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State To Restrain Cigarette Tax Push

The administration of Gov. Andrew M. Cuomo said Friday that, for the time being, it will not move ahead with new tax-collection efforts against the growing trade in Native American-manufactured discount cigarette online and emphasized that it has no intention of sending state tax agents onto Indian territories.

Instead, state agents will focus on major brand-name cigarettes, which have generated increased sales tax revenue in the past month since an appeals court gave the approval for the state to end tax-free tobacco sales.

In all, the state contends it will raise an additional $27 million in tax revenue this year by enforcing a long-stalled law to end tax-free sales to non-Indians on Indian reservations.

The collection statistics, revealed earlier this week in The Buffalo News, reflect the administration's intent to enforce the tax law, Lt. Gov. Robert J. Duffy told reporters Friday in the Capitol.

But Duffy also suggested that the state is seeking to discuss the thorny issue involving Indian-made cigarettes, noting that he had spoken Friday with Seneca Nation President Robert Odawi Porter.

"In areas that there is a clear difference of opinion, our hope is to resolve those quickly, through communication at a table, not negotiate away or negotiate areas we have a clear, legal right to do, but I think we've had a very strong relationship [with tribes] and the governor wants that to continue," Duffy said.

In recent years, Native American tobacco merchants increasingly have sold reservation-made online cigarettes at prices far lower than those charged for domestic "premium" brands. At least four manufacturers are operating on Seneca territories, and the Oneida Indian Nation has a production facility on its Central New York reservation.

Since an appeals court on June 21 approved enforcement of a state law requiring all cigarettes store sold in the state to have a tax stamp -- costing $4.35 per pack -- major wholesalers have sharply cut back on supplying brand-name discount cigarettes to Indian retailers.

In the legal view that Duffy affirmed Friday, Cuomo clearly has argued that all buy cigarette online -- including those made by Indians -- are subject to taxation under the new law.

Porter, the Seneca president, said the four manufacturing facilities on Seneca lands are federally licensed and can move their goods without being subject to state taxation. Federal treaty rights, he also maintains, prevent the state from taxing Seneca commerce.

"We will never take any action to collect state taxes or allow the state to do so on our territory. That is not something that's open for discussion," Porter said in a statement Friday. Suggesting a new legal battle in the future, Porter noted that courts never specifically have dealt with the issue of taxing cheap cigarettes made on Indian land.

"Finally, the Seneca Nation wants to reiterate that tobacco taxes are not an 'Indian problem.' The problem is created by New York's excessive taxing of tobacco products and its open borders," Porter said. The state's cigarette tax is the nation's highest, resulting, in recent decades, in sharp increases of tax-free sales by Indian tribes, as well as bootleggers who bring in tobacco products from other states, particularly in the South, with lower tax rates.

Friday afternoon, the Cuomo administration also released details of an unusual memorandum of understanding between the State Police and the state Department of Taxation and Finance intended to spell out new protocols for cooperating in the crackdown on the illegal cigarette trade.

In the memo, the tax agency agreed that, if its agents suspect a violation of the tobacco tax law, they will convey the information to the State Police or local law enforcement agencies in a timely manner.

"The [State Police] or local law enforcement will then, within a reasonable time, make a determination as to the appropriate law enforcement response," the memo says.

In 1997, the last time the state tried to collect the tobacco taxes, then-Gov. George E. Pataki quickly retreated after violent confrontations between Indian protesters and state troopers shut down the Thruway.

A recent internal memo from a top tax department official ordered agents not to seize Indian-made cigarettes online leaving reservations in the state.

The Cuomo administration earlier this week distanced itself from the memo, though Duffy and other officials confirmed parts of the strategy Friday.

The administration estimated the tax value of the cheap cigarette online seized in recent weeks at $1.2 million. Since the June 21 lifting of the restraining order, the state, as reported Wednesday in The News, has conducted 357 retail inspections and seized, with federal agents, nearly 20,000 cartons of cigarettes lacking tax stamps or bearing counterfeit ones. The state could not immediately provide a comparison with seizures in the comparable period last year.

State Tax Commissioner Thomas Mattox said no inspections have occurred on Indian reservations.

Duffy affirmed that point, saying, "I don't think anyone goes on tribal lands to take any enforcement activities at all."