The Libertarian Party supports
NYC and NYS smokers.
Read the LP statement!
Join them in their efforts to say ENOUGH ALREADY!
CONGRESSMAN CHARLES B. RANGEL
CONTACT -- Emile Milne
CONG. RANGEL SAYS CIGARETTE TAX
UNFAIRLY BURDENS THE POOR
July 3, 2002
Congressman Charles Rangel today came out in strong opposition to the
dramatic increase in the city's cigarette taxes, describing it as an unfair
burden on the poor.
"Low income people are the ones who will suffer from this," Congressman
Rangel said. "They are the ones who willl really feel the burden
of a $1.50 tax. To those who are better off, the tax won't make any
difference at all."
The Congressman, who has long opposed excise taxes on similar grounds,
also questioned the argument that the so-called "sin tax" will change behavior.
"If the motivation is to provide a kind of treatment for smokers by
punishing them economically, the attempt is not only unfair, it is likely
to fail," Congressman Rangel said. "People stop smoking because they
want to; if they want to continue they will find a way to get cigarettes
they can afford -- even if it means illegally on the black market, on the
internet or traveling to low tax states."
The Congressman said he understood the city's need to raise revenues,
but took issue with a method that would disproportionately burden the poor.
"If the Mayor wants to raise revenues, he should find a way that spreads
the pain equally. It's just not fair to impose a $1.50 tax on people
earning $25,000 or $100,000 a year, and then say you're doing it in order
to stop them from smoking. All you're really doing is making life
harder for the... [sorry, lost the remainder]
COLUMNISTS/EXPERTS WEIGHS IN:
Dough, by Jacob Sullum - "...Yet Bloomberg, who equates
zero tax revenue with zero smoking, apparently thinks smokers will not
be resourceful enough to avoid his tax. He also seems to discount the possibility
that they will respond to higher prices by, say, economizing on other expenditures,
getting a second job, dipping into their savings, going into debt or turning
York's Deadly Cigarette Tax, by Patrick Fleenor - "Apparently
more interested in meddling in individuals' choices than reducing crime,
Mayor Bloomberg imposed a nearly nineteen-fold increase in the city's cigarette
tax rate. To the mayor, the policy prescription is simple: "We all know
that smoking kills. And increasing the cigarette tax saves lives." But
it isn't that simple. The widespread availability of cheap cigarettes via
the black market makes his claim dubious. Worse, the mayor's paternalistic
effort to protect smokers from themselves has placed other Americans at
Cigarette Tax Hike Endangers Pataki Health Funding, by FISCALWATCH
MEMO - "...but it’s not unreasonable to speculate that
if New York’s combined city and state cigarette is allowed to reach a whopping
$30 per carton of 10 packs, the existing revenue leakage would turn into
a veritable hemorrhage. Smokers could save at least $18 a carton by buying
their cigarettes in any neighboring state -- or even more by using a tax-free
Taxes Are Fueling Organized Crime, by Patrick Fleenor - "Last
month, New York law enforcement authorities announced the arrest of Queens
resident Rafea al-Nablisi for smuggling 12,000 cartons of cigarettes a
week. It was not the first such arrest, and thanks to New York's latest
cigarette tax hike, it will not be the last.
On April 23, less than two weeks after Mr. Nablisi's arrest was made
public, Gov. David Paterson signed into law a $1.25 per-pack tax hike on
top of the state's $1.50 per-pack tax. That's in addition to New York City's
own $1.50 per-pack tax. Come July 1, New York City's smokers will be paying
on average $9 a pack for legal cigarettes.
But if history is any guide, most cigarettes sold will actually be
trucked up from Virginia, or shipped in from China, by "butt-leggers" who
can make over $1 million on each tractor-trailer load of smuggled smokes.
The blunt fact, which politicians of both political parties are determined
to ignore, is that high cigarette taxes in New York have led to a bloody,
decades-long smuggling epidemic."
[back to index]
RELATED READING MATERIAL
A review of:
CURBING THE EPIDEMIC: GOVERNMENTS
AND THE ECONOMICS OF TOBACCO CONTROL, WORLD BANK, 1999
SNUFF THE FACTS
[back to index]
DEPT OF FINANCE CAMPAIGN TO COLLECT BACK CIGARETTE TAXES: OUR
The NYC (that's CITY) Department
of Finance, at the direction of Mayor Bloomberg, has embarked on an aggressive
campaign to collect taxes not paid on cigarette purchases made over the
As the situation is explained
we hope we can offer some additional information that will clarify it for
you and also maybe calm some, but not everybody's, nerves.
WHO IS AT RISK GEOGRAPHICALLY?
HOW DID THEY GET NAMES?
WHOSE NAMES DID THEY
WILL THEY PURSUE MORE
PEOPLE/RETAILERS IN THE FUTURE?
I RECEIVED A BILL.
WHAT RECOURSE DO I HAVE?
WHAT CAN I DO TO PROTECT
MYSELF IN THE FUTURE?
CREDIT CARD WARNING
RELATED READING MATERIAL
THE NEWS (Updates
on the Situation as they come in)
> NY Daily News - January
28, 2005: "Cig suit snuffed, city may relight"
> NY Times - February 12,
2005: "New York Hits Online Sellers of Cigarettes"
> NY Post - February 14,
2005: "354G In Ash Cash"
> Buffalo News - February
17, 2005: "Indians' cigarette, gas sales targeted"
> NY Post - February 23,
2005: "Albany's Smoking Out Puffers For Online Taxes"
> Chicago Tribune - March
7, 2005: "Smokers feeling unexpected burn"
> USA Today - March 8, 2005:
"Online tax bill due for smokers"
> NY Post - March
9, 2005: "'Net Cigs Master-Barred"
> U.S. Newswire Press Release
- March 16, 2005: "Internet Cigarette Sales Spark Enforcement Meeting,
> Associated Press - March
18, 2005: "Deal Aims to Prevent Web Cigarette Sales"
> Buffalo News - March 18,
2005: "Senecas cry foul on stymied cigarette sales"
> Buffalo News - April 4,
2005: "Internet Cigarette Sales Take A Hit"
> NY Times - April 4, 2005:
"Trouble for Online Vendors of Cigarettes"
> Buffalo News - April 6,
2005: "Regulations in works to collect taxes on Indian sales of cigarettes,
> NY Times - May 29, 2005:
"Post Office Sidesteps Fray on Illicit Sales of Cigarettes"
> The Buffalo News - January
18, 2006: "Pataki Seeks 1-Year Delay In Ending Indians' Tax-Free Cigarette
> NY Post - February 3,
2006: "Web Buyers Smoked Out"
> Associated Press - February
23, 2006: "Spitzer: Pataki Administration Poised to Violate Law March 1"
> NY Times - March 8, 2006:
"Settlement Reached to Pursue Online Cigarette Sales Taxes"
> The Buffalo News - March
16, 2006: "Key Tobacco Supplier Halts Sales to Senecas"
> The Buffalo News - March
17, 2006: "Indian Protests of Cigarette Tax Law Limited for Now"
> Associated Press - March
18, 2006: "Tax Officials' Advice Eases Tension Over Indian Cigarette Sales"
> NY Daily News - March
19, 2006: "Pols Fume as Cig Tax is Ignored
> The Buffalo News - March
19, 2006: "Indians See Tax Battle With Spitzer"
> NY Daily News - March
20, 2006: "Supermart Sues L.I. Indians Over Sale of Cigs"
> Niagra Falls Reporter
- March 21, 2006: "State's Latest Sales-Tax Grab Jeopardizes Rez Businesses"
> NY Sun - March 22, 2006:
"Council Wants Indian Tribes to Pay State Cig Taxes"
> Indian Country Today -
March 24, 2006: "Cigarette Tax Issue Smolders in NY State"
> Convenience Store News
- April 29, 2006: "NY Lawmakers Seek To Halt Tax-Free Cigarette Sales"
> Utica Observer Dispatch
- May 3, 2006: "Convenience Stores Plan To Sue Pataki"
> Associated Press - May
3, 2006: "Group Sues State To Overturn Law Banning Internet Tobacco Sales"
> Star-Gazette - June 22,
2006: "Senate Approves [Cigarette Tax Measure]"
> The Buffalo News - June
22, 2006: "Senecas Blast New Law Cutting Tobacco Supply"
> WXXI (PBS) - June 27,
2006: "Group Asks Pataki to Sign Back-Door Bill to Collect Cigarette Taxes"
> NY Sun - July 25, 2006:
"Law Department Sues Cigarette Wholesalers"
> Adirondack Daily Enterprise
- August 5, 2006: "Cigarette Tax Dispute Leaves Day Wholesale Facing Lawsuits"
> Associated Press - August
7, 2006: "Tobacco Wholesalers Mull Suit Over NY Cigs"
> NY Daily News - August
10, 2006: "City to Smokers: Cough Up 7M in Owed Net Taxes"
> NY Post - August 10, 2006:
"Cough Up Web Cig Taxes: City"
> Queens Chronicle - September
14, 2006: "Up In Smoke: City Wants Cigarette Money"
> WNBZ Radio - December
7, 2006: "Cigarette Tax Suits Against Day Wholesale Dismissed"
> NY Post - February 12,
2007: "Cig-tax Dodgers Spared"
> NY Post - March 4, 2007:
"Pol Signals Smoke-Tax Health Aid"
> The Buffalo News - March
18, 2007: "Focus: Taxing Cigarette Sales. The State and the Senecas:
Who Will Blink First"
> Associated Press - March
22, 2007: "Gov. Spitzer Urged to Collect Cigarette Tax"
> Democrat & Chronicle
- April 3, 2007: "Proposed Bill Takes on Cigarette 'Buttleggers'"
> Reuters - October 19,
2007: "Educated NY Smokers Dodge Cigarette Taxes --Report"
> NY Times - December 5,
2007: "Much of Suit Aimed at Indian Cigarette Sales is Dismissed"
> The Buffalo News
- April 11, 2008: "Seneca Nation Remains Free
of State's Soaring Cigarette Taxes"
> NY Post - April 27, 2008:
"'Cig Break' Brawl. Heat's on Gov to Tax Indian Smokes"
> NY Times - September 30,
2008: "City Sues Reservation’s Cigarette Stores"
> Newsday - June 9, 2009:
"NYC suit claiming Internet cigarette taxes fails"
> The Post-Standard - July
10, 2009: "Court Ruling Puts Cayuga Indian Nation Back in Cigarette Business"
> The Buffalo News - August
15, 2009: "State Drops Collection of Taxes on Indian Cigarettes. Writes
Off Revenue From Reservation Sales."
> Associated Press - August
27, 2009: "Brooklyn Judge Enjoins Smoke-Shop Indians"
> NY Post - November 3,
2009: "Paterson Butts Out"
> Wall Street Journal -
January 25, 2010: "High Court Rules Against New York City in Internet-Tobacco
> The Buffalo News - February
24, 2010: "Another Try at Taxing Indian Cigarettes"
> NY Daily News - April
3, 2013: "Cough Up 10M!. Cigarette Shops on L.I. Reservation Burned
for Untaxed Sales"
WHO IS AT RISK GEOGRAPHICALLY?
Only those who live in the
five boroughs of NYC.
2/23/05 - NY
State Gets in the Act. The analysis applies to the state as well
now. NYC residents to be hit a second time. (See 2/23/05 news below)
HOW DID THEY GET NAMES?
It's consistently reported
that the names were obtained through lawsuits brought against online cigarette
retailers(s) compelling them to hand over their customer list. It's
unclear which jurisdiction gets the ultimate credit for obtaining the list
and/or how many retailers are involved:
NY Times: "Compiling
names of customers from an [singular] online cigarette retailer..."
NY Newsday: "The
city got the New Yorkers' names from lawsuits brought by other jurisdictions
that compelled online cigarette sellers to turn over their customer lists."
NY Post: "The Finance
Department said 2,300 letters demanding payment went out Monday to a list
of city smokers obtained from Web sites sued by the federal government
in Virginia. Another 1,800 letters went out yesterday to anyone who
bought tobacco from another Internet company sued by the city."
NY Daily News: "...the
city began issuing harsh letters to 3,700 city smokers whose names popped
up in lawsuits against three online cigarette sites."
WHOSE NAMES DID THEY
Only those who purchased
cigarettes from the retailer(s) that was the subject of the lawsuit(s).
Some newspapers report that
people receiving bills did business with Cigs4Cheap.com that operated
(now defunct) out of Virginia. Those getting bills that contacted
me did business with cigoutlet.com (also defunct) that also operated
out of Virginia.
After an exhaustive search,
even with a report that it was a "landmark" court ruling in Virginia against
Cigs4Cheap.com, I found no court ruling or any other shred of information
or documentation on Cigs4Cheap other than a dead link on sites that list
tobacco retailers. Neither did I find anything that links the two.
However, even lacking the
evidence, generally one company will operate under several names and web
sites. Based on the puzzle pieces it can be reasonably concluded
that cigoutlet.com was owned by the same company that operated Cigs4Cheap.com.
Furthermore, based on information contained in a lawsuit carried out in
California against several internet retailers, it names LLP Enterprises,
Inc. and its president Adib Mograbi as the Virginia corporation doing business
as Cigoutlet-The Tobacco Store, www.cigoutlet.com
(related link http://caag.state.ca.us/newsalerts/2003/03-039CigOutlet.pdf)
this time (Jan. '05), based on the cumulative information available, it
appears that this is the ONLY company, operating under several web site
names/addresses, whose customer list is the source of the names of NYC
residents being targeted. Even though the California suit I cite doesn't
include Cigs4Cheap.com as one of the businesses operated by LLP Enterprises,
there's sufficient reason to conclude that it might be. Though I
make no promises that it isn't a separate company and that the city is
possibly in possession of two company's customer lists. It's just that
I doubt it.
If you did not do business
with any of the sites operated by this company - or did, but not within
the city's targeted period of July 2002 through April 2004 -- you can be
more confident that you will not be receiving one of these letters this
Although some of the reports
state that more letters will be forthcoming shortly in a second wave it's
my OPINION that they will still be related to the web sites already identified.
While the first wave might have been from cigoutlet.com's customer list
the second wave might be from affordablecig.com's customer list.
Again, no promises though that that is the case. Though by the numbers
of letters reported to be in the second wave (1800) it sounds like it's
not more than from one other retailer's customer list, whatever that one
March 7, 2006 - The
NYC Law Dept. reports
today that it has successfully sued and obtained the customer lists
from eSmokes, Inc. for purchases made between 2000 and mid 2003.
This vendor is missing from the two original (and first two) lists of named
targets below -- obtained from two (and only) previous press releases --
because no press release was issued or otherwise publicly reported when
a suit against eSmokes, Inc. was added.
March 10, 2006 - Sources
report that dirtcheapcig.com has agreed to settle the suit filed
against them by NYC in Jan. 2003 (below) and provide their customer list
to authorities who expect these back tax letters to go out in a few months.
August 10, 2006 -
NYC sends back-tax letters to dirtcheapcig.com customers
WILL THEY PURSUE MORE
PEOPLE/RETAILERS IN THE FUTURE?
The NYC Dept. of Finance
is working on it but it will depend on the success, or the degree of any
success, of the lawsuits filed by the city on behalf of NYC DOF that the
news reports correctly speak about.
In January 2003 the NYC Law
Dept., in conjunction with the DOF, released a press
release regarding its commencement of a lawsuit against 14 cigarette
retailer web sites.
The introduction of the
press release: The City’s suit seeks treble or triple the
amount of the taxes the City has lost by reason of the defendants’ unreported
sales to New York City residents -- which could amount to in excess of
$15 million in recovery for the City -- and an injunction that would require
the defendants to file the federally mandated Jenkins Act reports [that
alert state tax authorities to out-of-state cigarette purchases, so that
the purchases can be taxed] and to desist from continuing to misrepresent
the tax status of Internet purchases.
The sites named as defendants
operated under Cyco.net, Inc.
7. adobeCigarettes.com (notes
on site it will not ship to NY)
5 operated under Hemi Group, LLC
8. dirtcheapcig.com (notes
on site it will not ship to NY)
under Dirtcheap.com, Inc.
11. cigsonline.com (currently
unavailable - possibly defunct)
operated under Hooray's Inc.
12. bulkcigs.com (currently
unavailable - possibly defunct)
13. S4L.com (reassigned
to different product)
operated under S4L Distributing, Inc.
under Double B Distributing d/b/a Discount Tobacco Store
In October 2003 the NYC Law
Dept. released another press
release regarding its expansion of its quest and filing a new lawsuit
against another 7 cigarette retailer web sites.
The press release explanation
is the same as the first but with the additional charge that the retailers
are violating the new NYS law that prohibits shipment of cigarettes by
retailers from any state (even NY) to New Yorkers. The law was effective
(March 2003) prior to this second lawsuit but after the first.
The sites named as defendants
• dannystobacco.com (notes
on site it will not ship to NY)
• cigoutlet.com (defunct)
• cigs4cheap.com (defunct)
(this time they do not note
the operators but research indicates they are all operated by separate
following additional information was discovered and added on March 12,
In April 2004 the NYC Law
Dept. filed a third lawsuit against another 3 cigarette retailer web sites.
The sites named as defendants
• Smoke-Spirits.com (defunct)
• www.smokincheap.com (defunct)
under National Wholesale LLC
operated under C4L(ess) LLC
In March 2005 the NYC Law
Dept. filed a fourth lawsuit against another 6 cigarette retailer web sites.
The sites named as defendants
• eSmokes.com (site
still up but reportedly out of business)
under PA Resources, Inc.
• Silver Cloud Smoke Shop
(reassigned to a generic site)
As it turns out, though the
two sites' customer lists that were the first to fall into the hands of
NYC -- cigoutlet.com and cigs4cheap.com -- are included in one of
the city's lawsuits, it was a suit brought by the federal government that
gets credited with settling with those companies and providing the states
(aka "the victims") with the lists that were first handed over to them.
You'll note that I added
that even if successful in their suits there MIGHT be a degree to which
they are successful. That could mean they reach a settlement whereby
the retailers agree to pay all or a portion of the taxes owed and agree
to stop shipping to NY or if for some reason they continue to ship (hardly
unlikely but for the sake of argument...) will agree to file the customer
names with the city from that day forward.
I present this scenario based
on a study on Internet
Cigarette Sales conducted by the United States General Accounting Office
that, among other things, found that "results were limited" when states
have taken action to promote Jenkins Act compliance by internet cigarette
vendors. Though none of the actions or results being reviewed were
due to lawsuits. This report also includes the reactions of
private citizens, that might interest you, to receiving back taxes bills
and what they did or did not do.
The intent of this study
was to conclude the best remedy to the "problem." They concluded:
To improve the federal
government’s efforts in enforcing the Jenkins Act and promoting compliance
with the act by Internet cigarette vendors, which may lead to increased
state tax revenues from cigarette sales, the Congress should consider providing
ATF with primary jurisdiction to investigate violations of the Jenkins
Act (15 U.S.C. §375-378).
Well, the recognized "problem"
(which did need Congress as a good fix) was handled another way when special
interests got together and crafted the PACT Act (Prevent All Cigarette
Trafficking Act). Rather than trying to enforce and recoup lost taxes
the plan is to just make a federal law that prevents shipping of tobacco
products. The U.S. Senate bill passed in January 2004. Since
then the House has not acted on their version of the bill. I implore
you to visit our action
alert page, use the suggested letter, and follow the directions on
how to contact your representative.
Further reporting by newspapers
brings some new information on what the personal risk factors are and could
relieve some tension:
"The city claims it will
not penalize citizens at this time who purchase tobacco products from Indian
New York also has launched
lawsuits against 30 other Web sites, hoping to recover lost revenue. But
those customers won't be getting letters just yet. The lawsuits ask
for buyers' names and their orders to calculate how much taxes to demand
from the Internet companies, a city lawyer said. New York resorted
to going after the buyers this time because cigs4cheap.com was bankrupt.
''We would prefer to
collect the money from the companies,'' said Eric Proshansky, a litigator
for the city. ''It's rather inefficient to go after 5,000 people one at
a time.'' ~LA
Not that we approve of the
government going after the retailers either but it's information on how
this campaign relates to your personal situation.
- Judge Dismisses New York's Suit Against Internet
York Law Journal reports New York City's attempt to sue Internet cigarette
sellers for lost tax revenue under a racketeering theory has been dismissed
by a federal judge for the second time.
This ruling will apply to
all the suits filed since they were all based on the same theory.
Caution to celebrate is warranted
because the city will appeal, feeling confident the ruling will be reversed.
Well, time will tell (6 mos. to a year).
Perhaps the most disturbing
news is that the vendors who have recently settled with the city (eSmokes
and dirtcheapcigs.com) -- by providing their customer lists -- could
have now backed out but none want to. So much for some promises of
protecting their customers (already apparent but now emphasized).
I RECEIVED A BILL.
WHAT RECOURSE DO I HAVE?
First and foremost, the question
that first leaps from everyone's lips is, "Can they do this? It can't
They can and it's legal.
There are no constitutional violations occuring. Also, it does no
good to point fingers at others who buy all sorts of other products over
the internet and don't report taxes. It's tobacco and smokers who
are demonized and persecuted and if this is the tax category they want
to hound then that's that.
That said, we strongly urge
anyone who received a bill to demand to see the written proof showing the
purchases before paying. Refuse to take their word for it.
Despite what the person handling
the taxes at the DOF told one caller --that the only option was to
pay -- that is not the case:
York City Tax Appeals Tribunal ("The Tribunal") is an independent agency
created by the New York City Charter. The Tribunal has the responsibility
of providing a fair, impartial, efficient, and knowledgeable forum in which
to resolve disputes between taxpayers and the New York City Department
of Finance (DOF).
The only impediment to seeking
relief through the tribunal is that you must appoint either a lawyer or
CPA to represent you. The form
necessary is called "Power of Attorney."
One other report confirms
what we urge anyone receiving a bill to do -- demand to review their information
before handing over your money. It also reveals that the DOF will
listen to appeals (without needing a lawyer or other professional representative):
NY Daily News, Jan. 20,
Smokers billed for sales
tax they never paid on cigarettes they bought over the internet can settle
up in installments, but one puffer warned them to look closely at
the city's paperwork.
The city Finance Department
said offenders can call the city Office of Tax Enforcement to set up payment
But one smoker who was
billed said city snoops counted several of her purchases twice.
When she protested, the Finance Department cut her bill by $150.
I'm sorry I can't offer any
other legal suggestions. A large part of the time eaten up in researching
the situation was to find a legitimate legal defense. Every angle
I pursued ended with a door being slammed. Perhaps an attorney reading
this could share some possible defense I was unable to find myself.
WHAT CAN I DO TO PROTECT
MYSELF IN THE FUTURE?
1. I've waited till now
to discuss the safety of tribal-run internet retailers.
It's time to reflect on which
web sites have so far been the source of the customer lists obtained by
the city. They were not tribal-run.
Indian reservation retailers
have insisted, and continue to insist, that they will never hand over their
customer lists, not even if faced with a subpeona. They stand behind
their sovereign nation status as being immune from government forcing them
to do so or collect taxes from them.
Tribal-run retailers are
the safest refuge. Though even with their commitment to shield their
customers I want to emphasize the word "SAFEST."
Unfortunately, it's not stopping
the city from going after them. Some of the retailer sites listed
as defendants in the city lawsuit are tribal-run.
Even so, it's a political
and legal hot potato and we have most faith in their pledge not to divulge
customer information under any pressure, legal or otherwise. So if
you saw one of the Indian reservation sites you've done business with on
the above lists you have hope that you'll still be safe.
2. The "Two Carton" provision
During the constant battle
over cigarettes and the NY laws created to regulate them it's been uttered
(without much clarification) that "it's okay to purchase two cartons."
I reviewed both the NYC Administrative
Code (Title 11, Chapter 13) and the NYS Tax Code (Article 20). Both
say the same:
NYC Admin. Code:
b. The tax imposed hereunder
shall not apply to:
The use, otherwise than for sale, of four hundred cigarettes or less brought
into the city, on or in possession of, any person;
NYS Tax Code:
There is hereby imposed
and shall be paid a tax on all cigarettes used in the state by any
person, except that no tax shall be imposed... (3) on the use of four hundred
or less cigarettes, brought into the state on, or in the possession of,
This exemption ONLY
applies to cigarettes purchased IN PERSON. The exemption does
not apply if it is received by mail.
You probably don't know that
the state provides a separate tax form for reporting cigarette taxes owed
Use Tax Return (Form CG-15)" (see
also form CG-15-1 - "Instructions
for Form CG-15")
It is on this form that the
explanation is provided:
Note: Cigarettes shipped
into New York by mail are not brought into the state on or
in the possession of the user, and therefore do not qualify for
the [two carton] exemption.
It further goes on to explain:
If more than 400 cigarettes
are brought into the state (or into the state and city), then all
of the cigarettes are subject to tax(es).
Cigarettes acquired by
an individual to be given as a gift to another individual are not
exempt because the law does not exempt gifts of cigarettes.
The only cold comfort the
two carton provision brings is that you can choose to travel to the retailer
to make your two carton maximum purchase and be free from paying tax.
Surely that's not convenient for most people but is for those who live
Note that purchases made
at tribal-run retailers (NY based or otherwise) are the equivalent to an
OUT of state purchase. As sovereign nations, even though they reside
within a state, they are technically not part of the state. More than that,
they are a separate nation. So the mailing exception to the exemption
still applies. But as a New Yorker you can go to a reservation in
New York and you would be exempt from the tax on a two carton maximum purchase
because you bought them OUT of state.
3. Switch to a Discount
Brand / Roll Your Own
The last resort to beating
them at their own game is to switch to discount or deep discount cigarettes.
For instance, Seneca brand can be found for $10/carton (that's not a typo).
As disgusted as it might make you feel you can then also send a check for
$15 to the NYC DOF for a total cost of $25/carton. Considering that
a carton of premium brand cigarettes in NYC would cost you $70+ you'd be
way ahead of the game, legal, and able to give Mayor Bloomberg the finger
without having anything to hide.
The bonus (yes, a bonus to
the finger!) is that by not purchasing cigarettes from any of the major
three tobacco companies or some of the smaller tobacco companies who participate
in the Master Settlement Agreement you'll be affecting the amount of the
annual payment the state receives. Each state’s yearly MSA payment
is based on cigarette sales by MSA participants for the previous year.
That's the money the state steals from smokers (to cover the payments the
tobacco companies passed the cost on to smokers by raising the price per
pack) and depends on to fund just about everything else except smoking-related
As a matter of fact another
advocate has just launched a campaign
called "21st Century Boston Tea Party: Holding the States' MSA Payments
Hostage." Visit the site for a detailed explanation, including
a further explanation of the MSA and which brands to buy.
Or roll your own (as the
phrase goes). Purchasing loose tobacco is not purchasing "cigarettes."
The usual city and state tax per pack does not apply. Loose tobacco products
(tobacco, tubes, filters) are supposed to also be taxed but at a much lower
rate and I believe is only collected by the state (who has yet to begin
their own tax witchhunt). Rolling your own could cost you as little as
$1.25 per pack. Click here
for a fun lesson on all you need to know about cost and how to do it.
CREDIT CARD WARNING
A strong rumor circulating
is that the U.S. State Attorneys General are going to threaten the credit
card industry with a class action lawsuit to force them to monitor credit
card purchases of tobacco products.
In the case of overseas vendors
and the reservation shops (remember, also considered another nation) they
cannot force an out of country vendor to come to the U.S. to be prosecuted
for selling untaxed tobacco products in the states so they're looking to
go after the buyers instead.
(Read an interesting short
piece on how Indian national sovereignty works in regard to taxes
and the courts)
The rumor gets a little murky
as far as the non-tribal U.S. retailers go. It's reported that they will
be forced to sign contracts with UPS, Federal Express and other common
carriers that they will not use them to ship tobacco products to anywhere
in the U.S. (not just NY as it legally stands now). That would leave
only the US Postal Service, unless Congress passes the PACT Act as discussed
previously that would make shipping illegal, period. The rumor
is not clear on whether the credit card companies will be asked to monitor
purchases from these sites as well. That's probably been left unclarified
because non-tribal-run sites are not shielded from legal action and not
immune from legal action that would demand they turn over their customer
lists -- the government getting it that way instead of through credit card
history. However, it's reasonable to conclude that the AGs could
easily ask the credit card companies to monitor them too.
The solution to protecting
yourself against this new threat is a MONEY ORDER. Money orders
are virtually untraceable and are happily accepted by retailers.
As far as tribal-run retailers go, they might record that purchase but
since they won't turn over their customer list you're doubly covered.
In a related matter, likely
NY's first step in working toward the above, NYS Attorney General Spitzer
just recently demanded that the credit card processor, VeriSign, not accept
transactions that come from NY cigarette retailers no matter what state
the customer resides in. It's not clear that every retailer has been
affected. Those that are have sent notices to customers about the
situation or posted a notice on their site, claiming that one way they
hope to rectify the situation is by finding an alternate processor.
However, it appears that in regaining the ability to process credit cards,
rectifying the situation only went so far as promising not to process NY
customer orders only. They can process credit cards for orders placed
by residents of other states.
At my prompting the NY Post
covered this on January 5th:
CARD FIRMS SMOKED ON 'NET SALES
By Kenneth Lovett
ALBANY — State Attorney General Eliot Spitzer has turned
his attention to Internet cigarette sales by warning credit-card companies
to block orders from tax-free online tobacco companies, The Post has learned.
At least two web-based companies, Cigs4free.com and 00Taxfree.com/Indiansmokeshops.com,
have told customers that they are presently not shipping to New York.
Cigs4free directly blames Spitzer.
"Our site is temporarily down due to credit-card processor
issues," the company says in a recent message posted on its Web site.
"New York State Attorney General Eliot Spitzer has ordered
Verisign, our processor, to block any orders from our Web site!"
The Internet company yesterday began accepting phone orders
again and said it hopes to begin accepting credit-card orders again as
early as today.
Spitzer spokesman Marc Violette denied the AG's office
ordered card companies to stop processing orders from online tobacco companies,
but acknowledged that "letters of guidance" were sent.
"We're simply reminding credit-card companies and the
processors of credit-card transactions that . . . this falls into the category
of illegal transactions," Violette said.
It's an understatement to
say that New York smokers are under a complete attack. If you don't
live in New York, learn and be prepared.
RELATED READING MATERIAL
NYS Consolidated Law ARTICLE
13-F; Section 1399-ll (small letters "L")
Regulation of Tobacco Products
And Herbal Cigarettes
Re: Unlawful shipment
or transport of cigarettes (to NY)
Case Contesting NYS Law re: Unlawful shipment or transport of cigarettes
(to NY). Reversal of opinion. Appelate Court finds in favor of the
as amended by the PACT Act
Is the MSA Unraveling http://www.tobonline.com/ArticlePages/ArticlePagesVol73/vol73p32.htm
MSA Challenged by Kentucky
Reservation and Net Sales
Under Fire (scroll down page)
PACT Act Timeline and description
Disclaimer: No assurances can be given about
the accuracy of any of the opinions provided. You should seek
independent professional or legal advice before acting upon any opinion,
advice or information contained in this notice.
FOLLOWING THE NEWS
NY Daily News - April 3, 2013
Cough Up 10M! Cigarette Shops on L.I. Reservation Burned for
Three Indian smoke shops must pay more than $10 million
to New York City for trafficking untaxed cigarettes off a Long Island reservation,
a Brooklyn federal judge ruled.
Judge Carol Amon also prohibited the bootleg smoke sellers
— which operated on the Poospatuck Reservation in Mastic — from ever selling
untaxed cigarettes again.
It’s a major win for Mayor Bloomberg, who sued the cigarette
sellers in 2008, claiming they were selling cartons in bulk to people outside
the tribe for huge profits.
Bloomberg argued that selling the cheaper-priced, untaxed
butts hurt lawful city businesses and deprived city coffers.
“This is yet another major success in the legal battle
against untaxed cigarettes,” said top city lawyer Michael Cardozo. “It
should be very clear by now to those who sell and deliver untaxed cigarettes
that flouting the law and undermining our city’s public health measures
will cost them.”
Poospatuck members would have had to smoke 960 packs a
day to reach the number of cigarettes that were being sold on the reservation
prior to the lawsuit, according to the city.
The shops — Peace Pipe Smoke Shop, TDM Discount Cigarettes,
and Red Dot Feather Smoke Shop — were permitted to sell untaxed cigarettes
to members of the tribe, but not to nonmembers.
In siding with the city, the court said in its March 28
decision that “unstamped cigarettes sold by these defendants were trafficked
in large quantities into the city from the Poospatuck Reservation for many
“These cigarettes entered the city without any payment
of city cigarette taxes,” the court found.
Authorities stamp cigarettes to show that the sellers
have paid state and federal taxes.
In New York City, an extra $5.85 in taxes is added onto
the price of every pack of cigarettes.
It’s the highest cigarette tax rate in the nation.
The city had initially sued eight cigarette shops, but
five voluntarily agreed to cease operations when the lawsuit began.
The testimony of former cigarette bootleggers and company
records helped the city win its case, the judge found.
Peace Pipe was hit with the heftiest fines. The judge
ordered it to pay $10,041,075, while TDM Discount must pay $450,000.
Red Dot Feather Smoke will be assessed a penalty at a
Bloomberg — who banned smoking in bars in his first term
— said that in addition to depriving the city of tax revenue, the sale
of bootleg cigarettes also undermined the city’s efforts to decrease smoking.
The Buffalo News - February 24, 2010
Another Try at Taxing Indian Cigarettes
ALBANY — A state tax department policy of not enforcing
tax collections on Indian cigarette sales was officially rescinded Tuesday
by the Paterson administration. But it will still take approval of a new
set of regulations before the tax-free sales are halted.
Gov. David A. Paterson announced a proposed set of rules
to break the decades-long dispute over tax-free tobacco sales, which critics
say could be costing the state as much as $1 billion a year in revenues.
The new plan envisions the tax being collected “upstream” at the wholesale
level and not at Indian retail shops.
The proposed rules require cigarette manufacturers to
sell cigarettes only to licensed stamping agents that certify they are
not supplying tax-free retailers, such as the dozens of businesses on the
Seneca Nation reservations, with cigarettes missing an official state tax
stamp; they face perjury charges for lying.
The latest move comes as the State Senate Finance Committee
is poised to issue subpoenas as early as today to a broad segment of the
Sen. Carl Kruger, a Brooklyn Democrat who has railed against
the lost tobacco excise taxes because of Indian and bootleg sales, is targeting
nearly every aspect of the cigarette supply chain with a legal request
for information that “could fill a dump truck,” said one government source.
The lawmaker wants to get details on the extent of the
state’s untaxed cigarette industry; one state estimate has claimed nearly
40 percent of smokers buy untaxed or low-tax cigarettes “regularly.”
The Paterson administration today also will propose legislation
to put in statute its new plan to permit a set number of tax-free cigarette
sales to the state’s nine tribes for personal consumption by their members.
It would bypass a law already on the books that calls
for coupons to be used by Indians to buy their own tax-free cigarettes.
The legislation would lift a current injunction imposed by a state court
judge in Buffalo against the state’s enforcement of the coupon-based law.
The release of the proposed rules kicks off a 45-day comment
period and a review period that could see enactment in six months, according
to an administration official. Government sources said any agreements struck
in the coming months to resolve the issue with individual Indian tribes
could supersede the new rules.
The proposal comes as Paterson also is trying to push
through a $1-per-pack excise tax increase, to $3.75, the nation’s highest.
The move would further increase the profitability of bootleg and Indian
cigarette sales unless a new collection mechanism is adopted.
The new regulations would result in licensed stamping
agents, which basically serve as middlemen between manufacturers and retailers,
paying the taxes to Albany. Besides certifying they are making only legal,
taxable sales, wholesalers would have to list the source of their cigarettes
with the tax department.
Manufacturers would have a legal burden, as well, because
they would have to collect the certifications from wholesalers — meaning
they could not sell their products to any wholesaler unless that supplier
has certified to the tobacco companies that they do not sell any illegal
The Seneca Nation did not comment on the proposal.
“It seems reasonable to me,” Russell Sciandra, director
of the Center for a Tobacco Free New York, said of the proposed rules.
The plan also calls for an “adequate” number of cigarettes
to be supplied tax-free to Indian tribes for personal consumption of its
members. In the case of the Senecas’ 7,967 members, it would mean a total
of 167,000 tax-free packs being supplied to the tribe every quarter — or
21 packs every three months for every man, woman and child enrolled as
In all, the state’s nine tribes—with a total of 31,000
members — would receive 648,000 packs of tax-free cigarettes per quarter.
Licensed stamping agents would be in violation of state law if they supply
an amount beyond the approved allotment for each tribe.
Wall Street Journal - January 25, 2010
High Court Rules Against New York City in Internet-Tobacco Suit
WASHINGTON—The Supreme Court ruled Monday that New York
City couldn't use federal racketeering laws to sue out-of-state Internet
tobacco retailers that don't file reports on city residents who buy cigarettes
The city wants the reports so it can collect cigarette
taxes directly from residents who purchased tobacco products online. The
retailers aren't required to collect the taxes.
The case before the high court centered on New York's
allegations that New Mexico-based online retailer Hemi Group committed
racketeering offenses of mail and wire fraud by allegedly failing to submit
reports on its New York City customers to state tobacco administrators.
The city, which said it lost millions of dollars in cigarette tax revenues,
said federal law required Hemi to submit the reports.
But the Supreme Court, in a 5-3 opinion written by Chief
Justice John Roberts, ruled that the relationship between Hemi's alleged
actions and the city's inability to collect taxes was too indirect to establish
racketeering liability against the online retailer.
Chief Justice Roberts said the direct cause of the alleged
fraud against the city wasn't Hemi's conduct, but the refusal of residents
to pay their taxes for online cigarette purchases. "The city, therefore,
has no RICO claim," Chief Justice Roberts wrote.
Justice Stephen Breyer said in dissent that the city made
a sufficient racketeering connection to Hemi's alleged conduct. Had Hemi
filed the reports, the state would have been able to obtain a significant
share of the taxes it was owed, Justice Breyer said.
Justice Sonia Sotomayor didn't participate in the case
because she had participated previously as an appellate judge when the
case was before the 2nd U.S. Circuit Court of Appeals.
The case is Hemi Group v. City of New York, 08-969.
NY Post - November 3, 2009
Paterson Butts Out
Looks like Gov. Paterson was just blowing smoke when he
asked the feds to assess the risk of violence from attempts to collect
cigarette taxes from state Indian reservations.
At a state Senate hearing last Tuesday, Paterson's chief
counsel, Peter Kiernan, made clear that his boss would not pursue the taxes,
because the gov -- like his predecessors, George Pataki and Eliot Spitzer
-- just doesn't think enforcing the tax law is worth the hassle.
Even though his recent request for a federal "threat assessment"
suggested that he was preparing to go after the taxes. And even though
the courts say the state has every right to collect taxes from cigarette
sales to non-Indians.
Paterson, it seems, is just too nervous about the prospect
of tribal violence to claim what Albany is legally owed.
What a dangerous message to send.
Among the "costs" of enforcement (i.e., excuses for non-action),
Kiernan noted "the psychic harm of forgone opportunity to live in peace
with those who are entitled to sovereignty and their interpretation of
what that means."
Say what? He's talking about tribes that rioted, threw
burning tires on the Thruway and fought state troopers, sending many to
the hospital, when authorities tried to collect the tax in 1992 and 1997.
Indeed, tribal leaders have made their current intentions
"We will never allow the state to tax our commerce," said
Seneca leader JC Seneca. "A strong reaction to further affronts on tribal
sovereignty is inevitable," warned an Oneida spokesman.
Of course, the issue is hardly "sovereignty"; with some
300 million packs flowing out of state reservations each year, what's really
at stake is a vast racket premised on an unfair tax advantage. Law-enforcement
agents believe even terrorist networks are getting a piece of the action.
Meanwhile, the state and city lose an estimated $1 billion
a year in uncollected tax revenues -- even as both face multibillion-dollar
Paterson's message? We won't collect taxes from you if
you threaten violence.
Clearly, he has no right to gripe when critics attack
his lack of mettle.
Associated Press - August 27, 2009
Brooklyn Judge Enjoins Smoke-Shop Indians
A Brooklyn federal court federal judge this week issued
a ruling that could doom an Indian reservation’s booming business in tax-free
cigarettes and spell trouble for other native American tobacco dealers
in the state.
In a decision announced Wednesday, U.S. District Judge
Carol Bagley Amon barred a group of smoke shops on Long Island’s Poospatuck
reservation from selling tax-free cigarettes to the general public, saying
their location on tribal lands didn’t exempt them from state and federal
Only members of the Unkechaug tribe, which controls the
reservation, have a right to buy cigarettes there without paying taxes,
she ruled, not the many non-Indian customers who flock to the shops for
If upheld, the injunction would eliminate much of the
business at the stores, which sell millions of cartons of cigarettes a
year and are among the biggest suppliers in the state.
The judge stayed the ruling for 30 days to give the shops
time to appeal, and Unkechaug Chief Harry Wallace quickly promised that
the tribe wouldn’t let the decision stand unchallenged.
“It’s improper,” he said of the ruling.
He accused the judge of ignoring state law and policy
regarding taxes and Indian reservations because she dislikes cigarettes.
“She wanted to stop sales at any cost,” he said, adding
that the ruling would be difficult to comply with, while robbing the stores
of their competitive edge. “It would put every Indian store ... out of
business.” The ruling is a victory for the city and its mayor, Michael
Bloomberg, who sued the stores over their sale of tax-free cigarettes,
saying they were illegal.
“The city will go after every dollar that is owed to city
taxpayers,” Bloomberg said. “Based on the evidence introduced at the four-day
hearing, the court found that each business was selling huge quantities
of cigarettes on which state and city taxes had not been paid. It also
found that such sales of unstamped cigarettes were likely to continue in
the absence of the court’s injunction – and that there is a substantial
trade in unstamped cigarettes between the Poospatucks and New York City.”
The court issued the injunction after concluding that
“the city has established a clear or substantial likelihood of success
on the merits of its claim” that the defendant businesses’ “receipt, possession,
sale, distribution and purchase of quantities far in excess of 10,000 cigarettes,
which do not bear New York tax stamps, under circumstances where such stamps
are required” violates the Federal Contraband Cigarette Traffick-ing Act,
In its suit, the city claimed the reservation shops had
made a mockery of rules restricting the sale of tax-free cigarettes to
members of the tribe.
Each resident of the 55-acre reservation, near the town
of Mastic, would need to consume 19,200 cigarettes a day to account for
the tons of tobacco sold by the shops, the city said.
City lawyers estimated that smoke shops cost the city
and state a combined $840 million in tax revenue, much of it lost to smugglers
who traveled to the reservation to stock up on cigarettes, then resold
them in the city.
“We are pleased that the court ruled in the city’s favor,”
said New York City Corporation Counsel Michael A. Cardozo. “The Law Department
will continue to support efforts to lawfully collect cigarette taxes and
also to reduce smoking.”
Smoke shops located on state-recognized Indian reservations
have enjoyed a huge business in cigarettes since the mid-1990s, in part
thanks to a string of governors who have refused to enforce state laws
that were supposed to set up a system for taxing sales to the general public.
State courts have repeatedly split on whether that policy,
known as forbearance, absolves the reservation shops of any responsibility
of collecting taxes.
As recently as July, a midlevel state appeals court ruled
that smoke shops on land claimed by the Cayuga Indian Nation could not
be prosecuted under state law for failing to collect taxes on cigarette
Federal judges, however, have taken a harder line. One
Poospatuck smoke shop owner is awaiting sentencing in a case in which he
was convicted of racketeering for selling large quantities of untaxed cigarettes.
The injunction covers five smoke shops - Monique's, Peace
Pipe Smoke Shop, Red Dot & Feather, Smoking Arrow and TDM - and nine
individuals. Other reservation smoke shops settled earlier in the case.
The Buffalo News - August 15, 2009
State drops collection of taxes on Indian cigarettes. Writes off
revenue from reservation sales
Despite a ballooning budget deficit, the Paterson administration
quietly has written off taxes it had been expecting to collect on sales
of cigarettes by American Indian retailers — an admission that yet another
governor has no plans to resolve the long-standing, thorny matter.
In April, Gov. David A. Paterson and lawmakers agreed
on a budget for the state's current fiscal year that projected revenue
of $65 million from taxing cigarettes sold to non-Indians in smoke shops,
through the mail or over the Internet from reservation-based businesses.
But with no fanfare — or even public notice — the administration
has eliminated the $65 million, meaning the governor now does not expect
to begin collecting the taxes at least until April 1, the start of the
new fiscal year.
The decision drew immediate and sharp criticism from health
groups and an association that represents non-Indian retailers who say
they cannot compete with the American Indians, who do not charge the state's
sales $2.75-per-pack excise tax.
"It's embarrassing, and it's outrageous that the Empire
State can't seem to figure out how to collect this tax when just about
every other state does," said Russell Sciandra, director of the Center
for a Tobacco Free New York, which is connected with the American Cancer
Critics say the state loses $1 billion annually by not
collecting the cigarette tax. Seneca Nation of Indians retailers lead the
country in the sales of untaxed cigarettes.
For years, state officials have worried about potential
violence, such as the clash between state troopers and Indians on the Thruway
in 1995, when then-Gov. George E. Pataki tried to end the tax-free sales.
Seneca Nation officials, who were working Friday on flood
relief efforts, were unavailable to comment.
Last week, the Paterson administration released a 329-page
update on state spending through the first quarter of the fiscal year.
The report said the administration believes the state
now faces a $2.1 billion deficit this year, and Paterson is looking at
spending cuts and other options to propose to a special session of the
State Legislature, expected to be held next month. Lawmakers have not ruled
out raising taxes to close the gap.
Deep in its pages, the spending update briefly mentions
lower cigarette tax revenues, but makes no specific reference to jettisoning
the cigarette tax collections.
During an interview on an unrelated topic, Robert Megna,
the governor's budget director, revealed to The Buffalo News that the state
is backing away from the projection of $65 million from the potential revenue
Matt Anderson, a spokesman for Megna, later said the $65
million was deleted from the budget "to prudently address potential risks
to our receipts forecast."
"We continue to work diligently toward a negotiated settlement
of this issue," he added.
Laws on the books already permit the state to collect
the tax, which has been an issue going back to the days of Mario M. Cuomo's
tenure as governor. Over the past decade, the dispute has intensified as
the state increased cigarette taxes, widening the playing field between
Indian and non-Indian retailers.
The Senecas have maintained that treaty rights going back
to the days of George Washington give them the right to sell products,
including cigarettes, without taxes.
They have long said they never will act as agents of the
state government in collecting taxes, which they say would kill off a flourishing
Western New York business that employs hundreds of people.
On numerous occasions, the State Legislature has sought
to force Paterson, and governors before him, to collect the tax.
In January, Paterson said he wanted to resolve the issue
through negotiation. But critics say that, with the stakes so lucrative,
the Indian tribes, especially the Senecas, have little reason to negotiate.
"It's sending totally the wrong signal," James Calvin,
executive director of the New York Association of Convenience Stores, said
of the administration quietly striking the Indian cigarette tax money from
"If the state has a $2.1 billion deficit, it's crazy not
to access the hundreds of millions of dollars in tax revenue that's readily
available from this source," he added. "It's already a law. It's collectable.
The United States Supreme Court has said we can collect it. Why would you
ignore close to $1 billion when staring at such a huge deficit?"
In June 2008, the state raised its excise tax on a pack
of cigarettes by $1.50 to $2.75. That gives an Indian retailer who does
not charge the tax a built-in price advantage of $27.50 per carton.
"By the end of the fiscal year, the state and Gov. Paterson,
we conservatively estimate, will have forgone $1 billion that is owed on
Indian cigarette sales," Sciandra said.
The Post-Standard - July 10, 2009
Court Ruling Puts Cayuga Indian Nation Back in Cigarette Business
Cigarette sales resumed Friday at the Cayuga Indian Nation's
LakeSide Trading convenience stores in Union Springs and Seneca Falls after
state appellate judges in Rochester ruled in favor of the Indian nation
in its tax dispute with Cayuga and Seneca counties.
"The word is out," said B.J. Radford, retail operations
manager for the Cayuga nation.
In a 4-1 decision released about 3 p.m., judges in the
Fourth Judicial Department ruled that as a "qualified reservation," the
Cayugas could sell unstamped cigarettes.
In late November, sheriff's deputies in the counties raided
the Cayugas' two LakeSide stores, seizing about 17,600 cartons of cigarettes.
The Cayugas estimated the cigarettes were worth more than $500,000.
The Cayugas had not paid state excise taxes on the cigarettes,
and the counties claimed that because the Cayugas did not have an official
reservation they were violating state tax law.
The nation's two stores lie within the Cayugas' former
ancestral homeland around the north end of Cayuga Lake. The Cayugas argue
that the territory is a reservation that was established by federal treaty
and that it has never been disestablished.
The stores have been selling gas and sundries -- but no
cigarettes -- since the raid. Radford said customers buying gas used cell
phones to alert friends that the stores were back in the cigarette business.
"The customer base seems to be excited," she said. "I'm
surprised at how fast the word seems to be getting around."
The ruling also precludes prosecution of Nation officials
by the counties.
"The Nation is very gratified by this decision, which
will permit it to resume doing what every other Indian tribe in the state
has been doing for years without threat of criminal prosecution," said
Dan French, the lawyer representing the Cayugas.
Philip Spellane, an attorney for the counties, said he
has not yet met with county officials to discuss what their next step would
The Cayugas had appealed a December ruling by state Supreme
Court Judge Kenneth R. Fisher, who said the Cayugas did not have a qualified
reservation status and thus could not sell tax-free cigarettes.
Fisher also allowed the counties to proceed with criminal
tax-evasion charges against the Cayugas. District attorneys in both counties
filed sealed indictments.
The indictments were never opened, and an appeals court
ruling later barred any prosecution until the court ruled on the Cayugas'
French said Friday's ruling bars any prosecution.
The Cayugas maintain the confiscated cigarettes have spoiled
in the more than seven months since the counties raided the stores, he
French said the Nation will pursue a separate civil claim,
suing the counties not only for the actual value of the cigarettes but
for revenue lost during the time the stores were closed.
"The Nation anticipates lost revenues in the millions,"
counties plan to appeal Indian cigarette ruling - July 13, 2009]
Newsday - June 9, 2009
NYC suit claiming Internet cigarette taxes fails
New York's top court says New York City lacks legal standing
to sue Internet cigarette retailers for lost taxes under state business
The Court of Appeals says the city and state now charge
$4.25 per pack in excise taxes, which are owed by purchasers in New York.
The city argued some online retailers misrepresent their
cigarettes as "tax free" and claim that they don't have to file state sales
reports identifying buyers, which is required by federal law.
(See Decision: http://www.courts.state.ny.us/CTAPPS/decisions/2009/jun09/92opn09.pdf)
NY Times - September 30, 2008
City Sues Reservation’s Cigarette Stores
Plunging headfirst into a delicate issue that has long
bedeviled New York State and Long Island’s Indian tribes, Mayor Michael
R. Bloomberg criticized Gov. David A. Paterson on Monday for not enforcing
cigarette tax laws, which the mayor estimated had deprived the city of
up to $195 million a year in revenue.
Residents of Indian reservations — like the 50-acre Poospatuck
reservation in Mastic — are entitled to buy cigarettes tax free for their
But in a federal lawsuit filed on Monday, the Bloomberg
administration accused eight stores on the reservation in Suffolk County
of breaking state and federal law by selling cigarettes in bulk to bootleggers.
The bootleggers, the lawsuit said, then shipped the cigarettes into the
At a news conference in City Hall, Mr. Bloomberg acknowledged
that the practice had existed for years. But he said the city’s lawsuit,
filed in Federal District Court in Brooklyn, would not have been necessary
if the state had been enforcing the law.
Indeed, Mr. Bloomberg said, the state also would have
benefited with $525 million a year in tax revenue.
“I think the governor should go to the reservations and
say, ‘As of tomorrow morning, stop this practice,’ ” Mr. Bloomberg said.
“And if it requires law enforcement, that’s what the governor has the State
Police for — to enforce the law.”
To reinforce just how prevalent the practice was, Mr.
Bloomberg stood next to a table stacked with packs of cigarettes and said
that each of the 279 residents of the Poospatuck reservation — every man,
woman and child — would have to smoke 960 packs, or 19,200 cigarettes,
a day to account for the millions of cigarettes sold there in 2007.
The mayor framed the lawsuit in the context of the global
financial crisis, noting that the city was trying to slice $500 million
from this year’s budget, and was likely to propose raising property taxes
by 7 percent to generate an additional $600 million starting in January.
“This one step alone could go a long ways in closing our budget gap,” he
When asked about Mr. Bloomberg’s criticisms, Errol Cockfield,
a spokesman for Mr. Paterson, said the governor was involved in discussions
with the state’s Indian nations, those recognized by the state or the federal
government, “to preclude the need for more endless litigation.”
Harry Wallace, who is a lawyer and the chief of the Unkechaug
Indian Nation, which is on the Poospatuck reservation, said in a telephone
interview that he had not heard about the lawsuit.
“Before we get a lawsuit, before we even get served, he
serves the media first,” Mr. Wallace said of Mr. Bloomberg. “This debate
has reached fanatical levels, where we are being scapegoated from everything
from the fiscal crisis in New York to the mortgage crisis. I assume that
at some point we’ll be blamed for global warming.”
The lawsuit is part of a broader strategy by Mr. Bloomberg
to tackle cigarette bootlegging as well as reduce smoking in New York.
Earlier this year, the city won a couple of legal victories: cigarette
wholesalers were found potentially liable for violating a federal law,
and the city was allowed to proceed with racketeering lawsuits against
out-of-state Internet cigarette retailers.
The latest move seeks to go after cigarette retailers,
but it could also entangle issues of Indian sovereignty, said Kathryn R.
L. Rand, a law professor at the University of North Dakota who is an expert
on Indian gambling.
“It has legal merit, but I think it’s pushing the envelope
a little bit,” she said.
NY Post - April 27, 2008
'Cig Break' Brawl. Heat's on Gov to Tax Indian
Tax-free cigarettes from Indian reservations will go up
in smoke if some in Albany get their way.
Lawyers for a state lawmaker and Gov. Paterson are scheduled
to face off in an upstate courtroom tomorrow in a case aimed at forcing
the state to follow the law and collect sales tax on every pack sold by
the 200 or so reservation stores and via the Internet.
Last year, roughly 304 million packs of cigarettes were
sold by New York's Indian tribes - and, as has been the practice for years,
not a penny of tax was collected.
As the state tax rises to $2.75 a pack - the highest in
the nation - on June 3, New York would be forfeiting about $836 million
in annual revenue by choosing not to collect taxes from reservations. In
the city, the tax is $1.50 more.
Critics of the state's non-enforcement stance say sales
via Indian reservations - which now represent one of every three cigarettes
sold in the state - stand to soar as folks look to save money.
Assemblyman David Townsend, an upstate Republican who
has sued to force the state to collect the tax, is hoping to change that.
In 1997, when then-Gov. George Pataki began collecting
the tax, violent protests broke out at reservations. In one instance, Seneca
Indians set fire to tires on a state highway, closing it. Since then, the
state has lost and regained its right to collect the taxes.
The state passed a law allowing for the collection of
sales tax from reservation sales to non-Indians in 2006, but Govs. Pataki
and Eliot Spitzer did not move to enforce it. Some say they were afraid
of sparking protests or a political backlash.
The price of cigarettes at reservation stores ranges from
$11 to $30 a carton, compared to $40 or more in the city. As a result,
local convenience stores are hurting.
"It is driving hundreds of thousands of non-Indian customers
away from licensed convenience stores, decimating their businesses," James
Calvin, president of the New York Association of Convenience Stores, wrote
in a recent letter to Paterson.
Under pressure from Spitzer, then New York attorney general,
credit-card companies and overnight-delivery firms stopped their associations
with tax-free cigarette sales. But customers were willing to pay with a
check or money order and absorb the cost of a more expensive US postal
Paterson has asked his staff to research the topic, and
he wants to come to an agreement with the tribes, a statehouse spokesman
told The Post.
That is not sitting well with a host of critics. They
are urging Paterson simply to follow the law.
The Poospatuck Indian reservation on Long Island, home
to about 270 residents, accepted shipment from wholesalers of roughly 100
million packs of cigarettes in 2007. That is enough to supply every smoker
in New York City with a pack a day for more than three months.
The Buffalo News - April 11, 2008
Seneca Nation remains free of state's soaring
Defying New York law, Indian
nationmerchants can expect a windfall fromstate’s continuing lack of enforcement.
If smokers are stewing over the state’s decision this
week to raise the cigarette tax by $1.25 per pack, one group that stands
to reap a considerable financial windfall was not complaining Thursday:
Seneca Nation tobacco merchants.
The tax increase makes cigarettes in New York the costliest
in the nation. So come June 3, Buffalo smokers will be paying more than
$30 per carton just in excise and sales taxes.
On the Senecas’ Cattaraugus territory Thursday, a carton
of Marlboro cigarettes was selling for $27 to $28, while lesser-known brands
were selling for as low as $11 per carton.
By contrast, at the CVS downtown at Main and Court streets,
a carton of Marlboro costs $42.70.
The state will take no steps to try to stop the sale of
tax-free cigarettes. Legislators erased from the final budget a provision
that then- Gov. Eliot L. Spitzer proposed to stop the tax-free sales at
the manufacturing level in the cigarette- distribution chain.
About a third of New York’s smokers now turn to Indian
retailers, bootleggers, cross-border outlets and the Internet.
“There’s no question the extra $1.25 is going to send
smokers to Indian outlets,” said Assemblyman William Magee, D-Nelson.
“Customers are going to go elsewhere because government
has artificially raised the price of the product, and we don’t have a level
playing field,” said Dan Shanahan, chief financial officer of Wilson Farms,
a 196- store upstate convenience store chain.
A half-dozen Indian tribes in New York sell tax-free cigarettes
in some fashion, but the Seneca Nation has long been considered the king
of the tax-free tobacco market. Through online sites and independently
owned smoke shops, the Senecas supply smokers in Western New York and also
do a brisk business in other areas, including New York City. The Big Apple
adds another $1.50 per pack in local taxes on top of the new $2.75 state
tax, bringing the total excise tax there to $42.50 per carton.
Seneca Nation President Maurice A. John Sr. declined an
interview request. In a written statement, he sought to downplay the tax
increase’s effect on Seneca merchants’ finances, saying cigarette sales
are “not overly significant” to the tribe’s increasingly diverse economy.
“It would be erroneous for anyone to think that this tax
increase is some sort of windfall for Indian nations,” he said. “Due to
our sovereignty, the state’s tax burden on its residents does not affect
Still, the managers at two Cattaraugus territory smoke
shops, who asked not to be named, said they are anticipating an increase
“We’ll get a lot of business,” one of them said. “Nobody
wants to pay that extra $12.50 a carton.”
Health groups praised the decision to raise the tax, but
health lobbyists recognize that with the higher tax, the cigarette tax-evasion
problem is now going to worsen.
“My concern is that, obviously, New York’s high taxes
have encouraged a lot of tax avoidance. More taxes will encourage more
tax avoidance, and we think, from a public health point of view, that is
unfortunate,” said Russell Sciandra, director of the Center for a Tobacco
Free New York.
Spitzer came into office vowing to end the tax-free sales.
But like governors before him, he backed down, and his tax department did
not enforce a law already on the books that makes it illegal for wholesalers
to supply cigarettes to tax-free outlets. That law was slapped with an
injunction last year when the tax agency failed to distribute coupons to
Indians to obtain tax-free cigarettes for their own consumption.
But Spitzer put into his January budget proposal a plan
to make it illegal for manufacturers to supply wholesalers who sell to
retailers that fail to collect the excise tax. The Senate embraced the
plan, but the Assembly rejected it.
The administration of Gov. David A. Paterson has declined
on repeated occasions — and again Thursday — to say what it intends to
do regarding the tax-free issue.
Though the state has declined to enforce the tax collection
law that has been on the books for several years, that did not stop the
State Legislature and Paterson from counting on revenues from new tax collections
in the budget approved Wednesday.
The budget anticipates getting $120 million from collection
efforts involving cigarettes now sold tax-free, according to Jeffrey Gordon,
a spokesman for Paterson’s budget office. But Gordon said the administration
has not yet decided how the taxes will be collected.
In addition, the state anticipates getting an additional
$265 million for the higher cigarette taxes.
But those sums are now in question.
Critics say the new administration, like ones before it,
will not collect the tax, but wanted to put a revenue number in the budget
as a way to justify spending increases in the budget for the fiscal year
that began April 1.
Magee has long criticized tax-free tobacco sales. “It’s
time we realize we’ve got to move forward,” Magee said. “The courts have
said we could and should collect the taxes.”
For many smokers, the tax increase will drive them to
do something the tax department says is illegal: avoid paying taxes on
When New York residents file their their state income
tax returns, they are required, by law, to pay any sales and excise taxes
that they did not pay over the course of the year through Internet sales.
Additionally, there are criminal penalties for possessing
untaxed cigarettes, including a felony level for possession of more than
A lawsuit brought by Assemblyman David R. Townsend Jr.,
R-Sylvan Beach, seeking to require the state to collect the cigarette taxes
is scheduled for oral arguments in State Supreme Court later this month.
James Calvin, executive director of the New York Association
of Convenience Stores, said, “It’s ludicrous to have a law in place and
for an agent of state government to blatantly refuse to enforce it.”
NY Times - December 5 , 2007
Much of Suit Aimed at Indian Cigarette Sales
A federal judge has dismissed all but one charge in a
lawsuit, filed last year by a supermarket mogul who hopes to be the next
mayor of New York City, that challenged two Long Island Indian tribes over
their longstanding practice of selling tax-free cigarettes from reservation
John A. Catsimatidis, whose holdings include the Gristedes
supermarket chain, claimed in the suit that the two tribes illegally undercut
his business, and he sought to force Indian retailers to buy cigarettes
from wholesalers at the taxed price. He also asked for $20 million from
the two tribes’ cigarette retailers, the amount he claims he has lost.
Leaders from the tribes, the Shinnecock and Unkechaug
Indian nations, responded by moving to have the claims dismissed.
In a decision rendered on Friday and announced yesterday,
Judge Carol Bagley Amon of Federal District Court in Brooklyn dismissed
the claim that the non-tax sales “created, fostered and nourished a thriving
black market in illegally discounted cigarette sales” and also dismissed
charges of corrupt business dealings and unfair competition.
Harry Wallace, chief of the Unkechaug nation and a lawyer
who owns a smoke shop on a reservation in Mastic, said yesterday that his
tribe was pleased with the ruling.
But Judge Amon did not dismiss the entire suit, finding
that advertisements calling the cigarettes tax-free were misleading because
cigarette sales are not actually tax-free under state law, and that they
were “likely to mislead the consumer into believing that he or she need
not pay taxes on purchased cigarettes.”
Mr. Catsimatidis said he would persevere with the suit.
“Everyone has to pay their taxes, and Indians must charge tax on cigarettes
when they sell to non-Indians,” he said.
The state sets minimum price levels for retailers and
imposes a sales tax of $1.50 a pack. But historically, the state has not
collected cigarette taxes from tribes within its borders because they are
considered sovereign nations, so Indian-owned smoke shops have long sold
cigarettes at far lower prices than non-Indian competitors.
Reuters - October 19, 2007
Educated NY Smokers Dodge Cigarette Taxes--Report
New York City's smokers dodged as much as $43 million
of cigarette taxes last year, and the worst offenders were "the more highly
educated," a new report said on Friday.
Another $105 million was siphoned off by New York state,
because in 2002 it required the city to give up 46 percent of all of its
cigarette tax revenues in return for agreeing to let New York City hike
the tax to $1.50 a pack.
That increase was one of Mayor Michael Bloomberg's first
anti-smoking measures; he also made headlines by banning smoking in bars
New York City smokers pay one of the highest cigarette
tax rates in the nation, a total of $3.00 a pack, because the state matched
the city's tax increase.
Even so, the rest of the state surpassed city folks when
it came to ducking the tax.
Only 27 percent of city smokers said they bought no-tax
or low-taxed cigarettes in a 2006 state survey, according to new report
by the Independent Budget Office. In contrast, some 34 percent of other
state residents said they got "under-taxed" smokes via the Internet or
The tax-dodging divide was even more vivid when city dwellers
were compared based on their education. "Twenty percent of smokers without
high school diplomas reported evading cigarette taxes, compared with more
than 60 percent for those with college degrees," the report said.
The worst offenders lived in the borough of Queens, added
the report by the Independent Budget Office, which mirrors the Congressional
Budget Office but on a local level.
An Independent Budget Office spokesman was not immediately
available to explain why Queens might have the most tax-avoiders, though
these residents tend to rely more on cars for transportation than in any
other borough except Staten Island, and thus might have more choices.
While the state this year rejected Bloomberg's bid for
another 50-cent-per-pack hike, the report noted more increases might drive
more smokers to buy "under-taxed" cigarettes.
"There is considerable evidence that supports the mayor's
enthusiasm: increases in cigarette excise taxes result in reduced rates
of smoking among adults and by an even greater margin among youth," the
But it concluded: "The availability of under-taxed and
therefore cheaper cigarettes undermines the city's efforts to reduce smoking
and deprives the city of funds that would be otherwise directed towards
public health initiatives."
The extra tax dollars the state gets help pay for health
care, the report noted.
Local prosecutors have gone after smokers who ducked taxes
by buying cigarettes over the Internet, for example. The report did not
examine this possible deterrent though it noted city residents with more
than two cartons of untaxed cigarettes must pay the equivalent of the regular
Democrat & Chronicle - April 3, 2007
Proposed Bill Takes on Cigarette 'Buttleggers'
ALBANY — Legislators have announced a drive to stop the
illegal sale of untaxed cigarettes, a practice they say costs the state
hundreds of millions of dollars annually.
One proposal would require the use of high-tech tax stamps
that can be read like bar codes and another would compel Native-American
tribes to share revenue with the state. The sale of untaxed cigarettes
could be costing the state more than $700 million a year, and it allows
minors to smoke and often funds organized crime, the sponsors claimed.
"The health and safety of New York's families are threatened
by ruthless cigarette smugglers," said Sen. Dale Volker, R-Depew, Erie
County, sponsor of the tax-stamp bill. "From dangerous cigarettes illegally
imported from China to international terrorists profiting from illegal
cigarette smuggling rings, our homes and families are threatened by this
According to a memo accompanying the bill, which is sponsored
in the Assembly by Dennis Gabryszak, D-Cheektowaga, Erie County, sources
of unstamped cigarettes could include "crime organizations, terrorist groups,
North Korea, China and Vietnam."
The measure comes three weeks after Sen. Jeff Klein, D-Bronx,
released a report claiming so-called "buttleggers" take $460 million a
year from the state. Legislation he proposed would compel Indian tribes
to share tax revenue.
The state's current tax on cigarettes outside of New York
City is $1.50 per pack, the 13th highest in the country. New Jersey charges
the most at $2.57 while South Carolina charges seven cents.
California started using the stamps in 2004 and saw a
$120 million increase in tax revenue in the first 20 months of the program,
according to the Los Angeles Times. Now New York may become the second
state to use them.
Cigarette manufacturers would have to pay a licensing
fee of one cent per pack sold. Volker spokeswoman Kathie Sorel said this
would cover "a good portion" of the program's cost while bringing in millions
of dollars to the state. Advocates also say the stamps can help cut down
"Tax evasion and bootlegging cut the cost of cigarettes
and encourage people to smoke," said Peter Slocum of the American Cancer
Society. "The high-tech tax stamp can be an important tool in stopping
contraband trafficking of cigarettes and, not incidentally, will help reduce
the prevalence of cigarette use and the diseases cigarettes cause."
Klein said the measure would help curb stamp counterfeiting
and the recurrence of organized crime syndicates banking off untaxed cigarettes,
but that it does nothing to stop untaxed sales on Indian reservations that
cost the state $270 million a year.
He said he would introduce legislation to compel Indian
tribes to collect taxes on all sales and split revenues with the state.
Most of the missing $270 million is earmarked for a fund set up in 2000
that grants health insurance to more than 1.3 million people.
Associated Press - March 22, 2007
Gov. Spitzer Urged to Collect Cigarette Tax
Dr. Michael Cummings wouldn’t mind seeing a $10-per-pack
tax on cigarettes — enough, he says, to defray the medical costs of the
damage they cause.
That wouldn’t be great for business at the convenience
stores Jim Calvin represents.
But when the two stood side by side Wednesday, it was
on common ground. Both urged Gov. Eliot Spitzer to stick to his plans to
collect sales tax on cigarettes sold by Indian businesses in New York to
The unlikely alliance was the latest public airing in
the crescendoing debate over tax collection that Spitzer, who took office
in January, has vowed to settle.
Although his administration has yet to decide on a tax-collection
plan, a spokeswoman indicated this week that the state was open to a proposal
that would provide for collection of the tax while sharing the revenue
with tribes. The measure would end tribes’ price advantage over non-Indian
retailers obligated to collect the state’s $1.50 per pack tax.
The New York Association of Convenience Stores, led by
Calvin, has long complained that the group’s 7,000 stores are unable to
compete with tribal competitors’ reduced-price cigarettes and that state
and local governments have lost hundreds of millions of dollars in revenue.
Cummings said the losses from a public health perspective
may be even greater. The availability of reduced-price cigarettes encourages
smoking, he said, raising the incidence of cancer and heart disease. The
public cost of treating smoking-related illnesses amounts to $1,000 per
year for every household in the state, he said.
‘‘We’ve created a situation where we’re making smoking
more affordable than it should be,’’ said Cummings, who spoke with Calvin
at the office of Erie County Executive Joel Giambra, a former smoker who
survived throat cancer.
Last week, members of the Seneca Indian Nation — the leaders
of reservation cigarette sales — gathered in much larger numbers to try
to sway Spitzer in the other direction. About 500 members traveled from
their Allegany and Cattaraugus reservations in western New York for a show
of force outside Buffalo City Hall.
‘‘We would like to make a statement to the newly elected
governor of New York State, Eliot Spitzer,’’ Seneca President Maurice John
announced. ‘‘We will not become tax collectors for New York state.’’
"New York has added multiple and high taxes to a pack
of cigarettes," John said on Wednesday. "The Seneca Nation has chosen not
to add to the price of cigarettes to those smokers who want them. New Yorks
so-called sin tax has nothing to do with the sovereign Seneca Nation."
The Senecas contend federal treaties dating to the 1700s
shield the nation from state taxation. The state’s attempts to collect
tax a decade ago resulted in violent clashes between Senecas and state
Tribal leaders said their smoke shops and gas stations
support hundreds of jobs held by Senecas and non-Senecas.
Calvin said the contribution is appreciated, ‘‘but being
an economic force does not excuse any entity from abiding by duly enacted
standards for conducting commerce with New Yorkers, and that includes taxation.’’
The Buffalo News - March 18, 2007
Focus: Taxing Cigarette Sales.
The State and the Senecas: Who Will Blink
With tough new leaders on both sides and old problems
festering, a State-Seneca confrontation is brewing.
Retired State Police Capt. David O’Connor remembers when
tire burnings and clashes on the Thruway a decade ago disrupted traffic
as Senecas went up against state police over the Native American taxation
“It was the worst situation I was ever in,” said O’Connor,
who suffered a knee injury in physical confrontations with Seneca protesters
when the state last tried, in 1997, to collect tobacco taxes from reservation
Given the current climate, there’s concern that history
will repeat itself.
The looming confrontation between the state and the Seneca
Nation over cigarette tax collections comes at a time when the two governments
have been taken over by tough, new leaders intent on protecting very different
As far apart as they are on the tax stalemate, Gov. Eliot
L. Spitzer and Seneca President Maurice A. John have similarities that
could shape the situation’s outcome — for better, or, some fear, for worse.
Both men can be stubborn.
Both are under pressure to hold fast to their positions.
And both have proven they can deliver on promises.
“There’s got to be some give and take on both sides. I’d
just say be careful and keep everyone’s tempers under control,” O’Connor
said, adding that the time for the state to have acted on ending tax-free
sales by Indian tribes has long since passed.
“Possibly if [the state] had done something early, but
it’s grown so big and there’s a lot of money involved,” he said.
During the campaign last year and since he became governor
Jan. 1, Spitzer has vowed the state will resolve the long-standing tax
dispute under his watch and end what he says are the “not legal or appropriate”
tax-free cigarette sales by Indian retailers.
John, citing Seneca sovereignty and centuries-old treaties,
insists the Senecas will never be party to a deal seeing Indian retailers
serving as tax collectors for another government.
“I don’t think he is going to back down at all. He’s the
kind of guy that is going to stand up and fight and not back down,” said
Sally Snow, who co-chairs the Seneca Nation’s Free Trade Association.
At last week’s Niagara Square rally, John insisted he
does not want to see violence.
“Our people feel very strongly about this issue [but]
we do not want violence. Violence is what we are trying to avoid, but I
can’t even get the governor to meet with me,” he said.
Spitzer has made it clear violence from the Senecas will
not resolve the dispute.
“It’s counter-productive even to foment the discussion
about it on their part, so I certainly hope that is not what folks are
doing because it’s not the best way to get a resolution here certainly,”
A tougher governor?
But following a boisterous Seneca rally last week in Buffalo,
in which protesters held signs comparing the Jewish governor to Adolf Hitler,
tensions have begun to rise.
Spitzer isn’t the first governor to try to collect taxes
from the Senecas. Mario Cuomo tried in 1992. George E. Pataki tried in
Both attempts ended in violence. Both governors backed
In Spitzer, the Senecas are dealing with a governor who,
unlike Cuomo or Pataki, has a long track record of trying to end the tax-free
sales before he even became governor.
As state attorney general for the past eight years, Spitzer
took a series of steps that, while not ending the tax-free sales, made
He convinced carriers such as Federal Express to stop
shipping Seneca Internet sales of cigarettes, pushed credit card companies
to stop processing the sales and brought pressure upon wholesalers who
supply the Senecas with cigarettes.
In his first three months in office Spitzer has shown
himself to be a man who not only refuses to shy away from confrontations
but relishes them. He has battled some of Albany’s most potent special
interests and personally has taken on legislative leaders to make his points.
“It’s clear from the first almost 90 days of his administration
that Spitzer is focused, that Spitzer is principled and that Spitzer is
tenacious and does not back down,” said James Calvin, executive director
of the New York Association of Convenience Stores, the most vocal lobbying
group in Albany over the years pressing for an end to the tax-free sales.
Health groups pushing Spitzer, who has made reducing tobacco
use among his public health priorities, say the governor’s motivation is
more than just money and leveling the playing field between Indian and
“He wants the state to get the money, but I do think there
is also some appreciation of the public health benefits in doing this,
and some recognition that reducing smoking rates ties into his other major
effort, which is reducing health care costs,” said Russell Sciandra, director
of the Center for a Tobacco Free New York.
Indeed, Spitzer’s 2007 budget plan counts on collecting
nearly $124 million in taxes from Indian cigarette sales. The State Senate
has issued an even more optimistic revenue outlook, figuring the state
could count on getting an additional $160 million.
Three hundred miles away from the Capitol, “Moe” John
is viewed by his fellow Senecas as a traditionalist, admired for standing
up for the nation’s sovereignty.
John was arrested in the late 1980s for ripping up surveyor
stakes when the Southern Tier Expressway went through the Allegany Reservation.
He then filed a federal suit, saying the City of Salamanca had no right
to require permits because his business was on Seneca territory, and thus
not subject to the city’s rules. A judge disagreed.
One of the first Senecas to sell tax-free gasoline and
cigarettes on the Allegany Reservation, John was jailed for contempt of
court in 1990 for refusing to tell a federal judge how much gas he sold.
When eventually released, he described himself as a prisoner of war.
“And as such,” he said, “I gave my name, Ha Nang Gan Go,
and that I am an Indian, and I always will be an Indian.”
John also has refused to pay taxes on the millions of
dollars he made selling tax-free gasoline, and he and his wife owe the
Internal Revenue Service a combined $9.1 million, plus interest, that they
have refused to pay, according to publicly filed judgments.
He wears his federal tax lien like a badge of honor —
which is how many other Senecas also view it.
“We’re pretty strong on our treaties and we feel we have
the right to sell tax free,” said Snow, operator of one of the biggest
Seneca gasoline and tobacco retail outlets.
Whether a middle ground can be found has yet to be seen.
“We’ll talk to them,” Spitzer said. “We always welcome
conversations. If they’re open to a meaningful compromise, that would be
great, but we’ve got to move forward.”
Asked to elaborate, he talked of “many creative ideas
that could be out there,” but he offered no specifics.
But there’s no question the governor remains convinced
the state has the legal right to collect taxes from Indian retailers.
“I know that there is some upset on the part of the [Seneca]
Nation. But, having said that, I keep coming back to this point that we
are anomalous not because we are seeking to collect the taxes but because
we don’t,” Spitzer said of other states, including Washington, that have
resolved the Indian tax issue.
“There is a factual and legal reality that we have the
right to collect them. Everybody else does. So, I’m not terribly sympathetic
to the notion that they should get an advantage that nobody else has,”
Spitzer said in an interview last week with The Buffalo News.
John declined to be interviewed for this report, but addressed
the issue at last week’s rally.
“We are a sovereign nation,” he said. “Taxing us would
be like taxing Canada. The Seneca people feel very strongly about this
NY Post - March 4, 2007
Pol Signals Smoke-Tax Health Aid
Millions in proposed state health-care cuts could be restored
- and then some - if New York could recoup the lost tax revenue from cigarettes
sold on Indian reservations, a new report shows.
The report from state Sen. Jeffrey Klein (D-Bx./W'chester)
maintains that $270 million of uncollected tax revenue is lost to tribal
sellers - more than enough to restore Gov. Spitzer's proposed $219 million
proposed cuts to programs funded through the Health Care Reform Act of
Those funded programs provide health care for more than
1.3 million uninsured New Yorkers, as well as provide added prescription-drug
coverage for seniors and funding for a variety of health and smoking-prevention
"It is estimated the amount of state revenue lost to the
state as a result of purchasing untaxed cigarettes at between $436 million
and $576 million in 2004," the report states.
"Recent estimates from an internal New York state Senate
document attribute more than $270 million of those lost cigarette tax revenues
to Native American sellers operating on reservations and on the Internet."
New York already has a law banning most cigarette sales
via the Internet or by telephone or mail to state residents, and online
cigarette merchants can no longer legally accept credit cards.
But forcing tribal sellers to collect taxes has been more
difficult, the report notes.
"Gov. Spitzer inherited a dysfunctional system of cigarette-excise
taxation whose provision are still entirely unenforced on tribal sellers
despite a 12-year-old Supreme Court decision upholding that enforcement,"
the report states.
The report recommends the governor resume negotiations
with tribes to share tax revenue. Klein said he will introduce legislation
requiring tribal merchants to collect cigarette taxes - but providing those
revenues be evenly split between the state and tribal governments.
NY Post - February 12, 2007
Cig-tax Dodgers Spared
Thousands of cigarette-tax cheats are off the hook after
city officials determined that it didn't pay to pursue them, The Post has
The Finance Department is giving a pass to about 21,500
smokers who made cigarette purchases over the Internet without paying the
Owen Stone, a department spokesman, said lists of tax
evaders obtained last year from two Web sites included 20,000 buyers who
owed less than $500 each and about 1,500 who made one-time purchases resulting
in $15 tax liabilities.
Deciding it would have cost more to hunt down the smokers
than the city could get back, officials decided to concentrate on the top
4,000 tax dodgers - who ducked a total of $5.8 million in taxes.
"We succeeded in raising awareness on the issue and determined
we were at the point that the resources needed to research the data, track
down buyers and collect cigarette taxes from smaller purchasers who were
not likely to be reselling cigarettes were better put to use on other enforcement
alternatives," Stone said.
The big buyers have forked over about $2.3 million so
The department's action comes after City Councilman David
Weprin (D-Queens) complained that constituents socked with high tax bills
deserved some leeway because they weren't aware they were breaking the
WNBZ Radio - December 7, 2006
Cigarette Tax Suits Against Day Wholesale
A state judge has dismissed two of three lawsuits filed
against Day Wholesale of Tupper Lake and other tobacco wholesalers who
provide tax-free cigarettes to Native American retailers.
Seneca County, the New York Association of Convenience
Stores and New York City had all filed lawsuits against the wholesalers,
the governor and the state Tax Department, for failing to collect sales
tax on cigarettes and gasoline sold to non-natives in Indian-owned shops.
The convenience store group said failing to collect the
sales tax violated a law approved by the Legislature that took effect March1
of this year. It also is costing residents $450 million a year in
lost tax revenue and putting businesses near tribal reservations at a competitive
disadvantage, they said.
But Albany County State Supreme Court Judge Michael Kavanagh
dismissed the suits brought by Seneca County and the Association of Convenience
Stores on the same day – November 17.
In both cases, the judge said the plaintiffs had no standing
to bring an action against the Tax Department to compel it to enforce general
Judge Kavanagh said the court had already ruled against
convenience store group when they brought a similar case. “A final
judgment in that proceeding found the decision not to collect these taxes
from Native Americans was lawful,” he wrote.
Peter Day, owner of Day Wholesale, was confident the remaining
New York City lawsuit will also be dismissed. “Our belief from the beginning
was that we would be vindicated because the cases had no merit,” he said.
“There’s one case remaining and we believed that will be dismissed because
it has no merit.”
The issues surrounding the sale of untaxed gasoline and
cigarettes to non-natives in Native American stores have been the subject
of litigation in the state and the country for decades. Day said
the debate will probably continue. “The state of New York has an obligation
to try and address these issues,” he said. “But the courts have upheld
the rights of the Iroquois Confederacy to sell tax free products.”
Asked about the ruling, Jim Calvin, President of the New
York Association of Convenience stores said they were “puzzled.”
Their case wasn’t decided on its merits, he said. “If the chief elected
officer of the state doesn’t feel like enforcing a law duly enacted by
the legislature, and the attorney general defends that defiance of the
state constitution, who does have the standing to challenge it in court.”
Calvin said they haven’t decided whether to appeal the
decision. “But the quest for tax fairness will continue,” he said.
Day Wholesale and another co-plaintiff are counter-suing
the state and the Attorney General’s Office to try and block enforcement
of the March 1 statute requiring the collection of taxes on sales to non-Natives.
Queens Chronicle - September 14, 2006
Up In Smoke: City Wants Cigarette Money
Numerous city residents, including many from Queens, are
being asked by the city to ante up thousands of dollars in cigarette taxes—or
face the threat of garnishment of wages and liens on property.
Letters to 16,000 city residents went out in August to
people who previously bought cigarettes over the Internet, where no payment
of city or state taxes were required.
Although the sales were made in 2002 and 2003, there was
no prior warning or notification to the online cigarette purchasers. Councilman
David Weprin (D Hollis), chairman of the Finance Committee, said he is
outraged by the city’s heavy handed action and plans to do something about
He was accompanied on Tuesday in his district office by
a constituent, Joseph Maletzky of Bayside, who was charged $1,155 for purchasing
77 cartons of untaxed cigarettes in one year. “These are scare tactics,”
Weprin said. “I am in favor of collecting taxes, but not on the backs of
senior citizens and others who didn’t know they were doing anything wrong.”
Maletzky, 53, is disabled and unable to work. He counts
on his disability check every month. “I’d be in big trouble if they (checks)
are garnished,” he said. “The cigarette Web site never mentioned city or
Weprin will hold a news conference on the steps of City
Hall Sunday at 11 a.m. where he will call for the Department of Finance
to make several changes. He will first ask for a 30 day moratorium by the
agency on collecting the back taxes. During that time, the councilman will
meet with officials to come up with an equitable resolution.
He also believes each case should be handled individually.
“Someone who buys 77 cartons a year is obviously not selling them in a
store and should not be punished,” Weprin said. “The cigarette buyers were
acting in good faith and if it’s for personal use, they shouldn’t have
In other cases, he believes people should pay a reduced
amount or work out a payment schedule. The city is demanding the tax money
be paid within 30 days. “It’s absurd to have to pay up so quickly,” Weprin
He also wants to give the Department of Finance time to
alert the public about current and future cigarette sales that are subject
to taxes. Online cigarette sales are no longer legal in New York state.
“People should be able to go down on an interview to discuss their cases
and not to have to pay interest or penalties,” Weprin said.
If interest and penalties were applied to Maletzky, it
could double his payment—something that he doesn’t want to contemplate.
“My wife and I just can’t afford it,” he added.
The city is hoping to take in $6.95 million in unpaid
cigarette taxes. Penalties for non payment will be assessed at up to $200
per carton. The city’s tax is $1.50 per pack of cigarettes.
Owen Stone, a Department of Finance spokesman, said his
agency is standing behind its policy. “The letter people got is the warning.
If they want to work out a payment plan, they can do so,” he added.
But Weprin said his office has gotten dozens of calls
from residents who had no idea they were breaking the law and now are being
penalized without any warning. Many, such as senior citizens, are on fixed
incomes and bought cigarettes over the Internet to save money.
The city got the names of online purchases from the companies
after filing a lawsuit against 30 such firms. While the case was pending,
15 of the companies settled with the city, paying fines and giving up lists
of their New York City customers. Many of the companies then went out of
business. Although the city eventually lost the case on a technicality,
it is appealing.
For Maletzky, who now has respiratory problems in addition
to other health concerns, he is still purchasing online to save money.
He buys through Indian reservations, which are exempt from collecting taxes.
“I know I have to quit smoking,” Maletzky added.
Jill Perrone, of Rego Park, also got a letter from the
city saying she owed $1,230 for purchasing 82 cartons of cigarettes. “I
was shocked at the letter and scared to death not to pay,” she said.
Perrone added that she purchased them for personal use.
“It’s okay to pay taxes if you bought them in the city, but outside, you
shouldn’t owe,” she said.
NY Post - August 10, 2006
Cough Up Web Cig Taxes: City
If you ordered cigarettes from Dirtcheapcigs.com, expect
to find a bill from the city for unpaid taxes in your mailbox soon.
The Finance Department is mailing out bills to more than
16,000 people telling them to pay cigarette sales taxes -- or face fines
of up to $200 a carton.
The city hopes to collect up to $7 million in unpaid taxes
from sales to the Kentucky-based company, which is no longer in business,
as part of a settlement from a 2003 lawsuit.
"There's no such thing as a tax-free cigarette," warned
Finance Commissioner Martha Stark.
The city has also billed 12,012 customers of Esmokes.com
for $4,484,010 in unpaid taxes; 2,313 customers of Affordablecigs.com for
$956,340; 136 customers of Cigoutlet.com for $120,845; and 1,221 customers
of Smokesforless.com for $277,695.
NY Daily News - August 10, 2006
City to smokers: Cough up 7M in owed Net taxes
More than 16,000 New Yorkers who bought cheap cigarettes
over the Internet are now tax targets of the city.
City officials announced yesterday that they intend to
go after the smokers - who bought from www.dirtcheapcigs.com, a now-defunct
Web site - for nearly $7 million in unpaid cigarette taxes.
The city obtained the names of the smokers through a legal
settlement with the former Kentucky-based firm.
The sellers ignored a state law barring the sale of tax-free
cigarettes to New York State residents.
Violators face a potential civil liability of three times
the uncollected taxes if the city eventually wins its suits.
This is the fifth and largest such settlement the city
has won since filing a series of federal civil suits in 2003 against some
40 Internet tobacco merchants, according to attorney Eric Proshansky of
the city's Law Department.
The four prior settlements involved a combined $4.5 million
in unpaid city cigarette taxes owed by 15,682 buyers.
So far, more than $800,000 in unpaid taxes has been collected
from smokers who opted to pay within 30 days after getting dunning letters
- rather than risk penalties of up to $200 for each untaxed carton they
Collection efforts, which could include filing property
liens or salary garnishees, are still in the works for buyers who haven't
coughed up their unpaid cigarette taxes.
"We have an obligation to collect all taxes owed to the
city and create a level playing field for local retailers who properly
collect the cigarette tax," asserted Finance Commissioner Martha Stark.
The buyers in the latest settlement made their Internet
buys from 2000 to mid-2003.
Associated Press - August 7, 2006
Tobacco Wholesalers Mull Suit Over NY Cigs
BUFFALO, N.Y. — Tobacco wholesalers frustrated by mixed
messages from the state over whether they are still allowed to supply Indian
retailers with untaxed, unstamped cigarettes are ready to ask a court to
At issue is a law that went on the books March 1 that
bars wholesalers from selling cigarettes to reservation retailers who sell
them tax-free. Attorney General Eliot Spitzer says the law is in effect;
the state Department of Taxation and Finance says it is not yet being enforced.
The conflicting positions have meant headaches for businesses
like Day Wholesale in Franklin County, which finds itself scrambling to
preserve its supply of cigarettes for reservation and non-reservation customers.
According to a lawyer for Day, Philip Morris USA has given
wholesalers that supply New York Indian tribes until noon Wednesday to
promise to stop selling unstamped cigarettes on reservations or provide
written proof that such sales are legal. Otherwise, a July 11 letter said,
Philip Morris would stop shipping cigarettes.
The wholesalers say they are in the middle of a political
fight between the attorney general's office and the Pataki administration's
Department of Taxation and Finance over an issue that has sparked violence
in the past.
"It's the state of New York that doesn't seem to have
everybody together as to what they're supposed to do," said attorney Margaret
Murphy, who represents Day Wholesale.
The letter from Philip Morris came two weeks after an
attorney from Spitzer's office sent letters to tobacco companies, including
Philip Morris, telling them that Day and other wholesale clients were continuing
to sell tax-free cigarettes to Indian retailers in violation of state law.
"By this letter, we are putting you on notice of this
conduct and asking for your cooperation in ending it," the letter from
Assistant Attorney General David Weinstein, said.
Philip Morris USA spokesman Bill Phelps declined to comment
Monday except to say that the company supports the legislation governing
sales by wholesalers to reservations.
Murphy said a lawsuit to be filed this week will seek
to end the uncertainty. In the meantime, she said, her client will stop
selling unstamped cigarettes to avoid being shut off by Philip Morris.
"We're bringing a lawsuit against the state of New York,
against the attorney general, asking a court to resolve the issue," Murphy
said. "Is the law in effect? What is the obligation of licensed wholesalers?"
Murphy contended the legislation is not active because
certain provisions _ including the issuance of coupons that would allow
Indian retailers to sell untaxed cigarettes to tribal members while taxing
other customers _ have not been met.
A spokesman for Spitzer said that doesn't matter.
"The sale in New York of unstamped cigarettes is a clear
violation of the law, regardless of who is doing it," Marc Violette said,
"regardless of whether it's a private individual or an Indian nation or
A spokesman for the Department of Taxation and Finance
did not return a call for comment Monday.
The law aimed at wholesalers is among the latest attempts
by the state to collect millions of dollars of tax revenues on cigarettes
sold by Indian retailers to non-Indian customers.
Tribes such as the Seneca Indian Nation, which operates
numerous smoke shops in western New York, say centuries-old treaties shield
them from having to collect taxes on their sovereign territories. That
allows them to sell at lower prices than their non-Indian competitors.
Seneca retailers sold $347.5 million worth of tobacco products in 2003.
A 1997 attempt by the state to collect tax on reservation
sales resulted in violent clashes between state police and tribal members
in western New York.
Adirondack Daily Enterprise - August 5, 2006
Cigarette Tax Dispute Leaves Day Wholesale Facing Lawsuits
TUPPER LAKE — Day Wholesale is facing several lawsuits
seeking damages against cigarette wholesalers who sell untaxed cigarettes
to non-natives on Indian reservations in the state. It’s a fight that’s
pitting cigarette wholesalers, the city of New York, Indian reservations
and the state’s tax and finance authority against each other, with a string
of unlikely alliances.
Attorneys for the city of New York said a 2005 city Department
of Health survey found that about 15 percent of all smokers consume untaxed
cigarettes. In 2004, a state DOH study projected that the state loses as
much as $576 million in lost tax revenue through the sale of untaxed cigarettes,
the city’s lawsuit said.
“The claim against (wholesalers) is that they’re simply
selling untaxed cigarettes,” city lawyer Eric Proshansky told the Enterprise.
The reason the city is aggressively pursuing the case now is to enforce
legislation passed in March requiring cigarette taxes and tax stamps on
all cigarettes sold within New York state, he said.
Peter Day, owner of Day Wholesale in Tupper Lake, says
his company has done nothing wrong and is following the legal advice of
the agency that regulates state cigarette tax, the Department of Taxation
“The law hasn’t really changed,” Day said.
In fact, it’s this authority in charge of regulating cigarette
taxes that is — indirectly — rising to the defense of wholesalers. In a
legal opinion released March 16 by the Department of Taxation and Finance,
wholesalers were advised that the department, “has no intention to alter
its long-standing policy” regarding the sale of untaxed cigarettes on Indian
reservations. The new law, the legal opinion said, needs to be amended
to respect Indian sovereignty and “avoid excessive entanglement in Indian
Taxation and Finance spokesman Tom Bergin said he couldn’t
comment because of the litigation involved, but he confirmed that his department
is advising cigarette wholesalers that the law is not being enforced until
the law is amended to the satisfaction of the commissioner of Taxation
“We said we’re not going to enforce this law,” Bergin
said. “We’re going to consider some amendments” before directing wholesalers
to change their business practices.
Proshansky said the city takes issue with the Department
of Taxation and Finance’s selective enforcement of laws.
“We believe, regardless of what an agency does, it’s on
the books,” Proshansky said. “It’s a law; you have to obey it — regardless
of whether an agency enforces it.”
But Day said he and other wholesalers will continue to
follow the advice of the Tax and Finance commissioner, and he expects the
lawsuits against wholesalers to be thrown out of court.
Day, who employs 22 people in Tupper Lake, said he’s been
doing business with the Indian reservations for 18 years and is confident
that he’ll prevail in court. About 80 percent of his revenue is from the
sale of cigarettes and tobacco products to Indian reservations, Day is
quoted as saying in a deposition with Seneca County attorneys.
Day said the whole issue is the result of rising taxes,
which naturally increases demand for tax-free products. With the state
collecting $15 per carton in excise tax and $3.60 in sales tax, it is the
state that profits the most from the sale of cigarette sales, Day said.
And New York City collects even more, with an additional $1.50 per pack.
“The simple solution is for state government to reduce
onerous excise taxes on cigarettes, tobacco and motor fuel,” Day said.
“Then there would not be the incentive for people to go shopping on the
reservations. But all they want is to get the Indians out of the cigarette
In the federal lawsuit, which the wholesalers are expected
to answer by the end of the month, the City of New York seeks damages from
the wholesalers, including city excise and sales taxes lost as a result
of alleged violations of the March statute requiring that cigarettes to
non-Indians be taxed.
The lawsuit is also asking the court to cease the practice
of selling unstamped cigarettes and tobacco products in the state. This
lawsuit, filed in U.S. District Court in Brooklyn last month, was preceded
by two similar lawsuits, brought by Seneca County and the New York Association
of Convenience Stores.
Day said he’s confident these lawsuits will be thrown
out as they impinge on tribal sovereignty, which only the U.S. Congress
“The Indian nations have rights and treaties in this state
that go back to colonial times,” Day said. “These nations were never defeated;
they entered into treaties. They were looked on to be brothers and equals
with the Europeans. All we’re asking is that these treaties be recognized
and be allowed to have commerce as they’ve always had it
NY Sun - July 25, 2006
Law Department Sues Cigarette Wholesalers
The city's law department has sued seven cigarette wholesalers
for not paying taxes on tobacco sold on Native American reservations across
the state. The lawsuit was filed yesterday in Brooklyn and goes after six
New York vendors and one in Vermont, the city's corporation counsel, Michael
Cardozo, said in a statement."Although smoking is never encouraged, since
it is legal, the city must ensure that all laws are followed appropriately,"
Mr. Cardozo, said. "By making cheap cigarettes available, the wholesalers'
practices also cut into the efforts by all levels of government and the
private sector that are aimed at reducing smoking by children and teenagers."
(Also see Press
WXXI (PBS) - June 27, 2006
Groups Ask Pataki To Sign Back-Door Bill To Collect Cigarette Taxes
ALBANY -- A coalition of anti-smoking groups and convenience
store owners is urging Governor Pataki to sign a bill passed by the state
legislature that would prevent the sale of untaxed cigarettes in New York.
New York has a law on the books that requires the collection
of the sales tax on cigarettes sold to non- Indians on reservations. But
Governor Pataki has refused to enforce the statute, saying he still wants
to try to negotiate complex settlements with tribes over issues like land
claims and gambling casinos. Many Native American tribes say they don't
have to collect the tax, because they are a sovereign nation.
The legislature, which has been budgeting the additional
tax money for spending items for several years, passed new legislation
in the final days of the 2006 session that would create a back door mechanism
for collecting the tax.
The bill aims to stem the supply of illegal cigarettes
to wholesalers who then sell to Indian reservation stores or other bootleg
outlets without collecting the tax.
The State Tax Department, Attorney General, or City of
New York would have the authority to name the black market wholesalers
to cigarette makers. Manufacturers would no longer be allowed to sell the
cigarettes to the wholesalers who are breaking the law, effectively cutting
off the source of untaxed cigarettes.
Adding the Attorney General Eliot Spitzer's office to
the list of authorities that could carry out the law is key, because Spitzer,
unlike Pataki, supports collecting the tax.
The Coalition for a Tobacco Free New York's Russ Schiandra
says 500 lives could be saved in the first year if the tax were uniformly
collected. The group estimates, based on past data connecting higher cigarette
taxes to the number of smokers who quit, that 50,000 fewer New Yorkers
would smoke if they had to pay the full $1.50 per pack tax upstate, or
the $3.00 per pack tax in New York City.
Jim Calvin, with the New York Association of Convenience
Stores, also wants the tax collections to be enforced. Calvin admits that
his group makes for strange political bedfellows with the American Cancer
Society and Lung Association, but he says they have a common interest.
The convenience stores are not against selling cigarettes, they want a
level playing field with the stores on Indian reservations. Calvin says
if the state has made a decision, that for public health reasons, it is
going to charge high taxes on cigarettes, then the law must be enforced
fairly. And he commends lawmakers for coming up with an alternative.
"What a shame, what a disgrace, that the legislature has
to go around the governor to get a law enforced that the governor himself
signed," said Calvin.
Calvin says convenience stores lose an estimated $1 billion
dollars a year in cigarette sales because of the easy availability of untaxed
Governor Pataki is going to be leaving office at the end
of the year, and all of the major party candidates for governor to replace
him, including Eliot Spitzer, a Democrat, and Republican John Faso, favor
collecting the tax on Indian reservations. But the groups say they can't
wait until then. At the very least, they say, the law should be enforced
sooner because the state is losing around $1 million dollars in tax revenue
The Buffalo News - June 22, 2006
Senecas blast new law cutting tobacco supply
Seneca Nation of Indians President Barry E. Snyder Sr.
called the passage of a state law to cut off the supply of tax-free cigarettes
to Indian businesses a "back-door effort" to get Seneca tobacco stores
to collect state taxes.
"The State Legislature has once again taken action to
undermine our sovereign right to consume and trade tobacco products in
our territory," Snyder said. "The nation, as well as individual Senecas,
cannot be denied the ability to purchase tobacco products, because we are
not subject to state taxes.
"As always," Snyder added, "we will contemplate any and
all options that may be necessary to protect our economy and defend our
Star-Gazette - June 22, 2006
Senate Approves [Cigarette Tax Measure]
Another issue legislators took up Wednesday was cigarette
taxes. They said they've found another way to end American Indians' practice
of selling tax-free cigarettes: threaten to cut off their wholesalers.
The Senate passed a measure late Tuesday to prohibit cigarette
manufacturers from selling smokes to wholesalers who sell to tax-free merchants.
Effectively, this would force wholesalers to impose New York's steep taxes
before selling them to Indian retail shops -- or face losing their supply.
The Legislature has for several years passed bills to
force the state to collect sales taxes cigarettes and gasoline sold to
non-Indians on Indian reservations. However, Pataki has vetoed measures,
ignored the idea when the Legislature made it part of the state budget,
and his Tax Department has deployed technicalities to delay the implementation.
Pataki officials have tried to negotiate "parity" deals
in which tribes would voluntarily raise the prices of gas and cigarettes
to match what nearby non-Indian stores charge -- without paying state taxes.
But tentative agreements -- sometimes included as part of a way to settle
long-standing Indian land-claim lawsuits and open Indian-run casinos --
have always fallen through.
The Legislature's new tactic would take the issue out
of the governor's hands -- if he signs the bill -- a good move, according
to anti-smoking groups who believe that high prices encourage smokers to
Legislators have long complained that the state is losing
$300 million or more annually because of reservations sales and that the
practice hurts competing convenience stores.
"By collecting the taxes directly from tobacco companies
when they sell cigarettes to distributors including Native American tribes,
we are leveling the playing field for all businesses in New York State,"
said Sen. Michael Nozzolio, R-Fayette, Seneca County, who pushed the bill
through the Senate.
Jim Calvin, head of the New York Association of Convenience
Stores, said he doesn't think Pataki would sign the bill. Pataki aide Saleem
Cheeks said only that the governor would review the legislation.
[The bill was sponsored in the assembly by William Magee,
and it was approved there last week.]
Associated Press - May 3, 2006
Group Sues State to Overturn Law Banning Internet Tobacco Sales
ALBANY, N.Y. -- A group of cigarette distributors and
sellers filed a lawsuit against the state Wednesday seeking to overturn
a law banning Internet, telephone and mail order tobacco sales.
The suit by the Association of Responsible Cigarette Sellers,
filed in Erie County Supreme Court, contends the 2000 state law violates
the Commerce Clause of the U.S. Constitution.
David McNamara, the group's lawyer, said his case was
bolstered by last year's U.S. Supreme Court ruling striking down laws in
New York and Michigan that banned wine shipments from out-of-state producers.
The Constitution prohibits states from passing laws that discriminate against
The group, based in Salamanca near where the Seneca tribe
is based, claims the law also violates the Indian Commerce Clause, which
gives the federal government the sole right to regulate commerce with Indian
tribes. Many Internet sellers are located on tribal reservations in western
In January, Attorney General Eliot Spitzer said Philip
Morris USA, the nation's biggest tobacco company, agreed to end shipments
of any of its products to customers, Indian tribes and enterprises that
states deem illegal, as part of an agreement with attorneys general for
37 states and territories.
The action was the third prong of the states' efforts
to curb the sale of cigarettes to minors over the Internet and by mail
order. In March 2005, major credit card companies agreed to stop processing
payments from Internet retailers. Shippers DHL and UPS Inc. agreed to stop
shipping packages from the vendors.
Authorities consider Internet cigarette sales to be illegal
because they violate state and federal laws aimed at collecting sales taxes
and stopping sales to underage smokers.
The lawsuit seeks to keep Spitzer from enforcing the agreements
with the shippers and credit card companies.
Attorney general spokesman Marc Violette said his office
had not yet seen the lawsuit and declined to comment.
The 2nd U.S. Circuit Court of Appeals ruled in 2003 against
such a challenge to the law, saying the statute treats in-state and out-of-state
Margaret Murphy, a lawyer representing the cigarette vendors,
said that decision has "been brought into question" by last year's Supreme
Court decision and that her clients are challenging the law on different
On Tuesday, convenience store operators sued Gov. George
Pataki to compel him to enforce a new state law requiring tax collection
on tobacco products and gasoline sold to Indian businesses.
The New York Association of Convenience Stores says Pataki's
failure to collect taxes on the goods before they reach the reservations,
as required under a law that took effect March 1, costs taxpayers $450
million a year and costs businesses $1 billion a year.
Businesses located near reservations say they suffer a
competitive disadvantage because they must charge substantially higher
prices. A carton of cigarettes bought from a tribe can retail at $15 less
than at off-reservation retailers.
Utica Observer Dispatch - May 3, 2006
Convenience Stores Plan To Sue Pataki
ALBANY — A coalition of convenience stores said Tuesday
it is suing Gov. George Pataki over his decade-long refusal to collect
taxes on tobacco and gasoline sold by American Indian merchants.
Pataki has flouted his constitutional duties by ignoring
laws that command the state to collect the taxes, according to the coalition.
In doing so, he's "aiding and abetting" an "epidemic" of people skirting
the tax laws by going to Indian reservations for smokes or buying cigarettes
through the Internet, it said.
"The constitution says the governor shall faithfully carry
out all laws," said James Calvin of the New York Association of Convenience
Stores. "He doesn't get to pick and choose which laws to enforce."
Verona business owner George Eggen of the Verona Hotel
said he doesn't think the state government will enforce the law, even if
a lawsuit is brought against the governor.
"The governor is just going to leave it in the hands of
somebody else until January," Eggen said. Pataki is not running for re-election
The Oneida Nation in Verona has applied to the Indian
Bureau of Federal Affairs for land-in-trust status, which, if granted,
means Nation property would not be subject to paying taxes. If successful,
that move would legally circumvent the U.S. Supreme Court's February 2005,
ruling that the land was subject to local taxes and regulation.
Calvin's group was joined in the lawsuit by two convenience-store
chains headquartered near Indian reservations in Central and Western New
York: Canastota-based Nice N Easy, which operates about 60 stores, and
Amherst-based MWS Enterprises, which runs 40.
Pataki said he won't direct the state Tax Department to
collect the taxes this year, instead working to make a deal, or compact,
with the tribes.
"I've always said from the beginning the best way to do
this is through compacts, by consensus," he said. "We're going to continue
to strive to do that."
Besides Pataki, the lawsuit names five cigarette distributors
that supply the reservations with untaxed cigarettes, including Frank Colucci
Inc. of Niagara Falls.
The long-running tax issue is no small matter: hundreds
of millions of dollars are at stake. On the one side are convenience stores
that compete with reservation stores and state legislators who view the
taxes as a way of helping to pay for the state budget. Joining them are
anti-smoking groups that want to see cigarettes made more expensive.
On the other are customers who enjoy cheaper prices and
Native American tribes that insist the law would intrude on their sovereignty.
Last year, the state Legislature again passed a law demanding
the Pataki administration begin collecting the taxes on March 1 of this
year. The state's per-pack tax on cigarettes is $1.50; it charges about
30 cents per gallon of gasoline.
Courts have ruled that states can impose taxes on sales
to non-Indians. The state could do so by collecting tax payments from cigarette
distributors. Reservation stores would then raise prices, but Native American
customers would be eligible for rebates, legislators said.
But Pataki's Tax Department disregarded the March 1 mandate.
Legislators considered passing a similar mandate this year, attaching it
to the state budget, but in the end decided not to.
Anti-smoking activists have been convinced that Pataki,
who is stepping down at the end of the year, will simply ignore the issue
the rest of his term.
When Pataki raised the sales-tax issue in 1997, about
1,000 members of the Seneca Nation burned tires and shut down Interstate
90 between Hamburg and Silver Creek south of Buffalo. There was a melee,
triggering the arrest of 11 people.
The issue faded away until 2003 when the recession prodded
legislators to pass a law demanding the collection of the taxes. They passed
similar laws in 2004 and 2005.
Pataki officials have repeatedly said they want to address
the issue through "cooperation not confrontation."
They have tried to negotiate "parity" deals in which tribes
would voluntarily raise the prices of gas and cigarettes to match what
nearby non-Indian stores charge — without paying taxes to the state.
But tentative agreements — sometimes included as part
of a way to settle long-standing Indian land-claim lawsuits and open Indian-run
casinos -- always have fallen through.
Convenience Store News - April 29, 2006
NY Lawmakers Seek to Halt Tax-Free Cigarette
ALBANY, N.Y.--In an effort to force Indian retailers to
halt the sale of tax-free cigarettes, New York legislators are pushing
to make it illegal for tobacco manufacturers to do business with wholesalers
that don't charge taxes on cigarettes supplied to Indian merchants, reported
Frustrated by Gov. George E. Pataki's 10-year refusal
to collect taxes on cigarettes sold by Indian retailers, lawmakers have
introduced a bipartisan measure in the Assembly and State Senate that largely
would remove collecting the tax from the hands of the governor and make
it more a matter for law enforcement, according to the report.
Targeting large tobacco companies would be an effective
and simple way of cutting off the supply of tax-free tobacco products to
Indian retailers, reported BuffaloNews.com.
Lawmakers said in the report the state's failure to collect
the $1.50 per pack excise tax on reservation sales costs the state $400
million a year.
Officials of the Seneca Nation of Indians maintain that
treaties dating back two centuries protect them from taxation.
The legislation was proposed after the state Department
of Taxation and Finance refused to start collecting the tobacco tax March
1, as required by a law enacted last year.
All sides seem to believe that Pataki does not intend
to collect the tax--and risk another round of violence on reservations
like the Senecas, according to the report.
The proposed legislation would end what had been an attempt
to target wholesalers--the middlemen in the tobacco distribution chain
who purchase cigarettes from manufacturers and sell them to retailers,
including Indian-run businesses, reported BuffaloNews.com.
Officials with Philip Morris and RJR, the nation's biggest
tobacco companies, said in the report they were reviewing the new bill
and would not comment.
James Calvin, executive director of the New York Association
of Convenience Stores, said in the report his group is open to what he
described as "a creative approach" to ending the stalemate over collecting
"It's just unfortunate that something like this needs
to be considered when the easiest, most direct, best answer to this situation
is for the governor to enforce the existing law," he told BuffaloNews.com.
Indian Country Today - March 24, 2006
Cigarette Tax Issue Smolders in New York State
MASTIC, N.Y. - The taxation of reservation sales of cigarettes
is burning hotter than ever as a New York state political issue, weeks
after Republican Gov. George Pataki tried to stub it out until after he
Democratic State Attorney General Eliot Spitzer, a leading
candidate to succeed Pataki in this year's elections, seems determined
to keep it alive, with the help of assorted allies. Spitzer is calling
for enforcement of the state Legislature's budget mandate to collect the
tax as of March 1. Pataki vetoed an earlier version of the legislation
two years ago and called for a one-year extension of the deadline in his
budget message in February.
But state tribes have encountered increasing pressure
from several directions. Responding to statements from Spitzer, the main
cigarette distributor to the Seneca reservations temporarily suspended
deliveries. (They resumed after the State Department of Finance and Taxation
provided the distributor with a protective letter.) Spitzer enlisted the
senior U.S. senator from New York, Charles Schumer, a Democrat, to introduce
a bill prohibiting the U.S. Postal Service from delivering cigarettes purchased
over the Internet, a major business for Seneca Nation entrepreneurs. And
on March 20, the New York supermarket chain Gristede's Foods Inc. threatened
to sue the two state-recognized Indian nations on Long Island and their
senior tribal officials for undercutting its own cigarette sales.
Chief Harry Wallace of the Unkechaug Indian Nation, a
main target of the suit, promised a vigorous counterattack. ''We are exploring
all possible responses to this suit, including an aggressive countersuit
for these outrageous claims by this multi-billion-dollar corporation,''
he told Indian Country Today.
Gristede's released a draft of its complaint to New York
metropolitan newspapers several days before it was filed in the U.S. District
Court in Brooklyn.
The draft complaint alleged: ''The illegal trade in these
discounted Indian-sold cigarettes has spawned, with the defendants' knowledge
and active participation, a thriving black market of discount cigarettes
that funds gangs, organized crime and international terrorist groups such
as Hezbollah, and which promotes juvenile and teen smoking.'' It supported
the charge with several out-of-context quotes from a recent New York Times
series on smuggling through reservations, which was widely criticized in
Indian country. The quote, among other things, said that Indians were building
''their own violent Mafia-like enterprises.''
The complaint listed the U.S. civil Racketeering Influenced
and Corrupt Organizations conspiracy statute as its federal cause of action.
It specifically named the Unkechaug Nation, which is based on the Poospatuck
Reservation in Mastic; Wallace; and the nation's main enterprise, the Poospatuck
Smoke Shop and Trading Post. It also named the Shinnecock Indian Nation
in Southampton; three past and present tribal leaders; and Shinnecock Ltd.,
a tribally affiliated business that sells cigarettes.
In a significant ploy, it also included 100 John Does
as defendants, explaining that these presently unknown parties were ''smoke
shops, individuals and businesses that sell cigarettes in New York to non-Indians,
who are not authorized resellers, without charging State and local excise
and sales.'' This wide net, according to the complaint, included sales
both on and off Indian lands. Gristede's said it would amend the complaint
''to allege their true names and capacities when ascertained.''
The presence of this open-ended list of John Doe defendants
allowed Gristede's to tar the named defendants with allegations of every
form of ''black market'' illegality, such as counterfeiting cigarette tax
stamps and funding ''organized gang activity, organized crime and international
terrorism.'' These allegations referred ambiguously to ''the defendants''
without specifying whether they were the named or fictitious ones.
Wallace denounced the complaint as ''slanderous'' and
questioned whether it would go anywhere in court. He said that tribal sovereign
immunity was ''absolutely'' a defense. He also detected the hidden hand
of Spitzer behind the well-publicized release of the draft.
Gristede's Foods is a unit of the Red Apple Group, which
owns several chains of supermarkets and convenience stores as well as a
subsidiary, United Refining, which distributes fuel to gasoline stations
throughout New York state. Its president, John Catsimatides, is a major
Democratic Party contributor with an intricate relationship with Spitzer.
Spitzer was openly a factor in the week-long interruption
of cigarette deliveries to Seneca Nation retailers. The wholesaler, Milhelm
Attea & Bros. Inc., cited uncertainty over its immunity from liability
for state sales tax collection. The state system relies on wholesale ''stamping
agents'' to affix tax stamps to cigarette packs before they are shipped
to retailers. The law exempts transactions the state is constitutionally
barred from taxing, such as reservation sales to Indians.
The Attea company, a registered Indian trader and the
major supplier to Seneca businesses, was the defendant in the 1994 U.S.
Department of Taxation & Finance of New York v. Milhelm Attea &
Bros. Supreme Court case, which upheld the state tax department's plan
to collect taxes on reservation sales to non-Indians.
The state tax department resolved the crisis within days
by issuing a letter protecting Attea from prosecution, but Indian-owned
retailers on Seneca territory had nearly exhausted their stocks and were
rationing sales to customers. The suspension, said Wallace, was a ''wake-up
call'' to Seneca leaders.
Seneca President Barry Snyder Jr. issued a statement March
15 promising steps to develop a ''Nation-protected wholesale supply.''
''In recent days, it has become obvious that the Nation
must do more to protect its economy,'' Snyder said. ''We have relied on
the good word of Governor Pataki that our treaties and sovereignty would
be respected and that the Nation's economy would not be harmed. But the
actions of Attorney General Spitzer to threaten and intimidate wholesalers
is interfering with official State policy.
''We are left with no choice but to develop a protected
source of tobacco products to ensure that the Nation and its people are
not denied the ability to consume and trade these products on our territory.
We will work in partnership with our business community to develop the
business and regulatory approach necessary to ensure that our treaty-protected
right to the 'free use and enjoyment' of our lands is secured.''
Although Snyder did not spell out a strategy, federal
courts have held that items with value added through on-reservation processing
are not subject to state wholesale taxation. The manufacture of cigarettes
has emerged as a booming reservation business. Snyder's statement was his
second within a week in response to Spitzer's actions. On March 10, he
denounced Spitzer and Schumer for sponsoring a bill to keep tobacco products
from being shipped via the U.S. mail. Spitzer had earlier pressured private
delivery services to stop shipping cigarettes from Seneca Nation suppliers.
''That Attorney General Spitzer and Senator Schumer would
call Senecas who sell cigarettes as being part of a 'massive criminal enterprise'
is to malign the entire Seneca Nation and its people,'' said Snyder.
''Despite the Attorney General's misrepresentations, selling
tobacco products in Seneca nation territory does not violate any law.
''On behalf of the Seneca people, I believe that Attorney
General Spitzer and Senator Schumer owe us an apology for their inappropriate
and disrespectful attack on our good name.''
NY Sun - March 22, 2006
Council Wants Indian Tribes to Pay State Cigarette Taxes
The City Council is weighing in on the side of business
owners in a dispute over a new state law that requires the collection of
taxes from Indian tribes that sell cigarettes.
The chairman of the council's Finance Committee, David
Weprin, said yesterday that he would hold hearings this spring on a resolution
calling on the state to enforce the law, which took effect March 1. The
state Department of Taxation and Finance said late last week it will not
enforce the law, which requires wholesalers to collect taxes up front from
Indian businesses that have historically sold cigarettes duty-free.
"I think it's outrageous that the governor is not enforcing
the law," Mr. Weprin said. A hearing on the resolution, introduced earlier
this month, will be held after the council finishes its negotiations over
the city budget, he said.
City business owners contend the sale of tax-free cigarettes
by Indian tribes fosters a black market. Alleging racketeering, the supermarket
chain Gristede's filed suit against two Long Island tribes on Monday. The
issue is pitting Governor Pataki against the state attorney general, Eliot
Spitzer, who is running for governor. While a spokesman for Mr. Pataki
says the governor prefers to resolve the dispute with Indian tribes "through
cooperation instead of confrontation," Mr. Spitzer has said the law should
be enforced. The governor's spokesman, Kevin Quinn, said yesterday that
courts have given enforcement jurisdiction to the Department of Taxation
and Finance, not the attorney general. A spokesman for Mr. Spitzer, Marc
Violette, declined to comment.
By ignoring the new law and continuing negotiations with
the Indian tribes on the issue of cigarette taxes, the state is seeking
to avoid a repeat of the massive demonstrations that followed the state's
last attempt to collect taxes from the tribes, in 1997, an administration
official, speaking on the condition of anonymity, said yesterday.
The strategy drew criticism yesterday. "I don't believe
it's appropriate to succumb to that," the sponsor of the council resolution,
Lewis Fidler of Brooklyn, said. "I don't believe you negotiate the enforcement
of a statute when it's legal and on the books."
Niagra Falls Repoter - March 21, 2006
State's Latest Sales-Tax Grab Jeopardizes Rez Businesses
Last Thursday afternoon, Randy Chrysler looked around
his property on Upper Mountain Road on the Tuscarora Reservation and described
the small empire that tax-free cigarette sales built.
There's the bottled-water business run by his brother
Roger. Another brother, Joe, runs a sneaker shop. And cars line up to buy
gas as he talks.
"The smoke shop covered the payroll while they were getting
started," Randy Chrysler said. "I employ 30 people here. They have wives
All that, along with the dozen or so other stores selling
tax-free tobacco, gasoline and other products on the Tuscarora Reservation
hung in the balance for several tense days last week, after a Buffalo tobacco
wholesaler notified owners that it would stop delivering unstamped cigarettes.
Milhem Attea and Bros., the largest supplier to the reservation
stores, pointed to statements by state Attorney General Eliot Spitzer and
his spokesman that warned of fines and even license revocations for anyone
who provided the unstamped smokes.
Shelves emptied quickly at Randy's Smoke Shop and most
other stores. Piles of tires and wood pallets piled up near many shops
on the Tuscarora and Seneca nations, a not-so-subtle warning of civil unrest
After three days of rising tensions, New York Gov. Pataki's
office and the state Department of Taxation and Finance announced that
wholesalers could start shipping again, without fear of punishment, while
negotiations with the state Legislature continued.
Spitzer's stance and an Assembly budget bill threatened
reversal of an Albany charade that's been going on for more than a decade.
Each year, the state Legislature includes language in
the budget legislation that says, in effect, "OK, this year we're really
going to start collecting sales tax from stores on the reservations."
Then Pataki says, "Yes, we will. Next year."
And almost everybody is happy. Legislators keep collecting
contributions from the group representing convenience-store owners, the
reservation shops stay in business and Pataki doesn't have to play the
The last time he tried on that role, in 1997, tire fires
burned at reservations throughout Western New York, with protesters clogging
the New York State Thruway where it passes through the Seneca Nation, forcing
A Pataki administration source pointed to the financial
impact of a rerun. Aside from an estimated $5 million per week for State
Troopers needed to keep roadways clear, traffic interruption would muffle
interstate commerce and possibly hamper homeland security efforts.
The Senecas brandish an additional hammer since the last
sales-tax standoff -- casinos in Niagara Falls and Salamanca that generate
millions for Albany annually (even if none of it seems to be finding its
way back to Niagara Falls).
Surveys have consistently shown an overwhelming majority
of New Yorkers oppose taxing the reservation stores. A Zogby poll earlier
this month showed 79 percent supported the governor's non-enforcement policy.
Those numbers make the stance taken by Spitzer, the front-runner
to succeed Pataki, particularly curious.
About the only people unhappy with the status quo are
the non-reservation convenience store owners, who cite figures purporting
to show how much revenue New York state is supposedly "losing" via non-enforcement.
Their figures, though, ignore the fact that almost half
of reservation sales are made to non-New Yorkers. Many smokers would also
switch to cheaper cigarettes if the discounted reservation cigarettes became
unavailable, further cutting into the estimated windfall.
Then there's the question of whether you can really lose
something you never had to begin with.
To Chrysler, the dizzying conflict of numbers is beside
the point. Attempting to collect taxes from the shops now, reversing a
policy that's been in place for decades, would decimate a system that's
created almost all the viable businesses on the Tuscarora and other reservations.
"For us, this isn't about gas and cigarettes -- this is
about sovereignty," said Chrysler, who is 41 and has run his store for
16 years. "It's about giving our people opportunities like every other
race has -- the opportunity to support a family, to be a working mother
Chrysler employs 30 people. After Attea notified him on
Tuesday that it wouldn't be shipping any more cigarettes, he started laying
off workers, about a dozen in all, many of them relatives.
"To have to lay off your cousins ..." Chrysler said, his
voice trailing off. "This is a good business. We pay our bills. Now we
have to lay them off because they won't deliver to an Indian nation. The
toughest thing was to have to tell my mom's nieces who have kids, 'You've
got no job.'"
Chrysler, who is also one of the top drivers at Ransomville
Speedway, said he's worked to make an impact in the community beyond the
reservation as well.
Like many reservation stores, Randy's Smoke Shop sponsors
youth sports teams and is one of the first stops for anyone raising money
for just about any charitable cause.
"The press always comes out here when there's trouble,"
Chrysler said. "But look at everything else we do. The volunteer fire departments
can't go to NOCO and ask for money."
Asked when the pile of rubber and wood across Upper Mountain
Road might catch fire, Chrysler smiled and shrugged.
"Whenever I get cold," he said.
A day later, on Friday, Attea announced it would resume
shipping, but to Chrysler and most other Indian merchants, there's a big
difference between a delay and a resolution.
It got pretty cold Friday night, and several hundred Tuscaroras
attended the bonfire on Upper Mountain Road.
"It doesn't change anything for us," Chrysler said when
asked about the state's announced non-action on Friday. "We're still on
pins and needles around here."
NY Daily News - March 20, 2006
Supermart is Smokin' Mad
Sues L.I. Indians Over Sale of Cigs
A city supermarket chain is suing two Long Island Indian
reservations, saying their illegal cigarette sales are cutting into profits.
Lawyers for Gristedes Foods are expected to file the suit
today in Brooklyn Federal Court, charging two Indian nations helped spawn
"a thriving black market of discount cigarette sales."
The suit contends that Gristedes, which operates 45 grocery
stores in the metropolitan area, has "lost in excess of $20 million in
cigarette sales revenue and lost ancillary sales" from illegal competition.
The action seeks an injunction, punitive damages and the
grocer's share of what it considers illegal profits.
Gristedes boss John Catsimatidis said he decided to file
the suit because the state Taxation and Finance Department is not enforcing
State and federal statutes allow cigarette retailers on
Indian reservations to skip taxes for Indian customers, but duties must
be collected from non-Indian customers, whether in person or online.
"I'm not taking the law in my own hands," Catsimatidis
said. "But we're losing a lot of business, and so are a lot of small businesses."
The Unkechaug Poospatuck Tribe of Mastic and the Shinnecock
Indian Nation in Southampton, both in Suffolk County, are named in the
Critics have accused Gov. Pataki of dragging his feet
on collecting cigarette taxes on Indian reservations, despite a legislative
budget directive this year. His spokesmen contend the governor is trying
to work out agreements to collect the taxes "in a way that makes sense."
A pack of cigarettes sold in the city now carries a $3
tax - $1.50 each for the city and state. Mayor Bloomberg has proposed a
Also named are Poospatuck Chief Harry Wallace, who operates
the Poospatuck Smoke Shop and Trading Post, and several leaders of the
Shinnecocks, including Lance Gumbs, the tribe's former board chairman.
Told of the impending suit, Wallace, who is also a lawyer,
said that private individuals "have no authority to sue an Indian nation
or its subsidiaries."
Gumbs called the suit "frivolous" and said it was "intended
to deprive the tribes of their economic engine" that is used to pay for
needed services on the reservation.
Gristedes lawyer William Wachtel countered that "the lion's
share" of money made on reservation cigarette sales is not being used to
improve tribal conditions.
"A lot of money is ending up in the Cayman Islands [banks],"
The Buffalo News - March 19, 2006
Indians See Tax Battle With Spitzer
A resumption of cigarette deliveries to Native American
smoke shops does not mean business as usual so long as State Attorney General
Eliot Spitzer remains a candidate for governor.
Seneca leaders and a Tuscarora businessman predict they
are headed for a confrontation with Spitzer, who has strongly advocated
collecting cigarette taxes on the reservations at the direction of the
"It ain't over yet with Spitzer. He's brought us together,"
said Cyrus M. Schindler Jr., a tribal councilor and member of a Seneca
committee studying ways to thwart the state's recent effort to collect
taxes on Indian-sold tobacco.
Joseph "Smokin' Joe" Anderson, a smoke shop owner on the
Tuscarora Reservation in Niagara County, said his lawyers are working the
tax issue. "This is what I say to the government: Don't step on our rights,"
Anderson said. "They've burned us out and put us on reservations. We came
up with ways to manufacture and sell goods, and now they want to take that
away from us. It's not going to happen."
Many Seneca leaders remain angry with Spitzer's statement
earlier last week, describing nation retailers shipping cigarettes over
the Internet as a "massive criminal enterprise."
Some say they are looking at ways to spend as much as
$5 million to make their anti-tax case to the public during the gubernatorial
campaign in the hopes of damaging Spitzer's chance at election.
One way to raise that money might be to raise the price
of a carton of cigarettes and use that extra money for an anti-Spitzer
The state Tax Department on Friday appeared to back down
from a law that passed both the Senate and Assembly, requiring state taxes
be charged on cigarettes sold from the reservation. The Tax Department
notified a major wholesaler of cigarettes that it could ignore the law,
and tobacco shipments resumed Friday.
Seneca businessmen and leaders aren't certain that the
conflict is over, though, and they are discussing other strategies. One
is the possibility of the Seneca Nation buying cigarettes directly from
tobacco manufacturers, said Anna Ward, who runs Big Indian, one of the
Senecas' largest retail operations.
"That would strengthen our commerce," said Ward, Schindler's
daughter. "The Seneca Nation might also deal with other Indian nations
that have direct relationships with cigarette manufacturers."
Schindler, who negotiated a casino compact with Republican
Gov. George E. Pataki, described Spitzer's efforts to collect taxes from
American Indians as a "bullying tactic" that goes against a promise made
by Pataki when he agreed to allow Indian-run casinos in New York State.
"When we were negotiating the [casino] compact, Pataki
said we were sovereign and he wouldn't collect taxes from us," Schindler
said, adding that treaties between the tribe and the federal government
protect the nation from taxes.
The U.S. Supreme Court, however, ruled in 1994 that the
state could collect taxes on sales of cigarettes to non-Indians.
Native Americans on the Tuscarora Reservation, though,
still feel the tax issue is one of sovereignty. "How are they going to
enforce that?" Anderson asked. "Are non-Indians going to have stars on
their foreheads? This is not about taxes or politics, it's about human
Billie Twogun, who lives on Tuscarora land, said it reminds
him of the Deep South in the 1950s. "They want us to have a native price
and a white-boy price," he said.
Jim Printup, who works at Jay's Place, an Indian smoke
shop on Walmore Road on the Tuscarora Reservation, also expressed resentment
at the effort to collect the taxes on the reservation. "How can you tax
another nation?" he said. "This is never going to fly."
"We plan to be in the tobacco business for another 100
years," said Anderson, who owns cigarette, gasoline, gift shop and food
market complexes on the reservation.
Schindler hinted he and other Senecas are not afraid to
return to the tactics of the 1990s, when angry Senecas and their supporters
closed down the New York State Thruway with massive protests and fires
in response to the state's effort to collect taxes.
NY Daily News - March 19, 2006
Pols Fume as Cig Tax is Ignored
The Pataki administration is refusing to enforce a new
law that effectively shuts down the lucrative sale of untaxed cigarettes
by the state's Native American tribes - costing the city and state $500
million this year.
Pataki administration sources concede the governor's decision
to defy the Legislature is motivated by politics.
The state is in delicate negotiations with the tribes,
led by the Seneca nation, over its land claims and the proposed construction
of casinos upstate.
Enforcing the new cigarette law could cripple those talks
- and Pataki also wants to avoid a repeat of the violence that broke out
nine years ago when untaxed cigarette sales were banned temporarily and
Native Americans rioted for days, blocking the state thruway near Buffalo,
Pataki spokesman Kevin Quinn told the Daily News, "Our
goal has always been to solve this matter through cooperation instead of
But state Attorney General Eliot Spitzer, Assembly Speaker
Sheldon Silver, Senate Majority Leader Joe Bruno and Assemblyman Pete Grannis
are demanding Pataki enforce the law.
"The administration is being a scofflaw on carrying out
the law that we're emphatically arguing should be enforced," said Grannis
(D-Manhattan). "There are hundreds of millions of dollars at stake."
Native American tribes sold more than 475 million packs
of untaxed smokes in New York last year. The tribes enjoy tax-free commerce
because of their sovereign nation status.
Selling the tax-free tobacco has brought millions of dollars
a year to the tribes, which hawk cigarettes over the Internet and at stores
on reservation land.
Seneca nation President Barry Snyder has railed against
the new law, arguing it breaks treaties and is an economic assault on the
If it's enforced, Snyder said, "hundreds of Seneca-owned
businesses would be forced to close, putting 1,000 Senecas and non-Senecas
out of work."
"Doing so would wreak havoc on both the nations and western
New York economy," he added.
The sale of tax-free cigarettes has been contested in
numerous court cases involving the tribes, rival retail stores, trade associations,
the Legislature and the city for more than a decade.
Pataki has proposed changing the new law in his budget
and wants to hold off enforcing it while the Legislature considers several
Pataki also wants to cut the Legislature out of any negotiations
with the tribes over land claims, casino operations and cigarette taxes.
That would please the tribal leaders, who prefer to deal one on one with
the governor, sources said.
The new law, which went into effect March 1, requires
wholesalers to collect taxes from tribes as well as other retailers before
tobacco products are sold. The taxes are then turned over to the Department
of Taxation and Finance.
The tribes would have to pass the new taxes along to their
customers to avoid losing profits, essentially killing their tremendous
pricing advantage over other retailers.
For example, Seneca tribe businesses are selling untaxed
cartons of Marlboros over the Internet for $29.99 each, while the taxed
retail store price per carton in the city is about $70.
More than 20 Internet sites and 500 smoke shops are run
by tribes in the state. They include the Tuscarora, Tonawanda Seneca, Cayuga,
Onondaga, Oneida, Akwesasne Mohawk and Ganiehkeh Mohawk nations, which
all are located upstate. The Poospatuck and Shinnecock nations in Suffolk
County also sell untaxed cigarettes.
Associated Press - March 18, 2006
Tax Officials' Advice Eases Tension Over Indian Cigarette Sales
The state Department of Taxation and Finance has advised
a Buffalo cigarette wholesaler it can ignore a new law requiring tax collection
on tobacco products sold to Seneca Nation and other Indian businesses.
That eased tensions on Indian reservations in western
New York where nervous suppliers cut off shipments to smoke shops earlier
in the week. Indians accuse the state of ignoring their sovereignty. In
1997, the last time the state tried to collect the tobacco taxes, confrontations
between Senecas and state police closed a section of the Thruway.
By noon Friday, supplier Milhem Attea & Bros.
resumed shipping cigarettes to Seneca smoke shops, spokeswoman Rosemary
Saffire said. "We have it in writing, so we can take it to a judge and
say, "Look, we have permission,"' she said.
In the letter, the Tax Department said it had a "long-standing
policy of allowing untaxed cigarettes" to be sold to Indian retailers.
The agency noted Gov. George Pataki had proposed changing the law that
kicked in March 1.
One idea was to delay implementation. The State Senate
and Assembly earlier this week rejected that.
State Attorney General Eliot Spitzer has warned wholesalers
that, no matter what the Tax Department claims, the cigarette tax collection
law is in effect. His aides have said wholesalers who ship untaxed cigarettes
to Indian retailers face possible prosecution.
Spitzer said Friday during a stop in Buffalo, "You can't
announce to the world that a law will simply be ignored and not enforced."
He said he would talk to the Pataki administration and that he would "act
in a very measured, careful manner, hopefully in conjunction with the executive"
Joseph Crangle, counsel to the Senecas, said the Tax Department
disagrees with Spitzer, "and they're the ones in charge of saying what
the state tax law is, not the attorney general." Richard E. Nephew, chief
executive officer of the Seneca Nation, said the Tax Department letter
"sounds like probably a temporary fix."
The Senecas have long maintained that 19th century treaties
protect them from the state taxing the nation's products. The U.S. Supreme
Court, however, ruled in 1994 that the state could collect taxes on sales
On the Cattaraugus Reservation, where dozens of smoke
shops are located near the Thruway, several shop owners and workers said
they were optimistic.
On the Tuscarora Reservation, residents gathered by a
bonfire Friday night near Randy's Smoke Shop with signs urging passing
motorists to support treaties.
The Buffalo News - March 17, 2006
Indian Protests of Cigarette Law Limited for Now
Operators of smoke shops on Indian reservations are blaming
the state for recent increases in the prices they charge - but the protests
were limited to a few signs Thursday.
If smokers are worried about a shortage of tax-free cigarettes,
it wasn't evident at the smoke shops on the Cattaraugus Indian Reservation,
where more clerks than customers were in evidence during a visit.
Two of the four shops visited had signs saying there was
a $5 increase for a carton of cigarettes. But only one, First American
Tobacco, was restricting sales with a five-carton limit. A clerk said no
more cigarettes would be arriving, but she didn't know why.
At Seneca One Stop, customers with complaints about the
$5 increase for a carton and $1 for a pack were advised to take it up with
Attorney General Eliot Spitzer. "It's out of Seneca One Stop's hands,"
according to the sign.
At Seneca Hawk and Triple J's, there were no indications
that prices had risen or of any limits on sales.
At the Tuscarora Reservation in Niagara County, Randy's
Smoke Shop sported a handwritten sign saying, "Price Increase. Due to NYS
Government. There Are No More Cigs Coming In. This Is It. You Can Thank
Your NYS Government."
Another sign said there was a one-carton limit until further
The tension on the reservations stems from a new state
law that kicked in March 1 requiring wholesalers to pay state excise taxes
- $1.50 per pack - on cigarettes they ship to Indian retailers to be sold
to non-Indians. But Gov. George E. Pataki's administration, which for a
decade has fought efforts to collect the tax, said it would not have its
tax department enforce the new law while Pataki tried to negotiate with
legislators for a one-year delay.
But Spitzer warned wholesalers that, despite the Tax Department's
decision, the law is in force and they risked prosecution if they continued
selling tax-free cigarettes to Indian retailers. And this week, the State
Legislature said it would not go along with Pataki's call to delay the
law until after he leaves office at the end of the year.
In response, wholesale tobacco executives say at least
several companies, fearing legal consequences, have stopped shipping to
the Indian-owned retailers. Only one tobacco company, Attea Milhelm &
Bros., has confirmed a suspension of sales.
On Thursday, the Pataki administration did not comment
on the latest wrangling. State Police were monitoring the situation as
Tax Department lawyers met through the day to figure out a next step for
the state to take.
Wholesalers have asked the tax agency to make clear that
the law doesn't yet apply because of Pataki's decision to delay enforcement;
Spitzer said the tax agency can't do that because the law is already on
At the Allegany Reservation near Salamanca, tobacco merchants
and other Senecas met Wednesday night and did a lot of "venting," according
There was talk of blocking highways and also of launching
a public relations campaign against Spitzer, they said. Some of the tobacco
Web sites were down or had messages saying "Internet Store Closed." [on
this date senecasmokes.com carried such a message]
The Buffalo News - March 16, 2006
Key Tobacco Supplier Halts Sales to Senecas
Indian Retailers Struggle to Keep Cigarette Trade Flowing in Wake
of New Tax Law
ALBANY - The major supplier of cigarettes to Seneca Nation
smoke shops has halted shipments to the reservations.
Milhem Attea & Bros., a Buffalo firm whose business
is almost exclusively supplying Indian retailers with cigarettes, said
it can't risk being forced to pay cigarette taxes if state or local prosecutors
try to enforce a new law that went on the books March 1.
But the company is considering a suit against the state
to keep its tobacco sales flowing to Seneca and other Indian retailers,
such as the Tuscarora Nation in Lewiston. Such a legal move could delay
a resolution to the tax dispute.
The suspension of sales by Attea was seen Tuesday as a
major development by those trying to end the tax-free cigarette sales.
"This might be the break that finally puts an end to this
issue," said Russell Sciandra, director of the Center for a Tobacco Free
Other cigarette suppliers also have stopped shipping to
the Seneca retailers in the past several days, state officials and executives
in the wholesale tobacco industry say. Those suppliers did not return calls
If true, industry sources said, the Seneca retailers could
find themselves running short on tobacco products by next week.
The situation has left Seneca and Tuscarora retailers
scrambling to keep the tobacco trade flowing.
The tobacco business has made many Native American businessmen
wealthy, appealing to smokers trying to avoid the state's cigarette taxes
that add $1.50 per pack before local sales taxes.
A lawyer for Attea said the sales could resume if the
state Tax Department sends a new signal that the law is not in force.
A spokesman for Attorney General Eliot Spitzer said Wednesday
that wholesalers risk possible criminal prosecution if they continue the
"The tax department can say whatever it wants, but the
law is in effect," said Darren Dopp, a spokesman for Spitzer, who has insisted
the tax collection law became effective March 1 whether or not the tax
agency implements its provisions.
Seneca President Barry Snyder Sr., in a prepared statement,
accused Spitzer of threatening and intimidating wholesalers in a move that
is "interfering with official state policy" of the Pataki administration.
"It has become obvious that the [Seneca] Nation must do
more to protect its economy," Snyder said.
"We are left with no choice but to develop a protected
source of tobacco products to ensure that the nation and its people are
not denied the ability to consume and trade these products in our territory,"
He did not elaborate and did not return calls for comment,
but tribal leaders are looking into setting up some sort of Seneca-owned
tobacco business to keep state tax collectors away.
The Legislature last year inserted into the state budget
a provision requiring the state Tax Department to collect the taxes on
cigarettes sold by Indians to non-Indians by getting the tax from wholesalers
before the products are shipped to retailers.
Gov. George E. Pataki's tax department, however, said
it would not enforce the new March 1 law because the governor was trying
to negotiate a one-year delay in its implementation.
The recent move by Spitzer has angered employees of cigarette
stores on the Tuscarora Indian Reservation.
Although employees were tight-lipped late Wednesday at
the Smokin' Joe's complex on Saunders Settlement Road, Lewiston, a female
employee - who would not give her name - said she expects tensions to escalate
"I'm leaving New York State. This is the final straw,"
said the woman, who also said she feared for her job.
Smokers buying cigarettes Wednesday discovered the price
rose by $6 a carton and 60 cents a pack.
The clerk at Smokin' Joe's said a carton of Marlboros
regularly sold for $22.95. On Wednesday, the price was $28.95.
Crystal R. Avery, a clerk at Smokin' Joe's Indian Hill
location, said even the Smokin' Joe's brands, which are made on the Tuscarora
Reservation, have increased $6 a carton. Efforts to reach Joseph "Smokin'
Joe" Anderson or a business representative were unsuccessful Wednesday.
NY Times - March 8, 2006
Settlement Reached to Pursue Online Cigarette Sales Taxes
Mayor Michael R. Bloomberg yesterday announced a settlement
with an online cigarette vendor that will allow the city to pursue residents
for up to $33 million in unpaid excise taxes. It was the largest such settlement,
officials said, since the city sued dozens of companies and individuals
in 2003 for illegally selling cigarettes over the Internet to city residents.
A 2000 state law banned direct sales of cigarettes over
the Internet and by telephone or mail. Tobacco companies challenged the
ban, but a federal appellate court upheld it in February 2003. The state
began enforcing the law that June.
Officials acknowledge, however, that online cigarette
sales are still commonplace, and say that when they occur, the state and
city are unfairly cheated of tax revenues.
Even while the state ban was being challenged, the city
began its own effort in January 2003 to pursue Internet cigarette vendors
for failing to report sales and excise taxes. It has filed four lawsuits
against about 35 companies and individuals, alleging that they had failed
to file federal Jenkins Act reports, which are intended to alert state
tax authorities to out-of-state cigarette purchases so that the purchases
can be subject to local taxes.
The most recent settlement was filed last Wednesday in
Federal Bankruptcy Court in Tampa, Fla. The online cigarette vendor, eSmokes,
agreed to give the city an electronic database of all its sales to addresses
in New York State from 2000 to mid-2003. The company also agreed to stop
selling cigarettes to customers in New York State. The company, which began
operations in 1999, filed for bankruptcy protection last May.
Eric Proshansky, deputy chief of affirmative litigation
for the city's Law Department, said that eSmokes had turned over seven
spreadsheets containing records on about 140,000 sales. However, many of
the records may be duplicates.
The city's Finance Department will sort the data and send
tax bills to city residents. In the past, such collection efforts have
yielded 65 percent of the taxes owed; efforts continue to collect the remainder.
Associated Press - February 23, 2006
Spitzer: Pataki Administration Poised to Violate Law March 1
ALBANY, N.Y. -- Come Wednesday, state government will
be breaking the law and begin costing taxpayers millions of dollars by
choosing not to enforce legislation that would end the huge sales advantage
that Indian tribes have over taxpaying competitors off reservations, said
Attorney General Eliot Spitzer.
"The current tax laws are being ignored," said Spitzer,
the state's lawyer. "The new law goes into effect automatically on March
1 ... regardless of what the tax department does."
"This is a dangerous precedent," said state Sen. Raymond
Meier, a Utica Republican whose district includes the Oneida tribe's Turning
Stone Casino. "If people are able to say that `We are going to ignore the
law and try to negotiate a different legal framework with the state,' it's
an invitation to anarchy.
"I know of no other body of law where the executive branch
would say the Legislature is considering something, so we will ... suspend
the law in the meantime," Meier said Thursday.
In 2005, 9.5 billion packs of cigarettes were sold in
New York state without being taxed or stamped. That was up from 4.3 billion
in 2000, according to Spitzer's staff. It estimates lost taxes to the state
and New York City total about $300 million a year, while costing off-reservation
retailers untold customers.
The state Department of Taxation and Finance said it won't
enforce the new law requiring Indian tribes to pay the state's rising cigarette
taxes for sales to non-Indians through its massive Internet site and at
reservation stores. Instead, Commissioner Andrew Eristoff said he'll wait
to see if the Legislature agrees with Gov. George Pataki to again delay
enforcement by a year _ a delay the Democrat-led Assembly already rejects.
Nonetheless, officials on all sides figure nothing will
happen Wednesday. And for some who fear a reprise of 1990s violence by
Indians the last time the state tried to collect taxes, that's just as
As written, the law this time is aimed not at the tribes
_ whose leaders say they are shielded from collecting state taxes as sovereign
nations _ but at the large commercial tax and stamping agents licensed
by the state.
The wholesalers are compelled by the law to stop selling
untaxed, unstamped cigarettes to tribes. The Pataki administration's role
under the law is to provide coupons, already printed up, that would allow
Indians to avoid taxes on the cigarettes they buy for their own personal
The Pataki administration refused to say what, if anything,
it has told the wholesalers to do as of Wednesday. Tax Department spokesman
Tom Bergen said Tuesday he didn't know if the cigarette wholesalers will
adhere to the law and stop providing untaxed, unstamped cigarettes to tribes
_ the biggest Indian customer being the Senecas in western New York.
Normally, the state Taxation and Finance Department would
take action against those lucrative licenses if a wholesaler failed to
follow state law.
The next tier of action after Wednesday could be lawsuits,
by non-Indian retailers against the state or by the state Attorney General's
Office against wholesalers, but either courses would be lengthy.
"The tax stamping agents are required to comply with the
law" when it takes effect automatically Wednesday, said Spitzer, who is
the front-runner in the governor's race. "If they don't, then the tax department
should initiate proceedings to pull their stamping licenses."
A major tax stamp company, Harold Levinson Associates
of Farmingdale, didn't respond to a request for comment on what the company
will do. Seneca spokeswoman Susan L. Asquith said the tribe feels the law
doesn't begin Wednesday and doesn't know what wholesalers will do.
"We do not expect to begin enforcement on March 1," Eristoff
stated in testimony before the Legislature at a Feb. 15 budget hearing.
"As a matter of practical administration, we think it would be premature
to begin implementing at the same time that the Legislature is reviewing
substantive amendments to the law."
But the Legislature apparently isn't.
"No one is considering it seriously," said Assemblyman
Alexander "Pete" Grannis, a New York City Democrat and the chamber's leader
on the issue. "March 1, they are violating the law," he said of the Pataki
"We believe this new approach is a workable, legal, nonintrusive
approach as it relates to the sovereignty of the Indian Nations," Grannis
NY Post - February 3, 2006
Web Buyers Smoked Out
Price-conscious smokers who thought they landed fantastic
bargains on the Internet have been hit by the city with bills totaling
nearly $1.4 million, officials said yesterday.
A crackdown on tax-free cigarette sales on the Web hauled
in $695,479 from 2,156 puffers out of the $1,354,880 demanded in the first
round of bills sent out to 3,780 New York City residents through May.
A second round in August took in another $169,990 out
of $507,000 due.
Now, officials say, they're ready to get really serious
and impose a $100-a-carton penalty — plus the $1.50-a-pack tax.
"We want voluntary compliance," said Finance Department
spokesman Sam Miller. "Now that we've sent out three notices, it's not
so voluntary anymore."
The Buffalo News - January 18, 2006
Pataki Seeks 1-Year Delay in Ending Indians' Tax-Free Cigarette
Gov. George E. Pataki said Tuesday he will seek to delay
for a year implementing a state law that ends tax-free sales of cigarettes
by Indian retailers to non-Indians. Legislators, health groups and non-Indian
retailers have been trying to have the taxes collected for more than a
Pataki's effort to delay enforcement of the law - due
to take effect March 1 - came on the same day he formally proposed a $1-per-pack
cigarette tax increase. Critics say delaying the reservation tax collection
at the same time the tax is increased is certain to increase tax evasion
Not surprisingly, Indian leaders praised the two seemingly
contradictory proposals, which were contained in Pataki's 2006 state budget
plan. Over the years cigarette sales have become a major business for Seneca
Nation shops and Internet operations, with smokers from around the state
turning to Seneca retailers to avoid state taxes. The governor's new tax
plan would take the level to $2.50 per pack.
"The Seneca people commend the governor for his consistent
position over the years of recognizing the unique, legal sovereign status
of the Seneca Nation," said Seneca President Barry Snyder Sr.
Non-Indian retail groups said the governor is sending
mixed messages by raising the tax but not doing more to reduce bootlegging
and Indian tax-free sales. "This is an act of breathtaking cynicism," said
James Calvin, president of the New York Association of Convenience Stores.
"Let's drive tens of thousands more smokers to the unlicensed,
unregulated, untaxed side of the street no matter how harmful it is to
public health, state and local treasuries, or neighborhood convenience
stores," he said.
Health groups criticized the governor's delay. "It's a
mistake," said Russell Sciandra, director of the Center for a Tobacco Free
New York. "We think failing to collect the tax will reduce the public health
impact of the tax increase."
NY Times - May 29, 2005
Post Office Sidesteps Fray on Illicit Sales of Cigarettes
As they move to thwart the illegal trade of cigarettes
over the Internet, state officials have joined colleagues from around the
nation in persuading the major credit card companies to stop processing
payments for online cigarette sales. Additionally, the state has enacted
a law prohibiting the shipment of cigarettes to its residents and banned
private carriers, like FedEx, from shipping cigarettes.
But as state officials fight illegal online cigarette
sales, one operation is not falling into line - the United States Postal
Service, which officials say delivers the bulk of illegally purchased cigarettes
to New Yorkers.
The Postal Service, citing concerns about the privacy
of the mail and wary of putting postal clerks in the position of deciding
which packages to accept and which to reject, is resisting the growing
calls that it stop shipping cigarettes.
Its stance is exasperating law enforcement officials.
"It is outrageous that the federal government - through the United States
Postal Service - is knowingly acting as the delivery arm for these criminal
enterprises," New York's attorney general, Eliot Spitzer, said in a statement.
The role of the post office in shipping illegally sold
cigarettes is also attracting attention across the nation. Last month the
National Association of Attorneys General asked the Postal Service to "adopt
a firm policy prohibiting transportation of packages that the carrier knows
or reasonably should know contains cigarettes sold illegally on the Internet."
In Oregon, an online cigarette seller was charged in January with unlawful
distribution of cigarettes and racketeering; the post office was not charged
but was named in the indictment as part of the racketeering enterprise.
Congress has considered legislation that would ban the mailing of cigarettes.
Postal officials say that they are committed to fighting
illegal activities conducted through the mail, but complain that their
hands are tied. They note that Priority Mail, which officials say is most
frequently used to ship cigarettes, cannot be inspected without a search
warrant or the consent of either the sender or the recipient.
The post office's investigative arm, the Postal Inspection
Service, has worked to stop illegal cigarette shipments in a number of
cases, but has only about 1,970 inspectors in the whole country, charged
with investigating everything from the anthrax mailings to all suspicious
packages to the distribution of child pornography. And postal officials
say that postal clerks cannot be expected to figure out what people are
shipping, and whether cigarette retailers are complying with obscure laws
like the Jenkins Act, which requires cigarette sellers to keep lists of
customers for tax collection purposes.
"Tobacco is a legal, mailable product," Mary Anne Gibbons,
the Postal Service's general counsel, wrote last month in a response to
the association of attorneys general. "It would be impracticable for postal
acceptance clerks to make determinations on any given mailer's compliance
with state excise or tax law or Jenkins Act filings."
But state officials reject this argument, pointing out
that at least in New York State, public health laws prohibit direct sales
of cigarettes by mail. They acknowledge that the state cannot bar the post
office, a federal entity, from shipping cigarettes in New York, but say
that since online merchants often violate tax laws, shipping their cigarettes
violates federal mail fraud statutes and therefore should be stopped.
"Instead of complying with federal law, the Postal Service
is taking a head-in-the-sand approach, by claiming that they have no idea
what is in the packages being delivered - even if they are being mailed
by Internet operators that sell nothing but cigarettes," Mr. Spitzer said
in a statement. "That is an absurd argument that we would never accept
from a private defendant."
And several law enforcement officials said that in small
upstate communities like Salamanca, N.Y., which are dotted with smoke shops
advertising the tax-free cigarettes sold from Indian reservations, the
post office willingly accepts delivery of truckloads of cartons of cigarettes
But Anthony Alverno, the post office's chief counsel for
customer protection and privacy, said in an interview that the post office's
research indicated that the smoke shops doing business in New York sold
other items beside cigarettes, including "novelty items," so some packages
they ship might not be cigarettes. "We would need to get a search warrant
to make the determination," he said.
The Postal Inspection Service joined other federal and
local law enforcement agencies to seize 300,000 cartons of illegal cigarettes
last November at Kennedy International Airport. Mr. Alverno said that blocking
overseas shipments was easier, because they must pass through customs.
He added that the Postal Service would continue to discuss civil or criminal
actions that could be taken with law enforcement agencies.
Not just government officials, but also antismoking advocates
are trying to stop the mailing of cigarettes. And some see signs of progress.
John F. Banzhaf III, the executive director of Action
on Smoking and Health, an antismoking organization that has warned the
Postal Service that it could face legal liability for shipping illegally
purchased cigarettes, said that the service was finding itself increasingly
isolated, especially since credit card companies stopped processing the
payments for such sales earlier this year.
"It may be more trouble - both from a legal and public
relations point of view - than the benefits of the revenue that comes in,"
Several online cigarette sellers shut down after the credit
card companies stopped processing their transactions; others are struggling.
One Web site, tobaccobymail.com, which says it is run from western New
York, complains on its site that it is "perpetually targeted by the state
of New York," and says that it is not bound by state or federal laws because
it is owned and operated by the Seneca Nation of Indians.
The Web site says that it ships cigarettes by Priority
Mail, that they are tax-free, and that the company will not share its customer
lists with the government. But state officials say the company is flagrantly
violating tax laws.
Mr. Spitzer said that the Postal Service should stop carrying
illegally sold cigarettes. "The entire law enforcement community - attorneys
general, the federal Bureau of Alcohol, Tobacco and Firearms, police officers,
state tax officials, and even the Postal Inspection Service - is united
in trying to stop these illegal sales," he said. "The postmaster general
should be instructing the 'delivery side' of his office to join us in this
effort, rather than facilitating illegal conduct."
Buffalo News - April 6, 2005
Regulations in works to collect taxes on Indian sales of cigarettes,
ALBANY - The state tax commissioner said Tuesday his agency
is moving ahead with regulations to collect taxes on Indian sales of cigarettes
and gasoline, a move the head of the Seneca Nation believes will never
Tax Commissioner Andrew S. Eristoff told lawmakers his
proposed regulations mirror a similar rule his agency killed last year
over the opposition of the State Legislature, health groups and non-Indian
retailers. The new rules, which have not yet been publicly released, are
also similar to legislation passed last week as part of the state budget,
ordering Eristoff's agency to collect what lawmakers believe is at least
$400 million a year in taxes from sales by Indian smoke and gasoline shops
and Internet sites. The new budget provision is the third straight year
that the Legislature has ordered Gov. George E. Pataki to collect the tax
- an edict the governor, citing Indian sovereignty, has ignored.
In January, Eristoff surprised both sides in the debate
by saying his agency was drafting new rules to collect taxes at the wholesale
level before the products reach Indian retailers. Some lobbyists saw the
move as a negotiating tactic by the Pataki administration in trying to
deal with ongoing casino and land claims issues.
On Tuesday, in a hearing on Indian casino and taxation
issues, Eristoff said his agency has completed drafting the rules and that
they are now under review. It is not clear when they might take effect.
Seneca President Barry E. Snyder Sr., who skipped his
planned testimony before the legislative panel on Tuesday, said he believes
Pataki will not try to collect the taxes.
"If he's a man of his word, we should have no problem,"
Snyder said, noting Pataki's longtime public vow not to upset relations
with Indian tribes by going after the taxes that Native American leaders
say they don't have to pay under long-standing treaty rights.
Snyder said he hopes to meet with Pataki soon to discuss
various issues, including the tribe's possible interest in a Catskills
casino and the taxation dispute.
"He's held our sovereignty very close. Probably no other
governor has recognized as much that the Seneca Nation is a sovereign nation,"
NY Times - April 4, 2005
Trouble For Online Vendors of Cigarettes
Not since the dot-com bust have so many sites gone south
Two weeks after credit card companies announced they would
no longer accept payment for tobacco products bought online, scores of
Internet cigarette merchants have effectively lost the means to do business
profitably, and are either limping along or have shut down their operations
Visa International, MasterCard International, American
Express, eBay's PayPal service and others cut off the online tobacconists
last month after being told by a coalition of states and representatives
of the federal Bureau of Alcohol, Tobacco and Firearms that virtually all
such sales were illegal. Government officials said that merchants had not
done enough to comply with age verification practices or to register sales
with governments to insure the collection of state taxes.
Now, most merchants are reduced to accepting electronic
or paper checks, and fewer customers may be willing to wait for those checks
to clear before their orders are shipped. Meanwhile, some online merchants
say they have been wrongfully singled out by authorities.
Maxine Jimerson, owner Ron's Smoke Shop in Allegany, N.Y.,
recently shut down the online part of her business and laid off 120 of
her 160 employees. As a member of the Seneca Nation Indian tribe, she is
entitled to sell cigarettes free of state tax.
"Most everybody else around here is going out of business
too," said Ms. Jimerson, who will keep her retail shop open but has sold
her Web address to another merchant who operates on Seneca territory. "We're
talking about probably 30 businesses, and between 1,500 and 2,000 employees
being laid off."
Ms. Jimerson said her company had gone to great lengths
to verify customers' ages, contracting with a special vendor and requiring
buyers to send in a copy of a government-issued picture ID, with age and
signature, before a purchase could be made. Customer signatures at the
time of delivery had to match the signatures on file.
But federal and state authorities said that online cigarette
merchants did not do enough to insure the collection of taxes. In particular,
they did not comply with the Jenkins Act, a federal law that requires sellers
to register purchases in states where customers live. Like many other online
sellers operating on Indian territory, Ron's Smoke Shop did not comply
with such strictures because it argued that the law did not apply to it.
If there were online companies that complied with all
state and federal regulations, "it's news to us," said Marc Violette, a
spokesman for the office of Eliot Spitzer, the attorney general of New
York, where all online cigarette sales are considered illegal.
"It's good public relations to say you're bending over
backwards to comply with the law, but the fact is, they're engaged in an
illegal industry, and on their face, these transactions are illegal," Mr.
State officials had for years tried unsuccessfully to
collect cigarette tax revenues from online merchants, and had redoubled
such efforts as budget deficits skyrocketed in recent years. By using the
credit card companies as leverage, though, they appear to have made progress
in the fight.
The credit card company embargo "will significantly curtail
cigarette sales over the Internet, to the advantage of the major cigarette
manufacturers as well as state governments," wrote Robert T. Campagnino,
an analyst with Prudential Equity Group, an investment firm, in a report
late last month.
Mr. Campagnino estimated in his report that in 2004, $1
billion worth of cigarettes were sold online, or about 3.1 percent of the
industry's total volume. Many of those sales were made to customers in
states with particularly high cigarette taxes like New York, where offline
merchants must charge $15 or more in taxes for each carton. New York bars
direct shipment of tobacco products to its citizens, but many online merchants
ignored that law.
Some established tobacco sellers, like Nat Sherman, a
cigar and cigarette manufacturer based in New Jersey that also sells its
products online, strenuously object to the government actions.
"They're throwing the baby out with the bathwater," said
Joel Sherman, the company's chief executive. "We have over 70 licenses
to sell directly to customers around the country - every state, and many
municipalities. And we have a whole series of proofs in place for age verification."
Mr. Sherman said that credit card companies "have not
gotten around to shutting us off yet," so his site still accepts plastic.
But he said that since his customers can find Nat Sherman products at retailers
throughout the country - at lower prices, since customers do not pay for
shipping - his business will not be as deeply affected by a credit card
embargo as others.
In theory, at least, law-abiding online tobacco sellers
could avoid the credit card embargo. Joshua Peirez, a senior vice president
at MasterCard, said that banks that issue his company's brand of credit
cards may provide MasterCard with documentation if they believe one of
their merchant customers is selling tobacco online legally.
"But if there's any doubt, banks have the obligation not
to contract," said Mr. Peirez, who estimated that his company has so far
cut off about 100 of the biggest online tobacco sellers.
Some online cigarette sellers, who spoke on condition
of anonymity, said they were exploring ways to create their own credit
cards, perhaps in association with other online tobacco sellers. They would
then battle government regulators in court to determine the legality of
Still other online sellers are engaged in more creative
Richard Johnson Jr., who until late last year sold foreign,
duty-free cigarettes through www.internet-distributors.com, said he was
in the process of reviving that site so he could sell domestic cigarettes
to United States consumers. Mr. Johnson said he planned to establish credit
card accounts with foreign banks, which he said were not bound by United
Because some Internet cigarette sellers continue to accept
credit cards, this practice is possibly already being adopted. Mr. Peirez,
of MasterCard, said the company's policy applied to any bank whose merchants
sell to United States customers. "So no, we wouldn't allow them to process
those transactions," he said.
Meanwhile, Ms. Jimerson of Ron's Smoke Shop said she hoped
to use her company's former warehouse for a new party supplies and candle
business, FirstAmericanCandle.com, which she began developing months ago.
"I could retire," she said. "But I don't like to be forced
Buffalo News - April 4, 2005
Internet Cigarette Sales Take A Hit
Retailers on Cattaraugus Indian Reservation feeling impact as credit
card companies stop participating in transactions
The nation's biggest Internet cigarette sales industry
is showing signs of decline following concerted pressure by several states
to shut off tobacco customer access to credit cards.
Several retailers on the Cattaraugus Indian Reservation
who operate Internet smoke shops selling tax-free cigarettes are laying
off workers, closing or attempting to retool their operations.
The decline follows credit card companies' decisions to
cooperate with law enforcement authorities from across the nation. The
credit card companies no longer are participating in Internet tobacco transactions,
following a meeting last month with law
enforcement officials who explained that Internet tobacco
sales violate several laws.
In addition, Seneca sellers face a barrage of threatening
letters and, in some cases, subpoenas aimed at recovering unpaid tax revenues.
Seneca Maxine Jimerson's response was to sell her lucrative
"They were harassing me. They sent me a subpoena asking
me to forward all of my records, lists of employees, customers' names and
who owned the business," Jimerson said of authorities in several states.
"The letters kept getting more and more
aggressive listing the laws we were breaking."
She received the subpoena from Indiana and letters from
tax officials in New York City, Pennsylvania and Washington State and has
received many other notices in the past from tax officials around the country.
"I don't feel I have to comply with them," she said. "I'm
on an Indian reservation, and they don't have rights on the reservation."
No exact figures
It is not easy to get exact figures on how many people
were laid off or how many businesses closed, because many of these Internet
businesses are mom-and-pop operations in homes with family members and
a handful of employees.
But with the sale of Jimerson's business to another Native
American, it is estimated that as many as 80 workers lost their jobs, according
to Gregg Prockton, who serves as Jimerson's chief operating officer.
Jimerson, who still runs a smoke shop on the Allegany
Reservation, was one of the biggest online merchants from the Seneca Nation,
which comprises one of the largest blocs of Web cigarette sellers.
For years, New York State has gone back and forth on the
issue of collecting taxes on Native American cigarette and gasoline sales
In 1997, Gov. George E. Pataki backed away from attempts
to collect taxes following violent Native American protests. Three times
the State Legislature has adopted laws ordering the collection of taxes,
including a new measure in the just-adopted state
A lot of money is at stake.
More than 90 percent of the $347.5 million worth of cigarettes
and other tobacco products sold by Senecas in 2003 was generated through
telephone and Internet transactions.
Senecas have a huge price edge over non-Indian retailers
when it comes to selling untaxed cigarettes for as low as $9 a carton -
about $15 less than cigarettes sold off reservation lands.
Question of sovereignty
State governments claim that the Internet crackdown is
about stopping sales of cigarettes to minors, halting the flow of black
market cigarette profits to criminal enterprises and complying with laws
governing the sale of tobacco products.
Senecas see different issues.
They say it is all about collecting billions of dollars
in lost tax revenue that, if successful, will come at the expense of the
Seneca Nation's sovereignty, which they insist makes them immune to state
But Seneca President Barry E. Snyder Sr. has said the
Internet sales dispute is outside the realm of native sovereignty rights
- a stance that has upset the tribe's online retailers.
By failing to take up their cause, the merchants say it
is only a matter of time before state government once again attempts to
force collection of sales taxes on tobacco and gasoline sales involving
customers who drive onto Seneca reservations.
"We are a sovereign nation, and the nation has to back
us up. It can't say you guys are out on your own," said Suzanne Smith,
who works at a family-owned Internet smoke shop. "The nation has to draw
Snyder, at a Tribal Council meeting last week, said he
plans to set up a meeting with State Attorney General Eliot L. Spitzer
to discuss the credit card ban.
But if the state succeeds in shutting down Internet businesses,
Smith says, it will destroy the economic progress Senecas have made in
recent years and hurt the overall Western New York economy as Internet
workers lose their jobs.
Senecas estimate their Internet tobacco businesses employ
as many as 1,500 people, many of them non-Indians, though that number is
now dropping because of the credit card prohibition. They note these jobs
pay above minimum wage, sometimes as
much as $10 or more an hour.
"Most of us are just small businesses trying to make a
dollar, and New York State is coming in and telling us they want the business
and we can't have it," said 22-year-old Joseph Campbell, a shipping clerk
at an Internet smoke shop. "I'll probably go
to Tops or Wal-Mart looking for work."
In the fight to stay in business, Irene and Gerald "Chief"
Jimerson say they have diversified and now are selling pet food and bottled
Native American water for walk-in sales at their shop on Richardson Road.
An older couple, they opened their business in 1999 to
create an economic opportunity for their younger son, who had not gone
"A small amount of our business comes over the Internet,"
Irene Jimerson said. "We're here in our shop seven days a week, 12 hours
a day. It's not an easy life. I don't believe the government should be
involved in anyone's livelihood."
A different strategy
Other Seneca Internet sellers say they are attempting
to find ways around the credit card ban by making use of money orders and
financial services that guarantee checks written by customers or verify
that there is enough money in the customers' checking accounts to cover
But this strategy has generated concern among customers,
according to Smith, who says some of her customers have expressed reluctance
in switching over to checks and banks.
"Customers have asked if authorities could come in and
see our business records. We tell them no one sees our records, and the
reason we say that is we are a sovereign nation," Smith said.
For buyers who switch over to money orders or checks,
the state considers that an illegal practice as well, according to Marc
Viollette, a spokesman for Spitzer.
"The payment mechanism is irrelevant. It's an illegal
act," Viollette said. He declined to say what legal steps Spitzer is taking
to ensure compliance of halting Internet tobacco sales.
And while some Native Americans believe they are being
racially discriminated against, Viollette says the efforts against tobacco
credit card sales by state attorneys general are not only nationwide, but
also aimed at blocking cigarette bootleggers abroad.
"This extends beyond U.S. borders. In October we seized
a planeload of cigarettes at (Kennedy) Airport that came in from Switzerland,"
Attorney Joseph Crangle, who represents Seneca retailers
on tax issues, said that the Seneca's online businesses will ultimately
"persevere and succeed."
He blamed convenience store owners, in part, for the push
to deprive Senecas of the Internet business they have built up in recent
When told that it appeared the credit card ban was shutting
down Internet sales of cigarettes, James Calvin, president of the New York
Association of Convenience Stores, welcomed the development.
"It's encouraging that there is movement toward the level
playing field we have been seeking all these years," Calvin said. "American
society simply won't accept sales of cigarettes without proper taxation
and age verification."
Convenience store operators, Calvin added, want state
law requiring collection of taxes at reservation stores enforced.
Buffalo News - March 18, 2005
Senecas cry foul on stymied cigarette sales
Call ban on credit sales on the Net 'interference'
Local Seneca Nation leaders are calling Thursday's agreement
between the government and credit card companies that bars cigarette smokers
from buying their tobacco over the Internet with credit an "interference
The agreement, which is effective immediately, was struck
Thursday between the credit card companies, U.S. Bureau of Alcohol, Tobacco,
Firearms and Explosives and several state attorneys general, including
Eliot Spitzer of New York.
It results in almost all credit card companies ceasing
participation with Web sites that sell cigarettes and tobacco in every
state, according to Spitzer.
The companies also agreed to take action against Internet
sellers - the Senecas are among the top sellers - that authorities identify
as violating state and federal laws regulating cigarette sales.
Seneca Nation leaders called the pact a clear "interference
with commerce" but downplayed the notion that it violated native sovereignty
"Taxation is a sovereignty issue," said Seneca Nation
President Barry Snyder. "As far as Internet sales go, it's really outside
of the realm of the sovereignty issue.
"We have to look at what position we have to take. We
can't just throw our sovereignty around, we have to be very cautious."
However, Snyder said that doesn't mean that the tribe
won't attempt to fight the measure.
"It bothers me in the sense that we're talking about commerce.
We'll have to deal with it," Snyder said. "They say it's a health issue
. . . that's a cover. The real issue is the state of New York is hurting
and trying hard to tax more."
Sales by Seneca Nation members comprise one of the largest
blocs of Internet cigarette sellers.
The nation sold $347.5 million worth of tobacco products
in 2003, more than 90 percent by telephone or Internet. Untaxed Seneca
Nation cigarettes sell for as little as $9 a carton, about $15 less than
Government officials contend that it's not about taxing
more so much as collecting the lost tax revenues and preventing proceeds
from Internet sales from being funnelled into criminal organizations.
States lose more than $1 billion a year in tax revenue
from Internet tobacco sales, according to Sheree Mixell, a spokeswoman
for the ATF.
Michael Bouchard, ATF assistant director for field operations,
added: "ATF investigations show that millions of dollars each year in illegal
sales of cigarettes are diverted to fund terrorists and criminal organizations."
The effort is also important because enforcement has been
difficult even though in many states, including New York, the Internet
sale of tobacco products is illegal, officials said.
The trade undercuts traditional business operators, often
avoids sales tax for states and localities, and can be a way for underage
consumers to buy cigarettes and chewing tobacco before they turn 18.
Smokers can still buy cigarettes over the Internet, but
they would have to use checks, money orders or some other payment system
that would likely delay receipt in the Internet business built on speed.
Operators of cigarette Web sites didn't immediately respond to requests
Attorneys general from California, Oregon, Colorado, Idaho,
Louisiana, Maryland, Pennsylvania, Vermont and Wisconsin were also involved
in the negotiations.
In September, the Senecas agreed with state officials
to label packages so that the person receiving them must be of legal age
to purchase tobacco products. Ironically, that policy also began Thursday.
New York's ban on Internet cigarette sales was the first
in the nation. But opponents argued the law wasn't about minors smoking,
but about state tax revenue. The state's tax on a pack of cigarettes is
$1.50, pushing the total price to around $5.
Lower prices are offered on the Internet and in mail-order
catalogs by tax-exempt Indian merchants and retailers in states with lower
In January, a federal judge tossed out racketeering charges
against a group of online cigarette sellers. New York City had sued 16
cigarette Web sites to require taxes be paid on Internet sales. The city,
which estimates it loses as much as $100 million a year because of the
unpaid cigarette sales taxes, continues to seek to recover $15 million.
Associated Press - March 18, 2005
Deal Aims to Prevent Web Cigarette Sales
ALBANY, N.Y. (AP) -- Major credit card companies will
refuse to participate in Internet sales of cigarettes nationwide under
a government agreement made Thursday.
The U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives,
the companies and state attorneys general agreed to work together to prevent
the long unchecked use of credit cards to buy cigarettes over the Internet
across state lines. The agreement is effective immediately.
The result is that virtually all credit cards will no
longer participate with Web sites based in the United States and abroad
that sell cigarettes and tobacco products in every state, said New York
Attorney General Eliot Spitzer. The card companies also agreed to take
action against Internet sellers that authorities identify as violating
state and federal laws regulating cigarette sales.
States lose more than $1 billion a year in tax revenue
from Internet tobacco sales, said Sheree Mixell, ATF spokeswoman.
The effort is important because enforcement has been difficult,
even though in many states, including New York, the Internet sale of tobacco
products is illegal. The trade undercuts traditional business operators,
often avoids sales tax for states and localities, and can be a way for
underage consumers to buy cigarettes and chewing tobacco before they turn
``By working with all the major card companies, we will
severely restrict the availability of the Internet retailers to make these
illegal sales,'' said Spitzer, one of the lead attorneys general in the
partnership sealed Thursday.
The negotiations were also led by California Attorney
General Bill Lockyer and Oregon Attorney General Hardy Myers. Attorneys
general from Colorado, Idaho, Louisiana, Maryland, Pennsylvania, Vermont
and Wisconsin also participated.
``ATF investigations show that millions of dollars each
year in illegal sales of cigarettes are diverted to fund terrorists and
criminal organizations,'' said Michael Bouchard, ATF assistant director
for field operations. ``Through today's initiative, we are addressing the
problem of illegal sales across multiple jurisdictions with tremendous
support from the country's largest credit card companies. We welcome the
Earlier this month MasterCard International issued a bulletin
to its member banks on ``the need to comply with rules governing the Internet
sale and shipment of tobacco.''
``MasterCard does not tolerate illegal activities of any
kind,'' the statement said.
The agreement announced Thursday also includes American
Express, Visa, Discover, Diners Club and the Internet financial transaction
service PayPal, which is owned by eBay Inc.
Joshua Peirez, senior vice president at MasterCard, told
The Associated Press the policy basically meant the card couldn't be used
for Internet purchases of tobacco ``because at this point, no merchants
are complying with all of these laws.''
Smokers can still buy cigarettes over the Internet, but
they would have to use checks, money orders or some other payment system
that would likely delay receipt in the Internet business built on speed.
Operators of cigarette Web sites didn't immediately respond to requests
New York's ban on Internet cigarette sales was the first
in the nation. But opponents argued the law wasn't about minors smoking,
but about state tax revenue. The state's tax on a pack of cigarettes is
$1.50, pushing the total price to around $5. Lower prices are offered on
the Internet and in mail-order catalogs by tax-exempt Indian merchants
and retailers in states with lower taxes.
In January, a federal judge tossed out racketeering charges
against a group of online cigarette sellers. New York City had sued 16
cigarette Web sites to require taxes be paid on Internet sales. The city,
which estimates it loses as much as $100 million a year because of the
unpaid cigarette sales taxes, continues to seek to recover $15 million.
U.S. Newswire Press Release - March 16, 2005
Internet Cigarette Sales Spark Enforcement Meeting, Possible Crackdown;
Postal Service Meets With Attorneys General on Thursday
WASHINGTON, March 16 /U.S. Newswire/ -- The U.S. Postal
Service will meet with representatives of various state attorneys general
on Thursday to discuss how the Service can avoid legal liability for its
role in delivering cigarettes sold illegally on the Internet. The result
could be an agreement to curtail delivery of such cigarettes, or requirements
that the sellers take steps such as verifying the age of purchasers, insuring
that state cigarette taxes are paid, etc.
The meeting was sparked by a letter threatening the postal
service with civil -- and possibly even criminal -- liability if it continues
to deliver cigarettes purchased over the Internet. The nation's attorneys
general have concluded that "virtually all" online tobacco retail sales
are illegal, and several other companies which facilitate these sales have
taken steps to reduce their potential legal liability by requiring Internet
cigarette sales sites to provide proof that they fully comply with the
The letter to the Postal Service which sparked the meeting
was sent by Action on Smoking and Health (ASH), a national antismoking
organization. It warned that "under several legal theories which have already
been sustained in court and/or resulted in settlements -- companies selling
cigarettes on the Internet appear to be guilty of crimes and also may be
civilly liable. Those who facilitate the illegal sales -- e.g., by delivering
them - may share in that liability as co-conspirators, accomplices, and/or
ASH's letter warned that if the Postal Service "provides
delivery services for these purchases, or otherwise facilitates them, it
may share in the potential legal liability, as well as the public embarrassment
likely to result if the company is charged with such conduct 1/8e.g. under
the RICO statute 3/8 after it has been put on notice by the Attorneys General
of the illegality of the sales and its role as facilitator."
ASH was advised of tomorrow's meeting in a letter faxed
to it today by the General Counsel of the U.S. Postal Service. The Postal
Service's letter states in part:
"This is to acknowledge the receipt of your letter dated
March 9, 2005, wherein you express concern about Internet sales of cigarettes
... We take this matter very seriously and intend to respond to the substance
of your letter once we have had the opportunity to consider the legal representations
you assert in your correspondence ... I wish to assure you that we are
sensitive to the concerns raised by you and state attorneys general concerning
practices by certain cigarette retailers."
NY Post - March 9, 2005
'Net Cigs Master-Barred
MasterCard yesterday became the first major credit-card
company to warn financial institutions against processing payments to tax-free
Internet cigarette companies.
MasterCard said such transactions should be approved
only if there is documented evidence that Internet companies are complying
with all federal, state and local laws, including the collection and payment
of sales taxes.
"We put out the bulletin to remind our global membership
that MasterCard does not tolerate illegal activities of any kind," said
MasterCard Senior Vice President Joshua Peirez.
State Attorney General Eliot Spitzer applauded the decision
and urged other credit-card companies to follow suit.
The Post reported in January that Spitzer warned credit-card
companies and their processors to block orders from tax-free online tobacco
companies because many of them skirt state tax laws and do not check the
age of customers.
At least two Web-based tobacco companies, Cigs4free.com
and 00taxfree.com, have already begun restricting shipments to customers
in New York.
USA Today - March 8, 2005
Online tax bill due for smokers
Officials try to recoup revenue
William Blakemore is a pack-a-day smoker in Hightstown,
N.J., who started buying cigarettes online several years ago. His goal:
avoid his state's cigarette tax, which has tripled since 2002 to $2.40
a pack, the nation's second highest.
But the bill suddenly came due last week when Blakemore
opened his mail and found a claim from New Jersey for $1,842.79 in back
taxes from his Internet purchases.
Blakemore, 55, an unemployed computer programmer, has
been buying Benson & Hedges online for $29 a carton, compared with
the $50-$60 he would have paid at a convenience store or supermarket. The
tax notice, he says, “kind of raised the adrenaline level. That got my
Blakemore is one of thousands of smokers getting letters
from state and local tax collectors demanding they pay up for their Internet
The governments want the taxes to support budgets that
are stretched thin and to level the playing field for conventional retailers,
who must collect taxes on every pack sold.
Smokers increasingly are turning to the Internet because
state and local taxes in some areas account for more than half the cost
People who evade cigarette taxes by buying online are
part of a broader pattern in Internet commerce.
According to a study last year by economists at the University
of Tennessee, state and local governments in 2003 lost an estimated $15.5
billion in taxes that went uncollected from Internet sales.
As e-commerce expands, that loss is expected to grow to
$21.5 billion to $33.7 billion by 2008, the study predicted.
“Despite the fact the e-commerce boom tended not to be
as robust as people thought, it still amounted to a significant revenue
loss for the states,” says William Fox, professor of economics at the university
and co-author of the study.
Collecting sales taxes on goods bought from mail-order
and Internet businesses has frustrated state and local governments for
more than a decade. The Supreme Court ruled in 1992 that states could not
force businesses outside their borders to collect their sales taxes unless
the companies have stores or headquarters in those states. The ruling spared
such businesses from having to comply with the tax codes of 45 states —
and the District of Columbia — that levy sales taxes.
Many states are collaborating on a uniform tax system
that would make it easier for online retailers to collect sales taxes on
goods they sell. The Streamlined Sales Tax Project would let retailers
determine the proper state and local tax rates by entering the customer's
ZIP code. The project has been enacted or partially enacted in 20 states.
Government's power to find people who thought they had
surreptitiously purchased cigarettes without paying taxes dates to a 1949
federal law. The Jenkins Act requires vendors that ship cigarettes to another
state to provide customers' names and addresses to taxing agencies in the
receiving state, which then can levy taxes.
Most Internet cigarette vendors do not comply with the
Jenkins Act, says Kurt Ribisl, an associate professor at the University
of North Carolina School of Public Health who studies tobacco marketing
on the Internet. Ribisl says he found 775 Internet sites selling cigarettes.
Among states and cities targeting online buyers:
•The Pennsylvania Department of Revenue sent letters to
63 people last month, demanding payment of $1.35 per pack they bought from
two websites, spokeswoman Stephanie Weyant says. By Friday, 44 had paid.
•The Ohio Department of Taxation sent letters to 25 customers
of one Internet vendor, seeking unpaid taxes ranging from $400 to $800,
spokesman Gary Gudmundson says. Tax collectors there plan to send 1,000
•New York City mailed bills in January to 3,700 people.
By Friday, 2,010 had paid $680,000 of $1.2 million owed. That's a small
amount in a city that collects $18 billion in taxes every year.
“But this is not so much about the money as it is about
our local retailers, who are put at a competitive disadvantage” if they
have to collect the taxes and Internet vendors don't, Finance Commissioner
Martha Stark says.
In addition to a $1.50 state tax per pack, the city adds
another $1.50, making cigarettes in New York City the nation's most expensive.
Sheila Hansen of Manhattan says she got a letter from
the city demanding $900 in unpaid taxes on 50 cartons of Kool Milds she
bought over three years. Hansen says the city reduced her bill to $750
after she pointed out record-keeping errors. But last week, she got another
bill — a $525 claim from New York state.
“I was totally shocked,” she says. Hansen says she stopped
buying cigarettes online and quit smoking before she got the first bill.
“My biggest beef is, unless they go after every single
person that buys anything on the Internet and doesn't pay taxes, it's not
fair,” she says. “Right now, they're only targeting smokers.”
Chicago Tribune - March 7, 2005
Smokers feeling unexpected burn
States demand taxes on sales via Internet
The one-page greeting from the Michigan Department of
Treasury came out of the mailbox, but to Julia Sidebottom it may as well
have come from the moon. Tucked amid the legalese was the line that said
her boyfriend owed the state $4,797.87 in unpaid cigarette taxes.
"I was totally flabbergasted," Sidebottom said. "At first
you don't know what to think. . . . I thought it was some kind of a joke."
Michigan, Illinois and other states are giving smokers
who buy cigarettes over the Internet a lot to think about, in the form
of letters notifying them that they owe thousands of dollars in taxes on
bargain-priced smokes. More than 530 Michigan residents received tax bills
in the past two weeks, with the average individual liability being $3,200.
In Illinois, about 1,300 people who bought cigarettes
over the Internet are about to be notified that they must pay the state's
98-cent-per-pack tax, an Illinois Department of Revenue spokeswoman said.
The collection effort is part of a stepped-up campaign
by states, including New York, Pennsylvania, Ohio and Oregon, to capture
millions of dollars of unpaid cigarette tax revenue--as much as $2 billion
annually--from hundreds of thousands of people who buy the cheap smokes
over the Internet and avoid dramatically higher cigarette taxes in their
In January, New York City's Department of Finance notified
about 3,700 people that they had skirted the city's $3-per-pack tax by
purchasing over the Internet. Some owed as much as $10,000 in unpaid taxes.
Ohio has targeted 1,000 people for non-payment of cigarette taxes.
In Michigan, where thousands more cigarette purchasers
soon will be notified, treasury officials referred the names of 121 people
to the state police for criminal investigation because they bought more
than 300 cartons of cigarettes over the Net tax-free, presumably to resell
"We're learning more about this, and we're getting a little
better sense of the operation," said state Treasury Department spokesman
Terry Stanton, adding that investigators have targeted 13 Internet sites
and are obtaining the sales records in pursuit of Michigan residents who
avoided the state's $2-per-pack tax.
Tax collection a problem
The collection of taxes for goods sold over the Internet
is increasingly problematic for state and local governments. Recent studies
project that they are losing tens of billions of dollars annually because
many sales evade taxation. Tobacco sales are only a small part of the picture,
but they are important because states increasingly rely on cigarette taxes
to mend budget holes.
In recent years some states, such as California, tried--to
little effect--to recover cigarette tax revenue, shut down Internet operations
or prevent the smokes from being delivered. Now, driven by huge state budget
deficits, 44 state attorneys general will meet in Washington this month
to discuss the problem of tobacco sales over the Net and what they can
do about the hundreds of Internet operations with such names as cheapsmokesbymail.com,
cigs4free.com and notaxsmokes.com.
By going after the buyers of cigarettes, said Jeff Cohen,
assistant chief counsel for the federal Bureau of Alcohol, Tobacco, Firearms
and Explosives, the "word is getting out" about big tax liabilities.
"I think most people realize that something must be fishy
if they buy something at a fraction of the cost," Cohen said.
Sidebottom, who lives with her boyfriend in the northern
Detroit suburb of Waterford, disputes that claim, arguing that she thought
the cigarettes were a low-priced deal, as are many items sold on the Internet.
That doesn't matter to Michigan treasury officials; the
tax is owed, they say. And they're putting the muscle on cigarette buyers
and using them as public examples in efforts to cripple the sale of tax-free
The aggressive enforcement comes as more state legislatures
are pushing even higher cigarette taxes to plug budget holes and pay for
state programs such as public education and Medicaid.
Illinois Gov. Rod Blagojevich has proposed boosting the
state's 98-cent cigarette tax by 75 cents. Iowa lawmakers are weighing
an 80-cent increase in the state tax, currently at 36 cents per pack. Indiana
lawmakers are considering a boost of as much as 40 cents in the state's
55 1/2-cent tax. In Ohio, the 55-cent tax could rise to $1.
Thirty-four states have raised cigarette taxes since 2002--by
as little as 8 cents to as much as 75 cents--and as those levies have jumped,
tobacco sales over the Internet have exploded, as have the number of online
cigarette sites, estimated to number 800 to 1,000. New York has estimated
it loses $500 million to $600 million annually from cigarette sales through
the Internet, toll-free phone operations and American Indian reservations.
"As taxes go up, Internet sales go up," said Dana Bolden,
a spokesman for Philip Morris USA, the giant cigarette manufacturer. Indeed,
online buyers can save 50 percent or more depending on the tax level where
One private study projected that online cigarette sales
could reach 14 percent, or more than $5 billion, of total U.S. sales by
the end of this year.
Austan Goolsbee, an economist at the University of the
Chicago who co-authored a study last fall on cigarette taxes and Internet
sales, forecast that tobacco tax collections would be diluted by 25 percent
to 40 percent as a result of online competition. Goolsbee said the "root
of the problem for the states is that it is hard for them to enforce" a
1949 federal law that requires dealers who ship cigarettes across state
lines to individuals to report the sale to the buyer's home state.
State enforcement is further complicated because most
Internet cigarette operations are based on American Indian reservations,
where state jurisdiction often is unclear.
Federal responsibility remains scattered, although the
General Accounting Office recommended in a 2003 report that jurisdiction
for handling Internet cigarette operations be given to the Bureau of Alcohol,
Tobacco, Firearms and Explosives, an arm of the U.S. Justice Department.
States adopt strategy
For now, though, a growing number of states are attacking
the problem by subpoenaing the sales lists of Internet operations. In that
regard the effort resembles the moves of the recording industry's fight
several years ago against Napster, the former pirate music downloading
Sidebottom, who said her boyfriend is in the early stages
of Alzheimer's disease, complained that there was no warning from the state.
"When there was the big issue with Napster, at least there
was some indication so you knew not to do it, so you stopped," she said.
Stanton, the Michigan treasury spokesman, said the state
issued warnings after it raised the cigarette tax to $2 a pack in 2002.
Sidebottom argued that smokers are being persecuted while
billions of dollars of retail sales over the Internet go untaxed.
"It's not politically correct for anyone to be a smoker
right now, so they'll come after us," Sidebottom said.
"And this is just the tip of the iceberg. We're only in
the first wave. I know any number of people who have purchased [cigarettes]
online, and I tell them to be prepared because they're coming after you.
They're scared to death, scared to death."
- - -
Tax collectors fired up
To boost tax revenues, some states have begun cracking
down on cigarette sales over the Internet. Thirty-four states have increased
their cigarette excise taxes since 2002
CIGARETTE TAX Per pack
Original tax, Increase since 2002, Current tax
STATE: CURRENT TAX
- $2 or more
* New York City adds an additional $1.50 excise tax
- Under $1.00
All other states
MOST CIGARETTE TAX REVENUES
For fiscal year 2003
Calif.: $1.03 billion
N.Y.: $993.1 million
Pa.: $827.8 million
Mich.: $816.5 million
Illinois: $642.8 million
Total for all states: $10.6 billion
Note: State average tax is 84 cents. There is also a federal
excise tax of 39 cents per pack.
NY Post - February 23, 2005
Albany's Smoking Out Puffers For Online Taxes
Smokers who got socked with tax bills from the city for
buying cigarettes online are now hearing from another party with its hands
out — the state.
State officials have just sent out 2,200 letters to customers
who bought smokes on the Internet but failed to pay the state tax on them.
"Because the vendor did not collect and remit the appropriate
taxes to New York State, you are responsible for the unpaid taxes," the
Tax-collectors took addresses from a lawsuit against an
online cigarette sales company in Virginia.
"The addresses are wide and varied, not just New York
City," said Tom Bergin, spokesman for the State Department of Taxation
City officials used the same list recently to send out
3,100 letters to city residents who tried to dodge the city tax.
"The message we would like to get across to people who
buy cigarettes on the Internet is that there is no such thing as a tax-free
cigarette," Bergin said.
The state hopes to collect about $1 million in unpaid
Buffalo News - February 17, 2005
Indians' cigarette, gas sales targeted
Pataki tax proposal would be 'about-face'
ALBANY - Sales of cigarettes and gasoline by Indian retailers
would be subject to state taxes under a proposal being drafted by the Pataki
administration, reversing its long-held position of ignoring calls to target
the lucrative businesses.
At the same time, the state Department of Taxation and
Finance is sending out invoices to more than 2,000 state residents demanding
that they remit unpaid sales and excise taxes on thousands of cartons of
cigarettes they purchased tax-free from an Internet firm based in Virginia.
Last November, Gov. George E. Pataki vetoed legislation
that would require him to end the flourishing business of tax-free sales
to non-Indians. He called the measure "an assault on tribal sovereignty."
There is uncertainty in some quarters over whether the
new move to collect the taxes is real or just a negotiating tactic to use
with the tribes, especially the Seneca Nation, that are trying to get state
permission to locate a casino in the Catskills.
Word of the new proposal came from state Tax Commissioner
Andrew S. Eristoff, who during testimony before two fiscal committees of
the State Legislature examining the Pataki administration's proposed 2005
budget, briefly mentioned the idea of collecting taxes on cigarette and
gasoline sales to non-Indians. He did not offer details.
Just last year, the tax department let die a set of rules
ordered by the Legislature to begin taxing the Indian sales at the wholesale
level - an approach designed to bypass Indian retailers' refusal to collect
Eristoff surprised all sides in the debate by saying his
agency would release new regulations in the next several weeks to begin
collecting the taxes.
The new effort comes after Pataki announced "price parity"
arrangements with several tribes that would somewhat level the playing
field between Indian and non-Indian retailers.
But none of those tribes are major sellers of tobacco
and gasoline - indeed, some don't sell any of the products in New York,
but acquiesced as part of an agreement to let them locate a casino in the
Tax officials later insisted that the proposed rules being
drafted are not part of any change in direction, but rather an attempt
to comply with a 2003 law mandating the collections.
"It's not a change in policy. It's just continuing existing
policy," said Thomas Bergin, a tax department spokesman.
However, others on both sides of the issue saw the tax
commissioner's remarks as a sharp turn for an administration that has steadfastly
refused to collect the taxes.
Though tax officials deny it, the new tax-collection effort
appears to target Seneca retailers who through more than 100 Internet sites
and smoke shops, are, by far, the biggest Indian tobacco sellers in the
Seneca officials say their retailers are protected by
federal treaty rights against the tax collections.
"This is certainly an about-face regarding our discussions
with Gov. Pataki, who has always maintained that the Indian sales are immune
from state taxation," said Seneca President Barry E. Snyder Jr.
The state charges $1.50 excise tax; New York City adds
$1.50 on top of that. And then there are sales taxes. Indian retailers
charge no taxes, which allows them to cut the price of a carton of cigarettes
by half or more.
Non-Indian retailers reacted cautiously Wednesday.
James S. Calvin, president of the New York Association
of Convenience Stores, said, "Up to now, in defiance of the state constitution,
they have refused to execute that law. Perhaps this signals a long-overdue
change in posture by the tax department. Time will tell if it's a sincere
step towards tax fairness or a cynical ploy to prop up the governor's land-claim
Health groups expressed surprise at the Pataki administration's
apparent about-face. "Better late than never," said Michael Bopp, an American
Cancer Society lobbyist.
Meanwhile, the tax department is sending letters to 2,200
state residents who bought tax-free cigarettes online at a now-defunct
Internet company in Virginia. It wants the buyers to pay the state $1.50
for every pack of cigarettes purchased.
Asked whether the letter is part of a broader effort to
target Internet sales of cigarettes, Bergin said, "This is just one component
of an ongoing enforcement effort."
NY Post - February 14, 2005
354G In Ash Cash
More than 1,000 smokers caught buying cigarettes on the
Internet have coughed up $354,000 to settle tax claims by the city, The
Post has learned. [That's only about 1/3 of
the people who received letters]
And more checks are in the mail.
"We're still getting about 100 letters a day," Finance
Department spokesman Sam Miller said last week. [So
Armed with lists of buyers obtained under court order,
the Finance Department last month sent out 3,100 letters demanding payments
totaling $1.2 million from residents who ducked the city's $1.50-a-pack
tax since July 2002.
Those who didn't pay within 30 days — the deadline was
yesterday — were threatened with a draconian penalty of $200 a carton.
The largest single check was $3,075, representing the
taxes owed on 205 cartons. Some smokers entered into installment plans.
Miller said no one was offered a discount, although double-billing
errors were corrected.
"There are no deals," he declared.
Andrew Hoffer, a Queens utility worker among the first
to get slapped with the tax shocker, decided after contacting a lawyer
to reluctantly write the city a check for $1,005.
"I wasn't gonna pay," he said. "But if I didn't, the penalty
was $13,500. The lawyer asked me, 'Do you want to risk that?' I wanted
to get it out of the way."
Hoffer also said he's cut down on his smoking and has
stopped using the Internet to buy cigarettes.
"I'm not going to make that mistake again," he said.
But other smokers might.
Numerous online tobacco retailers continue to advertise
that their products are "tax-free."
Indian Smokes Online was offering a carton of Marlboros
for $25.75 yesterday. That's about half the price charged by shops in the
city. [Excuse me? It's more like one
third the price!]
NY Times - February 12, 2005
New York Hits Online Sellers of Cigarettes
Concerned about the booming trade in online cigarette
sales, New York state officials have begun using a variety of techniques
to clamp down on the trade, saying New York City alone is losing more than
$75 million a year in uncollected tax revenues because of the sales.
In recent weeks, Attorney General Eliot Spitzer has been
pushing local postal officials and private carriers to stop delivering
cigarettes bought online. His office has also recently begun negotiations
with credit card companies to block transactions of online cigarettes.
These efforts were given added push recently as local
officials from the federal Bureau of Alcohol, Tobacco, Firearms and Explosives
met with credit card executives to alert them to the various ways in which
these transactions are illegal.
"The tone was very cordial and unthreatening," said a
city official who participated in the presentation three weeks ago at the
bureau's office in Brooklyn. "But in the end they made it crystal clear
that now that the credit card companies understood the law, they would
be held accountable for processing these transactions."
Mr. Spitzer emphasized that the effort has as much to
do with health as money. "These sales present a significant threat to public
health because they provide easy access to cheap cigarettes, which increases
smoking rates, particularly among children," he said. "These illegal sales
also evade state tax requirements."
Whatever their motivation, city and state officials are
broadening their efforts to eradicate the business.
Two weeks ago, a judge ruled in one of the city's four
lawsuits against online sellers that the city can file a revised racketeering
lawsuit against Internet cigarette sellers. The ruling was the first time
a federal judge has indicated that Internet sellers can be charged under
federal racketeering law, said Eric Proshansky, the city's chief lawyer
on the case.
After gleaning the names and the addresses from a Virginia
lawsuit against one online cigarette company, the city began sending letters
last month to more than 2,600 New Yorkers who officials say bought tax-free
cigarettes. The letters, sent to those who bought cigarettes online from
July 2002 to April 2004, give the alleged violators 30 days to pay or face
interest and penalties of up to $200 a carton.
In November, local law enforcement seized 300,000 cartons
of illegal cigarettes at Kennedy International Airport. Joseph G. Green,
a spokesman for the A.T.F., said that the seizure was the culmination of
a yearlong investigation jointly conducted by the Queens district attorney's
office; federal Bureau of Alcohol, Tobacco, Firearms and Explosives; postal
inspectors; and city and state tax and finance officials.
Sam Miller, a spokesman for the city's Department of Finance,
said that the city loses more than $75 million a year as people duck local
taxes by purchasing online. But the crackdown has drawn some criticism.
"New York is simply trying to engage in economic protectionism
by limiting cigarette sales to brick-and-mortar sellers," said James L.
Bikoff, a lawyer who represents several Internet tobacco sellers. "Most
of the folks who are in the online cigarette business are small outfits
and they typically advise the consumer to check with their own city and
state's laws regarding tax rules."
New York City smokers pay the highest cigarette taxes
in the country, as the state charges a $1.50 tax per pack and the city
adds an additional $1.50 tax per pack. A carton of cigarettes in the city
costs about $70, including $33.30 in excise and sales taxes. Online, cigarettes
cost as little as $15 a carton.
Thus far, the city and the state have met with mixed results
in their efforts to control the online traffic in cigarettes.
Some banks that process MasterCard transactions have begun
blocking sales from certain Internet tobacco sites to customers, said Joshua
Peirez, a senior vice president at MasterCard. But other banks do not.
American Express currently has no policy that blocks Internet cigarette
sales, said Christine Elliott, a spokeswoman for the company.
After sending a letter to credit card executives in August,
Mr. Spitzer joined several other state attorneys general to send another
letter pressing credit card companies to stop the transactions.
Both letters cited several reasons for the failure of
Internet tobacco sellers to comply with applicable laws, including that
they make no effort to verify the age of their customers and fail to report
shipment of cigarettes to the tobacco tax administrator of the state into
which shipments are made.
While the United Parcel Service and other private carriers
have been more open to the idea of blocking the delivery of these packages,
postal officials have balked at pressure from Mr. Spitzer's office, claiming
that they do not have the legal authority to stop the shipments, according
to city officials who have been part of the discussions. But Mr. Spitzer's
office contends that the postal service indeed has the authority under
federal laws that prohibit mail fraud schemes, according to a letter sent
by the office.
New York State passed a law that took effect in 2003 prohibiting
online and mail-order sales of cigarettes to its residents. The law was
largely intended to curb tax evasion and under-age smoking, since many
online cigarette sites do virtually nothing to verify the age of customers.
Efforts to stop online sales are complicated, since Internet
sites are sometimes based abroad and are therefore difficult to prosecute.
City officials estimate that about 80 percent of the online cigarette sales
come from sites that claim Indian affiliation, which for sovereignty reasons
claim immunity from laws like the Jenkins Act.
NY Daily News - January 28, 2005
Cig suit snuffed, city may relight
A federal judge stubbed out a $15 million lawsuit Mayor
Bloomberg filed two years ago to get Internet smoke shops to reveal the
names of their New York customers.
In her ruling, Manhattan Federal Court Judge Deborah Batts
said the city's fraud claims had no merit, but that its federal civil racketeering
claims could be refiled.
Bloomberg accused 15 Internet smoke shops of failing to
report New Yorkers' cigarette purchases, costing the city millions in unpaid
But Batts didn't buy the city's argument that the shops
were defrauding customers by not telling them they are legally obligated
to pay local cigarette taxes.
The judge seemed to open the door to the city's claim
that the shops were in cahoots with each other to help customers avoid
taxes, but she said the city must name individuals as defendants, not just
City lawyers said they did not consider Batts' ruling
"It validates our legal theory" on the racketeering claim,
said Assistant Corporation Counsel Eric Proshansky.
He said the task of refiling the lawsuit was just a matter
of "reordering the names of the defendants."
But lawyers for the other side said the city was just
"I don't believe the city will ever be able to replead
a racketeering claim against our clients," said John Rogers, attorney for
the popular Web site dirtcheapcig.com. "Obviously you can plead whatever
you want, but if you don't have the facts to support your pleading you
are not going to get very far."
The smoke shops that were sued advertise on their Web
sites cartons of cigarettes for about $25 - $55 less than the price of
a carton sold at a brick-and-mortar store in the city.
The city has three more lawsuits against two dozen more
Internet tobacco shops.
Two weeks ago the city sent letters to city residents
who bought tax-free smokes on the Internet, warning of severe penalties
if they didn't pay taxes owed.
C.L.A.S.H. 2005 News page for similar reports by other sources)
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