New York State - federal judge rules in favor of the state but still can't start collecting sales tax; no mediation..

November 15, 2010 - A federal judge has sided with New York in the latest ruling in a dispute over the state’s plans to tax most Indian reservation smokeshop sales, but collection of the tax is on hold for now. U.S. District Judge Richard Arcara in Buffalo denied a request to block the state from collecting a sales tax on cigarettes sold to non-Indians. But he froze his decision so the two tribes who sought the order can appeal.

Arcara’s ruling Tuesday, November 9th in a case brought by the Unkechaug and St. Regis Mohawk tribes mirrors an earlier decision in a challenge by the Seneca and Cayuga nations. The decisions mean New York still can’t start collecting the $4.35-per-pack sales tax until a higher court, the Second Circuit Court of Appeals, hears the issue.

It’s unknown how long the appeals process will take.

In all, five New York tribes are challenging the state’s decision to require cigarette wholesalers to prepay the sales taxes before supplying reservation stores. Wholesalers would pass along the levy to tribal retailers, who would have to raise their prices.

The cash-starved state anticipates $200 million a year in revenue from the tax. The tribes argue the regulations would interfere with their rights of tribal sovereignty, make it hard for members to buy tax-free cigarettes and devastate tribal economies that depend on the sale of lower-priced cigarettes to fund programs and services.

In denying a preliminary injunction to the Unkechaugs of Long Island and St. Regis Mohawks of northern New York, Arcara said that, like the Senecas and Cayugas of western New York, the tribes had not demonstrated a likelihood of success on the merits of their claims, a requirement for issuing such an order.

But Arcara did acknowledge that the Indian nations would be harmed by the ruling and so issued a stay halting collection of the new tax pending appeal.

The state immediately appealed the stay.

Also, in a relater matter - Judge Arcara will not allow a cigarette taxation lawsuit filed by an Indian tribe against New York state to go to mediation. In a ruling issued this week, Arcara said that — for now, at least — he will not let federal mediators try to work out an out-of-court agreement between the Unkechauge Indian Nation, based on Long Island, and the state.

“It is doubtful that any court-ordered negotiations would be successful at this juncture in the litigation,” Arcara wrote in a decision filed Tuesday, November 9th.
The judge denied the mediation request “without prejudice,” meaning the Unkechauges could make another request for mediation at a later time.

The state says it wants to collect $4.35 a pack from the Indian businesses, the same amount it now collects from non-Indian businesses such as convenience stores, drugstores and grocery stores.

References: Federal judge sides with NY state in Indian smokeshop tax fight, Associated Press, 11/10/2010; Mediation barred for cigarette suit by Dan Herbeck, NEWS STAFF REPORTER,, 11/14/2010.

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