$130m Expected From Indian Cigarette Taxes Stubbed Out: Awkward!

The New York legislature’s scheme to bolster the state’s coffers by forcing Indian nations to collect taxes on cigarettes sold on reservations has gone up in smoke.

The state’s tax collectors were recently calling around to convenience-store owners, wondering what happened to the tax dollars that were supposed to be rolling into the state, the New York Post reported January 12. The state had projected $130 million in extra taxes – and included that amount as revenue in the current budge – but the money didn’t show up. Post columnist John Crudele wrote that he has a memo which was sent to members of the New York Association of Convenience Stores from its President Jim Calvin that said, “I got a call from Gov. Cuomo’s budget office yesterday. In examining cigarette tax receipts so far this fiscal year (April 1 to March 31) it looks like they will fall considerably short of their projection in new revenues. …”

The state has tried unsuccessfully during decades of tobacco wars to force sovereign Indian nations to collect taxes on the cigarettes they sell to non-Native customers in Indian country, but the nations have resolutely refused to be tax collectors for the state. The N.Y. Department of Taxation and Finance launched a new effort in early 2010 by amending the state’s cigarette tax law and companion regulations to require wholesalers and distributors to pay the $4.35-a-pack tax upfront on all cigarettes sold to reservations. Prior to the new law, Indian nations could order unstamped, untaxed cigarettes to sell on the Internet or to customers who travelled to reservations to buy their tax-free smokes. The idea of the new law was to force Indian tobacco businesses to collect the taxes on all the cigarettes they sold and then go through an onerous process to get a refund for the tax exempt cigarettes sold to Indians. The new law also included a quota system limiting the number of tax-exempt cigarettes a nation could buy based on the number of enrolled members.

The Seneca Nation of Indians challenged the legality of the law and managed to delay its implementation, but ultimately lost the case. Both the Seneca Nation and the Oneida Indian Nation responded to the new law by announcing they would no longer buy the famous brand cigarettes manufactured by the Big Tobacco companies of Philip Morris (Altria), Reynolds-American and Lorillard. Instead they would manufacture and sell their own brands of cigarettes.

“While the state may be able to embargo through taxation premium brands from entering our territory, it cannot tax the brands made in our territory or any of the Six Nations,” Seneca President Robert Odawi Porter said.

The new law is having a negative impact on cigarette wholesalers and employment numbers, according to Crudele. “Wholesalers say sales are down between 20 percent and 30 percent among legitimate cigarette sellers,” Crudele wrote. “State enforcement of the tax laws, meanwhile, has been lax, to say the least. New York, I’m told, has reduced the force working on illegal cigarettes by 80 percent since the tax hike went into effect.” According to the memo Crudele received, the state budget office said cigarette tax revenues were the same in October and November as the year before. “That seems to mean that Albany is $130 million short on its $130 million projection,” Crudele wrote.

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0m Expected From Indian Cigarette Taxes Stubbed Out: Awkward!

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