Wednesday, October 28, 2009

State Senate on the Warpath

Yesterday's overflow state senate hearing on Indian cigarette tax avoidance was a tour de force-and that it was so can be attributed to the performance of our old friend Steve Rosenthal. Steve has as much knowledge about how cigarettes are sold as anyone in New York; and he cogently laid out how much it is costing the state because of the ability of one special interest to flout the law.

But we should also add that the entire hearing was an education-and Deputy Tax Commissioner Comiskey did a solid job explaining why his department has held back from enforcing the law. He made it clear to the senators that his tax department is ready to start to enforce 471-E today; as long as the governor gives them the green light-something that hasn't happened because Paterson is dithering on this issue.

And Comiskey made it clear why that's so-talking about the, "complexity," of this issue; and the need to try to find a, "peaceful resolution." Indicating clearly to us that it is the fear of Indian violence that is holding the governor back.

But as we said in our testimony-and the point was emphasized by Rosenthal as well: "I think it is also important to point out that the failure of the executive to enforce a cigarette tax law that the legislature has mandated leads inevitably to the erosion of the respect for the rule of law itself. The fact that a New York State Tax Commissioner, in response to the legislative mandate, has stated that he won’t enforce the cigarette tax equally because of a supposed fear of Indian violence, is both a shocking statement and precedent. There should never be any “rioter’s veto” that prevents law enforcement from doing its job."

But Comiskey clearly stated that the governor has stayed his hand-but in the face of a barrage of questions, was unable to pinpoint just how much this diffidence is costing the tax payers of the state. Rosenthal, however, was happy to oblige with as accurate an evaluation of the tax loss as we have heard.

Using federal tobacco consumption data, he computed the formula that analyzed what the state has lost through the declining rate of cigarette consumption, versus what it has lost-and continues to lose-through illegal, non taxed sales. The estimated loss from illegal sales comes to around 40 million cartons a year; and at approximately $40 per carton the loss to New York State is a staggering $1.6 billion/year.

But Rosenthal also documented the loss of business that this Indian avoidance has generated-90% of cigarette wholesalers that were operating 10 years ago have closed-and that doesn't account for all of the bodegas that have shuttered as 60% of their tobacco business has gone to the black market that is fueled by reservation sales.

But it gets worse. With buttleggers operating with impunity right in front of local bodegas, store owners have been forced to resort to fighting fire with fire-buying Internet smokes and selling them on the street in competition with the smugglers. In essence, as Rosenthal points out, we have made thieves out of many an honest merchant.

And kudos to Senator Ruben Diaz who asked the commissioner: "Do the Indian children go to public schools? Do the Indians use the public hospitals and transportation? If so, why don't they pay taxes for the services that they are using?" And Commissioner Comiskey said: "That's a good question, senator, one that I don't have a good answer for."

But the governor's lawyer, Peter Kiernan, demonstrated just what kind of cowardice lies behind the executive diffidence. As NY1 reports: "...the cost of police may wipe out all that extra revenue. 'And that is without trying to assess the cost of physical injury, or the loss of life, or possible property damage,' Kiernan said." Don't enforce the law, then-and allow that rioter's veto to prevail, we guess. All of which makes Paterson the Neville Chamberlain of New York governors. How sad a spectacle.

So the senators received an earful-with the convenience store owners stating their case as well (led by the inimitable Jim Calvin of NYACS). It is now up to the senate to devise a solution to the governor's hard to fathom timidity. There's too much money at stake to drop the ball now, and if the governor's too afraid to act, someone needs to find a way to give him a spinal transplant.