Paterson revisits Indian cigarette tax issue

Gov. David Paterson is again positioning New York state to begin collecting taxes on cigarettes sold on Indian reservations, revisiting a budget issue perennially overshadowed by emotion.

The governor said Tuesday he would order his tax department to draft regulations to enforce a 2008 law intended to stop wholesalers from selling untaxed cigarettes to tribes.

That would force Indian retailers who currently don't charge the state's $2.75-per-pack excise tax and 4 percent sales tax to pay more to suppliers up front and ultimately raise their prices.

Paterson said it is a matter of fairness to non-Indian stores who do charge the taxes, especially now that he has proposed raising the excise tax to $3.75 per pack in the fiscal year beginning April 1.

A pack of Marlboros was selling at a Buffalo gas station for $7.91 Wednesday, compared with $5.09 at a western New York smoke shop.

"This is no disrespect to the Indian nations," Paterson said in his budget address to lawmakers in Albany. Non-Indian stores, he said, "need an opportunity to survive."

Paterson's budget proposal does not yet anticipate any revenue from reservation sales to non-Indians because the regulations are not in place, but supporters of the tax collection plan, including the New York Association of Convenience Stores, estimate the state would raise hundreds of millions of dollars a year.

NYACS President James Calvin said research shows that about half of all cigarettes smoked in New York are bought tax-free.

"There's been this enormous drain of business and customers away from our stores," Calvin said Wednesday.

Paterson's plan to set regulations for enforcing the 2008 law, to be followed by a six-month public comment period, would allow New York to ask a state Supreme Court judge to lift a 2009 order blocking enforcement of the law. The order was granted after an Indian retailer and northern New York distributor argued the state had not established a system to tax non-Indians while exempting Indian customers.

In the meantime, Paterson said he would continue to negotiate with the state's tribal leaders toward a peaceful tax-collection plan.

Two previous efforts to tax reservation sales, in 1992 and 1997, resulted in members of the Seneca tribe of western New York blockading state highways, setting fires and clashing with troopers.

Seneca President Barry Snyder Sr. has said future violence would not be condoned. Following Paterson's budget address, Snyder indicated a willingness to discuss the issue with the state, but he and others made clear their position that centuries-old treaties exempt them from the state's tax rules.

"We will not be the state's tax collectors and we will defend our freedom regardless of the cost," Snyder said.

A spokesman for the Oneida Nation in central New York predicted "more costly litigation."

"The state is facing a budgetary crisis and is again looking for Indian nations to become the state's tax collector to solve that crisis," spokesman Mark Emery said.