New York State - two federal judges continue to prevent the collection of taxes on cigarettes sold by Indians..

October 19, 2010 - Rulings by two federal judges will continue to prevent the state of New York from collecting taxes on some Indian cigarette sales while tribes continue their legal fight against an issue that has caused tension for decades, reported the Associated Press.

But Governor David Paterson's administration said Friday, October 15th the state is closer than ever to settling the issue after one of the judges confirmed the state's right to tax reservation cigarette sales to non-Indian customers and said doing so would not infringe on tribal sovereignty. "It's time for decades of court battles to come to an end," Paterson spokesperson Morgan Hook said.

U.S. District Judge Richard Arcara on Thursday, October 14th denied the Seneca and Cayuga Indian Nations' request for a preliminary injunction against the tax, saying it was unlikely that the western New York tribes could substantiate their claims that it would overburden them and impinge on their sovereignty. Arcara, in a separate order, granted a delay in the start of collections to give the tribes time to follow through on a promised appeal of his ruling. A temporary order was set to expire Friday. (New York State - federal judge, worried about the violence that may result extends indefinitely ban on state taxation of cigarette sales by Indians..)

Another U.S. District Judge's (in Utica, NY) decision in a separate case brought by the Oneida Indian Nation was less favorable to the state.

Unlike his counterpart in Buffalo, Judge David Hurd agreed with arguments that the state's plans to require wholesalers to pre-charge tribal retailers the $4.35-per-pack tax are unconstitutional and granted a preliminary injunction blocking enforcement against the central New York tribe. Hurd noted that the Oneida Nation would have $3.5 million tied up in prepaid taxes at any given time because it maintains an inventory of 80,000 cartons. "The harm from permitting the state to enforce its new tax law will be irreparable to the Oneida Nation," he wrote.

He also granted the Oneidas' request to send the case to mediation in hopes of a quicker final resolution.

Arcara, in extending his temporary ban on taxing Seneca and Cayuga sales, cited the possibility of layoffs among the 3,000 employed in 172 Seneca Nation smokeshops and said he did not believe the state would be hurt by the delay. He also noted predictions that there could be violence if the tax takes effect and said it was in the public interest to suspend the plan.

The last time the state tried to collect the tax, in 1997, protesters lit tire fires and shut down a 30-mile stretch of the New York state Thruway that bisects Seneca land near the Pennsylvania line. Since then, governors have followed a policy of "forbearance" allowing tax-free sales to continue despite state law saying the tax should be collected.

The St. Regis Mohawk tribe in northern New York and Poospatucks of Long Island also are challenging the taxation of sales to non-Indian customers in cases pending before Arcara.

State tax officials had planned to begin collections on September 1 as a way to generate $110 million in revenue this fiscal year and $200 million a year after that. Wholesalers would be required to prepay the sales taxes before supplying Native American stores, forcing them to pass along the charge to tribal retailers, who in turn would have to raise their prices and lose their competitive edge over off-reservation convenience stores.

Cigarette makers sold 24 million cartons of nonnative-brand cigarettes to tribes in New York in 2009, with the Senecas buying the most at 10.2 million, the state Department of Taxation & Finance said. Tribes also sell millions of cartons of American Indian brands.

Reference: Tribal Cigarette Tax Delay Continues
Judges' rulings prevent state of N.Y. from moving forward with collection, CSP (Convenience Store/Petroleum) Daily News, 10/19/2010.

Some related news briefs:
New York State - federal judge, worried about the violence that may result extends indefinitely ban on state taxation of cigarette sales by Indians..;
New York State - tribal lawsuits may be merged within federal court..;
U.S. Supreme Court - rejects appeal from Indian merchant who wanted an Idaho Supreme Court ruling overturned..;
New York State - now the Oneida Indian Nation gets restraining order from federal judge.;
New York State - state court clears way for state to collect cigarette tax - on to federal court..;
New York State - U.S. District Judge extends order blocking state from collecting taxes, hearing Sept 14th..;
New York State - cigarette tax collection from Native American sales pushed off until 5-judge panel decides..;
New York State - Seneca Nation and other Indian Tribes get injunction from federal judge delaying tax collection on cigarettes..;
New York State - Governor Patterson will not tax cigarettes sold among Native Americans..;
New York - Senecas asking for Bloomberg to resign over remarks he made..;
New York State - Seneca Indian Nation files sued to block enforcement of a plan to collect cigarette taxes..;