More controversy over soft drink tax
Critics say proposed 18 percent surcharge would give Indian retailers unfair advantage
ALBANY — The battle over taxfree cigarettes and gasoline on Indian reservations is now expanding to another commodity: soda and other sweetened drinks.
Gov. David A. Paterson intends to impose an 18 percent surcharge on soft drinks, on top of more than 8 percent in existing state and local sales taxes already collected in most counties. That would give Indian retailers who don’t collect the taxes an unfair advantage for the beverages, critics say.
The proposed tax imposes a surcharge on all nondiet soda. So a $1 bottle will have an 18-cent extra levy before adding the existing sales taxes. The proposal also would hit an array of other soft drinks, such as punches and sports beverages, that do not contain at least 70 percent natural fruit juice.
“It is continuing to put us at a competitive disadvantage,” said Michael Newman, executive vice president of NOCO Energy Corp., which runs 32 convenience stores in Erie and Niagara counties.
No one predicts the Indian retailers would enjoy the same sort of booming Internet trade selling taxfree soda as they do with cigarettes. But they say people living near Indian reservations will stock up on soft-drink purchases at Indian shops to save 25 percent or more in state taxes and surcharges.
“Our stores in Erie County would have a price disadvantage of 26.75 percent,” James Calvin, executive director of the New York Association of Convenience Stores, said of the proposed surcharge and existing sales tax rate.
The plan, contained in the governor’s 2009 budget package, already has been attacked as a regressive tax that will disproportionately hit lower income New Yorkers and as an example of government trying to inappropriately dictate personal choices by hiking the costs of a product.
Paterson proposed the surcharge for two reasons: to fight what he says is a growing obesity epidemic, especially among children, and to raise money for the state, which faces a $15.4 billion deficit. In a full year, the surcharge would be worth an estimated $550 million for Albany.
But business and labor groups have been heavily lobbying lawmakers to reject the “obesity tax,” arguing the governor’s plan will eat heavily into sales, and thereby affect jobs at grocery stores, beverage centers and convenience stores.
Retailers have complained for years about Indian stores that do not charge state cigarette and gasoline taxes. Some lawmakers estimate the state loses at least $1 billion a year in tobacco taxes from tax-free sales made by Indian Internet, mail order and smoke shop operations.
Now, just weeks after Paterson signed a bill that could begin the process of collecting the tobacco taxes, the non-Indian retailers say they don’t understand why the governor wants to give the Indian shops a new leg up on competitors.
“Our concern is that it gives our customers another incentive to desert our stores and purchase from tribal stores — it’s making the playing field even more lopsided than it already is,” said Calvin of the state convenience stores association.
Barry Snyder Sr., president of the Seneca Nation, declined to comment, a spokesman said.
In his written version of the State of the State speech last week, Paterson talked of making new ties with the state’s Indian tribes, which he said “have suffered for far too long from a debilitating and unproductive relationship” with the state.
Paterson did not elaborate on what the comments mean for the state’s tobacco tax collection efforts.
But Morgan Hook, a Paterson spokesman, said the governor hopes to enter into agreements with the various tribes to end the long dispute over taxfree sales.
“What the governor is looking to do is come to a broad, negotiated settlement with the Indian nations. He’s talked about specific terms of cigarette taxes and in terms of gasoline. If this [beverage surcharge] law were to be adopted, this would fall into that category. This would be part of his global negotiations with the Indian tribes,” he said of the obesity tax.
Hook said he questioned whether consumers would go out of their way to buy the cheaper, tax-free beverages on Indian reservations.
“He sees this as a health initiative more than anything else,” Hook said of the surcharge.
The governor’s legislation states that the intent of the surcharge is to “discourage excessive caloric intake, reducing prevalence of obesity and related chronic diseases.”
But lawmakers already have been looking at ways to kill the obesity tax and many others in the more than $4 billion in new tax and fee increases Paterson has proposed. Unlike many of the other taxes, the beverage surcharge creates a unique set of problems, because of the taxfree sales by Indian retailers, some lawmakers say.
“The more items that you create price differentials on, the more you’re going to hurt small businesses,” said State Sen. Michael Ranzenhofer, an Erie County Republican.
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