Thorny issue of Indian tax shifts Albany gaze to D. C.
ALBANY — State officials, led by Gov. David A. Paterson, signaled a growing interest in letting Washington solve New York’s long-standing problem of what to do about tax-free cigarette sales on Indian reservations.
A day after revelations that Paterson sent a letter to federal prosecutors seeking a “threat assessment” if the state taxes were collected, the governor called the thorny situation a federal issue — a suggestion that he will not unilaterally act to resolve the matter.
In a public meeting with legislative leaders to discuss the state’s $3.1 billion budget deficit, the topic of collecting the taxes came up as one possible solution to closing the gap.
Assembly Speaker Sheldon Silver, D-Manhattan, said that it is “fair” for the public to ask, “How much money, if any, can be reasonably expected from the collection of those taxes? And is there a plan to move forward consistent with the law?”
Paterson, in response, dismissed some of the “bloated projections” involving how much the state could reap if the taxes were brought in. Lawmakers have said $1 billion is lost each year by Albany to Indian sales of tax-free cigarettes.
“No state has collected more than $75 million from Indians,” Paterson said.
Advocates of the tax-collection effort, though, have said New York is a major tax-free haven for Indian retailers, especially those on the Seneca Nation reservations, because of the state’s relatively high tobacco tax rate and large population base.
“The issue of collecting taxes from the Indians is a law enforcement issue, and very much a federal issue,” Paterson said.
Paterson last month asked U. S. attorneys in Buffalo, Syracuse and Brooklyn for an assessment of the possible threats — like the violence that occurred the last time the state tried to collect the taxes in 1997 — if he were to end the tax-free sales. Several laws have been passed over the years to end to tax-free sales, but a string of governors, including Paterson, has refused to enforce the provisions.
In 1994, the U. S. Supreme Court helped make it a state issue, ruling that New York has a legal right to collect taxes on tobacco sales by Indian retailers to non-Indians.
But Assembly Minority Leader Brian M. Kolb, R-Canandaigua, told Paterson and the legislative leaders that “the Native Americans are wards of the federal government, and the federal government is really the entity that has the most leverage with the Native American tribes.”
Instead of enforcing the current state laws, Kolb suggested that Paterson talk with the state’s congressional delegation in Washington for help.
Kolb also rejected suggestions by some lawmakers that the uncollected taxes could go toward helping the state solve its current budget problems.
“We’re not going to collect any taxes this year, so that’s not going to happen,” Kolb told Paterson at the meeting in the Capitol. “So let’s focus on really solving the problem at the federal level, and I’m imploring you to bring this up to the congressional delegation.”
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