Justice Delayed

It is now appearing more and more likely that the governor's change of heart on the "policy of forbearance," is simply a case of misdirection. As the following we received from the State Department of Taxation makes abundantly clear:

"Additionally, the Department of Taxation and Finance will withdraw its Advisory Opinion regarding the Department’s policy of forbearance of sales by agents of unstamped product to Indian retailers. The Department will promulgate regulations for public comment, a process that will take six months. This action will permit the State to seek the lifting of the injunction preventing the State’s statute prohibiting the sales of unstamped cigarettes to Indian retailers from going into effect. The purpose is to stop a handful of wholesalers from selling unstamped cigarettes. No revenue is currently assumed in the State’s financial plan from tax collections related to these products, as the regulatory process is not yet complete. Governor Paterson maintains his commitment to tribal sovereignty and will work with the State’s Native American tribes to implement these measures in a peaceful and efficient manner."

Which must be why there is no appropriation in the budget for Indian cigarette tax collection. But why make such a big deal over the policy change in your speech last week if you weren't gonna move quickly to enforce? Our answer: simply a rope-a-dope strategy to try to box Senator Finance Chair Carl Kruger and his colleagues in on this inflammatory issue.

And, if you'll notice what Taxation is saying above, you'll realize the audaciousness of this mendacity. The state needs time to go into court and lift the injunction? Really? But the injunction is based on the fact that state hadn't publicly promulgated regulations or issued tax rebate stamps to the Indians-cart and horse anyone? The issuance of the coupons must precede the court action-that is, if one is truly serious and not simply posturing.

And Crain's Insider also weighs in on (subsc.) this issue today: "Euphoria has receded among cigarette-selling merchants in the week since Gov. Paterson announced that the state would enforce the collection of sales taxes on tobacco sold to non-Indians on Indian land. Having realized that Paterson did not include any revenue from such an effort in the budget plan, they worry that he won't follow through."

But, on the issue of regulations, we had a fascinating conversation with former attorney general Oliver Koppell. He told us that the successful defense of the state law in the US Supreme Court that legalizes the right of NY to tax these scofflaws, was based precisely on the state's prerogative to promulgate regulations-regs that were ready to go then and have apparently been gathering dust for 16 years!

Which further erodes the credibility of any delay-as Crain's points out: "The state budget office insists that it will take six months to write and implement regulations so that taxes are collected on Indian land. No revenue was assumed in the budget plan because the regulatory process is not complete, according to the office. However, the budget does assume revenue from various other measures that require state legislation that has yet to be passed, or even written."

So it is this four corner offense of Paterson that will be challenged at our Thursday press conference: "Last year, Paterson backed down on a proposal to tax sugared soda and reversed his opposition to a state income tax hike. To pressure the governor to keep his vow this time, supporters of enforcing the law on cigarette sales are planning a press conference Thursday morning at City Hall. They contend that the $1-a-pack increase should not be implemented until tax collection on Indian cigarette sales begins."

Boy, was the governor right when he said to watch his words, but not his actions. Unfortunately his rhetoric won't pay the bills, or help struggling businesses survive against smugglers and black marketeers.

Here's our advisory for Thursday:

Press Conference on Indian Cigarette Tax Avoidance


Date: January, 28, 2010
Where: City Hall Steps
When: 11 AM

On Thursday, the 28th, a broad based-and growing-coalition of small business, labor, health, and good government groups will join with a diverse array of elected officials to praise Governor Paterson for his decision to rescind the, “letter of forbearance” that has enabled state government to continue to allow Indian cigarette retailers to sell untaxed smoke.

Because of this misguided policy, the state is not only losing close to $1.6 billion a year-with now over half of all cigarettes sold in New York coming from untaxed (primarily Indian) sources-but there is an accompanying black market that increases access to cigarettes, particularly for children.

At the same time, the coalition will also be calling on the governor to insure that regulations are promptly promulgated, and that-pursuant to these regulations- all cigarettes sold in the state must have a tax stamp affixed; and any tax agent/wholesaler that violates the rule will have their license revoked. In addition, the state needs to issue coupons to the Indians so they can recoup the tax on cigarettes sold exclusively to other Indians.

Finally, the governor needs to instruct the attorney general to go into court to lift the injunction on the law’s enforcement-a ruling made because the state had made no effort to promulgate rules or issue tax coupons in the first place when the law was first passed.

It is our view, that there is no need for a long drawn out process that will not only allow the current black market to flourish, but will also deprive the state of the much needed tax revenue that could be immediately made available if the state acts expeditiously. The governor is giving every indication that he will drag this out for six months or more, effectively pushing the issue aside for a likely successor to deal with. This is totally unacceptable.

In addition, and given the evident foot dragging we have seen, the governor’s proposal to add an additional $1 a pack cigarette tax is unwise and counterproductive until the current Indian loophole is substantially closed. If this isn’t done, the state will have created an even wider differential between taxed and untaxed cigarettes, fueling to an even greater extent the flourishing black market.

The coalition that will be attending includes representatives from all of the state and city’s major small retail association. Among those groups planning to attend are the Bodega Association, the New York State Association of Convenience Stores, the Newsstand Operators Association and the Korean American Small Business Service Center. These retailers have borne the brunt of the loss sales that have resulted from the growing black market and are losing over $250 million a year to the city’s black market.

Also attending will be the American Cancer Society, the American Heart Association, the American Stroke Association, Project Aspire, and Hip Hop Healing. We anticipate that a representative from the NY State Association of Counties will also be present to voice support for enforcement of the tax laws.

The governor in his State of the State address has said that this is the moment that we need to respond forcefully against what he characterized as the special interests. In our view, there is no more special an interest than Indian cigarette dealers who have been allowed to operate beyond the laws that the thousands of other small retailers are forced to live with.

In the process, the state’s tax payers have been victimized and the efforts of health advocates to reduce the prevalence of smoking have been thwarted by an out-of-control black market that has flooded our streets with lower priced cigarettes.

Elected Officials who are tentatively scheduled to attend: Senators Carl Kruger, Jeff Klein, Pedro Espada and Addabbo. Assembly members Nelson Castro, Jose Rivera, Michael Benjamin,and Marcos Crespo. Council member Ydanis Rodriguez

Richard Lipsky (914-572-2865)