NY Cigarette Tax Legislation Approved — Will Tribes Negotiate, Sue or Protest?

If the state of New York thinks collecting $150 million in revenue from the new tax imposed on cigarettes sold on Indian reservations is a sure thing, it could be in for a surprise.

The new law, approved on Monday, makes cigarettes sold on reservations to non-Indians taxable. It also increased the per/pack tax by $1.60, bringing the total per/pack tax statewide to over $5.00, and upped the tax on all other tobacco products to 75 percent of the retail price. The law goes into effect on Sept. 1.

The governor's office has the power to negotiate tax-collection plans directly with the tribal leaders, according to a story published by WGRZ-TV in Buffalo on June 23, and at least one tribe, the Oneida, appears willing to negotiate.

Although tribal leaders don’t want to take the state to court, failure to negotiate an agreement that works for both sides may leave them no choice.

There is always the chance too that tribal people could react as they did when the state tried to enforce such a tax in 1997: with protests.

"The big unknown is how the people on the reservations will react," Robert Batson, a lawyer-in-residence at Albany Law School's Government Law Center, told WGRZ. "It's a matter of whether they'll react like they did 13 years ago or if they'll accept it or if they make another legal challenge."

Tax on Cigarettes Sold on New York Reservations to be Voted on Today

Today, state lawmakers in New York will be voting on legislation that would make cigarettes sold on Indian reservations to non-Indians taxable.

The proposed law, which is expected to pass, is included in New York Gov. David Paterson's latest in a series of emergency spending bills aimed at decreasing the state’s $9.2 billion deficit.

The bill also would increase the tax on a pack of cigarettes by $1.60, making the total per/pack tax $4.35 (the highest in the nation), and would raise taxes on other tobacco products.

Tobacco sales is major source of income for tribes and tribal members in the state. To say the least, they are outraged by this proposed law.

J.C. Seneca, owner of Native Pride, which sells cigarettes and other tobacco products on the Seneca reservation, was quoted as saying in an article published by YNN Rochester on June 19, “We have treaties that have guaranteed us tax immunity, and, certainly, they need to uphold those treaties; they need to recognize and honor our sovereignty and leave us alone.”

Seneca also told YNN that the actions of the governor in the last week alone have set tribal relations with the state back two decades.

Appeals Court Closes Tribe’s Sales Tax Loophole

The 9th U.S. Circuit Court of Appeals ruled invalid the business strategy by the Barona Band of Mission Indians to avoid the sale tax and has ordered the tribe to pay more than $200,000 to state in sales tax.

In 2001, the tribe recruited contractors for the $75 million casino project, promising to protect the contractors from legal liability when they agreed to a contract that called for sales of taxable construction products to be completed on tribal property—which is outside the jurisdiction of the state. Read more about it here.