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Cayugas restock tax-free cigarettes

Saturday, July 11, 2009 10:32 PM CDT

Give round two to the Cayuga Indian Nation.

The Fourth Department Appellate Division Court in Rochester ruled Friday that the Cayugas can sell tax-free cigarettes at their convenience stores in Seneca Falls and Union Springs.

Within minutes of the ruling’s release, the tribe restocked shelves and resumed cigarette sales — without paying state excise taxes and without charging customers, both Indian and non-Indian, state or county sales tax.

The Majority

In a 4-1 vote, the five-judge panel overturned December rulings by State Supreme Court Justice Kenneth R. Fisher, who said the cigarette sales violated state tax law.
The judges said section 471-e of the state tax law exclusively governs the imposition of sales and excise taxes on cigarettes sold on a qualified reservation. And they said that although that section requires tribes to pay, it is not in effect.

They cited a May 2008 Appellate Court ruling, which said the section isn’t in effect because the state has not issued the required coupons to Indians.

The judges also ruled that the two Cayuga-owned stores are located within a qualified reservation, as tax law defines that term.

“This appeal presented two primary substantive issues for our consideration,” said Justice Robert G. Hurlbutt, writing for the majority.
First, he wrote, the judges had to decide if section 471-e “provides the exclusive means by which to tax cigarette sales on an Indian reservation to non-Indians or to Indians who are not members of that Nation or tribe where the reservation is located, or whether tax law provides an independent basis for imposing taxes on such sales.”

Second, they had to decide if the two convenience stores were in a qualified reservation.

“We agreed with the plaintiff with respect to both issues and the judgment of the Supreme Court should be reversed,” he wrote.

The judges ruled that the Cayugas had a 64,027-acre reservation in Seneca and Cayuga counties, established by the 1794 Treaty of Canandaigua, and that the original reservation has not been “disestablished” since then.
There was a 23-year legal battle over whether the tribe had sold that reservation land to the state.

The Raid

In November, Seneca and Cayuga county officials obtained search warrants and raided the two stores, seizing thousands of cartons of untaxed cigarettes.

The district attorneys in both counties claimed the cigarette sales violated tax law because the stores are not on a sovereign reservation.

The Cayugas have applied to put 129 of their 895 acres in federal trust, including the two stores, and are paying local property taxes on them.

Lawyers for the Cayugas went to court the next day. But Judge Fisher agreed with the counties and upheld the raids. He said the cigarette sales violated tax law and that the stores are not on sovereign land. He also said the counties could criminally prosecute Nation officials.

The court noted that the state was prepared in March 2006 to issue the necessary coupons to allow member Indians to purchase tax-free cigarettes but backed off in favor of a policy of “forbearance,” or not enforcing the law.

The Cayugas appealed Fisher’s ruling. In the meantime, they stopped selling the cigarettes but continued selling untaxed gasoline.


Appellate Judge Erin M. Peradotto was the lone dissenter in Friday’s ruling.

“I agree with [the] majority that the two convenience stores are located on a qualified reservation as that term is defined in tax law,” she wrote. “But I cannot agree with the majority conclusion, however, that tax law Section 471-e is the exclusive statute governing the imposition of sales and excise taxes on cigarettes sold on Indian reservations.”

She said section 471-e does not circumscribe the tax obligation imposed by section 471.

“On the contrary, Section 471-e established a statutory mechanism for the collection of that tax from reservation sales to non-Indians and non-member Indians which has historically evaded the cigarette tax,” she wrote.

Peradotto said section 471 requires cigarette wholesalers or stamping agents to affix tax stamps to all cigarettes that the state has the power to tax — including cigarettes sold by reservation retailers to non-Indians and non-member Indians.

In his seven-page dissent, Peradotto said the fact that the coupons were not in effect “does not relieve reservation retailers of their legal obligation to sell only tax-stamped cigarettes to non-Indians and non-member Indian purchasers.”

She also said the state’s policy of forbearance “does not and cannot nullify a tax obligation created by statute.”


“I need to read this over carefully, but I am disappointed in the decision to reverse,” said Philip G. Spellane, a lawyer from Harris Beach, which represents the two counties, their district attorneys and their sheriffs. “I will talk to the counties and see what they want to do in regard to an appeal to the Court of Appeals.”

The Court of Appeals is the state’s highest court, and Spellane would need permission to file that appeal. He may get it.

“I’m sure we’ll direct an appeal,” said Supervisor David L. Dresser, D-Ovid, chairman of the Seneca County Board of Supervisors Indian Affairs Committee. “I would think we’d also seek a stay of this decision. ... I’m also disappointed and surprised. I thought Judge Fisher did a thorough job of researching this matter in making his decision in our favor, and I expected it to be upheld.”

Daniel J. French, one of two Syracuse lawyers representing the Cayugas, said the decision also ends pending criminal prosecution of the Nation and its officials by the two counties. Both counties had grand jury indictments ready to file.

“The Nation is very gratified by the decision, which will permit it to resume doing what every other Indian tribe in the state has been doing for years without the fear of criminal prosecution,” French said. “The decision is completely consistent with a prior ruling by this very same appellate court, and it is also consistent with the state’s judicially approved policy of forbearance from taxation of sales of cigarettes by Indians on qualified reservations.”

French said the Cayugas sold untaxed cigarettes for five years without challenge from the state, demonstrating that the counties’ actions were “driven by politics and not the interests of achieving justice.”

He said the appellate court ruling leaves the Nation free to pursue a lawsuit against the county for the loss of the seized cigarettes, valued at $500,000, as well as loss of revenue at its stores.

He said the Nation’s potential claim for losses would “extend into the millions of dollars and that the Nation is “weighing its options but leaning toward filing a damages claim.”

Meanwhile, at the stores, the customers are back.

“They worked it all out the way they needed to work it out, and it’s OK with me,” said Charles Buck Jr. of Seneca Falls, who stopped at the Seneca Falls store Saturday. “They’re some good people, but I know there’s mixed feelings about it.”

The court decision will be discussed at Tuesday’s Indian Affairs Committee meeting.

Reporter Sean McCracken contributed to this story.