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Taxing questions about Indian cigarette sales

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The state years ago came up with the idea to tax cigarettes sold on Indian reservations. For a long time that idea was stymied by a very simple and inevitable question that had to be answered before implementing the plan: How?

You can’t tax Indians on their sovereign land, but not everyone buying cigarettes on a reservation is a member of a tribe. Figuring out how to tax some smokers and not others proved to be a difficult challenge.

So governors before Andrew M. Cuomo did the smart thing. Very little.

They blustered about the need to collect the tax. They tossed out some vague and unworkable ideas – like giving Indians vouchers to buy their cigarettes without the tax. But they effectively did nothing. All that time, any smoker could walk onto a reservation and buy a pack of Marlboros or Kools - any name brand - for a few bucks less than they would pay in a store off Indian land.

Gov. Cuomo changed all that. He answered the “how” question by levying the tax at the wholesale level before the cigarettes made their way onto sovereign and untaxable land. The wholesalers passed the cost onto retailers on reservations and Indians were taxed without officially being taxed.

The seemingly genius plan has a glaring flaw: The governor can’t force the Indian retailers to buy the name brand cigarettes at the inflated prices. And they didn’t buy them. Hardly any retailers on reservations are carrying the taxed cigarettes now. The state is seeing nowhere near the expected tax revenues as a result.

And there’s more to the story.

The governor – at least initially – said that cigarettes produced and sold on a reservation are exempt from the taxes he was so hot to collect. That only makes sense because of Gov. Cuomo’s implemented plan to tax cigarettes at the wholesale level. If the wholesaler is an Indian, then the cigarettes they produce for sale on reservations is not taxable.

But if I go to the St. Regis Mohawk Reservation and buy a pack of these cigarettes, they should be taxed because I am of Eastern European descent without a hint of Indian in my blood. That puts us back to the original problem. It’s tough to tax some and not others doing the same business on an Indian reservation.

The problem recently, and not surprisingly, has gotten more complex than whether the state gets its taxes when a Polish guy buys a pack of Native or other brand of locally produced smokes on an Indian reservation. Police recently stopped and confiscated a large truckload of cigarettes that were produced on the St. Regis Mohawk Reservation and bound for sale at a reservation in Nebraska.

If cigarettes produced on Indian land for sale on Indian land are exempt from taxes, the police shouldn’t be able to do what they did. The state argues the cigarettes become contraband when they leave a reservation without tax stamps. Now it is the Indians trying to answer the simple question of “how?” As in, how do we get the cigarettes from upstate New York to the Cornhusker State without getting them stolen by the police?

I suspect there is no good answer. You can’t tax them when they leave the reservation and untax them when they reach Indian land where they will be sold. It’s a mess. A mess created by our governor.

Indian business folks are the only ones getting hurt when the state confiscates their cigarettes without a real good reason. And the state’s plan to gain lots of revenue by taxing cigarettes went pretty much up in smoke when the Indian retailers virtually dumped selling any of the brands that could be taxed. So nobody is winning.

When an idea so badly tanks, maybe it is time for the governor to get a new idea. He might want to look at the example set by his predecessors and go back to doing little to collect a tax that no one has figured out how to fairly collect.

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