Thursday, August 27, 2009

Indians Courting Defeat

As the NY Times is reporting today, illegal Indian cigarette sales on Long Island may be coming to an end: "A federal judge ruled on Tuesday that a group of tobacco vendors on an Indian reservation on Long Island cannot sell tax-free cigarettes to the general public until a court rules in a closely watched legal battle between the reservation and New York City. A temporary injunction issued by Judge Carol B. Amon of Federal District Court in Brooklyn gave the city at least a temporary victory in its efforts to collect hundreds of millions of dollars in tax revenue."

Let us remember that it was John Catsimatidis who struck the first legal challenge against these tax cheats; and the city jumped in with its own challenge-and the current budget meltdown makes the situation that much more compelling for the tax happy mayor: "The city will go after every dollar that is owed to city taxpayers,” Mayor Michael R. Bloomberg said in a statement on Wednesday. Under Judge Amon’s ruling, a group of cigarette businesses on the Poospatuck Indian Reservation near Mastic can sell tax-free cigarettes only to tribe members, for personal use, until a verdict is reached in a federal lawsuit the city filed in September."

The Indians, for their part continue to allege-contrary to the US Supreme Court-that their sovereignty makes them immune from this kind of legal challenge: "The judge’s ruling is completely wrong,” said Harry Wallace, a lawyer and the chief of the Unkechaug Indian Nation, which is on the Poospatuck reservation, adding that it ignored the Indian nation’s sovereignty."

Lost in the city's search for tax dollars, is the fact that retailers on Long Island and in NYC are taking a bath with all of the illegal butt smuggling: "The city says the reservation businesses are illegally selling large amounts of cheap cigarettes to people outside of the tribes, including bootleggers who bring cartons upon cartons into the city for resale. City officials estimated that the sales deprived the city of $420 million from 2004 to 2008."

The losses experienced by local bodegas amounts to close to $2 billion in the same time period-and what isn't mentioned in today's story, is the culpability of the city in raising the cigarette tax to confiscatory levels without any plan to counter act the buttleggers that we predicted would flourish in the high tax environment. As we said over three years ago: "The Alliance has been fighting the black-market creating increases in the cigarette tax for the past five years. We were particularly upset in 2002 when the newly elected mayor, someone who had given no hint of his predilections in this area, increased the levy by a city record 1800%. When we predicted it would lead to rampant smuggling and hardship for the city's 13,000 bodegas, the mayor called our lament, "A minor economic issue."Well unfortunately we were right. Legitimate outlets in New York City have lost 60% of their cigarette sales while black market activity has proliferated all over our neighborhoods."

So, while the mayor rightfully goes after the lost tax revenue, we hear nothing about the need to preserve local commerce; thankfully, if the current court ruling stands, city retailers won't need the expressed sympathy of their mayor once the flood of illegal product is significantly slowed. But the city's action, however belated, is a big improvement on the state's retarded response; and this court ruling should hopefully spur state officials on: "The loss of tax income to tribal tobacco businesses has taken on greater urgency for many officials amid state and municipal budget cuts."

Urgency indeed is needed here; and we have seen state senate officials say that they are prepared to act; and, as the legislature returns next month to address another large budget gap, the lost Indian tax revenues loom large-and the failure of Governor Paterson to act becomes even more egregious. As the Buffalo News reported last week: "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."

This issue can't be left to doe on the vine-not with local convenience stores and bodegas sucking wind in the face of the economic recession. And with additional service cuts on the legislative agenda, the governor and the legislature can't continue to shuck and duck leaving tax payers holding the bag. The lates court ruling, however, should be a call for action on all levels of government.