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Narrow rulings keep cigarette tax litigation open-ended
By Jerry Zremski
September 13, 2010

WASHINGTON -- Gov. David A. Paterson warned of possible "violence and death" if the State of New York actually tries collecting taxes on cigarettes sold from Seneca Nation of Indians territory, but lawyers in the know think that "appeals and amicus briefs" are more likely.

Rather than a rage of tire-burning along the Thruway, years of litigation are the more likely result of the state's latest attempt to collect taxes on cigarettes sold on reservations to non-Indians, legal experts say.

The litigating has already begun in the Buffalo courtroom of U.S. District Judge Richard J. Arcara, and it is likely to continue for years, even though the U.S. Supreme Court in 1994 said that New York could collect such sales taxes.

The legal fight continues because the high court did not give the state carte blanche to collect those levies any which way.

In fact, the 16-year-old decision in New York v. Attea left the Senecas plenty of legal room for courts to explore in later cases. For example, that case did not address the argument that the Senecas love to make publicly but that they have been reluctant to use in court: that the state's effort to collect cigarette taxes on reservations is a violation of their treaty rights.

That's just one of the open questions that could keep the Senecas' tobacco business in court and on life support for a long time -- even though the Senecas are likely to lose in the end. After all, in five cases from five states, the high court has approved efforts to tax sales to non-Indians on Indian land.

Despite those decisions, "the court specifically left a lot for later" in the 1994 case involving tobacco sales on New York reservations, said Joseph E. Zdarsky, the Buffalo lawyer who represented tobacco wholesaler Milhelm Attea in that Supreme Court case. Much of what the high court left undecided could be decided in the case the tribe filed before Arcara that takes issue with the state's tax plan.

The tribe also filed a separate lawsuit challenging the PACT Act, the recently enacted federal law that bans the mailing of cigarettes. But given that the federal courts rarely overturn an act of Congress, legal experts dismissed that lawsuit as one with no future.

Similarly, they said the case the Senecas filed in state court against the state's tax plan is not as significant as the tax case the tribe brought before Arcara -- which, like other similar Indian tax cases, could be in the federal court system for years.

"These cases tend to go all the way," Zdarsky said -- that is, all the way to the Supreme Court. That's because the federal courts have tended to decide Indian taxation cases narrowly, based on the particulars of each case, rather than issuing sweeping pronouncements.

In the tax case before Arcara, the Senecas and the Cayuga Nation challenge the particulars of the tax collection plan the State Legislature implemented earlier this year. The tribes say the plan interferes with the tribes' sovereign rights under federal law while placing an undue burden on tribal retailers.
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Seneca cigarette sales have been falling for years now, due largely to the state's successful effort to get credit card companies to stop processing such transactions.

With that new federal law barring cigarettes from being mailed, the Senecas' sales are likely to plummet even further -- as will the amount of tobacco tax revenue the state is trying to collect.

Eventually, that trend may prompt the state and the tribe to strike a deal on the tax issue.


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We can only hope that, by the time the Court rules on the mailing
provisions of the PACT Act, Congress will have gotten a conscience
and rescinded the most damaging aspects. SNUSON!