STATE MAY GO AFTER TAX-FREE TOBACCO BUYERS (NYS)

ALBANY - The state Tax Department, concerned about threats of violence from members of the Seneca Nation of Indians, is poised to go after consumers who buy untaxed cigarettes from Internet and mail-order Native American retailers.

The agency's head of enforcement told a state tobacco control panel Thursday that tax officials are working with federal and state agencies to get names of consumers who make those purchases.

Peter Farrell, deputy commissioner at the Tax Department, said consumers could become targets if the agency can't get shipping companies and Native American retailers to comply with a state law enacted in 2000 that bans tobacco sales over the Internet. The law recently was upheld by federal courts.

"They would be billed for excise taxes, sales taxes and penalties," Farrell said of consumers. He did not specify how names would be obtained.

The Tax Department was able to start legally enforcing the Internet cigarette sales ban June 18. But Farrell said his agency is "proceeding with caution" because of threats from Senecas and pending legal fights. Farrell accused Native American retailers of committing fraud against the state, which is losing up to $400 million a year in cigarette tax revenues.

"They've threatened to set the Thruway on fire again and shoot up (state) trooper cars up there," he said. "We're slowing getting to the point of deciding whether we're going to put people in harm's way" to begin blocking the cigarette sales.

Farrell said he is concerned that the state "is headed back to the confrontation this office had in 1997 where people were injured." In 1997, violent protests, led by Seneca members, were sparked by the state's brief attempt to stop the sales of the untaxed cigarettes.

The state, for now, will pin its efforts on shippers and, by targeting consumers with tax bills, persuading smokers to buy their tobacco products legally.

Farrell said six officials have been deputized as federal marshals to deal with the Native American tax issue and four have been dispatched to Western New York.

Seneca President Rickey Armstrong declined to comment, according to a spokeswoman.

Farrell also criticized the federal government for not helping the state enforce the law. He said 40 shippers have agreed to stop delivering cigarettes for Native American retailers over the past month or so. "They don't want any trouble with us," he told the panel.

But the U.S. Postal Service, citing its internal rules, has refused, and the state can't tell the federal agency what it can and can't deliver.

Farrell said Gov. George E. Pataki and State Attorney General Eliot L. Spitzer have drafted a letter to the U.S. Postal Service urging it to "promptly stop shipment of cigarettes."

He claims the federal government is impeding the state's efforts to collect the taxes "in that they tend to support Indian rights while ignoring the rights of governors to govern in their states."

Native American retailers say the state has no right to collect the tax because the sales occur on sovereign territory. A federal appeals court rejected that claim in February, giving the green light for the state to enforce the 2000 law. With New York's tax at $1.50 per pack of cigarettes, industry officials have estimated that upward of 40 percent of cigarette purchases are done thorough untaxed outlets.

Farrell said the tax agency in the coming weeks will move "to a more proactive role" in enforcing the law. The only step he would disclose is undercover purchases of cigarettes to see how they are delivered.

Members of the Tobacco Use Prevention and Control Program Advisory Board, which advises the state Health Department on tobacco issues, beamed as Farrell spoke to them via speakerphone. The panel has clashed over the years with the Pataki administration over tobacco control efforts.

"I think Mr. Farrell is the kind of public servant that we need and he should be unleashed," said Russell Sciandra, a board member and director of the Center for a Tobacco Free New York.

A lawyer for Seneca tobacco retailers, however, called Farrell's comments "a desperate indication of almost a government conspiracy to violate Indian constitutional rights."

Joseph Crangle, a Buffalo lawyer and lobbyist for the Seneca retailers, said no violence has been carried out or planned to oppose the cigarette tax law.

"It sounds to me as if this fellow, in all due respect, is like President Bush about weapons of mass destruction and therefore we have to invade," Crangle said. "They still have difficulty understanding that Indian reservations are not part of New York State."

He said the Pataki administration should be content to hear what a federal judge has to say about a lawsuit brought by his clients, which include a Seneca retailer, seeking to block the law; the action was brought after a similar suit was lost by the tobacco industry earlier this year.

Farrell said his agency is not restrained in enforcing the law because no injunction has been put in place halting it while the lawsuit is decided.

But he said the lawsuit brought by Crangle's clients has left the governor's office concerned that "if we go too far too fast" in enforcing the law, it could lead to an injunction against the state to block enforcement until the case is decided.

PURSUE BUYERS, NOT RETAILERS, SENECAS SAY
The Buffalo News LINK
Tom Precious, Albany Bureau
July 19, 2003
     ALBANY - The head of the Seneca Nation of Indians says the state should go after non-Indian smokers, not Indian retailers, in its bid to collect sales taxes on Internet and mail-order sales of cigarettes.
     "The consumers are the ones who owe the tax, so they are the ones (the state) should go after," Seneca President Rickey L. Armstrong Sr. said in a statement. "They shouldn't expect a sovereign nation to collect taxes on the state's behalf."
     Armstrong released a statement in response to a Buffalo News article Friday that reported state tax officials are poised to begin trying to collect sales and excise taxes, as well as penalties, from non-Indian smokers who buy cigarettes from Indian retailers via the Internet or the mail.
     Tax officials said there is concern about threats of violence from Seneca members who have vowed to block any attempt by the state to collect the tax from Indian retailers or try to block the tobacco sales.
     Armstrong sought to distance the tribal leaders from individual Senecas who have made public threats to use the same sort of violent protests that resulted in widespread arrests and injuries to Senecas and state troopers in 1997, when the state last briefly tried to collect sales taxes on sales of cigarettes by Indians. "The nation executives and Tribal Council do not condone violence," Armstrong said. "We would not support a violent protest as a response to this tax disagreement. However, we cannot control what each individual Seneca member says and does."
     Peter Farrell, state Tax Department deputy commissioner who is in charge of tax enforcement, told a state task force on tobacco issues Thursday that the agency has gotten cooperation from 40 shippers to no longer deliver cigarettes without tax stamps coming from Indian reservations.
     With concerns about possible Indian violence, he said the agency is looking to begin targeting consumers who buy from the Indians in order to collect the tax; he estimated the state is losing $400 million a year in tax evasion from Indian Internet and mail-order tobacco sales.
     In 2000, the Legislature, trying to address lost tax revenues and illegal sales of cigarettes to minors, passed a law banning sales of cigarettes through the Internet. The tobacco industry sued, which blocked the law's enactment until a federal appeals court earlier this year said the state law does not violate interstate commerce protections.
     A subsequent lawsuit has since been filed by Seneca and non-Indian Internet retailers; no injunction has been issued in that case, leaving the the state free to start enforcing the law.
     Farrell did not say precisely how smokers' names would be collected, though he mentioned that his agency was working with federal officials on the matter. Seneca officials could not be reached to say whether Indian retailers would cooperate with state tax officials in providing names of their clients.
     Non-Indian retailers have long accused the administration of Gov. George E. Pataki of being too fearful of Indian violence when it comes to collecting the tobacco taxes that a U.S. Supreme Court ruling said the state has a right to collect.

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