A legislative deal being considered by the New York Senate and Assembly would make it illegal for tobacco manufacturers to sell cigarettes to any wholesaler who won’t stop selling tax-free cigarettes to Indian retailers, The Buffalo News reported.
Supporters believe the law could result in the state reaping more than $400 million in cigarette excise taxes currently lost to tax-free sales, the newspaper reported.
Tax-avoidance schemes are expected to worsen after the state this month raised its excise tax by $1.25 to $2.75 per pack and even higher in New York City, a prime destination for many Seneca Nation products. In New York City, taxable packs of cigarettes are selling for more than $8.
The cigarette bill was stalled last week, and Paterson administration officials sent signals to the Legislature not to act on the controversial issue in the waning days of the 2008 session, the newspaper reported.
A bill making it illegal for manufacturers to sell tax-free cigarettes had been on hold for several weeks. The new provision says manufacturers cannot sell tobacco products to a wholesaler unless the wholesaler provides a certification to the tobacco company and the state Department of Taxation that it is not supplying the products to a tax-free retailer. The wholesaler would be subject to criminal perjury charges if the certification is false.
This past Friday, negotiators unexpectedly came up with the new approach, which was drafted into a bill to be introduced by the end of the day Friday and ready for voting on June 23, when the Legislature returns for the end of its current session.
Assemblyman William Magee, D-Nelson, who has pushed the tax collection effort for years, said Friday that there have been discussions with the Paterson administration on the issue.
“Hopefully, we’re going to do something that they’re on board with,” he said.
The Paterson administration said Friday that talks are under way on addressing the issue for a final bill before lawmakers leave town.
“We believe the current statutory enforcement provisions are flawed and should be amended, including placing greater restrictions on manufacturers,” said Risa Heller, a Paterson spokeswoman. “This needs to be done in a way that is workable, and we are working with the Legislature to achieve that goal.”
Magee said he expects the measure to pass both houses before they break next week. “The need for the legislation is to enforce the law,” he said. “Yes, Native Americans themselves don’t have to pay taxes, but the courts have ruled that there’s no reason why they should be allowed to sell tax-free cigarettes to others — and certainly in these economic times, we should collect all taxes.”
James Calvin, executive director of the New York Association of Convenience Stores, told The Buffalo News he is wary that the new measure leaves it up to the Tax Department to create a certificate letter that wholesalers would have to sign to confirm they are not selling to tax-free retailers. He noted the tax agency has failed to follow a previous law involving tobacco tax collections.
“If we couldn’t count on the Tax Department to follow the last law, how do we count on them to follow up on this? If the Tax Department chooses to drag its feet into eternity, then nothing happens,” Calvin said.
Seneca Nation leaders have vowed to not be part of any cigarette tax collection effort and say such moves by the state violate Native American sovereignty, the newspaper reported. They point to treaties going back to George Washington that give them special rights to sell goods tax-free.
Another mechanism to address the issue: Some lawmakers are considering charging non-Native American customers a sales tax once they leave Native American territory with their products, WKBW news in Buffalo reported.
Authorities would install a mechanism around Native American territory where consumers would be asked whether they made any purchases, and the consumers would either pay the tax at that point or risk being charged with tax evasion if they don’t declare their cigarette purchase.