Before you cut the budget, collect the tax. It’s about the law.
For many years, tribal smoke shops have been allowed to sell untaxed and unstamped cigarettes into New York commerce. As the state and New York City excise taxes have risen, this loophole in the tax system has severely damaged the State. It has cost New York billions in lost revenue, has drained business from retailers all over the State who sell tax-paid stamped cigarettes and has fueled rampant contraband cigarette trafficking run by criminal organizations.
With the help of retailers, wholesalers, and many other businesses and organizations across this State, the Legislature last year enacted amendments to the Tax Law that mandated the end of this loophole by September 1, 2010. Unfortunately, litigation by tribal smoke shops has delayed enforcement. But the Cuomo Administration has been steadfast in its defense of this new law, and in its desire to promptly begin enforcing the law and collecting the tax.
On March 31, 2011, the New York State Legislature passed a state budget a day ahead of the deadline. Legislators were faced with some tough decisions, and were forced to make deep cuts in order to close a $10 billion budget deficit.
But there was some good news in this difficult budget. The budget included a projected $130 million in anticipated revenues the state will receive once it begins collecting excise taxes on tribal cigarette sales – something Governor Cuomo has said he is committed to doing, that last year’s Legislature enacted a law to ensure, and that is being prevented only because of baseless litigation filed by organizations related to the tribal smoke shops.
The fact is, New York stands virtually alone among all other states in its practice of not collecting any excise taxes on cigarettes sold through Native American reservations to non-tribal members. This non-enforcement policy has never made sense. Today – in the midst of a budget crisis in which fundamental programs such as Medicaid and education are being cut – this policy is about to be permanently retired, once the Courts lift all remaining impediments to enforcement.
Unfortunately, certain tribal organizations filed lawsuits in state and federal courts trying to block this from going into effect.
These organizations succeeded in securing federal court injunctions that prevented immediate enforcement. But on May 9, 2011, a
federal appeals court issued a sweeping decision that rejected all of the tribes' federal challenges to tax collection, and lifted all of the federal injunctions. The federal appeals court confirmed that the State does have the power to tax and regulate the sale of tobacco products to non-tribal members.
The tribal smoke shops' response to this federal court decision was to file yet another request for an injunction, this time in New York state court. The day after the federal court decision, the tribes secured a temporary order in state court that blocks enforcement until a hearing scheduled for June 1. Now the tribes argue that the State's Department of Tax and Finance did not follow administrative procedure when issuing the regulations that put the new law into effect. But they are wrong. And we are confident that the state court will reject these arguments once and for all shortly.
New Yorkers should not be forced to make any more sacrifices, the funds from tribal sales could be used to prevent further budget cuts and more tax increases.
The State Needs to Close the Loophole.
Before you cut jobs, before you cut essential services, and before you raise any tax, close the loophole and collect existing taxes.
Here are some facts that emerged from a recent New York Senate Committee hearing on the issue of uncollected cigarette excise taxes:
- The State allows about 180 reservation outlets to purchase and resell into New York commerce unlimited supplies of untaxed cigarettes, rather than exempting state excise taxes for tribal member only.
- These outlets now sell one-third of all cigarettes in New York – none of it taxed. That's over 240 million packs per year – or about the same volume that moves through the entire State of New Jersey.
- The retailers that do pay taxes – some 22,000 in all – have seen their business shrink, at a time when they and their employees are facing an already brutal economy.
- The abundant supply of untaxed and unstamped cigarettes is fueling illegal cigarette smuggling by criminal organizations, some with ties to terrorism, and some who sell untaxed cigarettes on street corners in New York City.
- If the State begins collecting these taxes, the New York will recover hundreds of millions of dollars in revenue, business will shift back to retailers and wholesalers who pay their taxes and important state services will no longer be threatened with severe budget cuts.
No matter how you look at it, the State should collect these taxes. The New York Legislature has spoken. The federal courts have affirmed the State’s power. In fairness to all New Yorkers the time to act is now.
Because this isn’t about tribal sovereignty. It’s about the law. Plain and simple.