Court OKs taxing Indian sales
Ruling could cost millions for businesses selling gas, tobacco on
reservations
from The Buffalo News, Friday, July 10, 1992
by Agnes Palazzetti and Matt Gryta
IRVING -- A state appeals court ruled unanimously Thursday that the
state can tax cigarettes, gasoline and diesel fuel on reservations to
non-Indians. Since the bulk of tobacco and gasoline sales on
reservations are to non-Indian customers looking to save money on the
tax-free cigarettes and gas, the ruling is expected to cost Indian
businessmen statewide millions of dollars, while bringing up to $50
million a year to the state.
"This ruling is the same as declaring was on Indian tribes," said Barry
Snyder, president of the statewide Iroquois Businesspersons Association,
who operates Seneca Hawk, a smoke shop and gas station here on the
Cattaraugus Reservation.
Ross John, who also has a smoke shop on the Cattaraugus Reservation,
learned Thursday afternoon that shipments he expected in the next day or
two had been canceled. Andy Cook, a major retailer on the St. Regis
Reservation in northern New York, called Seneca Hawk to tell Snyder that
"truck drivers are going to deliver only until midnight."
As a result of the ruling, many tobacco wholesalers immediately put
their Indian customers on notice that cigarette shipments would be
halted. If the ruling is not overturned and the Indians refuse to pay
state taxes, wholesalers could be held liable.
Art John, president of the Seneca Party, said Indians across the state
"are being mobilized and we will picket Gov. Cuomo at next weeks'
Democratic convention in New York City. How can Gov. Cuomo stand tall
for human rights and put thousands of Indians, now working in these
businesses, back on welfare rolls?" he asked.
Joseph Zdarsky, attorney for Milhelm, Attea & Rothers Inc., a cigarette
wholesaler from Buffalo, who in State Supreme Court in Albany challenged
the state's plan to tax reservation sales to non-Indians, said he would
immediately seek permission to appeal the ruling. He added he would ask
for an immediate stay of the order. He said the ruling wipes out an
injunction that had prevented the state from taxing sales on
reservations. He said he was advising his Indian wholesaler clients to
suspend sales to reservations until he obtains a stay.
State tax officials hailed the ruling. Karl Felsen, a spokesman for the
state Dept. of Taxation and Finance, said the Appellate Division ruling
did not impose any new taxes. "The taxes have always been there but not
collected," he said. Felsen explained that under the state's tax
proposals, "wholesalers would be able to sell tax-free to the Indians
enough tobacco and fuel products to satisfy the needs of their Indian
customers. All others sales would be taxed."
"The numbers would be decided through negotiations with the tribes, but
if they chose not to negotiate, then we would arrive at the numbers
based on the population of the tribe and average consumption figures."
Felsen added that the state Tax Dept. "continues to believe that the
best solution to this difficult problem is tax-sharing agreements
between the state and the various Indian nations."
The decision also was hailed by many non-Indian retailers who have
complained bitterly that the Indians' tax advantage has cut into their
sales. Steven Weingarten, an Albany lobbyist for the Independent
Petroleum Marketers of New York, said the "disputed sales were costing
NYS hundreds of millions of dollars annually and dragging mainstream
retailers down as well as being contrary to the law."
On orders from the U.S. Supreme Court, the five-member Appellate
Division in Albany reversed an August 1989 trial court ruling in Albany
and said the state's proposals three years ago to tax reservation sales
to non-Indians "are not barred" and "have not been shown to be
unconstitutional."
The Supreme Court in January set aside the Albany trial court ruling
that the state could not tax reservation sales to non-Indians and
ordered further study of the issue by the appellate court.
Thursday's ruling drew on a Supreme Court case involving the Potawatomi
Indian tribe in Oklahoma where the court ruled that reservation sales to
non-Indians were subject to state tax.
"Oklahoma is not NYS, and the Potawatomi are not the Iroquois. This
ruling is a complete reversal of prior NY laws," said Timothy J. Toohey,
attorney for Snyder.
Joseph Crangle, counselor for the Iroquois Businesspersons Assoc.,
described the ruling and its effect on Indians as "so extraordinary, I
feel confident that ultimately this issue will have to be decided by the
U.S. Supreme Court. To say taxes could be levied on reservations,
repeals state and federal statutes as well as being a violation of
treaties between the Indians and the federal and state governments," he
said.
Zdarsky noted that several years ago, the same Appellate Division ruled
that Herzog Bros. of Smethport, a gasoline wholesaler, had to pay tax on
fuel sold to Indian reservations. "That ruling was subsequently
overturned by the State Court of Appeals," he said, "and I fully expect
the same thing to happen this time."
Thursday's ruling can be appealed to the state's highest court, but
because the appellate ruling was unanimous, the Senecas must get prior
permission from the Court of Appeals for it to hear the case.
Larry Ballagh, co-chairman of the Seneca Coalition Against Taxes, said
he hoped "the utility companies will become will become allies in this
battle. Letters have gone out to them advising of our intention to
cancel existing contracts the Seneca Nation has with utilities and state
departments covering right-of-way across our land if the state is ever
successful in forcing taxes on our reservations," he said.
"We certainly hope that day will never come."
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