NY Indian Nations Return to Court in Tax Challenge

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    The Tonawanda Seneca Nation in N.Y., Monday, Aug. 23, 2010. Tensions are rising as the state nears the Sept. 1 start date to collect taxes on cigarettes sold by Indian tribes. (AP Photo/David Duprey)

    Two New York Indian nations will return to federal court in their challenge of the state's plans to begin taxing reservation cigarette sales to non-Indian customers.

    U.S. District Judge Richard Arcara granted a temporary restraining order last week barring the state from enforcing the $4.35 per pack tax against the Seneca and Cayuga nations of western New York.

    A separate order by a state judge temporarily barred the levy for all the tribes in the cigarette business.

    On Tuesday, lawyers in the federal case will return for a procedural conference.

    Cash-strapped New York state believes it will raise $200 million a year by requiring cigarette wholesalers to pay the sales taxes before supplying reservation stores. Reservation retailers see it as an attack on tribal sovereignty.