VERONA, N.Y. – The state’s latest attempt to compel Indian retailers to collect state taxes on cigarettes sold on sovereign tribal land violates federal law and should not be enforced against Indian tribes, the Oneida Indian Nation told a federal court in a lawsuit filed against state officials.
The lawsuit names New York Gov. David Paterson, the Department of Taxation, and Taxation and Finance Acting Commissioner Jamie Woodward and Office of Tax Enforcement Deputy Commissioner William Comiskey as defendants and asks the court to issue “temporary, preliminary and permanent injunctive relief to protect the Oneida Nation from the enforcement and damaging effects of the state’s illegal scheme for taxing cigarettes sold by the Oneida Nation and other Indian tribes.”
Desperate to plug New York’s multi-billion dollar deficit, the state claims it would gain around $200 million in annual revenues from Indian cigarette sales.
The state cigarette taxes are now $4.35 a packet.
The new law would force the nation to hand over to the state around $2.5 million annually as an upfront “deposit” on cigarette taxes sold to non-Indians, the lawsuit says.
Furthermore, the state would hold and use the nation’s money without paying interest or other compensation, resulting in an additional loss of around $150,000 a year, calculated on a conservative six percent interest, the court document says.
The taxing plan violates “clearly established federal principles barring direct state taxation of Indian tribes and barring, specifically in the context of cigarette taxation, imposition of more than minimal burdens on the sovereignty and self-government rights of Indian tribes, which include the rights to be free of direct state taxation and interference with the tribal right to purchase tax-free cigarettes for tribal use,” the lawsuit says.
The suit was filed in the U.S. District Court of the Northern District of New York Sept. 7.
The legal clash is the latest action in the state’s two-decades-old attempt to expropriate taxes from sovereign Indian nations. The plan requires all cigarettes sold on Indian reservations to have an “an affixed cigarette stamp.” That means the taxes would be pre-paid by wholesalers and suppliers and passed on to Indian retailers.
Nations could opt into a tax exemption coupon system for cigarettes sold to their members or be subject to a “prior approval system.” In either case, the state sets up a quota system that determines the number of tax-exempt cigarettes an Indian nation citizen can smoke – roughly seven packs a month.
But the new law fails to protect the right of the nation and its members to buy untaxed cigarettes for their own use because a non-Indian wholesaler could go online and claim the entire quota of the nation’s untaxed cigarettes without the tribe having ordered them or block the cigarettes from being distributed by a supplier that the tribe chooses.
“A non-Indian wholesaler who wants to claim an Indian tribe’s business or wants to prevent the tribe from selling can perpetually claim the quote,” the lawsuit says, calling the state system “ill-conceived, unworkable” and with no protection against misuse.
“The deficiencies of the system create a substantial likelihood that members of the Oneida Nation will be denied their right to purchase tax-exempt cigarettes. There is no mechanism for verifying whether an agent or wholesaler’s claim on some or all of a particular tribe’s allotment is based on a legitimate purchase order, or any purchase order at all. … Thus the agent or wholesaler claiming the quota will be the sole source for ‘tax free’ cigarettes, allowing that wholesaler to set artificially high prices. … Members of the tribe will ultimately bear virtually the same financial burden they would if they purchased state-taxed cigarettes, which, in effect, means that they will be paying the tax,” the lawsuit says.
The state’s latest efforts to collect taxes from sovereign Indian nations may spur an expansion of Native manufacturing and control over all aspects of the Indian tobacco economy.
Last month, the Oneida Nation announced that it will relocate its western New York cigarette manufacturing plant to tribal land where it plans to manufacture Bishop and Niagara brand cigarettes and be free of any state attempts at taxation.
The nation said it will not buy any cigarettes that have the “affixed cigarette stamp” as of Sept. 1 when the state’s new tax laws were slated for implementation.
The Oneida lawsuit is the latest action in what appears to be a coordinated – and complex – tactic of multiple legal actions by several Haudenosaunee nations to thwart the state’s latest attempts to force cigarette tax collection on the tribes.
The action follows a meeting last month of about 100 tribal chiefs, council representatives and officials of the Six Nations of the Haudenosaunee (Iroquois Confederacy) at the Rochester Institute of Technology in West Henrietta, N.Y.
The meeting was called to formulate a unified response to the state’s taxation threat and strategy to defend the nations’ treaty-protected sovereignty. In attendance were leaders from the Oneida Indian Nation, the Onondaga Nation, the St. Regis Mohawk Tribe, the Seneca Nation of Indians, the Tonawanda Seneca Nation, the Cayuga Nation, and the Tuscarora Nation.
Since then, U.S. District Judge Richard Arcara has issued a temporary restraining order against the state’s Sept. 1 tax plan implementation in response to a separate legal action filed by the Seneca and Cayuga nations. The TRO will remain in place pending hearings on other legal challenges brought against the state.
Among those challenges is a lawsuit filed Aug. 31 by the St. Regis Mohawk Tribe in U.S. District Court for the Northern District of New York, asserting that the state’s tax scheme violates the tribe’s right to self-governance in contravention of federal law.
In another action, a state appellate court judge has temporarily kept in place a preliminary injunction ordered in January 2009 by a State Supreme Court judge, which stops the state, and anyone charged with enforcing the state’s tax laws, from restricting state stamping agents from selling unstamped cigarettes to reservation cigarette sellers, or restricting reservation retailers from selling unstamped cigarettes to tribal and non-tribal members.
Neither the Oneida Nation nor the governor’s office commented on the lawsuit.
Editor’s note: Indian Country Today is a division of Four Directions Media, which is owned by Oneida Nation Enterprises, LLC.
