Scalping the Buttleggers-and the Bodegas

As all the local papers are reporting, Governor Paterson will be sending a $1.6 a pack tax increase on cigarettes that, owing to the indefatigable efforts of Senator Carl Kruger-with strong help from Senator Klein-will also include an enforcement provision that will likely shut down the buttlegging that has come from the state's Indian reservations. As the NY Times tells us: "Cigarette taxes in New York would jump by $1.60 a pack under a tentative deal reached between Gov. David A. Paterson and legislative leaders, which would give New York the nation’s highest state cigarette taxes. The proposal, which officials said Mr. Paterson would include in an emergency budget bill due for a vote on Monday, would also raise wholesale taxes on other tobacco products like chewing tobacco, bringing the tax on those products closer in line with those of cigarettes...The legislation will also include a plan to begin collecting taxes on cigarettes sold off the reservation by Indian tribes in New York, an issue that has provoked confrontations between State Police officers and protesting tribe members in years past."

And it's music to our ears to hear the Senacas crying: "Representatives from the Seneca Nation were in Albany this week to express their concerns about any taxation proposal. “Certainly we are going to stand up and fight and do everything possible for that not to happen,” J. C. Seneca, a tribal councilor for the Seneca Nation and co-chairman of their foreign relations committee, said Friday. “We have to protect and honor the treaties that were made by our ancestors, and that’s what we’re going to do. “If the state wants to move in that direction, then really we have no choice but to defend our territory and our people’s rights.”

As the NY Post points out: "The tribes have resisted state regulation of tobacco sales despite growing complaints about illegal cigarette trafficking and hundreds of millions of dollars in lost tax revenue annually."

So far so good-but an important piece is missing. That piece is the proposal contained in legislation promoted by Klein that would, after many years of no increase, boost the allowable mark up for beleaguered retailers and the state's tax stamp agents-a vanishing breed because of the rampant smuggling that was aided and abetted by the misfeasance of a slew of NY governors.

From what we are hearing the governor-certainly feeling his oats with the new extender paradigm that gives the legislature a take it or leave it ultimatum (with the leave it being the shutdown of state government)-has been resisting including the mark up provision because it would, no we're not kidding, further induce smokers to buy in lower taxed venues. So, after failing to enforce the anti-smuggling legislation for years-and causing the loss of around 60% of the cigarette sales from the legitimate small business outlets-the governor now wants to deprive the store owners and stampers of an ability to become whole?

But, as the NY Daily News indicates, the governor has the upper hand: "By including the taxes in the emergency bills, Paterson has again effectively dared the Legislature to approve them or shut down the government. He used similar tactics in recent weeks to extract cuts in Medicaid, mental health programs and social services."

And is he not mindful of the fact that scores of tax stampers have gone out of business because of the buttlegging? The mark up would allow these agents of the state to have some liquidity as they perform their tax collection duties. Talk about adding injury-to insult-to injury. After having sucked wind for years, these businesses deserve a break-and it's now up to the legislature to stand up for them. But it will be hard given the new extender methodology.

Our observation is that if it's important for the state to get a nice raise on the sale of the product, it's equally as important that the corner bodega gets the same thing-particularly after taking such a beating for the past decade and a half. The question is: Who will stand up for the little guys?