Indians Cigarette Tax Fight Smolders

Feb. 27, 2004 -- The last time the Seneca and New York State squared off, it ended with the Indians closing highways across the reservation with blazing mountains of tires.

In that 1997 confrontation, the state finally gave up on its effort to force the Seneca to turn over taxes from sales of cigarettes to non-Indians. But with New York facing a projected budget deficit of $5.1 billion, some lawmakers see the hundreds of millions of dollars estimated lost each year on Indian cigarette sales as money it now needs.

It's an issue being faced all across the country, and it's not just a question of tax revenue. Non-Indian stores near reservations that rely on cigarette sales as a large part of their business say they are hurting because they cannot compete. And anti-smoking groups have joined the fight, too, saying the lower prices charged by the Indian stores encourage people to smoke.

In Idaho, the state has tried without success to force Indian stores to collect the $5.70 per carton sales tax on cigarettes, but several tribes have introduced their own taxes. The Shoshone-Bannock, for example, charge $3 a carton.

In Rhode Island, the Narragansett are appealing a federal court ruling that they must collect state sales tax. The conflict came to a head last July, when the tribe stopped collecting the $1.72 per pack tax, and state police raided their store, arresting several members.

Oklahoma state officials are trying to get around the issue by revoking the sales tax on cigarettes and instead increasing the excise tax 52 cents per pack. The change would have to be put to a statewide vote. Backers say $100 million of the $130 million it is expected to raise will be put into health care, including the construction of a new cancer center.

Seeking Good Faith

In New York, the fight is in limbo. The state legislature passed a measure requiring that taxes be collected from Indian store owners last year, and Gov. George Pataki vowed to begin having the tax of $1.50 per pack collected from Indian-run stores on Indian lands on March 1.

Last month, though, as the Seneca began a multimillion-dollar public relations advertising campaign accusing the state of wanting to break a 162-year-old treaty with the tribe, Pataki backed off, calling on the legislature to agree to a one-year moratorium so that a "parity agreement" to have the Indians charge their own tax could be worked out.

"These are complex negotiations and the governor wants to deal with the tribes through good faith and cooperation, not confrontation," said Michael Marr, the spokesman for the governor's budget office.

Confrontation was exactly what the state got the last time Pataki tried to collect these taxes from the Seneca. In 1997, members of the tribe closed sections of the New York State Thruway that cross their lands, and responded with force when state police tried to open the road. The standoff lasted for weeks before the state backed down.

But while Pataki, a Republican, may be looking for a compromise, the leader of his party in the state senate is not. State Sen. Joseph Bruno, the majority leader, has said he is not inclined to support the governor's moratorium.

"This was in the budget last year," Bruno spokesman Mark Hansen said. "The whole issue was debated last year and the senator believes this is legal."

What Pataki wants to work out with the state's Indian nations is a parity agreement whereby Indian-run convenience stores and gas stations would charge taxes on cigarettes and gasoline equivalent to the sales taxes required of businesses off the reservations, but the proceeds would go to the Indians, not the state.

The purpose of a parity agreement would be to let non-Indian businesses compete, Marr said.

The Seneca say the issue isn't competition, unfair or otherwise — though they admit the competitive advantage they get from not having to charge the state taxes on cigarettes and gasoline has allowed small tribal businesses to thrive for the first time.

The issue, according to tribal counselor Arthur Sugar Montour, is the Seneca Nation's sovereignty, and its treaty agreements with New York State and the U.S. government.

"The fundamental question here is the treaties, which have explicit language that our land should be free from all taxes," Montour said. "We feel that means we do not have to pay taxes on products sold by us and we should not have to collect taxes."

A Unique Nation?

Court rulings have tended to lump all states and Indian nations together when addressing sales tax issues, but the Seneca say that is not the right approach, because not all treaties Indians signed were the same.

The U.S. Supreme Court ruled in 1994, in Department of Taxation and Finance of New York v. Milhelm Attea & Bros., Inc., that Indian busineses were not required to collect tax on sales to members of the their own tribes, but that they were liable for sales tax on items sold to non-Indians.

That ruling, Montour said, does not take into account what he said is a unique treaty signed by the Seneca and New York State, the Compromise Treaty of 1842. That treaty, he argued, has language which specifically protects the Seneca from having to pay or even collect taxes.

"Our feeling is that New York State should have to live up to their side of that agreement," Montour said. "We lived up to our side of the agreement — we gave up huge tracts of land, including the area that is now the city of Buffalo."

He pointed out that the Senecas turned over $38 million in taxes from the casino they run in Niagara Falls as they are required to by treaty that they agreed to with the state.

"Although we're facing a tax fight, although we're facing treaties being broken, we still firmly believe that the Seneca Nation has always lived up to its word and always will live up to its word," Montour said. "Don't you think we could have used that $38 million to install sewage systems or building housing or new schools?"

On the other side, the New York Association of Convenience Stores and the Fair Application of Cigarette Taxes Alliance launched a grassroots effort, having store owners post signs at their stores and asking other supporters to put placards on their lawns calling on people to support the drive to have the state collect taxes from the Indian store owners.

The store-owners group has been joined in the fight by the Center for a Tobacco Free New York, whose director, Russell Sciandra, said lower prices contribute to more people smoking cigarettes.

Though the groups say the non-Indian store owners' inability to compete has devastated businesses near Indian lands, the focus of their campaign has been on the cost to the state from uncollected tax revenue, which a study the alliance commissioned estimated at $895 million in 2002. They say they oppose a parity agreement.

John Mohawk, a professor of American Indian studies at the State University of New York at Buffalo who happens to be a Seneca, says he believes the Indians have the law on their side because of the 1842 treaty, but suggests that all tribes should be looking for a better business than cigarette sales.

"I think the two sides should consider that the cost of the conflict is greater than the benefit to either, and they really ought to work something out," he said. "I think they ought to compromise somehow so that the small Indian cigarette dealer can survive. It is very likely, though, that in the long run the cigarette business is not where you want to be anyway."