the last three governors— Mario M. Cuomo, George E. Pataki and Eliot L. Spitzer — have backed away from their own promises to collect the taxes.
The state faces a $630 million deficit this year and more than $6 billion next year.
The head of a tobacco wholesale group claims the state loses $1.7 billion a year through tax-free cigarette sales by American Indian retailers.
Arthur Katz, executive director of the New York State Association of Wholesale Marketers and Distributors, estimated that these retailers now sell about 40 million tax-free cigarette cartons a year from reservations in the state.
With state excise taxes at $27.50 per carton and New York City taxes at $15 per carton, the tax avoidance business is booming, especially after the state recently raised its tax by $1.25, to $2.75, per pack, he said.
“It’s a good bill, and we support it very strongly,” Katz said of the legislation passed Friday. The trade group has been lobbying against the tax-free sales, in part, because of reports that some terrorist organizations have been raising money by selling cheap cigarettes.
Seneca Nation President Maurice A. John Sr., said the tribe will “pursue all legal remedies to enforce our federal treaty rights to sovereignty.” The Senecas call the tax-collection effort an affront to treaties dating to the 1700s.
John said the measure would damage a $200 million retail economy in Western New York.
Indian tribes, led by the Senecas, say they never will cooperate with tax-collection efforts.
In 1995, the last time the state tried collecting the tax, violent protests erupted along the Thruway, which was shut down during clashes between Indian protesters and state troopers.
“This is definitely going to put the issue on his plate,” Sciandra said of Paterson. “And given the current fiscal situation of the state, there’s going to be a lot of pressure on him to finally be the governor who bites the bullet and confronts this issue.”
