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Posted on 07/08/2002 7:21:55 AM PDT by SheLion

Some paragraphs removed. Click on link to read in it's entirety. I am not sure if we are allowed to use the New York Times. But I feel this is important information for our people to read.

MASTIC, N.Y. — Call it tax avoidance — and call it completely legal.

In this case, call it what Don Kemler does once a week, like clockwork. Every Tuesday, Mr. Kemler, 48, navigates the winding roads of this Suffolk County community, sliding his electric blue pickup truck into a parking space facing two wooden carvings of American Indian men. He climbs the stairs to the Peace Pipe Smoke Shop, plunks down his $21.25 and leaves with his prize: one carton — 10 packs — of USA Gold cigarettes.

"It's a filthy habit," Mr. Kemler, a lumber salesman from Shirley, said one evening in June, referring to his 30 years of smoking. "But that doesn't mean I'm willing to pay those crazy taxes."

Mr. Kemler is one of many New Yorkers (there is no official count) who visit the tiny Unkechaug Indian Nation to buy tax-free cigarettes. Unwilling to pay those taxes — $1.50 a pack to the state, and now an additional $1.50 a pack in city taxes for New York City smokers — these New Yorkers buy off-brand cigarettes for just over $2 a pack, as opposed to nearly $7 a pack for city smokers. (Savings are similar for premium brands, which sell for less than $3.50 a pack on reservations.)

Mr. Kemler frequents the Peace Pipe, one of four smoke shops on the five-square-block Poospatuck Reservation, population 220, about 70 miles east of Times Square. The Unkechaugs are one of many Indian nations, including the Seneca Nation in upstate New York and the Shinnecock Nation in Southampton, that take advantage of their right as sovereign nations to buy and sell cigarettes without paying or charging the hefty taxes from the state and the city.

They fought hard for this right, which they say has moved their nations from poverty to relative wealth, and have been in and out of court for years over the issue. One main opponent is the New York Association of Convenience Stores, whose members make a lot of money on cigarette sales. Last December, the United States Supreme Court refused to hear a challenge to a lower court decision granting Indian sovereignty in this matter, seemingly exhausting the association's attempts to force the state to collect the tax from Indian nations. The association is now trying to get federal or state legislation passed to ban what it terms the state's "selective enforcement policy," said James Calvin, the president of the association.

So for now the nations sell legally from their shops, over the phone and via the Internet. Their advertisements, heavily peppered with exclamation points, read, "Stop paying those high retail prices and start saving with Indiansmokesonline!" and "Make Senecasmokes your choice for discount cigarettes, you'll be glad you did!"

Shoppers who visit the store tend to buy two to five cartons at a time, shop owners say, while those who buy over the phone or Internet buy from 2 cartons to 50. (There is no legal limit to the number of cartons one customer can buy.)

It's hard to imagine what one person does with 50 cartons — 10,000 cigarettes — but these stores' owners reject any suggestion of bootlegging.

"We get a lot of Manhattanites stopping by on their way out to the Hamptons with a list of orders from friends and co-workers," said Harry Wallace, chief of the Unkechaug Nation and owner of the Poospatuck Smoke Shop and Trading Company, the first shop to open on the reservation, in 1991. "They say, `This carton is for Jane, this carton is for Sharon,' etc. But it's perfectly legal to buy cigarettes for your friends."

There is no law that the cigarettes must be for the buyer's own use; what is illegal is reselling cigarettes bought here for more money and pocketing the difference. Chief Wallace said he assumed those buying for Jane and Sharon made no profit.

But while Chief Wallace said he knew of no bootleggers or smugglers, the phenomenon is not unknown. A spokesman for the New York division of the Bureau of Alcohol, Tobacco and Firearms, Joseph Green, said that he could not comment on open investigations but that such matters are closely monitored. Mr. Green pointed out that the number of tobacco-related investigations conducted by the bureau increased to 71 in the country in 2001 from 6 in 1998.

Governments say they are raising cigarette taxes not just to increase revenue, but also to discourage smoking. Tobacco companies argue that higher taxes encourage smuggling.

On a June day, customers streamed into Chief Wallace's shop, a small pine-paneled store with walls of cigarettes and cases displaying Indian-made jewelry and moccasins. Cars filled the small parking area and newcomers had to park by the bushes or down the road. Yet exactly how thriving these businesses are is unclear, because the shop owners — who seem to feel vilified by just about everyone except their loyal customers — are unwilling to say.

When asked how many cartons of cigarettes he sells per month, Chief Wallace, a stocky man wearing two braids, denim shorts and flip-flops, responded, "It's none of your business."

A visit to the other smoke shops on the Unkechaug reservation yielded similar results.

So one could explore the economics this way: A reporter watched seven cartons of cigarettes being sold inside Chief Wallace's shop in five minutes one day in June. Erring on the side of caution, then, one could assume 50 cartons are sold an hour. The shop is open 13.5 hours a day every day, which translates to 675 cartons a day, 4,725 cartons per week, or 18,900 per month. (And that does not include phone and Internet orders.) At an average price of $27.50 per carton, Chief Wallace would take in about $520,000.

His profit would be that sum, minus his overhead and what he paid for the cigarettes. Those two costs are another mystery, as Chief Wallace, as well as the cigarette manufacturers and distributors, would not say what he pays for them.

Looked at another way, at $15 in tax per carton, assuming those hypothetical calculations are not too far off, the state is losing about $283,500 a month in revenue from Chief Wallace's shop alone (again, not counting Internet and phone orders). Chief Wallace said there were 85 Indian-owned tobacco outlets in the state at his last count, in 1998. So the hypothetical statewide total: a $24-million-a-month loss to the government. And New York City is also losing $1.50 in tax per pack.

Still, the state seems to have no intention of changing course. And Chief Wallace and his fellow shop owners feel that their right to sell tax-free cigarettes (and gasoline) is nothing short of the lawful exercise of their sovereignty.

"Before we had tobacco shops, we had a welfare economy — and the state was paying for that," Chief Wallace said as he lighted a Marlboro Red. "We couldn't focus on our political, social and educational rights because we were focused on day-to-day survival. Now we're not. Now we are empowered."

Anyway, said the shop owners, they are doing the community a favor.

"We sell to a lot of fixed-income people; you know, senior citizens and veterans on Social Security," said Mike General, manager of JR's Smokeshop II in the Seneca Nation. "They're looking to save money wherever they can, and you can't beat our prices."

As to the morality of making carcinogens available at low cost to the masses, whether they are people on fixed incomes or travelers en route to the Hamptons, Chief Wallace shrugged and lighted another cigarette. "If they're so bad, make them illegal," he said. "In the meantime, leave me alone."

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