The state Tax Department is suspending indefinitely thegovernment's efforts to collect taxes on sales of cigarettes andgasoline on Indian reservations to non-Indian consumers.
Gov. George E. Pataki last month said he would ask theLegislature for permission to delay the tax collection for a yearwhile he negotiates side deals with Indian tribes.
But State Tax Commissioner Andrew Eristoff said Tuesday that hisagency does not intend to collect the tax. Collections were supposedto start next month.
The Legislature last year ordered the agency to deviseregulations to stop the flow of what lawmakers say are costly andillegal tax avoidance schemes by Indian tribes taking advantage ofNew York's high cigarette taxes.
Non-Indian retailers condemned the move by the tax chief, whileofficials with the Senecas, considered among the nation's top Indiancigarette sellers, said the tribe's multimillion-dollar ad campaignagainst the tax may have persuaded Albany to back down.
But in a rare display of division within the Patakiadministration, the governor's economic development director saidthe state needs to provide a level playing field for smallbusinesses to compete with Indian retailers.
Eristoff recalled the violence along the Thruway in 1997, thelast time the state tried to enforce the tax rules. He acknowledgedthat the threat of violence by some Indians contributed to hisdecision to stop the collection efforts.
Trying to work something out makes most sense for the state,Eristoff told reporters after he testified before Senate andAssembly committees on the governor's 2004 state budget plan.
"I think it would give anyone pause before taking action,"Eristoff said of the violence in 1997.
"We feel this has been an extremely complicated process. We haveendeavored to strike a reasonable balance between the Legislature'sintent and the need to respect Indian sovereignty," he said.
Assembly Speaker Sheldon Silver, D-Manhattan, has said he iswilling to give Pataki time to negotiate deals with Indians.
A spokesman for Senate Majority Leader Joseph L. Bruno, R-Brunswick, said Tuesday the issue will be discussed in state budgettalks.
Charles Gargano, the state's economic development chief, said, "Ican't speak for the Department of Taxation, but I do believe thereshould be level competition at all times to protect our smallbusinesses."
He added that the state needs to look out for small businessesand that he would not support any unfair competition.
Tax officials said Tuesday that New York tribes account for morethan 50 percent of Internet cigarette sales in the nation. Oneofficial estimated that some Seneca retailers export 85 percent oftheir cigarettes out of state.
The agency estimates 28 million cartons of cigarettes were soldby wholesalers to Indian nations in New York, with much of thatgoing to Seneca retailers.
Non-Indian retailers and legislators say the state is losing atleast $400 million in excise taxes -- $15 on a carton of cigarettes -- by not collecting on Indian sales of cartons. But tax officialssay the number is closer to $40 million because much of the Indiancigarettes are sold beyond the state's borders.
Critics dispute that, and say the agency is not taking intoaccount lost sales of cigarettes Indians purchase from sourcesoutside those monitored by state tax officials.
Non-Indian retail groups said the tax department's decisionTuesday is illegal.
The leader of the New York Association of Convenience Storesnoted that Pataki last month asked the Legislature to approve a one-year delay in the law's implementation and the state taxcommissioner is now pushing off the enforcement.
"It sends a message that the state of New York does not careabout equality in enforcing its tax law, and it sends a message toevery citizen of New York that if you don't like a certain taxpolicy, you threaten some sort of violence and then you can get apass," said James Calvin, executive director of the New YorkAssociation of Convenience Stores.
Dan Finkle, a spokesman for Fair Application of Cigarette Taxes,a consortium of non-Indian businesses and health groups, said: "Thisisn't cooperation or confrontation. It's capitulation."
Last month, Pataki said the regulations should be put on holdwhile he tries to negotiate separate deals with Indian tribes. Hesuggested the Indians might raise the price of their products tocreate price parity with non-Indian retailers.
But Seneca leaders insisted they would never negotiate such dealsand said their tax-free sales are protected by an 1842 treatybetween the tribe and the federal government. The tribe last weekasked President Bush to intervene in the dispute.
"For the Seneca Nation, it's one of the end results we werelooking for," Arthur Montour, a Seneca tribal council leader, saidof the tax commissioner's announcement Tuesday.
Eristoff said the tax agency also has signed a memorandum ofunderstanding with the New York State Police to work more closelytogether on cigarette bootlegging crimes.
"It's really designed to ensure we don't trip over each other,"he said.
e-mail: tprecious@buffnews.com
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