Jan. 27, 2010

Governor to get tough on cigarette tax

The Paterson administration will soon advance new tax regulations to begin the collection of excise taxes on cigarette sales by Native American retailers, a top aide to Gov. David A. Paterson said Wednesday. The move was sharply condemned by a top Seneca Nation leader.
The release of the regulations will start a six-month clock for public comment, which means the state could begin collecting the taxes as early as July.
While advocates of collecting the tax expressed some skepticism about another governor promising to break the long dispute with Indian tribes, they also said Paterson’s move is the first major step on the issue in years.
“The governor will enforce the law, and we are taking steps necessary to do that. There shouldn’t be any doubt about that,” said Peter Kiernan, the governor’s counsel.
In the meantime, Kiernan said, the state will continue what he said are serious negotiations with a number of tribes, including the Seneca Nation, to try to reach “price equality” arrangements in which the price of a pack of cigarettes would be the same on and off reservations.
But J.C. Seneca, a tribal councilor and co-chairman of the Seneca Nation Foreign Relations Council, rejected the Paterson administration’s claims that there are talks with the Senecas to resolve the tobacco tax dispute.
“At no time, never, when I’ve been at the table have we been negotiating anything with the state,” said Seneca, who has meet with Paterson and his lawyers on at least two occasions.
“I don’t think we’d ever sell tobacco products at the same price as off-reservation. That would not be beneficial to our retailers or our economy, because we wouldn’t have any. If the governor and Legislature had their way, we’d be out of business. It would be devastating to our economy and the economy of Western New York,” he said.
“They need to leave us alone and let us do our business and create opportunities for our people,” Seneca added.
The governor Tuesday proposed a $1-per-pack tax increase — to $3.75, the nation’s highest — in order to help bring money to the cash-starved budget. But the budget plan also included a vow to end the state tax department’s “forbearance” policy of not enforcing laws already on the books to collect the cigarette taxes.
“The governor concluded he could not raise the tax by a dollar, which would further exacerbate the unfair competitive landscape that exists between sellers on non-Native and Native land, without taking the next logical step in pursuit of our policy, which is price equality,” Kiernan said.
The state has two tax-collection laws on the books that have been halted by a court order. The most recent, signed by Paterson in 2008, would put the legal burden on wholesalers to ensure that all cigarettes they sell to retailers have a state tax stamp affixed to the cigarette packs. Kiernan said there are only about four wholesalers who sell tax-free to the New York tribes. He said the intent of the governor’s plan is to ensure the provisions of that law are followed by the wholesalers.
The issuance of the regulations is, Kiernan said, a first step in the state’s plans to get the injunction against the tax collections lifted. 
“Our fervent wish is that during the next six months, while the regulations are out there for comment, that we will conclude a lot of these negotiations” with Indian tribes, Kiernan said.
Russell Sciandra, director of the Center for a Tobacco Free New York, said the governor’s plan will put him in a better negotiating position with some tribes. “He clearly has strengthened his hand,” Sciandra said.
Sciandra questioned, though, what incentive the Seneca Nation, the top Indian sellers of tax-free cigarettes in the United States, might have in cutting any deals for price equality with the state.
Non-Indian retailers checked their enthusiasm. 
“It’s a mix of hopefulness and skepticism,” said James Calvin, executive director of the New York State Association of Convenience Stores. “History has taught us to be skeptical of any new promises coming from the governor’s office on this issue. There’s a long trail of deliberate delay, deceit and broken promises, primarily by Gov. Paterson’s two predecessors.”
If lawmakers agree, the $1-per-pack tax hike takes effect June 2. That, though, would be before any collection effort, giving Indian retailers an even bigger pricing advantage, Calvin noted. He said Paterson should collect the Indian taxes before considering a tax hike.
Seneca said the Paterson move will harm relations with Native Americans. “We’re going to hunker down and dig in. If the state is going to take a position that they want conflict and controversy, then that’s what they are going to get,” he said.
Seneca said he is considering proposing his own six-month comment period about whether to give the state access to the Thruway that cuts through the tribe’s Cattaraugus reservation.
“He’s talking out of both sides of his mouth,” Seneca said of Paterson’s plan to move to collect the tax but negotiate with the tribes.