The ongoing war between the State of New York and cigarette sellers is nothing new. Last November, New York City authorities filed a suit against a Chinatown shop that doesn’t collect the $5.85 tax per pack sold because its customers roll the cigarettes on the store’s premises.
Last week, the New York Times ran a story about far bigger cigarette sellers also engaged in the war: New York’s eight federally recognized Indian tribes.
The tribes lost one battle in court that lasted several years. The ruling requires them to pay the cigarette tax on their purchase of name-brand cigarettes from wholesalers, which are located off reservation.
Their latest move: Stop purchasing name-brand cigarettes and manufacture the cigarettes themselves. For example, the Oneidan Indian Nation bought a plant’s equipment and set up shop in a former bingo hall located on the reservation. Tribes are taking the position that as sovereign nations the state’s cigarette tax does not apply to sales made on their reservations.
I think this reasoning may hold if the cigarettes are sold to tribal members. And some are. The problem is that tribes sell their own manufactured cigarettes to non-Indians as well. To me, it sounds like the equivalent of asserting that non-Indian New York residents who gamble at an Indian casino aren’t subject to the state’s income tax on gambling winnings because the activity took place on a reservation. Of course, New York residents must report and pay state income tax on all gambling winnings won at Tribal casinos in the state.
Whether this most recent maneuver by the tribes is a calm before the storm remains to be seen. New York State Tax Commissioner Thomas Mattox has said it’s far more efficient to focus enforcement at the wholesale level as opposed to going store-to-store. Problem is, the wholesale level is shrinking.
Your move, Mr. Mattox.