Court Halts Indian Cigarette Tax Plan

Wednesday, Sep 1, 2010  |  Updated 1:45 PM EDT
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Court Halts Indian Cigarette Tax Plan

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High cigarette taxes are driving Chicago residents to buy their cigarettes elsewhere.

CATTARAUGUS INDIAN RESERVATION, N.Y.  -- The latest in a tangled series of state and federal court decisions has halted New York state's plan to collect taxes on cigarettes sold by Native American retailers to non-Indian customers.

A state appellate court judge in western New York on Wednesday restored an order stopping the collections, Gov. David Paterson's office said. An earlier order had been lifted Monday by a state judge, a decision appealed by the Seneca and Cayuga nations.

Those tribes won a federal court order Tuesday temporarily barring collections against them. But the state said it would start imposing the $4.35 per pack levy on other reservation retailers starting Wednesday.

The Senecas staged a rally Wednesday against the tax. The tribes say it violates their sovereignty and threatens their financial well-being.

Attempts to collect the tax in the 1990s resulted in sometimes-violent protests and fires on Seneca territories. State officials have been reluctant to push the issue since then.

Last week, a sign was spotted on an overpass on the Tonawanda Band of Senecas' reservation reading: "NYS declares war 9-1-2010. Let the fires begin!" The band operates independently of the Seneca Indian Nation.

But with New York facing a fiscal crisis, the governor and state lawmakers vowed in June to go after the potential $200 million revenue source by requiring cigarette wholesalers to prepay the taxes before supplying reservation stores.

That would force Indian retailers -- whose tax-free sales have given them a huge competitive edge over off-reservation competitors -- to significantly boost their prices.

Cigarette makers sold 24 million cartons of non-native-brand cigarettes to tribes in New York in 2009, with the Senecas buying the most at 10.2 million, the state Department of Taxation and Finance said. Tribes also sell millions of cartons of American Indian brands.

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