Indian Giving to Governor Cuomo

The Indians of NY State continue to give the tax payers severe agita-and the fiscal results aren't very pretty. As the NY Post reported, tax evasion-from Indian as well as non-Indian sources-have created a huge budgetary shortfall: "The underground tobacco market is spreading like a fast-growing cancer in the wake of tax hikes that make New York cigarettes the most expensive in the nation -- and it's costing the state tens of millions a month in lost tax revenue, a Post analysis has found. Illegal cigarettes are pouring into neighborhood bodegas by the truckload from neighboring Indian reservations, lower-tax states in the South and even as far away as China, authorities say."

This is the gift that the accidental governor is bequeathing to us all-but particularly to the new occupant of the office who will be faced with trying to make Indian buttleggers follow the law: "Government data show that New York state is being smoked out of as much as $20 million a month from all these illegal cigarette purchases -- an estimated 7.3 million packs a month sold off the state tax radar...Sales of taxed cigarettes have plummeted 27 percent since July, when state lawmakers raised the excise tax to $4.35 a pack on top of the city's tax of $1.50, making the average price of Marlboros here $11.60, with some shops charging as much as $14."

What the state did-but it was Governor Paterson's foolish play-was irresponsible. You don't raise the tax before there is an enforcement mechanism in place-as we cried out in the Albany wilderness at the time. But it is the state's convenience stores that are being beaten bloody by the tax inequities-and the resulting unfairness has led to desperate store owners looking to stay in business by joining the lawlessness.

The Post has this story as well: "It doesn't take much coaxing to get otherwise legitimate Big Apple businesses into the illegal cigarette trade. "They come out here like they are salesman from Pepsi or the potato-chip company," said the owner of a north Bronx bodega that sells smuggled Newports and Marlboros for $8 a pack. "I don't know how the city is going to stop it. The city is losing a lot of tax money," he said. "They are killing themselves, because no one is paying $12 for a pack of cigarettes, and I'm not paying taxes on the money I make selling them." His supplier provides him with cartons between $45 and $50 a pop, which gives him a $30- to $35-per-carton profit."

What the bodegueros are doing is exactly what the Indian scofflaws are doing-and it was these pioneers of lawlessness who have set the trend in an environment where state government has abdicated its law enforcement role. The state has even reduced its enforcement presence at just the moment when the tax evasion has metastasized: "Budget cuts are snuffing out the state Department of Taxation and Finance's ability to properly combat tobacco smugglers, veteran investigators told The Post. Large-scale stings and intense surveillance are all but impossible because of belt tightening that has nearly eliminated overtime for the approximately 100 law-enforcement officers assigned to the state agency, the sources said. "We are under orders to have no overtime and no undercover investigations," said a source within the tax department's Petroleum, Alcohol and Tobacco Bureau. "The only thing we're doing is going store to store giving summonses."

As always, the only enforcement when there is basically no enforcement, is on the victimized legitimate retailers-the source of all of the problem is left alone while federal courts wind their way to the inevitable upholding of the constitutionality of making Indian retailers obey NY's tax statutes. In the meantime, however, tobacco wholesalers, retailers, and tax payers will continue to suffer as Indian buttleggers squeeze the last drop of illicit profit out of the cigarette business.