Tax loophole closing

Waterbury Republican-American ^ | January 05, 2004 | Editorial

[Holly_P]

Indian gambling casinos and the burdens they place on surrounding communities aren't the only problems old and newly formed tribes are imposing on the states. Hundreds of millions of dollars are being siphoned from state treasuries by the sale of tax-free cigarettes and gasoline at smoke shops and gas stations built on reservations and opened to the public.

In refusing to acknowledge responsibility for collecting taxes, some tribes are ignoring court rulings that uphold the right of states to demand taxes be paid on transactions with outsiders on reservations. While their lawyers complain the states' demands violate a tribe's sovereignty, the answer from the bench is the Indians aren't being taxed, the consumers are. Requiring tribes to act as collection agents does not violate their sovereignty.

The U.S. Supreme Court ruled in 1994 that New York can assess a tax on cigarettes sold to people who are not tribal members. Last month, a federal district judge upheld Rhode Island's right to tax payments from the Narragansetts. The judge also upheld the state's right to conduct a search-warrant-backed raid on their reservation. The tribe challenged the state from a position weakened by a 1978 settlement under which it became subject to the state's criminal and civil laws. This is not the case in most states.

The tribe remains recalcitrant. Its lawyer said it can appeal the ruling or go the route of tribes that have continued selling cigarettes without collecting taxes, firm in the belief the state has no legal way of forcing them to do so.

Well, perhaps it does. The New York legislature passed a law requiring the state to start collecting cigarette taxes as of March 1. To assure payment, distributors who supply the tribes will be charged taxes up front, which they will have to recover from the Indians as part of the bill for cigarette shipments. The Indians will have no choice but to collect taxes to continue being supplied with cigarettes.

New York lawmakers finally got some gumption and passed the law almost a decade after the favorable Supreme Court decision. It seems the administration of Gov. George Pataki backed down from implementing tax collections sooner when Indian tribes resorted to violence to block them. According to the Syracuse Post-Standard, this capitulation cost the state some $436 million in sales and excise taxes in 2002 alone.

Cigarettes and gasoline sold on Indian reservations are big business in the state. The state Department of Taxation and Finance reported that since 1996, the year Gov. Pataki caved in to Indian protests, 168 million cartons of untaxed cigarettes were sold on the reservations. The department puts the Indian share of the cigarette market in the state at 30 percent, which represents not only a major dent in tax collections but also in sales by tax-paying businesses.

The claim of sovereignty seems to be the strongest defense Indian tribes have to justify their actions. If they want to claim their reservations to be sovereign territories within the United States, then perhaps they should be charged import taxes for the cigarettes and gasoline they buy.

[Republicus2001]

in California, the Davis legacy will be the tax-free indian casinos...interesting that often legalized gambling is held up as a revenue source for some governments

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[weegee]

The U.S. Supreme Court ruled in 1994 that New York can assess a tax on cigarettes sold to people who are not tribal members.

I guess that they will start taxing us for ALL money spent in foreign countries too? Not just on goods that exceed our customs allocations?

[weegee]

If they want to claim their reservations to be sovereign territories within the United States, then perhaps they should be charged import taxes for the cigarettes and gasoline they buy.

If you could air freight it in, they would not be assessed these charges. Just because they are landlocked and much get items by car or train should not change their soverignty.

[Holly_P]

Just because they are landlocked and much get items by car or train should not change their soverignty.

I don't think the author is suggesting that their soverignty be changed, only that if they want to reap the benefits of being soverign that they should also be treated like other soverign nations.

[IYAS9YAS]

I have no problem with the tax being added up front, to be passed to the ultimate consumer. We have a similar situation in Idaho and a big issue with fuel tax. It's taxed up front, then the suppliers sell it to retailers. The retailers pass the cost of the tax on to the consumers. Everybody pays.

The tribes don't want to and have gone to court to stop the collection. The reality is, the state isn't charging the tribes the tax, as it is payed by the consumer, over 95% of whom are non-tribal members. The tribes don't even have to account for the tax, since their suppliers are responsible for paying it. Also, as a retailer, they get a 1% of sales (based on gallons) break on the tax to begin with and still get to charge the customers full tax.

Not charging the fuel tax on tribal lands allows a non-tribal member to drive up (using roads paid for with tax monies collected elsewhere) to the reservation, get untaxed fuel and drive home. Never once contributing to the pot for the roads. In Idaho, almost all of the fuel tax goes to roads. Some fuel tax, based on fuel type sold, goes to airports and other fuel tax goes to parks and rec for trails and boat docks.

[whereasandsoforth]

And there are people who still think a national sales tax is a bad idea. What do these people think all these taxes are (and I'm not talking about just cigarettes).

If we are going to have a federal and state income tax there should not be any other taxes. These taxes (gasoline) are also paid by businesses which pass the cost of taxes on to the customer. Then you are charged a sales tax on that amount the business has figure into the selling price. Tax the tax.

Getting rid of all these separate taxes would solved the problem of tax collecting from the Indians. They, too, pay income tax.

[weegee]

Never once contributing to the pot for the roads.

Ever drive through a state without getting any gas?

Federal highway funds are collected in Washington and then distributed (unequally to the contribution) among the states.

There are even times were someone may pass through a community without buying any gas again using the local streets "without paying". Bicyclists don't pay for the roads either (and Houston recently restriped the roads to include bicycle lanes). License and registration is one way to collect additional money.

This is just more tax. Anyone who is an American would be assessed it if they bought cigarettes or gas. Why not include all goods?

[IYAS9YAS]

Yes, you can pass through a state without buying gas. The deal is, how often do you do it? Some people make it a habit to continuously buy fuel on the reservation. It'd be a lot easier to lower the tax rate for all. I know, I know, taxes rarely get lowered.

The fed does not collect state gasoline taxes to redistribute them. It collects its own tax 18.4 cents/gallon on gas and 24.4 cents/gallon on diesel. The states keep their tax money. The fed, using the formula created in hell, redistributes the fuel taxes it collects based on gasoline taxes collected by the states.

Idaho is a state that has a lot of roads, but not a lot of population density. So, for every gallon it cannot collect taxes on, it loses out for the fed money as well. I'd rather pay a higher state rate and leave the feds out, but that's not my option.

Also, when it comes to many commercial vehicles (based on fuel type), anything over 26,000 lbs gvw is subject to the International Fuel Tax Agreement, which takes care of the issue of driving through a state without buying fuel.

The premise is, your fleet (1 to infinity trucks) uses a quarterly mpg (total fleet miles driven divided by total fleet fuel placed into the engine supply tank). With this you determine taxable gallons to a jurisdiction (48 States and 10 Canadian Provinces) based on your taxable miles (usually any publicly funded road - regardless of composition). Divide the taxable miles by the MPG and get taxable gallons for the jurisdiction. Once you do that, you take credit for your purchases in that state. The net difference is what you owe or get back from the state.

All done on one form and sent to your base state on a quarterly basis. It bases taxes on where you drove, not where you bought the fuel. Good idea for the eastern states where you could drive through ten of them before fueling up.

Don't get me wrong, I'm for lowering or abolishing most taxes. But fuel tax is about the most fair thing going. Based on use. Those who use the roads I help pay for without contributing themselves are taking advantage of me, and it ticks me off.