New tax plan targets tribal smokes
Number of untaxed packs would be based on population

Monday, March 1, 2010 12:10 PM CST

SENECA FALLS — New regulations proposed by the state Department of Taxation and Finance would limit the Cayuga Indian Nation to buying and selling 20,100 packs of tax-free cigarettes each quarter.

That number is based on the Cayuga Nation population of 947, according to the 2000 census, and an average per capita cigarette consumption figure. That works out to 21.2 packs of cigarettes for each Cayuga Nation member each quarter.

The tax-free cigarettes would be available for sale to Cayuga members and members of other recognized Indian tribes, but not non-Indian smokers. The regulations would require non-Indians to pay state taxes on cigarettes bought at a tribal store.

The Cayugas operate LakeSide Trading convenience stores and gas stations in Seneca Falls and Union Springs, where tax-free cigarettes are sold to all customers. That practice has been challenged in court by Seneca and Cayuga counties. The case will be argued before the state Court of Appeals March 25.

The proposed regulations, which would be a new section of state Tax Law, were announced this week by Acting Tax and Finance Commissioner Jamie Woodward.

In a written statement, Woodward said the new regulations “would ensure that an adequate quantity of tax-free cigarettes would be available for purchase for the use of each Indian tribe or nation and for personal consumption by members of that tribe or nation.’’

“At the same time, they would prevent the unlimited flow of tax-free cigarettes to Indian reservation retailers,’’ Woodward said.

“The proposal would serve to address long-standing issues that have proved problematic for previous administrations and frustrating for local, non-reservation retailers who have not been able to compete for sales on a level playing field,’’ Woodward said.

The regulations would also mean that cigarette manufacturers could sell cigarettes to a licensed cigarette stamping agent only when the agency certifies that the sale is in compliance with the Tax Law.

Each September, the Tax Department would determine the annual amount of untaxed packs of cigarettes for each Nation for the forthcoming 12-month period, beginning Dec. 1.

The count of tribal members used in the formula will be census data, increased by 10 percent to allow for potential undercounting.

The tribe’s adjusted population number would then be multiplied by average annual cigarette consumption, then pro-rated quarterly beginning in December, March, June and September. The quarterly consumption amounts would then be rounded upward to accommodate cases of 300 packs of 20 cigarettes.

The numbers are subject to adjustments based on evidence provided by the Indian tribes as to their actual cigarette consumption for those periods.

Other tribes and their estimated quarterly untaxed cigarette pack allotment, based on population, include:

• Oneida Indians, 31,200.

• Onondagas, 60,600.

• Senecas, 168,600.

• Poostatuck, 8,100.

• Shinnecock, 40,500.

• Tonawanda Band of Senecas, 5,700.

• Tuscarora, 21,900.

• St. Regis Mohawk, 291,600.

Woodward also revoked an advisory opinion issued March 16, 2006. Current court injunctions that prevent the Tax Department from enforcing the tax laws related to sale by stamping agents to reservation sellers and reservations sales at the tribal level to non-Indians remain in place.

Along with these proposed regulations, Gov. David A. Paterson will soon propose legislation to clarify the Section 471, sub-section 4 of the Tax Law, the basis for the certification process. That is independent of the mechanism see out in Tax Law Section 471-e.

The Tax Department will accept comments from any interested party on the proposed regulations within 45 days of the publication.

The complete text of the regulations and other contact information can be found at

Philip Spellane, lawyer for the two counties in the sales tax litigation, said he recalls the regulations being proposed in the past and then abandoned.

“It’s not a novel idea. It’s good they are trying to work out a resolution to collect these taxes,’’ Spellane said.

“I know there’s a lot of pressure from all sides and this issue will not go away,’’ Spellane said.

He declined to comment on whether the regulations would be a good solution to the problem, citing the pending litigation on the issue.

Cayuga Nation representatives could not be reached for comment