Tax ban extended on Indian cigarettes

U.S. District Judge Richard J. Arcara on Thursday extended indefinitely his ban on state taxation of cigarette sales by the Seneca Nation and other Indian tribes.

But it was not a complete victory for the Senecas and their supporters.

In one of two rulings, Arcara extended a temporary restraining order that prevents the state from collecting taxes on cigarette sales by Indian-owned businesses to non-Indians.

The temporary order, which the judge initially issued during the summer, had been scheduled to end today.

Arcara said Indian tribes throughout the state would "suffer irreparable injury" if he did not extend the temporary order. He said thousands of smoke shop workers would be likely to lose jobs if the state taxation begins now.

The judge also voiced concerns about public safety if he does not extend the order. He said he is concerned about the threat of violence by Indian protesters if the taxation begins.

While his extension of the temporary restraining order is good news for Indian tribes, Arcara also filed a second order in which he turned down some of the arguments that Indian tribes have presented to fight off taxation.

He said lawyers for the Seneca Nation and the Cayuga Indians have "failed to demonstrate a likelihood of success" on their claims that the state taxation plan is unconstitutional.

Previous decisions in federal courts "make clear that the [Indian tribes'] right to tribal self-government is not impeded by New York's decision to impose a tax-collection duty on sales by Indian retailers to non-members," Arcara wrote, "even if that decision carries with it the inevitable consequence that the [tribes'] coffers will suffer as a result of lost cigarette sales."

While Seneca Nation leaders and protesters publicly insist that the state's taxation efforts violate Indian treaties, that argument has not been advanced by the tribe's lawyers in the litigation before him, Arcara said.

In its legal arguments, the Seneca Nation "expressly acknowledges that, as a general principle, New York State has the authority to require reservation retailers to collect excise taxes on sales to non-Indians," Arcara wrote.

"This point is significant. New York estimates that of the 10 million cartons [of cigarettes] sold last year by [Seneca] retailers, less than 70,000 were purchased by Seneca Nation members for their own personal consumption. Under [previous federal court rulings], the vast majority of sales made by reservation retailers are taxable," the judge wrote.

Arcara said he has already been informed by Seneca and Cayuga lawyers that they would appeal his ruling.

In his view, he wrote, the best course of action is to extend his temporary restraining order while a higher court hears legal arguments on the controversial case.

"Shortly before the [tax collections] were to be implemented, parties on both sides publicly spoke about the potential for violence," Arcara wrote. "Given the passionate sentiments involved, the court finds that granting a stay pending appeal is in the public interest because it will simply preserve the status quo while a higher court considers the merits of the [Indian tribes'] claims."

Late Thursday, Seneca Nation President Barry E. Snyder expressed the nation's unhappiness with the decision.

"We are extremely disappointed that the court did not grant us the injunction we were seeking against the state's tobacco tax scheme," he said. "Nevertheless, we are thankful that he granted our motion for a stay pending appeal and the state still cannot enforce their unlawful and improper tax scheme against the Seneca people. This fight is far from over."

The lawsuit filed by the Senecas and Cayugas is not the only case on the issue pending before Arcara; he has similar cases filed by the St. Regis Mohawk tribe and the Unkechauge tribe. Another case filed in Utica by the Oneida Indians is expected to be transferred to him.

The bottom line, according to many court observers, is that the state could eventually succeed in its efforts to tax Indian cigarette sales, but the multiple legal challenges could block taxation for months or even years.

Thursday's rulings are the latest step in a legal fight that has already gone on for decades. Some experts estimate that the state could collect more than $100 million a year on sales from Indian-owned businesses to non-Indians.

But how much money really would be collected by the state?

Speaking in court earlier this year, Andrew D. Bing of the Attorney General's Office estimated that the state could collect $110 million in cigarette taxes from Native American businesses in the first six months after the law takes effect.

But that figure was sharply disputed this week by Reggie Crouse, a Seneca businessman from Salamanca who closed his small smoke shop in June, and by Margaret A. Murphy, a Buffalo lawyer who represents tribal businesses.

"If they start taxing [tribal] cigarette sales, more and more Indians will go out of business, because they won't have that advantage anymore," Crouse told The Buffalo News. "The sales will go way down, and there won't be anything to collect taxes on. Everybody seems to be losing that point."

"The state won't collect a dime in new revenue," Murphy said. "A lot of them will go out of business."

Crouse said he -- and many other Senecas who ran small businesses -- already closed their smoke shops after the federal Prevent All Cigarette Trafficking Act took effect in June.

The new law bars the U.S. Postal Service from delivering commercially sold cigarettes through the mail.

"A lot of us shut down after that, because that's how we sent our product out -- through the mail," Crouse said.