Tobacco Industry: NY Cigarette Supply to Senecas Halted

Seneca revenues at $1.2 billion
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02/23/2007?
By JOHN T. EBERTH, Olean Times Herald
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The Seneca Nation released an in-depth economic study Thursday that found it generated $1.2 billion in profits in 2005 and contributed $588 million to the Western New York economy.

The study also found the Seneca Nation directly or indirectly paid $121 million in fees to state and federal government, possibly blunting calls from Gov. Eliot Spitzer to collect taxes on sales of cigarettes and tobacco products sold on the Nation.

The report stresses the Seneca Nation’s right as a sovereign nation to remain independent and tax-free according to treaties between the Seneca Nation and the United States.

The study, conducted by the Taylor Policy Group of Cambridge, Mass., took into consideration payroll taxes paid by the Nation’s non-Seneca employees and fees and taxes paid to the state by vendors who do business with Seneca Nation companies. The report used numbers from 2005 because it was the last year in which complete payroll taxes and fee schedules were available.

In a statement released with the report, Seneca Nation President Maurice A. John Sr. said the study should open eyes to the economic contributions the Nation makes to the Western New York economy.

“We operate a $1.2 billion private corporation and employ 5,200 people. We pay direct fees of $68 million and pay indirectly, through our employees and vendors, another $53 million to state governments,” he said.

The report characterizes the tax-free Seneca Nation as a type of enterprise zone that allows both Seneca and non-Seneca businesses to thrive.

Because the Nation is an integral part of Western New York, President John said that dynamic won’t change.

“Unlike the scores of state-incentivised companies that have come to New York only to flee when the economic winds change, we’ve been here for generations and will continue to be here,” he said.

The report comes a month after Gov. Spitzer announced plans to collect taxes on tobacco sales to non-Indians from the Seneca Nation and other traditionally tax-free Native American retailers around the state. On Jan. 9, Gov. Spitzer said the state could gather $2 billion in revenue from the taxes.

The Olean Times Herald contacted Gov. Spitzer’s office Thursday for comment on the Seneca Nation economic study. The governor’s press office declined to respond to several requests for comment from the Times Herald.

Attorney Robert Porter, who’s the Seneca Nation’s counsel, said while the report highlights the Nation’s positive economic impact beyond the tax issue, its timing had nothing to do with the governor’s tax-collection campaign.

“It has taken about a year to finish the report so the timing is what it is,” he said.

Mr. Porter said the Seneca Nation won’t waver from its sovereign right to control taxes on its own land.

“I think President John has made it very clear the Nation doesn’t collect state taxes,” he said.

The Taylor Policy economic report said the state attempts to collect sales taxes from non-Senecas who do business with the Nation are misguided.

“The conceptual basis for wanting to tax non-Senecas involved in transactions with the Nation on its land is false. Neither those customers nor the Nation is cheating New York governments or nearby businesses. New York does not tax New Yorkers for their purchases after spending a weekend in Toronto or Paris,” the report said.

Mr. Porter said the report was commissioned to accurately gauge the overall economic impact of Seneca Nation businesses, including its Allegany and Niagara casinos.

The report also traces the history of the Seneca Nation and its treaties with the United States government. Mr. Porter said the history lesson is needed.

“I don’t think people understand the basis of our tax immunity or the basis of our sovereignty,” he said.

The report found that tobacco sales on the Nation generated $620 million in revenue in 2005 and that the casinos and other Nation-owned enterprises earned $500 million in revenue.

“It’s pretty impressive when you add everything up and see it in an aggregate form,” Mr. Porter said.

3/23/2006?
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Attorney General Eliot Spitzer, in an attempt to gain attention in his quest for governor, has criminalized the very livelihood of New York State’s native people on their tribal lands. At issue is our sovereign right to buy and sell tax-free tobacco, gasoline and other products off our reservations. Spitzer has coerced credit card companies into believing that Native Americans routinely break federal law by selling tax-free tobacco and gasoline. He has scared our shippers into halting our deliveries, and has now threatened our suppliers with fines and jail if they continue to deliver to our reservations.

Our land, our culture, our sovereignty – these are the key pieces of our ethnic heritage. These, we must protect. We want to continue to do business, work at our jobs and do our best to earn an honest living. The U.S. Constitution has declared our treaties to be the “Supreme Law of the Land.”

Why then is Albany so indifferent to our plight? Polls conducted within the last few weeks have indicated that 79 percent of New Yorkers support Native people and their tax-free status. Voters should call their lawmakers and tell them they agree with Gov. George Pataki to let our treaties stand.

Reginald Crouse
Red Nation Tobacco Co.
Salamanca

State to Forgo Cigarette Tax to Keep Peace With Indians??????????????
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By DAVID STABA
Published: March 21, 2006

BUFFALO, March 20 – Across the street from Randy’s Smoke Shop on the Tuscarora reservation near Niagara Falls sits a pile of tires and wood pallets, a reminder of the fires set during American Indian demonstrations against state tax policies in 1997 that closed several Interstate highways.
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Hoping to avoid a repeat of those protests, the Pataki administration has said it will not enforce a law taxing cigarettes and other goods sold to non-Indians at stores on Indian reservations across the state. Gov. George E. Pataki’s budget proposal calls for delaying enforcement of the law, which took effect on March 1, until next year.
“Our goal has always been to solve this matter through cooperation instead of confrontation,” said Kevin Quinn, a spokesman for the governor. “The Tax Department has indicated it will continue its current policy as the governor and Legislature discuss these matters.”

Administration officials have said they are concerned that a repeat of the 1997 protests could slow interstate commerce, divert trucks carrying hazardous loads through heavily populated communities if the Interstates are blockaded again, and cost the state millions of dollars in state police expenses.

Indian business owners assert that the tax law infringes on Indian sovereignty, is virtually unenforceable and will hurt stores that generate important economic activity on the reservations.

“How are we supposed to live?” said Pauline Chrysler, whose son, Randy Chrysler, is a smoke shop owner.

But the Pataki administration’s decision to delay enforcement of the new law has also fueled a partisan debate in Albany, where many Democrats have criticized the Republican governor for ignoring a significant source of revenue, because the state is not getting the $1.50-a-pack taxes it collects on cigarettes sold everywhere else in the state.

Last month, Attorney General Eliot L. Spitzer suggested that wholesalers who continued supplying cigarettes lacking a tax stamp, which sell for as little as half as much as cigarettes in nonreservation stores, to Indian merchants could lose their licenses. Mr. Spitzer, a Democrat, is running to replace Mr. Pataki, a Republican who is leaving office at the end of the year.

The latest budget bill passed by the Democratic-controlled State Assembly also calls for tax collections to begin immediately, with wholesalers facing penalties that could include loss of their licenses.

“You can’t announce to the world that a law will simply be ignored and not enforced,” Mr. Spitzer has said. Marc Violette, a spokesman for Mr. Spitzer, declined comment on Friday’s clarifications by the Pataki administration.

The United States Supreme Court ruled in 1994 that states have the right to collect sales tax on purchases by non-Indians at reservation stores.

The conflicting messages from Albany have created confusion among Indian business owners and their wholesalers.

Last Tuesday, one of the largest wholesalers to stores on the Seneca and Tuscarora reservations notified store owners there that it would stop shipping the unstamped cigarettes. But by Friday, a lawyer for the wholesaler said he had received word from the Tax Department that shipments of unstamped cigarettes could continue.

Mr. Chrysler said he laid off about a dozen of his 30 employees shortly after being notified by the wholesaler that it was stopping shipments last week. By Thursday afternoon, customers were limited to one carton each in an effort to stretch dwindling supplies.

“All we’re concerned about is knowing one way or another whether that policy (of nonenforcement) is going to continue,” said Joseph E. Zdarsky, a lawyer for the wholesaler, Milhem Attea and Sons of Buffalo. “If it didn’t, theoretically, someone could assess taxes against our client in crippling amounts.”

The profits from sales of tax-free cigarettes and gasoline have helped spawn other Indian businesses. One of Mr. Chrysler’s brothers started a bottled-water supplier, while another opened a sneaker shop, both on the same property as his store.

“They know there’s no pot of gold at the end of the rainbow here,” Mr. Chrysler, who has owned the store for 16 years, said of his employees, many of whom are related to him. “But it gives them pride and dignity, so they can go home and be a father or a mother – they can be a provider.”

State Senator George D. Maziarz, a Republican whose district includes the Tuscarora reservation, said postponing a resolution doesn’t solve the issue.

“It’s like a train wreck that everybody sees coming, but nobody knows how to avoid it,” Mr. Maziarz said.

By Mark Hamblett
New York Law Journal
03-20-2006

New York City’s attempt to sue Internet cigarette sellers for lost tax revenue under a racketeering theory has been dismissed by a federal judge for the second time.

Southern District Judge Deborah Batts dismissed the amended complaint filed in City of New York v. Nexicon, 03 CV 383, finding that the city had once again failed to meet the standard for pleading a racketeering enterprise.

The case is one of five that the corporation counsel has brought against Internet cigarette sellers it claimed have been avoiding taxes and failing to file tax reports on the number of sales they make to New York residents. It is considered a template for the other four cases — an important part of the city’s effort to recoup as much as $100 million in lost state and city tax revenues each year.

Eric Proshansky, deputy chief of the law department’s affirmative division, said Thursday the city will appeal to the 2nd U.S. Circuit Court of Appeals.

The city sued under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. ?1961 et seq., seeking compensatory damages as well as injunctive relief. It wanted to recover three times the amount of tax revenue lost under the alleged tax-avoidance scheme.

The city tried to break new ground by alleging that the failure to file so-called Jenkins Act reports with New York state on the volume of cigarette sales in New York constitutes the predicate acts of mail and wire fraud needed to make a case under RICO.

But in her decision on motions to dismiss in January 2005, Batts was skeptical about the city’s “novel theory.”

The Jenkins Act, she said, was a criminal act to be used by the federal government against tobacco companies to prevent state tax avoidance going forward through injunctions and, retrospectively, through criminal penalties.

Batts said it was doubtful the Jenkins Act even applied in civil cases and it was “extremely unlikely” that any party other than the federal government may sue under the act.

She also undercut the case by ruling the city failed to meet the standard for “distinctiveness” under RICO, in that it had not shown there was any difference between the employees of the Internet sales companies named in the suit and the companies themselves.

Nonetheless, she gave the city leave to replead.

But in this week’s decision, Batts said the city again failed on a key element of the statute — that “the enterprise as alleged must be distinct from the person conducting the affairs of the enterprise.”

Under 2nd Circuit case law, she said, “a plaintiff may not allege ‘a RICO enterprise that consists merely of a corporate defendant associated with its own employees or agents carrying on the regular affairs of the defendant.’ Riverwood Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339 (2d Cir. 1994).”

The city claimed that it had met the standard for distinctiveness.

Judge Batts disagreed. The language of the Jenkins Act, she said, forbids “persons” from transporting cigarettes for profit in interstate commerce,” and a person includes “corporations, companies, associations, firms … as well as individuals.”

Batts said “it is clear that companies are the primary entities responsible for filing Jenkins Act reports.”

“The catch-all phrase ‘as well as individuals’ suggests a separate class of people who may be liable under the Jenkins Act, but does not by any means connote officers or directors of the business entities listed before the phrase,” she said. “Accordingly, as only the defendant companies are responsible for filing the reports, and only they can be accused of fraudulently concealing such reports by not filing them, only the defendant companies may be considered as having committed predicate acts.”

Proshansky was joined by Assistant Corporation Counsels Toby Butterfield and James Altman in representing the city.

James L. Bikoff of Silverberg Goldman & Bikoff, in Washington, D.C., was lead counsel for the cigarette sellers.

Tax officials’ advice eases tension over Indian cigarette sales

March 18, 2006

BUFFALO, N.Y. (AP) _ The state Department of Taxation and Finance has advised a Buffalo cigarette wholesaler it can ignore a new law requiring tax collection on tobacco products sold to Seneca Nation and other Indian businesses.

That eased tensions on Indian reservations in western New York where nervous suppliers cut off shipments to smoke shops earlier in the week. Indians accuse the state of ignoring their sovereignty. In 1997, the last time the state tried to collect the tobacco taxes, confrontations between Senecas and state police closed a section of the Thruway.

By noon Friday, supplier Milhem Attea & Bros. resumed shipping cigarettes to Seneca smoke shops, spokeswoman Rosemary Saffire said. “We have it in writing, so we can take it to a judge and say, “Look, we have permission,”‘ she said.

In the letter, the Tax Department said it had a “long-standing policy of allowing untaxed cigarettes” to be sold to Indian retailers. The agency noted Gov. George Pataki had proposed changing the law that kicked in March 1.

One idea was to delay implementation. The State Senate and Assembly earlier this week rejected that.

State Attorney General Eliot Spitzer has warned wholesalers that, no matter what the Tax Department claims, the cigarette tax collection law is in effect. His aides have said wholesalers who ship untaxed cigarettes to Indian retailers face possible prosecution.

Spitzer said Friday during a stop in Buffalo, “You can’t announce to the world that a law will simply be ignored and not enforced.” He said he would talk to the Pataki administration and that he would “act in a very measured, careful manner, hopefully in conjunction with the executive” branch.

Joseph Crangle, counsel to the Senecas, said the Tax Department disagrees with Spitzer, “and they’re the ones in charge of saying what the state tax law is, not the attorney general.” Richard E. Nephew, chief executive officer of the Seneca Nation, said the Tax Department letter “sounds like probably a temporary fix.”

The Senecas have long maintained that 19th century treaties protect them from the state taxing the nation’s products. The U.S. Supreme Court, however, ruled in 1994 that the state could collect taxes on sales to non-Indians.

On the Cattaraugus Reservation, where dozens of smoke shops are located near the Thruway, several shop owners and workers said they were optimistic.

On the Tuscarora Reservation, residents gathered by a bonfire Friday night near Randy’s Smoke Shop with signs urging passing motorists to support treaties.

Mar 16, 2006

BUFFALO,NY(AP) One of the Seneca Indian Nation’s largest cigarette suppliers stopped shipments to reservation smoke shops.

Now the Senecas are looking for other ways to stock their shelves. Attea Milhelm and Brothers voluntarily suspended its daily shipments until a new state law on shipments is clarified. A state law that took effect March 1 stops wholesalers from selling untaxed, unstamped cigarettes to tribes.

Seneca retailers sold $347.5 million worth of tobacco products in 2003.

By TOM PRECIOUS and PAM KOWALIK
News Staff Reporters
3/16/2006?
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ALBANY – The major supplier of cigarettes to Seneca Nation smoke shops has halted shipments to the reservations.

Milhem Attea & Bros., a Buffalo firm whose business is almost exclusively supplying Indian retailers with cigarettes, said it can’t risk being forced to pay cigarette taxes if state or local prosecutors try to enforce a new law that went on the books March 1.

But the company is considering a suit against the state to keep its tobacco sales flowing to Seneca and other Indian retailers, such as the Tuscarora Nation in Lewiston. Such a legal move could delay a resolution to the tax dispute.

The suspension of sales by Attea was seen Tuesday as a major development by those trying to end the tax-free cigarette sales.

“This might be the break that finally puts an end to this issue,” said Russell Sciandra, director of the Center for a Tobacco Free New York.

Other cigarette suppliers also have stopped shipping to the Seneca retailers in the past several days, state officials and executives in the wholesale tobacco industry say. Those suppliers did not return calls for comment.

If true, industry sources said, the Seneca retailers could find themselves running short on tobacco products by next week.

The situation has left Seneca and Tuscarora retailers scrambling to keep the tobacco trade flowing.

The tobacco business has made many Native American businessmen wealthy, appealing to smokers trying to avoid the state’s cigarette taxes that add $1.50 per pack before local sales taxes.

A lawyer for Attea said the sales could resume if the state Tax Department sends a new signal that the law is not in force.

A spokesman for Attorney General Eliot Spitzer said Wednesday that wholesalers risk possible criminal prosecution if they continue the sales.

“The tax department can say whatever it wants, but the law is in effect,” said Darren Dopp, a spokesman for Spitzer, who has insisted the tax collection law became effective March 1 whether or not the tax agency implements its provisions.

Seneca President Barry Snyder Sr., in a prepared statement, accused Spitzer of threatening and intimidating wholesalers in a move that is “interfering with official state policy” of the Pataki administration.

“It has become obvious that the [Seneca] Nation must do more to protect its economy,” Snyder said.

“We are left with no choice but to develop a protected source of tobacco products to ensure that the nation and its people are not denied the ability to consume and trade these products in our territory,” Snyder added.

He did not elaborate and did not return calls for comment, but tribal leaders are looking into setting up some sort of Seneca-owned tobacco business to keep state tax collectors away.

The Legislature last year inserted into the state budget a provision requiring the state Tax Department to collect the taxes on cigarettes sold by Indians to non-Indians by getting the tax from wholesalers before the products are shipped to retailers.

Gov. George E. Pataki’s tax department, however, said it would not enforce the new March 1 law because the governor was trying to negotiate a one-year delay in its implementation.

The recent move by Spitzer has angered employees of cigarette stores on the Tuscarora Indian Reservation.

Although employees were tight-lipped late Wednesday at the Smokin’ Joe’s complex on Saunders Settlement Road, Lewiston, a female employee – who would not give her name – said she expects tensions to escalate by Friday.

“I’m leaving New York State. This is the final straw,” said the woman, who also said she feared for her job.

Smokers buying cigarettes Wednesday discovered the price rose by $6 a carton and 60 cents a pack.

The clerk at Smokin’ Joe’s said a carton of Marlboros regularly sold for $22.95. On Wednesday, the price was $28.95.

Crystal R. Avery, a clerk at Smokin’ Joe’s Indian Hill location, said even the Smokin’ Joe’s brands, which are made on the Tuscarora Reservation, have increased $6 a carton. Efforts to reach Joseph “Smokin’ Joe” Anderson or a business representative were unsuccessful Wednesday.

e-mail: tprecious@buffnews.com and pkowalik@buffnews.com
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Robyn Young, Reporter??
3/16/2006

Approximately 30 members of the Seneca Nation of Indians and supporters held a peaceful demonstration along the Thruway in Irving on the Cattaraugus Reservation Thursday afternoon.

They protested the renewed state effort to collect taxes on cigarettes sold to non-Native Americans in reservation smoke shops.

“I’m supporting our people because they (the state) are violating our rights,” said Seneca member Karen Jimerson.

The demonstrators unveiled two new signs, reading “Honor Indian Treaties,” and “Break a Treaty, Break the Law.” Numerous truckers honked their horns in support as they passed the demonstrators on the Thruway.

When the state attempted in 1997 to collect taxes on gas and cigarettes sold to non-Native Americans, the Senecas held protests that included burning tires and disrupting traffic on the Thruway. Since then, various deadlines to collect the tax have come and gone.

A new law went on the books March first, aimed at collecting the tax from wholesalers, who would then pass increased costs onto Indian retailers. State Attorney General Eliot Spitzer is warning wholesalers they must pay the tax on cigarettes sold to Native American businesses or face prosecution. As a result, Milhem Attea and Brothers, a Buffalo-based business that is a major supplier for smoke shops, stopped shipments to Native American shop owners this week.

A company spokesperson, who declined to share her name, said they are suspending sales “for a short time” while their lawyers consider options. She said they are specifically concerned about Spitzer’s warnings.

That’s leaving Indian shops without their major supplier.

Wolf’s Run owner William Parry said they will “try to find supply at other places, wherever we can get it from.” One option includes brands like Niagara’s, which are made right on the reservation.

Parry said he has raised his prices in response to demand and recently increased prices from wholesalers. Customers said some shops have raised their prices by $6 a carton.

Because Native American smoke shops avoid state and local taxes, they can sell cigarettes much cheaper. One brand sold for about $25 a carton that customers said they would pay $60 for elsewhere.

While Indian retailers are dealing with keeping their shelves stocked, the debate about the tax collection is being renewed.

State lawmakers say they lose about $200 million a year by not collecting the tax, and that the price disparity is unfair to convenience stores and other business off reservations. They also believe a U.S. Supreme Court ruling supports the collection of the tax.

Joe Crangle, Counsel for the Seneca Nation of Indians, disagrees, saying that ruling deals only with wholesalers and does not include their dealings on reservations. Crangle believes the state cannot collect the tax, based on treaties and the constitution.

“The state has jurisdiction, to some extent, over any kind of a wholesaler that does business within New York State, but when that wholesaler is dealing with businesses on the Indian reservation, New York State hasn’t got jurisdiction there,” Crangle said.

He also said the tax cannot be collected because although it is now on the books, the regulations to enforce it have not been levied by Governor George Pataki, who is attempting to get its implementation delayed.

A spokesperson for Attorney General Spitzer is quoted as saying the law is in effect, whether or not the tax department is implementing it.

Seneca Nation President Barry Snyder did not participate in Thursday’s demonstration, but issued a statement saying “the actions of Attorney General Spitzer to threaten and intimidate wholesalers is interfering with official state policy.” He said the Senecas need to develop a protected source of tobacco products, and do more to protect its economy.

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Two of the four shops visited had signs saying there was a $5 increase for a carton of cigarettes. But only one, First American Tobacco, was restricting sales with a five-carton limit. A clerk said no more cigarettes would be arriving, but she didn’t know why.

At Seneca One Stop, customers with complaints about the $5 increase for a carton and $1 for a pack were advised to take it up with Attorney General Eliot Spitzer. “It’s out of Seneca One Stop’s hands,” according to the sign.

At Seneca Hawk and Triple J’s, there were no indications that prices had risen or of any limits on sales.

At the Tuscarora Reservation in Niagara County, Randy’s Smoke Shop sported a handwritten sign saying, “Price Increase. Due to NYS Government. There Are No More Cigs Coming In. This Is It. You Can Thank Your NYS Government.”

Another sign said there was a one-carton limit until further notice.

The tension on the reservations stems from a new state law that kicked in March 1 requiring wholesalers to pay state excise taxes – $1.50 per pack – on cigarettes they ship to Indian retailers to be sold to non-Indians. But Gov. George E. Pataki’s administration, which for a decade has fought efforts to collect the tax, said it would not have its tax department enforce the new law while Pataki tried to negotiate with legislators for a one-year delay.

But Spitzer warned wholesalers that, despite the Tax Department’s decision, the law is in force and they risked prosecution if they continued selling tax-free cigarettes to Indian retailers. And this week, the State Legislature said it would not go along with Pataki’s call to delay the law until after he leaves office at the end of the year.

In response, wholesale tobacco executives say at least several companies, fearing legal consequences, have stopped shipping to the Indian-owned retailers. Only one tobacco company, Attea Milhelm & Bros., has confirmed a suspension of sales.

On Thursday, the Pataki administration did not comment on the latest wrangling. State Police were monitoring the situation as Tax Department lawyers met through the day to figure out a next step for the state to take.

Wholesalers have asked the tax agency to make clear that the law doesn’t yet apply because of Pataki’s decision to delay enforcement; Spitzer said the tax agency can’t do that because the law is already on the books.

At the Allegany Reservation near Salamanca, tobacco merchants and other Senecas met Wednesday night and did a lot of “venting,” according to sources.

There was talk of blocking highways and also of launching a public relations campaign against Spitzer, they said. Some of the tobacco Web sites were down or had messages saying “Internet Store Closed.”?
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