Separating Fact From Myth Surrounding Taxation of Cigarettes Sold by Tribal Enterprises

ALBANY, NY (09/14/2010)(readMedia)-- Statement From James S. Calvin, President, New York Association of Convenience Stores:

In June, the Legislature and Governor Paterson took the first serious step in many years to end the state's disastrous practice of not taxing cigarettes that stream through tribal reservations into New York commerce. They enacted a law that finally mandates tax collection while providing reasonable mechanisms for tribal members to receive tax-free cigarettes for their own use.

This initiative comes at a critical time for our State. It will close a gaping hole in the tax system that drains enormous amounts of revenue from state and local treasuries, rewards criminal bootleggers, and cripples law-abiding retailers who collect taxes and play by the rules.

Not surprisingly, those who profit from this loophole – the purveyors of untaxed cigarettes – have now filed lawsuits hoping to thwart the State's efforts to turn the page. We are confident the courts will reach the right result. In the meantime, opponents of the Paterson Administration's efforts to do the right thing are putting forth arguments that lack any connection to reality. But as John Adams once said, "facts are stubborn things."

In the interest of bringing the debate back to reality, let me debunk a number of myths that have been floated in recent weeks:

Myth: "Native American "sovereignty" means the state has no power to tax cigarettes sold through tribal sellers to non-tribal members."

Fact: The U.S. Supreme Court has held on no fewer than five occasions that the State has the authority to tax cigarettes sold by Indians to non-Indians. Further, the Court ruled that the State's method for doing so does not unreasonably infringe on the tribes' right to self-govern.

Myth: "Federal law and federal court cases are not binding on Native American tribes."

Fact: Native American tribes are not sovereign relative to the federal government. Native Americans are U.S. citizens, receive all of the benefits of U.S. citizenship, are required to pay federal taxes like all U.S. citizens, and are bound by the rulings of the federal courts – and that includes the U.S. Supreme Court decisions that affirm New York's power to tax goods sold to New Yorkers.

Myth: "New York will have to 'invade' reservation lands to enforce the tax collection."

Fact: The law very carefully avoids tax collection on reservation lands. Instead, it requires non-tribal wholesalers located off reservation lands to pre-pay the excise taxes on all cigarettes they sell, whether they are delivering to a reservation retailer or a non-tribal retailer. The law also provides the tribes with several methods of obtaining tax-free cigarettes for their own use. Systems similar to this one are in effect in numerous other states, and have been repeatedly upheld by the courts as constitutionally sound.

Myth: "Treaties with New York's Indian tribes trump the State's power to collect taxes on cigarettes sold through the tribes."

Fact: Our State courts have already examined these treaties, and ruled resoundingly that they do not entitle any tribe to sell cigarettes to non-Indian customers tax-free. Rather, the treaties preclude the State from taxing Indian commerce with other Indians, and from taxing tribal land.

Myth: "Preserving tax-free sales to non-tribal members will help preserve jobs in Western New York."

Fact: A business model that is rooted in tax evasion, takes away more jobs than it creates, undermines the State budget, and hurts more retailers than it helps is not a sustainable solution to the economy of Western New York – or any other part of the State. Selective tax collection has been a total disaster for New Yorkers:

- The State has allowed about 180 reservation outlets to purchase and resell into New York commerce unlimited supplies of untaxed cigarettes, giving them an enormous price advantage. These outlets now sell one-third of all cigarettes in New York – none of it taxed. That's over 200 million packs per year.

- As cigarette tax evasion has become more pervasive, the 23,000 retailers that do collect taxes have lost hundreds of millions of dollars in sales in the midst of a continued economic downturn, jeopardizing jobs and the very survival of their businesses.

- The abundant supply of untaxed and unstamped cigarettes is also fueling illegal cigarette smuggling by criminal organizations, some with ties to terrorism, and some who sell untaxed cigarettes on street corners across New York.

Once New York State begins collecting this tax, it will recover hundreds of millions of dollars in legitimate revenue, and business and will shift back to retailers and wholesalers who collect taxes in accordance with State law.

No matter how you look at it, the State should collect these taxes. In fairness to all New Yorkers, the time to act is now.

Because this isn't about sovereignty. It's about the law. Plain and simple.