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State Launches Crackdown On Reservation Cigarettes

The state has begun a crackdown on tax-free sales of cheap cigarettes by American Indian retailers, including seizure of thousands of cigarettes products in recent weeks and secret surveillance of reservation smoke cigarettes shops, officials of Gov. Andrew M. Cuomo's administration Wednesday told The Buffalo News.

This marks the state's first attempt to collect the taxes since 1997, when a short-lived experiment ended in violent confrontations between state troopers and protesters along the Thruway.

Since June 21, the state has seized cigarettes online with a state and local tax value of more than $1.5 million, administration officials said. State officials could not provide a figure for new tax money collected as a result of the enforcement effort but reported an initial increase in tax stamps sold by the state to buy cigarettes wholesalers who supply Indian merchants.

Some major cigarettes wholesalers, meanwhile, said they have stopped supplying tribes, including the Seneca Nation, with the cigarettes.

The state still is setting up plans for a fuller enforcement of the law, which kicked in last month after a state appeals court dropped a restraining order that had allowed the tax-free sales to continue.

But the collection effort has prompted Native Americans to step up production of their own cigarette brands, which, they contend, the state has no right to tax. This may result in another court battle.

The Cuomo administration maintained Wednesday that the state has a legal right to collect the tax not just on such domestic brands as Marlboro, but also on the growing number of Indian-made brands, such as those produced at four facilities on Seneca land.

Indian leaders strongly dispute those claims.

A policy dealing with all facets of the cheap cigarette online trade still is evolving, state officials said.

"The Department of Taxation and Finance is moving aggressively on a number of different fronts to collect the taxes owed to the state," said Josh Vlasto, a Cuomo spokesman. "Enforcement began after the temporary restraining order was lifted. It is ongoing, and it will continue."

Preliminary information shows an increase in the sale of tax stamps — which wholesalers must purchase for $4.35 per pack to cover state excise charges — and rising prices of domestic brands at Indian shops.

Native Americans say supplies of tax-free domestic brands are starting to run out as they focus on cheaper, reservation-made brands such as Seneca — and one even named Senate.

But the state is pressing ahead with its enforcement effort.

Saturday, state tax agents tailed a vehicle from the Tonawanda Indian Reservation to Broadway Lucky Mart in Buffalo. There, agents seized about 4,000 cigars and 8 1/2 cartons of buy cigarette online — half with counterfeit tax stamps.

Since the temporary restraining order was lifted a few weeks ago, tax agents have inspected 357 retail establishments. But state officials say they have not inspected smoke cigarettes shops on Indian lands.

Since June 21, tax agents have seized 3,244 cartons of cigarettes for sale without tax stamps, much of them coming from reservations, as well as 25,000 cigars. State officials also have assisted federal Alcohol, cigarettes, Firearms and Explosives agents in seizing another 2.3 million untaxed cigarettes.

All seizures were made off reservation lands. Officials declined to say which reservation was under surveillance.

Indian retailers — led by the Senecas' flourishing cigarettes trade — had been preparing for the day the state would try to end the tax-free business. The Cuomo administration estimates revenue of $100 million this year if the tax-free cigarette trade ends and the state collects the $4.35 per pack tax.

Some Native Americans, including those on the Seneca and Oneida reservations, produce their own cigarette brands that sell for far less than premium brands.

"There has been some impact because the premium brands are no longer being imported into the territories because of the prevalence of native-made brands," Seneca Nation President Robert Odawi Porter said.

If the state is trying to appear as an aggressive enforcer, Indian officials say they have yet to see any indication on their land. "There's been no drama, let's put it that way," Porter said.

Indian-owned cigarettes companies still flourish on the Internet, with some Seneca companies selling Indian-made cigarettes Wednesday for as little as $25 a carton.

Indian leaders across the state are also ignoring a key component of the new law. Porter said — and state officials confirmed — that no tribe has requested special state coupons that permit enrolled tribal members to purchase cigarettes tax-free. In the past, Native American leaders have dismissed such coupons as an insult to their sovereignty and a not-so-subtle means to persuade Indians to go along with the tax collection.

The flourishing market of Indian-made cigarettes is likely to lead to the next big legal fight between the state and tribes. Porter said the four manufacturing facilities on Seneca territory are all licensed by the federal government.

"Our sovereign control of cigarette manufacturing on our territories is far different than imported cigarettes made elsewhere. The law treats that situation very differently," Porter said.

He said the state has not been in contact about the new collection effort, but he said the federal licensing of Indian cigarettes plants permits cigarettes to be shipped tax-free anywhere in the country.

"We're going to continue moving forward in developing and regulating that kind of business. Until we have more mature diversification in our economy, we have to keep taking steps to preserve our economy and the jobs for the natives and non-natives who work here. It's discriminatory and unfair for Indian nations and people not to be afforded the same opportunities as non-Indians, and we continue to be under attack," Porter said.

Frank Attea, a Buffalo cigarette wholesaler who has long been a major cigarettes supplier to Indian merchants, said he has stopped selling cigarettes to his Indian customers since the temporary restraining order was lifted.

"They're pushing their own cigarettes now," he said.