THE STATE MAY SPLIT CIGARETTE TAXES WITH INDIANS

By Sabrina C. Mashburn

Since New York instigated its tax-driven war on cigarettes in 1999, New York lawmakers have been intent on ensuring that all New York smokers pay that tax, no matter where they choose to buy their cigarettes. Even those who buy their cigarettes on line are subject to taxation and frequently receive bills from the State for the taxes they did not pay. Other states followed suit, and began demanding that smokers who bought their cigarettes from out of state retailers pay the taxes. In Washington, Seattle resident Scott Adams received an $8,000 bill for back taxes on cartons of cigarettes purchased out of state. However, there was a way to get around all of those taxes — buying cigarettes at nearby Native American reservation smoke shops.

Beginning in 1999, hundreds of jobs were created as cigarette sales plummeted in local convenience stores and soared in reservations, where smokers could buy the same brands, tax-free. Currently, Native Americans are not required to pay taxes on the wholesale cartons they purchase. However, in 2003, Governor George Pataki was urged by the NY State Association of Convenience Stores and other cigarette dealers who blamed their plummeting sales not on the new taxes, but on the Native Americans whose cigarette sales, soared after the implementation of the tax. The Governor decided that he would require Native Americans to pay taxes to the cigarette manufacturers only on cartons allotted for sale to non-Native American smokers.

Each establishment would be allowed to purchase a certain number of tax-free cartons with special stamps for sale only to Native Americans. All other cartons would be taxed as they would at any other establishment. Although other states such as Arizona had implemented similar plans, the Governor’s plan was met with such dissent from both the smoking community and New York’s Native American community that he decided to extend the decision deadline until it fell beyond the end of his term. During his campaign, Governor Elliott Spitzer supported the plan, winning the support of convenience and grocery store owners and employees statewide. In response, the Seneca Nation launched a vigorous advertising campaign, accusing New York of trying to break a centuries-old treaty to steal hundreds of Native jobs. They even threatened to purchase cigarette wholesaler A.D. Bedell & Co. in order to avoid paying the tax. But tribes with fewer resources than the casino-bolstered Seneca, such as the Shinnecock, would have no way to avoid the new tax and many Native Americans feared that hundreds of jobs would be lost when their cigarettes were the same price as those sold at every convenience store across the nation. Those jobs, stores such as Gristedes, argued, were created in 1999 as a reaction to the taxes non-Native stores were forced to charge and that they rightfully belonged to those who had the jobs before the tax was implemented. Gristedes even threatened to sue Long Island tribal officials and the tribes themselves for taking tobacco business away from the local branches of the chain.

Last week, Democratic Senator Jeff Klein submitted a 28-page report detailing an even more radical plan to combat the discrepancy. The Senator, who is based in Westchester, points to the fact that although cigarette taxes have steadily increased since 2002, revenues from cigarette sales have plummeted. He suggests that reservation smoke shops are to blame for the lost revenue, and he thinks that the only way to level the playing field is to offer Native American tribes a potentially lucrative deal. Instead of forcing Native Americans to pay taxes directly to cigarette manufacturers and then pass those taxes on to their clients, Klein believes that Native Americans should still be able to purchase tax-free cigarettes. However, packs sold to non-Native Americans would be subject to the same state tax as cigarettes sold off the reservation. Instead of the state collecting the entire tax, the state would split the tax with the tribe 50/50, although powerful tribes such as the Seneca probably would not benefit from this deal, as they have built their business around selling cigarettes at drastically reduced prices and are financially secure. For less powerful tribes such as the Shinnecock, this deal might mean the difference between having the funds to go forward with even more lucrative projects and staying in the same situation they are in right now.

If the tax were equal to the regular state tax, however, reservation outposts that are less convenient to drive to than the corner gas station could become obsolete. So far, Senator Klein has plans to introduce State legislation to try to get his proposal moving. With the support of Governor Spitzer, there is a chance this proposal could become a law in the near future. What this will mean to local Native American tribal economies is unknown as of yet, but it can’t be good.