INDEX Position Statement   Bloomberg's Hypocrisy On The Record   Cigarette Tax Facts & Calculations   "We Told You So" Tax Backlash News   Anti-Tax Support   Related Reading Material   NYC Dept of Finance Campaign To Collect Back Cigarette Taxes ANALYSIS UPDATE:  2/23/05 - NY State Gets in the Act.  The analysis applies to the state as well now. NYC residents to be hit a second time. UPDATE: 2/23/06 - Judge Dismisses New York's Suit Against Internet Cigarette Sellers UPDATE: 12/7/06 - Judge Dismisses suit brought by NYS Convenience Store Assoc. to have tax collection law enforced.  Lack of standing cited. UPDATE: 12/5/07 - Judge Dismisses most of suit brought by NYS Convenience Store interest charging Indian retailers with unfair competition.    **THIS EDITORIAL IS A KEEPER** Don't pay this tax NY Daily News Editorial - April  5, 2005  It's tax season again, and millions of New Yorkers are preparing to be scofflaws. They're going to fill in Line 56 on the state's long-form tax return or Line 27 on the short form by reporting that they made no out-of-state purchases, over the Internet, by catalog or in person, in 2004. Most will be lying. And good for them, we say.  Over Gov. Pataki's veto, the state Legislature added those lines to the tax forms two years ago in a niggling grab at every last penny of sales tax technically owed by New Yorkers. We urged everyone to simply report zero out-of-state purchases and are happy to report that, quite on their own, 96% of taxpayers followed that course.  Among the nearly 9 million filers who reported no out-of-state purchases were Pataki, Lt. Gov. Mary Donohue, Attorney General Eliot Spitzer, Controller Alan Hevesi, Assembly Speaker Sheldon Silver and Senate Majority Leader Joe Bruno. Only 386,000 taxpayers coughed up money, a total of $21 million, an average of just $54.03.  Call those taxpayers scrupulously, admirably honest or call them suckers, but the bottom line is the same: Only 4% are following the law. And that has to be some kind of record for blatant noncompliance. The message to the Legislature is clear: The tax is unequally applied and unenforceable. Repeal it.

The NYS Legislature approved Mayor Bloomberg's request to raise the city tax on cigarettes from 8 cents a pack to $1.50.  It was effective July 2002. Sean Delonas The attack on smokers can no longer go unchallenged.  While the rhetoric surrounds us that smoking is an "epidemic" it would appear that we are faced with a different epidemic of greed, social engineering and persecution. It's time to say ENOUGH ALREADY and show them that we mean it. "If I can't smoke in public why should I pay the public's taxes?" Make a conscious effort not to support NYC first, and NYS second. When possible, buy your clothes, food, household items, appliances, etc. outside of the NYC limits and outside of NYS borders if the means are available.   Eat at home!  Why patronize eating establishments where the city has determined that they must not accommodate one third of their customers?  The city doesn't care about your comfort so let's not keep them comfortable with the sales tax on food that we generate. Drink at home!  Getting up from your warm stool and being made to stand outside is demeaning.   If you're not smart enough to be embarrassed for accepting being treated like a pariah there are plenty of people who are embarrassed for you.  Need to socialize?  Entertain at home where YOU make the rules. Rent a movie! As the founder of NYC C.L.A.S.H. I have not entered a movie theater since they banned smoking completely over 10 years ago.  Many others have done the same.  Now there is another reason to stay away.  Snuggle up on the couch, light a cigarette and make your own popcorn.  It's cheaper, it's much more relaxing and you'll be keeping those tax dollars in your own pocket.   THE ADMINISTRATION SEEKS TO DEPRIVE US OF OUR RIGHT TO CHOOSE TO SMOKE WHILE DEPENDING ON, AND DEMANDING THAT, OUR TAX DOLLARS -- CIGARETTE AND OTHERWISE --   FINANCE THE CITY LET'S NOT FINANCE THEM AT ALL   Most of all we strongly encourage everyone to seek alternative means to obtaining your cigarettes. Allowing government imposed tyranny to manipulate your behavior is unacceptable.  Thus A MODIFIED BOYCOTT: This is the present day version of the Boston Tea Party.  We will NOT throw our tea in the sea, thereby ceding to their demands to give up a perfectly legal behavior, but we will no longer support their addiction to tobacco money either. [back to index] BLOOMBERG'S HYPOCRISY ON THE RECORD Read the hypocritical statements made by then private, but campaigning, citizen Bloomberg on the BBC Program QUESTION TIME on the question: Should tobacco companies be sued for going about their legitimate business, or should smokers have to pay for the damages they are causing to themselves? Mike Bloomberg: "The government does better when people smoke because of the taxes they raise, and when they die early because they don't use their care or pension. The question is: at what level should the government be involved in protecting the public. The state governments have found themselves on the side of encouraging smoking by settling with the tobacco companies. I don't see any practical ways we can get rid of smoking. If you want to stay healthy: stay out of the sun, don't eat red meat and don't smoke. But in a free society, people have to have the right to run some risks." TWO CONTRADICTIONS TO HIS CURRENT POSITION ON RAISING THE TAX ON CIGARETTES: "Any loss of revenue by the state would be outweighed by lower health care costs brought on by a reduction in smoking-related illnesses," said Jordan Barowitz, a spokesman for the mayor. "The mayor has said he'd love to see the revenue on this tax go flat, to zero." ~NY Times; 3/2/02 Mayor Bloomberg proposed raising the city's cigarette tax to $1.50 a pack from 8 cents yesterday, saying he was trying to get smokers to quit. Bloomberg said, "...you raise it [taxes], consumption goes down."~NY Daily News; 2/14/02 Neither of these statements agree with his former statements that smokers save health care costs by dying early or that government shouldn't dictate behavior even if it's risky. [back to index] CIGARETTE TAX FACTS & CALCULATIONS SBSC Study Shows NYC Tobacco Tax Hike Kills Jobs, Hurts  Businesses, Reduces Revenue, And Has Little Impact On Smoking: Released By Small Business Survival Committee Tax Profiling of Adult Smokers in New York City Winston-Salem, N.C. - February 14, 2002 - "The proposed nearly 1,800 percent increase in New York City's excise tax on cigarettes, by $1.42 to $1.50 a pack, should be viewed as exactly what it is - tax profiling of adult smokers," Tommy Payne, executive vice president of external relations for R.J. Reynolds Tobacco Company, said today. "This proposal comes despite the fact that the New York state legislature passed a 39-cent, or 35 percent, increase in the state cigarette excise tax just last month.  If the city succeeds in passing its onerous tax increase, New York City smokers would pay an incredible $3.39 in city, state and federal excise taxes per pack," Payne added. In 2001, smokers in New York paid almost $2 billion to the state, over and above income, sales and other taxes.  State cigarette excise taxes, alone, amounted to more than $1 billion ($1.11 cents per pack tax) and Master Settlement Agreement (MSA) payments totaled $759 million. From 1999 to 2001, federal and state governments collected more than $88 billion - or about $80 million a day - from smokers through excise and other taxes and litigation settlement payments to the states. "Since 1999," Payne noted, "there is no doubt that state and federal governments have had a virtual monopoly on tobacco industry revenue.  In fact, they collect 15 times more from the sale of every pack of cigarettes than does R.J. Reynolds Tobacco Company.  On a per-pack basis, government makes $1.54 while RJR makes 10 cents.  Even without the proposed increase, New York, and virtually every other state, makes more per pack than Reynolds Tobacco does. "New York City residents have the right to ask their legislators where last year's $2 billion in state tobacco revenues went before a select few are hit with a 1,775 percent increase in cigarette taxes," Payne said. He pointed out that raising the tax would cause smokers to seek other places to purchase cigarettes such as Internet sites, cross-border purchases from other states with lower taxes, and the black-market. In addition to encouraging tax avoidance behaviors, he said, high cigarette excise taxes lead to loss of jobs, particularly in the retail and wholesale sectors; and jeopardize what could be a significant, stable revenue source if taxed at a reasonable level. R.J. Reynolds Tobacco Company (RJRT) is a wholly owned subsidiary of R.J. Reynolds Tobacco Holdings, Inc. (NYSE:  RJR).  R.J. Reynolds Tobacco Company is the second-largest tobacco company in the United States, manufacturing about one of every four cigarettes sold in the United States.  Reynolds Tobacco's product line includes four of the nation's 10 best-selling cigarette brands:  Camel, Winston, Salem and Doral.  Reynolds Tobacco has been recognized by FORTUNE Magazine as one of the "100 Best Companies to Work For."  For more information about RJRT, visit the company's web site at www.rjrt.com.     The Proposed New York City Cigarette Tax Increase: An Unprecedented Recipe for Economic Misery ·        Under a proposal by Mayor Michael Bloomberg, the New York City cigarette excise tax will rise from 8¢ per pack to a $1.50 per pack – an astounding 1,775% increase.  An increase of this magnitude is unprecedented in the annals of tobacco taxation, and would make the City tax larger than any state tax in the country except New York’s.  Coupled with the state tax of $1.50 (effective April 3, 2002), NYC consumers would face state and city taxes of $3.00 a pack. ·        The City tax would be 3 times as large as the average state tax and approximately 5 times as high as any municipal tax in the country. ·        The combined New York City and New York State tax would reach $3.00 per pack – before state and city sales taxes are even included – a tax level virtually unheard of outside of Europe.  NYC prices would be nearly $6.80 per pack, making a pack of cigarettes about 50% more expensive than an ounce of silver. The typical NYC smoker would pay roughly $1,400 per year in NYC and NY State cigarette taxes. ·        New York City retailers and consumers have already being hit hard by last year’s increase in the state cigarette tax – tax-paid sales have dropped 20% in New York State due to this increase. ·        New York City retailers already hurting from the state tax increase and the economic recession will feel more pain as cigarette sales are likely to drop 60%.  The Mayor’s own projections indicate a drop in tax-paid sales of 47% in the first year alone. [1]  Even the Mayor’s lower assumption is cause for alarm – NYC merchants can expect close to $1 billion in gross retail sale losses. Gross profit losses would be about $180 million. These sales are hard to replace – cigarette sales are typically the number one in-store seller for convenience stores, comprising 35% of all sales. What a great way to pull NYC’s law-abiding small businesses out of the recession! ·        Over 175 million packs of NYC tax-paid volume would disappear, likely to reemerge in the black market.  In fact, the magnitude of the Mayor’s projections suggests that his budget office is well aware of the smuggling problem that would be triggered by the draconian tax increase. ·        Cigarette smuggling, already plaguing the state since its recent tax hike, would reach enormous levels within NYC.  A van can carry 57,000 packs of cigarettes.  Smugglers making a run from NY’s numerous Native-American Reservations could reap profits of $170,000. Just one tractor-trailer load per day each week would be enough to supply about 44% of the NYC market.  Back in 1978 New York’s Donati Commission recommended reducing the current 8¢ NYC tax to stem a bootlegging epidemic that was estimated to be taking about 20% of the NYC market. After the Bloomberg tax it will take more than a commission to stop the flood of contraband into the city. ·        The combined NYC and NY State tax of $3.00 could potentially lead to a retailer’s revolt like the one that occurred in Canada during the 1990’s.  High taxes fueled rampant smuggling in which legitimate retailers would hurt.  This led previously law-abiding retailers to openly violate Canadian tax laws.  The problem was so widespread that the Canadian government lowered the hated tax.   An Estimate Of What The State And City Is Losing From the NY Times, by Hope Reeves: 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.   It All Started with Prop. 13 From Merced Sun Star, by Dan Walters Speaking of bad habits, another of those high-dollar measures in 1988 was Proposition 99, the first of a spate of drives to raise cigarette taxes. At the time, although cigarette sales in California had been decreasing as smoking's health impacts had become better known, it was still a fairly common practice. Thus, the proposed boost in taxes from 10 cents a pack to 35 cents was highly controversial. The tobacco industry committed millions of dollars to an anti-Proposition 99 campaign. One of its most controversial propaganda themes was that by raising taxes on cigarettes, the measure would create a criminal black market in untaxed smokes. Pro-tax advocates and editorialists universally dismissed as the allegation as fanciful. The new tax, approved by 58 percent of voters, never generated the $650 million per year in revenue that its proponents promised. After a brief $500 million spike, revenues began a years-long slide until another boost in cigarette taxes, this time 50 cents a pack, was enacted in 1998. That one, sponsored by actor-director Rob Reiner to benefit early childhood development, caused another temporary uptick in cigarette revenues to $1.2 billion a year, but they have also since declined. Last year, voters rejected a $2.60 per pack boost to underwrite health care. Per capita cigarette sales, as calculated for tax purposes, have dropped from nearly 150 packs per year in the early 1960s to scarcely a fifth of that level today, undoubtedly a good thing from the public health standpoint. But as smoking has become much more expensive because of higher taxes and surcharges imposed by cigarette makers to pay for a multibillion-dollar lawsuit settlement, the old campaign propaganda about a black market has come true. Earlier this month, the dimensions of the black market became evident when three Southern California men were sentenced to federal prison and ordered to pay the state nearly $2 million in lost taxes for their roles in a massive scheme to smuggle untaxed cigarettes from Virginia to California. The Bureau of Alcohol, Tobacco, Firearms and Explosives, which cracked the case after an undercover investigation, described it as "a complex conspiracy" that involved potentially huge profits. The state Board of Equalization, in a 2003 report to the Legislature that is now being updated, estimated that the state was losing $292 million per year in taxes on black market cigarettes, mostly those brought in by organized smuggling rings. There was also so-called "casual evasion" by individuals buying cigarettes in nearby states, from Indian tribes and through Internet sales. The report helped persuade the Legislature to pass bills to tighten oversight of cigarette retailers and wholesalers -- laws that state tax officials hope will reduce the traffic in black market smokes. Nevertheless, the lucrative trade in untaxed cigarettes proves that the 1988 campaign claim was on the mark. As with liquor during Prohibition and illicit drugs today, when government makes a commodity illegal or expensive, it creates a market that criminals will supply.   Cigarette tax hikes reduce smoking? The anti-smokers throw out sales revenue figures to convince you that raising taxes on cigarettes help to reduce consumption.  They crow about their success when receipts go down. That's malarky.  Oregon realized that and said so: "Oregon's take from cigarette taxes is declining, from $371.5 million in the 1997-1999 budget cycle to $293 million projected for the current two-year budget. "Officials say the decline cannot be attributed solely to a dwindling number of smokers. They also blame smuggling, sales of cigarettes intended for export and the use of counterfeit tax stamps." Oregon is not innocent itself.  It's become its own victim of greed and now cries about lost taxes, calling it a "catastrophic problem."   THE TAX BITE ON CIGARETTES Read more about how taxes and other payments end up going to the government rather than the cigarette manufacturer.   State Excise Taxation: Horse-and-Buggy Taxes In an Electronic Age by Richard E. Wagner, Ph.D. The Tax Foundation, Background Paper No. 48 Executive Summary  Selective excise taxes are already obsolete, but because government is always slow to change, they will die a slow death. In the meantime they will cause a great deal of harm, both to taxpayers and to the state governments who use them most.  Because many states have raised the cigarette tax rate precipitously during the last 10 years, this particular excise tax is putting on a clinic, so to speak. It is demonstrating to any dispassionate observer that the greater mobility of people and goods, along with instant communication, have made excise taxes obsolete. This is especially true of the cigarette tax because the product is lightweight, compact and highly taxed.  Cigarette excise taxes only function as a predictable, untroublesome tax at a low tax rate. States that have raised their cigarette tax to the point that it is 50 cents per pack higher than a readily available, alternative source are discovering a host of problems:  Revenue estimates are rarely met, causing budget problems.  Bonds sold against future master settlement revenues are unattractive except at preposterously high interest rates, and even then they are downgraded by the rating agencies.  In a replay of Prohibition-era social decay, law-abiding citizens learn to break the law routinely, and states respond by adopting intrusive and sometimes abusive tactics to catch them.  Organized criminals and terrorist cells begin trafficking in smuggled cigarettes, and the states spend prodigiously to catch them, with almost no success.  Businesses and jobs, along with their tax revenue on income, sales and property, are lost to interstate competition.  The growth of these destructive consequences brings state governments to a crossroads. In one direction: state governments that use increasingly invasive, threatening, expensive and ultimately futile tactics to enforce high tax rates. In the other direction: innovative, service-oriented state governments that know they must compete with their neighboring jurisdictions, that they are evaluated by citizens according to their willingness to support the services that government offers with tax payments.  Tobacco taxation is a severe form of tax discrimination whose victims reside primarily among the working classes and not professional people. It is tax discrimination against people of modest means for the benefit of the well-to-do.  Revenues from the master settlement are declining because they are linked to taxable sales that are dropping precipitously because of high state cigarette tax rates. A vicious cycle is created where states react to lower-than-expected revenue with sharp tax increases which, in turn, drive down settlement revenue and make revenue estimates less reliable by pushing smokers to cross state borders for lower-taxed cigarettes or into the underground economy.  The inaccuracy of revenue estimates for tobacco tax hikes obviously creates difficulties for state fiscal planning. That inaccuracy, moreover, will surely grow as the tax rates climb, and the rate of taxed sales is further and further divorced from the rate of tobacco consumption.     State-by-state breakdown of tobacco taxes provided by Smokers Club, Inc. (does not include city/county taxes imposed in nine states). [back to index] "WE TOLD YOU SO": TAX BACKLASH NEWS     CIGARETTES TAX-FREE IN KIOSKS A SELF-MADE PROBLEM CIG TAX MAY LURE BUTT-LEGGERS PSSST... WANNA BUY CIGARETTES? THIEVES BUTT IN ON CIG DEALERS READ THEIR LIPS: NO TAXES. (PERIOD.) COPS FLICK BUTT-LEGGERS STOLEN CIG RING NAILED TOBACCO GROUP FILES LAWSUIT TO SNUFF LEVIES BLACK MARKET SALES GROWING DEADLY WAR FOR BOOTLEG SMOKES TAXES AND TERRORISM UNINTENDED CONSEQUENCES:  SMOKE AND BULLETS COUNTERFEIT CIGARETTES COSTING MILLIONS CIG-SELLER FEUD ENDS IN DEATH  'SMOKING' GUN KILLS GRAMPS Related Stories Online Cigarette Sales Hurt States' Tax Revenue, Says Report Higher Taxes Light Up Online Cigarette Business Tax Hike Puts Store Profits Up In Smoke $200M lost to smokes smugglers:  Yearly city, state tax shortfall from gang & Internet sales Tax hike on smokes is burning bodegas Roll-Your-Owns Cut Taxes Web Burns States Expecting Cigarette Taxes:  States Feel Lost Tax Revenue Pinch as Smokers Turn to the Internet for Cigarette Deals Cig-Nificant Drop Pricier cigarettes a windfall for crooks: Robberies are rising after state tax hikes New York's cigarette tax is a taxing failure     [back to index] ANTI-TAX SUPPORT The NY Libertarian Party announces:  "Taxes are too high--we call a boycott!"  MESSAGE: BUY ELSEWHERE. The Libertarian Party supports  NYC and NYS smokers. Read the LP statement! Join them in their efforts to say ENOUGH ALREADY! NEWS RELEASE CONGRESSMAN CHARLES B. RANGEL CONTACT -- Emile Milne 202-225-4365 July 3, 2002 CONG. RANGEL SAYS CIGARETTE TAX UNFAIRLY BURDENS THE POOR Congressman Charles Rangel today came out in strong opposition to the dramatic increase in the city's cigarette taxes, describing it as an unfair burden on the poor. "Low income people are the ones who will suffer from this," Congressman Rangel said.  "They are the ones who willl really feel the burden of a $1.50 tax.  To those who are better off, the tax won't make any difference at all." The Congressman, who has long opposed excise taxes on similar grounds, also questioned the argument that the so-called "sin tax" will change behavior. "If the motivation is to provide a kind of treatment for smokers by punishing them economically, the attempt is not only unfair, it is likely to fail," Congressman Rangel said.  "People stop smoking because they want to; if they want to continue they will find a way to get cigarettes they can afford -- even if it means illegally on the black market, on the internet or traveling to low tax states." The Congressman said he understood the city's need to raise revenues, but took issue with a method that would disproportionately burden the poor. "If the Mayor wants to raise revenues, he should find a way that spreads the pain equally.  It's just not fair to impose a $1.50 tax on people earning $25,000 or $100,000 a year, and then say you're doing it in order to stop them from smoking.  All you're really doing is making life harder for the... [sorry, lost the remainder] COLUMNISTS WEIGHS IN: Van Dough, by Jacob Sullum - "...Yet Bloomberg, who equates zero tax revenue with zero smoking, apparently thinks smokers will not be resourceful enough to avoid his tax. He also seems to discount the possibility that they will respond to higher prices by, say, economizing on other expenditures, getting a second job, dipping into their savings, going into debt or turning to crime." New York's Deadly Cigarette Tax, by Patrick Fleenor - "Apparently more interested in meddling in individuals' choices than reducing crime, Mayor Bloomberg imposed a nearly nineteen-fold increase in the city's cigarette tax rate. To the mayor, the policy prescription is simple: "We all know that smoking kills. And increasing the cigarette tax saves lives." But it isn't that simple. The widespread availability of cheap cigarettes via the black market makes his claim dubious. Worse, the mayor's paternalistic effort to protect smokers from themselves has placed other Americans at greater peril." NYC Cigarette Tax Hike Endangers Pataki Health Funding, by FISCALWATCH MEMO - "...but it’s not unreasonable to speculate that if New York’s combined city and state cigarette is allowed to reach a whopping $30 per carton of 10 packs, the existing revenue leakage would turn into a veritable hemorrhage. Smokers could save at least $18 a carton by buying their cigarettes in any neighboring state -- or even more by using a tax-free Internet site."     [back to index] RELATED READING MATERIAL SMOKED OUT A review of:     CURBING THE EPIDEMIC: GOVERNMENTS AND THE ECONOMICS OF TOBACCO CONTROL, WORLD BANK, 1999     SNUFF THE FACTS [back to index] NYC DEPT OF FINANCE CAMPAIGN TO COLLECT BACK CIGARETTE TAXES:  OUR ANALYSIS The NYC (that's CITY) Department of Finance, at the direction of Mayor Bloomberg, has embarked on an aggressive campaign to collect taxes not paid on cigarette purchases made over the internet.  As the situation is explained we hope we can offer some additional information that will clarify it for you and also maybe calm some, but not everybody's, nerves. Discussion Breakdown: WHO IS AT RISK GEOGRAPHICALLY? HOW DID THEY GET NAMES? WHOSE NAMES DID THEY GET? WILL THEY PURSUE MORE PEOPLE/RETAILERS IN THE FUTURE? I RECEIVED A BILL.  WHAT RECOURSE DO I HAVE? WHAT CAN I DO TO PROTECT MYSELF IN THE FUTURE? CREDIT CARD WARNING RELATED READING MATERIAL FOLLOWING THE NEWS (Updates on the Situation as they come in) > NY Daily News - January 28, 2005: "Cig suit snuffed, city may relight"  > NY Times - February 12, 2005: "New York Hits Online Sellers of Cigarettes" > NY Post - February 14, 2005: "354G In Ash Cash" > Buffalo News - February 17, 2005: "Indians' cigarette, gas sales targeted" > NY Post - February 23, 2005: "Albany's Smoking Out Puffers For Online Taxes" > Chicago Tribune - March 7, 2005: "Smokers feeling unexpected burn" > USA Today - March 8, 2005: "Online tax bill due for smokers"  > NY Post - March 9, 2005: "'Net Cigs Master-Barred" > U.S. Newswire Press Release - March 16, 2005: "Internet Cigarette Sales Spark Enforcement Meeting, Possible Crackdown" > Associated Press - March 18, 2005: "Deal Aims to Prevent Web Cigarette Sales" > Buffalo News - March 18, 2005: "Senecas cry foul on stymied cigarette sales" > Buffalo News - April 4, 2005: "Internet Cigarette Sales Take A Hit" > NY Times - April 4, 2005: "Trouble for Online Vendors of Cigarettes" > Buffalo News - April 6, 2005: "Regulations in works to collect taxes on Indian sales of cigarettes, gas"  > NY Times - May 29, 2005: "Post Office Sidesteps Fray on Illicit Sales of Cigarettes" > The Buffalo News - January 18, 2006: "Pataki Seeks 1-Year Delay In Ending Indians' Tax-Free Cigarette Sales"  > NY Post - February 3, 2006: "Web Buyers Smoked Out" > Associated Press - February 23, 2006: "Spitzer: Pataki Administration Poised to Violate Law March 1"  > NY Times - March 8, 2006: "Settlement Reached to Pursue Online Cigarette Sales Taxes"  > The Buffalo News - March 16, 2006: "Key Tobacco Supplier Halts Sales to Senecas" > The Buffalo News - March 17, 2006: "Indian Protests of Cigarette Tax Law Limited for Now" > Associated Press - March 18, 2006: "Tax Officials' Advice Eases Tension Over Indian Cigarette Sales" > NY Daily News - March 19, 2006: "Pols Fume as Cig Tax is Ignored > The Buffalo News - March 19, 2006: "Indians See Tax Battle With Spitzer" > NY Daily News - March 20, 2006: "Supermart Sues L.I. Indians Over Sale of Cigs" > Niagra Falls Reporter - March 21, 2006: "State's Latest Sales-Tax Grab Jeopardizes Rez Businesses" > NY Sun - March 22, 2006: "Council Wants Indian Tribes to Pay State Cig Taxes" > Indian Country Today - March 24, 2006: "Cigarette Tax Issue Smolders in NY State" > Convenience Store News - April 29, 2006: "NY Lawmakers Seek To Halt Tax-Free Cigarette Sales" > Utica Observer Dispatch - May 3, 2006: "Convenience Stores Plan To Sue Pataki" > Associated Press - May 3, 2006: "Group Sues State To Overturn Law Banning Internet Tobacco Sales" > Star-Gazette - June 22, 2006: "Senate Approves [Cigarette Tax Measure]" > The Buffalo News - June 22, 2006: "Senecas Blast New Law Cutting Tobacco Supply" > WXXI (PBS) - June 27, 2006: "Group Asks Pataki to Sign Back-Door Bill to Collect Cigarette Taxes" > NY Sun - July 25, 2006: "Law Department Sues Cigarette Wholesalers" > Adirondack Daily Enterprise - August 5, 2006: "Cigarette Tax Dispute Leaves Day Wholesale Facing Lawsuits" > Associated Press - August 7, 2006: "Tobacco Wholesalers Mull Suit Over NY Cigs" > NY Daily News - August 10, 2006: "City to Smokers: Cough Up 7M in Owed Net Taxes" > NY Post - August 10, 2006: "Cough Up Web Cig Taxes: City" > Queens Chronicle - September 14, 2006: "Up In Smoke: City Wants Cigarette Money" > NY Post - February 12, 2007: "Cig-tax Dodgers Spared" > NY Post - March 4, 2007: "Pol Signals Smoke-Tax Health Aid"  > The Buffalo News - March 18, 2007: "Focus: Taxing Cigarette Sales.  The State and the Senecas: Who Will Blink First" > Associated Press - March 22, 2007: "Gov. Spitzer Urged to Collect Cigarette Tax" > Democrat & Chronicle - April 3, 2007: "Proposed Bill Takes on Cigarette 'Buttleggers'" > Reuters - October 19, 2007: "Educated NY Smokers Dodge Cigarette Taxes --Report" >NY Times - December 5, 2007: "Much of Suit Aimed at Indian Cigarette Sales is Dismissed"     WHO IS AT RISK GEOGRAPHICALLY? Only those who live in the five boroughs of NYC. UPDATE:  2/23/05 - NY State Gets in the Act.  The analysis applies to the state as well now. NYC residents to be hit a second time. (See 2/23/05 news below)   HOW DID THEY GET NAMES? It's consistently reported that the names were obtained through lawsuits brought against online cigarette retailers(s) compelling them to hand over their customer list.  It's unclear which jurisdiction gets the ultimate credit for obtaining the list and/or how many retailers are involved:  NY Times:  "Compiling names of customers from an [singular] online cigarette retailer..." NY Newsday:  "The city got the New Yorkers' names from lawsuits brought by other jurisdictions that compelled online cigarette sellers to turn over their customer lists." NY Post:  "The Finance Department said 2,300 letters demanding payment went out Monday to a list of city smokers obtained from Web sites sued by the federal government in Virginia.  Another 1,800 letters went out yesterday to anyone who bought tobacco from another Internet company sued by the city." NY Daily News:  "...the city began issuing harsh letters to 3,700 city smokers whose names popped up in lawsuits against three online cigarette sites."    WHOSE NAMES DID THEY GET?  Only those who purchased cigarettes from the retailer(s) that was the subject of the lawsuit(s).  Some newspapers report that people receiving bills did business with Cigs4Cheap.com that operated (now defunct) out of Virginia.  Those getting bills that contacted me did business with cigoutlet.com (also defunct) that also operated out of Virginia.  After an exhaustive search, even with a report that it was a "landmark" court ruling in Virginia against Cigs4Cheap.com, I found no court ruling or any other shred of information or documentation on Cigs4Cheap other than a dead link on sites that list tobacco retailers. Neither did I find anything that links the two.  However, even lacking the evidence, generally one company will operate under several names and web sites.  Based on the puzzle pieces it can be reasonably concluded that cigoutlet.com was owned by the same company that operated Cigs4Cheap.com.  Furthermore, based on information contained in a lawsuit carried out in California against several internet retailers, it names LLP Enterprises, Inc. and its president Adib Mograbi as the Virginia corporation doing business as Cigoutlet-The Tobacco Store, www.cigoutlet.com and www.affordablecigs.com.  (related link http://caag.state.ca.us/newsalerts/2003/03-039CigOutlet.pdf) *At this time (Jan. '05), based on the cumulative information available, it appears that this is the ONLY company, operating under several web site names/addresses, whose customer list is the source of the names of NYC residents being targeted. Even though the California suit I cite doesn't include Cigs4Cheap.com as one of the businesses operated by LLP Enterprises, there's sufficient reason to conclude that it might be.  Though I make no promises that it isn't a separate company and that the city is possibly in possession of two company's customer lists. It's just that I doubt it. If you did not do business with any of the sites operated by this company - or did, but not within the city's targeted period of July 2002 through April 2004 -- you can be more confident that you will not be receiving one of these letters this time around.  Although some of the reports state that more letters will be forthcoming shortly in a second wave it's my OPINION that they will still be related to the web sites already identified.  While the first wave might have been from cigoutlet.com's customer list the second wave might be from affordablecig.com's customer list.  Again, no promises though that that is the case.  Though by the numbers of letters reported to be in the second wave (1800) it sounds like it's not more than from one other retailer's customer list, whatever that one might be.   *Update: March 7, 2006 - The NYC Law Dept. reports today that it has successfully sued and obtained the customer lists from eSmokes, Inc. for purchases made between 2000 and mid 2003. This vendor is missing from the two original (and first two) lists of named targets below -- obtained from two (and only) previous press releases -- because no press release was issued or otherwise publicly reported when a suit against eSmokes, Inc. was added. March 10, 2006 - Sources report that dirtcheapcig.com has agreed to settle the suit filed against them by NYC in Jan. 2003 (below) and provide their customer list to authorities who expect these back tax letters to go out in a few months.  August 10, 2006 - NYC sends back-tax letters to dirtcheapcig.com customers    WILL THEY PURSUE MORE PEOPLE/RETAILERS IN THE FUTURE? The NYC Dept. of Finance is working on it but it will depend on the success, or the degree of any success, of the lawsuits filed by the city on behalf of NYC DOF that the news reports correctly speak about.  In January 2003 the NYC Law Dept., in conjunction with the DOF, released a press release regarding its commencement of a lawsuit against 14 cigarette retailer web sites.  The introduction of the press release:  The City’s suit seeks treble or triple the amount of the taxes the City has lost by reason of the defendants’ unreported sales to New York City residents -- which could amount to in excess of $15 million in recovery for the City -- and an injunction that would require the defendants to file the federally mandated Jenkins Act reports [that alert state tax authorities to out-of-state cigarette purchases, so that the purchases can be taxed] and to desist from continuing to misrepresent the tax status of Internet purchases. The sites named as defendants are: 1. cycocigs.com 2. aabakismokes.com      both operated under Cyco.net, Inc. 3. buydiscountcigarettes.com 4. cigarettespecials.com 5. FreeCigs4u.com  6. cybercigarettes.com  7. adobeCigarettes.com (notes on site it will not ship to NY)     all 5 operated under Hemi Group, LLC 8. dirtcheapcig.com (notes on site it will not ship to NY)     operated under Dirtcheap.com, Inc. 9. paylesscigs.com     operated under PaylessCigs 10. smokes-direct.com 11. cigsonline.com (currently unavailable - possibly defunct)     both operated under Hooray's Inc. 12. bulkcigs.com (currently unavailable - possibly defunct) 13. S4L.com (reassigned to different product)     both operated under S4L Distributing, Inc. 14. discounttobaccostore.com     operated under Double B Distributing d/b/a Discount Tobacco Store In October 2003 the NYC Law Dept. released another press release regarding its expansion of its quest and filing a new lawsuit against another 7 cigarette retailer web sites.  The press release explanation is the same as the first but with the additional charge that the retailers are violating the new NYS law that prohibits shipment of cigarettes by retailers from any state (even NY) to New Yorkers. The law was effective (March 2003) prior to this second lawsuit but after the first. The sites named as defendants are: • cheapsmoke.com • discountcigarettes.com • dannystobacco.com (notes on site it will not ship to NY) • nccigarettes.com • keweenawbay.com • cigoutlet.com (defunct) • cigs4cheap.com (defunct) (this time they do not note the operators but research indicates they are all operated by separate companies) (The following additional information was discovered and added on March 12, 2006) In April 2004 the NYC Law Dept. filed a third lawsuit against another 3 cigarette retailer web sites.  The sites named as defendants are: • Smoke-Spirits.com (defunct) • www.smokincheap.com (defunct)    operated under National Wholesale LLC • www.cigarettesforless.com   operated under C4L(ess) LLC In March 2005 the NYC Law Dept. filed a fourth lawsuit against another 6 cigarette retailer web sites.  The sites named as defendants are: • eSmokes.com (site still up but reportedly out of business) • Tobacco123.com    operated under PA Resources, Inc.  • Double-Eagle.com  • Silver Cloud Smoke Shop  • EZTobacco.com • Discountcigarettes4u.com (reassigned to a generic site)   As it turns out, though the two sites' customer lists that were the first to fall into the hands of NYC  -- cigoutlet.com and cigs4cheap.com -- are included in one of the city's lawsuits, it was a suit brought by the federal government that gets credited with settling with those companies and providing the states (aka "the victims") with the lists that were first handed over to them.  You'll note that I added that even if successful in their suits there MIGHT be a degree to which they are successful.  That could mean they reach a settlement whereby the retailers agree to pay all or a portion of the taxes owed and agree to stop shipping to NY or if for some reason they continue to ship (hardly unlikely but for the sake of argument...) will agree to file the customer names with the city from that day forward. I present this scenario based on a study on Internet Cigarette Sales conducted by the United States General Accounting Office that, among other things, found that "results were limited" when states have taken action to promote Jenkins Act compliance by internet cigarette vendors.  Though none of the actions or results being reviewed were due to lawsuits.  This report also includes the reactions of private citizens, that might interest you, to receiving back taxes bills and what they did or did not do. The intent of this study was to conclude the best remedy to the "problem."  They concluded:  To improve the federal government’s efforts in enforcing the Jenkins Act and promoting compliance with the act by Internet cigarette vendors, which may lead to increased state tax revenues from cigarette sales, the Congress should consider providing ATF with primary jurisdiction to investigate violations of the Jenkins Act (15 U.S.C. §375-378). Well, the recognized "problem" (which did need Congress as a good fix) was handled another way when special interests got together and crafted the PACT Act (Prevent All Cigarette Trafficking Act).  Rather than trying to enforce and recoup lost taxes the plan is to just make a federal law that prevents shipping of tobacco products.  The U.S. Senate bill passed in January 2004.  Since then the House has not acted on their version of the bill.  I implore you to visit our action alert page, use the suggested letter, and follow the directions on how to contact your representative. Further reporting by newspapers brings some new information on what the personal risk factors are and could relieve some tension: "The city claims it will not penalize citizens at this time who purchase tobacco products from Indian tribes..." ~CNS News 1/17/05   New York also has launched lawsuits against 30 other Web sites, hoping to recover lost revenue. But those customers won't be getting letters just yet. The lawsuits ask for buyers' names and their orders to calculate how much taxes to demand from the Internet companies, a city lawyer said. New York resorted to going after the buyers this time because cigs4cheap.com was bankrupt. ''We would prefer to collect the money from the companies,'' said Eric Proshansky, a litigator for the city. ''It's rather inefficient to go after 5,000 people one at a time.'' ~LA Times 1/18/05   Not that we approve of the government going after the retailers either but it's information on how this campaign relates to your personal situation. *********** UPDATE: 2/23/06 - Judge Dismisses New York's Suit Against Internet Cigarette Sellers The New York Law Journal reports New York City's attempt to sue Internet cigarette sellers for lost tax revenue under a racketeering theory has been dismissed by a federal judge for the second time. This ruling will apply to all the suits filed since they were all based on the same theory. Caution to celebrate is warranted because the city will appeal, feeling confident the ruling will be reversed.  Well, time will tell (6 mos. to a year). Perhaps the most disturbing news is that the vendors who have recently settled with the city (eSmokes and dirtcheapcigs.com) -- by providing their customer lists --  could have now backed out but none want to.  So much for some promises of protecting their customers (already apparent but now emphasized).   I RECEIVED A BILL.  WHAT RECOURSE DO I HAVE? First and foremost, the question that first leaps from everyone's lips is, "Can they do this?  It can't be legal!"  They can and it's legal.  There are no constitutional violations occuring.  Also, it does no good to point fingers at others who buy all sorts of other products over the internet and don't report taxes.  It's tobacco and smokers who are demonized and persecuted and if this is the tax category they want to hound then that's that. That said, we strongly urge anyone who received a bill to demand to see the written proof showing the purchases before paying.  Refuse to take their word for it.  Despite what the person handling the taxes at the DOF told one caller  --that the only option was to pay -- that is not the case: The New York City Tax Appeals Tribunal ("The Tribunal") is an independent agency created by the New York City Charter. The Tribunal has the responsibility of providing a fair, impartial, efficient, and knowledgeable forum in which to resolve disputes between taxpayers and the New York City Department of Finance (DOF). The only impediment to seeking relief through the tribunal is that you must appoint either a lawyer or CPA to represent you. The form necessary is called "Power of Attorney."  One other report confirms what we urge anyone receiving a bill to do -- demand to review their information before handing over your money.  It also reveals that the DOF will listen to appeals (without needing a lawyer or other professional representative): NY Daily News, Jan. 20, 2005 Smokers billed for sales tax they never paid on cigarettes they bought over the internet can settle up in installments, but one puffer warned them to look closely at the city's paperwork. The city Finance Department said offenders can call the city Office of Tax Enforcement to set up payment plans. But one smoker who was billed said city snoops counted several of her purchases twice.  When she protested, the Finance Department cut her bill by $150.   I'm sorry I can't offer any other legal suggestions.  A large part of the time eaten up in researching the situation was to find a legitimate legal defense.  Every angle I pursued ended with a door being slammed.  Perhaps an attorney reading this could share some possible defense I was unable to find myself.   WHAT CAN I DO TO PROTECT MYSELF IN THE FUTURE? 1. I've waited till now to discuss the safety of tribal-run internet retailers. It's time to reflect on which web sites have so far been the source of the customer lists obtained by the city.  They were not tribal-run.  Indian reservation retailers have insisted, and continue to insist, that they will never hand over their customer lists, not even if faced with a subpeona.  They stand behind their sovereign nation status as being immune from government forcing them to do so or collect taxes from them. Tribal-run retailers are the safest refuge.  Though even with their commitment to shield their customers I want to emphasize the word "SAFEST."  Unfortunately, it's not stopping the city from going after them.  Some of the retailer sites listed as defendants in the city lawsuit are tribal-run.  Even so, it's a political and legal hot potato and we have most faith in their pledge not to divulge customer information under any pressure, legal or otherwise.  So if you saw one of the Indian reservation sites you've done business with on the above lists you have hope that you'll still be safe. 2. The "Two Carton" provision During the constant battle over cigarettes and the NY laws created to regulate them it's been uttered (without much clarification) that "it's okay to purchase two cartons." I reviewed both the NYC Administrative Code (Title 11, Chapter 13) and the NYS Tax Code (Article 20).  Both say the same: NYC Admin. Code:  § 11-1302 b. The tax imposed hereunder shall not apply to:     1.  The use, otherwise than for sale, of four hundred cigarettes or less brought into the city, on or in possession of, any person;   NYS Tax Code: §  471-a There is hereby imposed and shall be paid a tax on all cigarettes used in the state by  any person, except that no tax shall be imposed... (3) on the use of four hundred or less cigarettes, brought into the state on, or in the possession of, any person.   This exemption ONLY applies to cigarettes purchased IN PERSON.  The exemption does not apply if it is received by mail. You probably don't know that the state provides a separate tax form for reporting cigarette taxes owed -- "Cigarette Use Tax Return (Form CG-15)" It is on this form that the explanation is provided:  Note: Cigarettes shipped into New York by mail are not brought into the state on or in the possession of the user, and therefore do not qualify for the [two carton] exemption. It further goes on to explain: If more than 400 cigarettes are brought into the state (or into the state and city), then all of the cigarettes are subject to tax(es). Cigarettes acquired by an individual to be given as a gift to another individual are not exempt because the law does not exempt gifts of cigarettes. The only cold comfort the two carton provision brings is that you can choose to travel to the retailer to make your two carton maximum purchase and be free from paying tax.  Surely that's not convenient for most people but is for those who live close by. Note that purchases made at tribal-run retailers (NY based or otherwise) are the equivalent to an OUT of state purchase.  As sovereign nations, even though they reside within a state, they are technically not part of the state. More than that, they are a separate nation.  So the mailing exception to the exemption still applies.  But as a New Yorker you can go to a reservation in New York and you would be exempt from the tax on a two carton maximum purchase because you bought them OUT of state.   3. Switch to a Discount Brand / Roll Your Own The last resort to beating them at their own game is to switch to discount or deep discount cigarettes. For instance, Seneca brand can be found for $10/carton (that's not a typo).  As disgusted as it might make you feel you can then also send a check for $15 to the NYC DOF for a total cost of $25/carton.  Considering that a carton of premium brand cigarettes in NYC would cost you $70+ you'd be way ahead of the game, legal, and able to give Mayor Bloomberg the finger without having anything to hide. The bonus (yes, a bonus to the finger!) is that by not purchasing cigarettes from any of the major three tobacco companies or some of the smaller tobacco companies who participate in the Master Settlement Agreement you'll be affecting the amount of the annual payment the state receives.  Each state’s yearly MSA payment is based on cigarette sales by MSA participants for the previous year.  That's the money the state steals from smokers (to cover the payments the tobacco companies passed the cost on to smokers by raising the price per pack) and depends on to fund just about everything else except smoking-related health care.  As a matter of fact another advocate has just launched a campaign called "21st Century Boston Tea Party: Holding the States' MSA Payments Hostage."  Visit the site for a detailed explanation, including a further explanation of the MSA and which brands to buy. Or roll your own (as the phrase goes). Purchasing loose tobacco is not purchasing "cigarettes."  The usual city and state tax per pack does not apply. Loose tobacco products (tobacco, tubes, filters) are supposed to also be taxed but at a much lower rate and I believe is only collected by the state (who has yet to begin their own tax witchhunt). Rolling your own could cost you as little as $1.25 per pack.  Click here for a fun lesson on all you need to know about cost and how to do it.    CREDIT CARD WARNING A strong rumor circulating is that the U.S. State Attorneys General are going to threaten the credit card industry with a class action lawsuit to force them to monitor credit card purchases of tobacco products.  In the case of overseas vendors and the reservation shops (remember, also considered another nation) they cannot force an out of country vendor to come to the U.S. to be prosecuted for selling untaxed tobacco products in the states so they're looking to go after the buyers instead. (Read an interesting short piece on how Indian national sovereignty works in regard to  taxes and the courts) The rumor gets a little murky as far as the non-tribal U.S. retailers go. It's reported that they will be forced to sign contracts with UPS, Federal Express and other common carriers that they will not use them to ship tobacco products to anywhere in the U.S. (not just NY as it legally stands now).  That would leave only the US Postal Service, unless Congress passes the PACT Act as discussed previously that would make shipping illegal, period.  The rumor is not clear on whether the credit card companies will be asked to monitor purchases from these sites as well.  That's probably been left unclarified because non-tribal-run sites are not shielded from legal action and not immune from legal action that would demand they turn over their customer lists -- the government getting it that way instead of through credit card history.  However, it's reasonable to conclude that the AGs could easily ask the credit card companies to monitor them too. The solution to protecting yourself against this new threat is a MONEY ORDER.  Money orders are virtually untraceable and are happily accepted by retailers.  As far as tribal-run retailers go, they might record that purchase but since they won't turn over their customer list you're doubly covered.  In a related matter, likely NY's first step in working toward the above, NYS Attorney General Spitzer just recently demanded that the credit card processor, VeriSign, not accept transactions that come from NY cigarette retailers no matter what state the customer resides in.  It's not clear that every retailer has been affected.  Those that are have sent notices to customers about the situation or posted a notice on their site, claiming that one way they hope to rectify the situation is by finding an alternate processor.  However, it appears that in regaining the ability to process credit cards, rectifying the situation only went so far as promising not to process NY customer orders only.  They can process credit cards for orders placed by residents of other states.  At my prompting the NY Post covered this on January 5th: CARD FIRMS SMOKED ON 'NET SALES By Kenneth Lovett  ALBANY — State Attorney General Eliot Spitzer has turned his attention to Internet cigarette sales by warning credit-card companies to block orders from tax-free online tobacco companies, The Post has learned.  At least two web-based companies, Cigs4free.com and 00Taxfree.com/Indiansmokeshops.com, have told customers that they are presently not shipping to New York.  Cigs4free directly blames Spitzer.  "Our site is temporarily down due to credit-card processor issues," the company says in a recent message posted on its Web site.  "New York State Attorney General Eliot Spitzer has ordered Verisign, our processor, to block any orders from our Web site!"  The Internet company yesterday began accepting phone orders again and said it hopes to begin accepting credit-card orders again as early as today.  Spitzer spokesman Marc Violette denied the AG's office ordered card companies to stop processing orders from online tobacco companies, but acknowledged that "letters of guidance" were sent.  "We're simply reminding credit-card companies and the processors of credit-card transactions that . . . this falls into the category of illegal transactions," Violette said.      It's an understatement to say that New York smokers are under a complete attack.  If you don't live in New York, learn and be prepared.     RELATED READING MATERIAL NYS Consolidated Law ARTICLE 13-F; Section 1399-ll (small letters "L") Regulation of Tobacco Products And Herbal Cigarettes Re: Unlawful shipment or transport of cigarettes (to NY) http://assembly.state.ny.us/leg/?cl=91&a=71 Court Case Contesting NYS Law re: Unlawful shipment or transport of cigarettes (to NY). Reversal of opinion.  Appelate Court finds in favor of the state. Jenkins Act http://www.senecasmokes.com/the_jenkins_act.htm Jenkins Act (from the point of view of Seneca Smokes) http://www.senecasmoke.com/legal_disclosure.html Is the MSA Unraveling http://www.tobonline.com/ArticlePages/ArticlePagesVol73/vol73p32.htm MSA Update http://www.tobonline.com/ArticlePages/ArticlePagesVol74/vol74p88.htm MSA Challenged by Kentucky Retailers http://www.tobonline.com/ArticlePages/ArticlePagesVol76/vol76p08.htm Reservation and Net Sales Under Fire (scroll down page) http://www.tobonline.com/ArticlePages/ArticlePagesVol76/vol76p08.htm PACT Act Timeline and description http://www.techlawjournal.com/topstories/2004/20040128.asp   Disclaimer:  No assurances can be given about the accuracy of any of the opinions  provided.  You should seek independent professional or legal advice before acting upon any opinion, advice or information contained in this notice.   FOLLOWING THE NEWS NY Times  - December 5 , 2007  Much of Suit Aimed at Indian Cigarette Sales is Dismissed  A federal judge has dismissed all but one charge in a lawsuit, filed last year by a supermarket mogul who hopes to be the next mayor of New York City, that challenged two Long Island Indian tribes over their longstanding practice of selling tax-free cigarettes from reservation smoke shops.  John A. Catsimatidis, whose holdings include the Gristedes supermarket chain, claimed in the suit that the two tribes illegally undercut his business, and he sought to force Indian retailers to buy cigarettes from wholesalers at the taxed price. He also asked for $20 million from the two tribes’ cigarette retailers, the amount he claims he has lost. Leaders from the tribes, the Shinnecock and Unkechaug Indian nations, responded by moving to have the claims dismissed. In a decision rendered on Friday and announced yesterday, Judge Carol Bagley Amon of Federal District Court in Brooklyn dismissed the claim that the non-tax sales “created, fostered and nourished a thriving black market in illegally discounted cigarette sales” and also dismissed charges of corrupt business dealings and unfair competition. Harry Wallace, chief of the Unkechaug nation and a lawyer who owns a smoke shop on a reservation in Mastic, said yesterday that his tribe was pleased with the ruling. But Judge Amon did not dismiss the entire suit, finding that advertisements calling the cigarettes tax-free were misleading because cigarette sales are not actually tax-free under state law, and that they were “likely to mislead the consumer into believing that he or she need not pay taxes on purchased cigarettes.” Mr. Catsimatidis said he would persevere with the suit. “Everyone has to pay their taxes, and Indians must charge tax on cigarettes when they sell to non-Indians,” he said. The state sets minimum price levels for retailers and imposes a sales tax of $1.50 a pack. But historically, the state has not collected cigarette taxes from tribes within its borders because they are considered sovereign nations, so Indian-owned smoke shops have long sold cigarettes at far lower prices than non-Indian competitors.   Reuters  - October 19, 2007  Educated NY Smokers Dodge Cigarette Taxes--Report  New York City's smokers dodged as much as $43 million of cigarette taxes last year, and the worst offenders were "the more highly educated," a new report said on Friday. Another $105 million was siphoned off by New York state, because in 2002 it required the city to give up 46 percent of all of its cigarette tax revenues in return for agreeing to let New York City hike the tax to $1.50 a pack. That increase was one of Mayor Michael Bloomberg's first anti-smoking measures; he also made headlines by banning smoking in bars and restaurants. New York City smokers pay one of the highest cigarette tax rates in the nation, a total of $3.00 a pack, because the state matched the city's tax increase. Even so, the rest of the state surpassed city folks when it came to ducking the tax. Only 27 percent of city smokers said they bought no-tax or low-taxed cigarettes in a 2006 state survey, according to new report by the Independent Budget Office. In contrast, some 34 percent of other state residents said they got "under-taxed" smokes via the Internet or Indian reservations. The tax-dodging divide was even more vivid when city dwellers were compared based on their education. "Twenty percent of smokers without high school diplomas reported evading cigarette taxes, compared with more than 60 percent for those with college degrees," the report said. The worst offenders lived in the borough of Queens, added the report by the Independent Budget Office, which mirrors the Congressional Budget Office but on a local level. An Independent Budget Office spokesman was not immediately available to explain why Queens might have the most tax-avoiders, though these residents tend to rely more on cars for transportation than in any other borough except Staten Island, and thus might have more choices. While the state this year rejected Bloomberg's bid for another 50-cent-per-pack hike, the report noted more increases might drive more smokers to buy "under-taxed" cigarettes. "There is considerable evidence that supports the mayor's enthusiasm: increases in cigarette excise taxes result in reduced rates of smoking among adults and by an even greater margin among youth," the report said. But it concluded: "The availability of under-taxed and therefore cheaper cigarettes undermines the city's efforts to reduce smoking and deprives the city of funds that would be otherwise directed towards public health initiatives." The extra tax dollars the state gets help pay for health care, the report noted. Local prosecutors have gone after smokers who ducked taxes by buying cigarettes over the Internet, for example. The report did not examine this possible deterrent though it noted city residents with more than two cartons of untaxed cigarettes must pay the equivalent of the regular cigarette tax.    Democrat & Chronicle - April 3, 2007  Proposed Bill Takes on Cigarette 'Buttleggers'  ALBANY — Legislators have announced a drive to stop the illegal sale of untaxed cigarettes, a practice they say costs the state hundreds of millions of dollars annually.  One proposal would require the use of high-tech tax stamps that can be read like bar codes and another would compel Native-American tribes to share revenue with the state. The sale of untaxed cigarettes could be costing the state more than $700 million a year, and it allows minors to smoke and often funds organized crime, the sponsors claimed.  "The health and safety of New York's families are threatened by ruthless cigarette smugglers," said Sen. Dale Volker, R-Depew, Erie County, sponsor of the tax-stamp bill. "From dangerous cigarettes illegally imported from China to international terrorists profiting from illegal cigarette smuggling rings, our homes and families are threatened by this black-market trade."  According to a memo accompanying the bill, which is sponsored in the Assembly by Dennis Gabryszak, D-Cheektowaga, Erie County, sources of unstamped cigarettes could include "crime organizations, terrorist groups, North Korea, China and Vietnam."  The measure comes three weeks after Sen. Jeff Klein, D-Bronx, released a report claiming so-called "buttleggers" take $460 million a year from the state. Legislation he proposed would compel Indian tribes to share tax revenue.  The state's current tax on cigarettes outside of New York City is $1.50 per pack, the 13th highest in the country. New Jersey charges the most at $2.57 while South Carolina charges seven cents.  California started using the stamps in 2004 and saw a $120 million increase in tax revenue in the first 20 months of the program, according to the Los Angeles Times. Now New York may become the second state to use them.  Cigarette manufacturers would have to pay a licensing fee of one cent per pack sold. Volker spokeswoman Kathie Sorel said this would cover "a good portion" of the program's cost while bringing in millions of dollars to the state. Advocates also say the stamps can help cut down on smoking.  "Tax evasion and bootlegging cut the cost of cigarettes and encourage people to smoke," said Peter Slocum of the American Cancer Society. "The high-tech tax stamp can be an important tool in stopping contraband trafficking of cigarettes and, not incidentally, will help reduce the prevalence of cigarette use and the diseases cigarettes cause."  Klein said the measure would help curb stamp counterfeiting and the recurrence of organized crime syndicates banking off untaxed cigarettes, but that it does nothing to stop untaxed sales on Indian reservations that cost the state $270 million a year.  He said he would introduce legislation to compel Indian tribes to collect taxes on all sales and split revenues with the state. Most of the missing $270 million is earmarked for a fund set up in 2000 that grants health insurance to more than 1.3 million people.    Associated Press - March 22, 2007  Gov. Spitzer Urged to Collect Cigarette Tax  Dr. Michael Cummings wouldn’t mind seeing a $10-per-pack tax on cigarettes — enough, he says, to defray the medical costs of the damage they cause.  That wouldn’t be great for business at the convenience stores Jim Calvin represents.  But when the two stood side by side Wednesday, it was on common ground. Both urged Gov. Eliot Spitzer to stick to his plans to collect sales tax on cigarettes sold by Indian businesses in New York to non-Indian customers.  The unlikely alliance was the latest public airing in the crescendoing debate over tax collection that Spitzer, who took office in January, has vowed to settle.  Although his administration has yet to decide on a tax-collection plan, a spokeswoman indicated this week that the state was open to a proposal that would provide for collection of the tax while sharing the revenue with tribes. The measure would end tribes’ price advantage over non-Indian retailers obligated to collect the state’s $1.50 per pack tax.  The New York Association of Convenience Stores, led by Calvin, has long complained that the group’s 7,000 stores are unable to compete with tribal competitors’ reduced-price cigarettes and that state and local governments have lost hundreds of millions of dollars in revenue.  Cummings said the losses from a public health perspective may be even greater. The availability of reduced-price cigarettes encourages smoking, he said, raising the incidence of cancer and heart disease. The public cost of treating smoking-related illnesses amounts to $1,000 per year for every household in the state, he said.  ‘‘We’ve created a situation where we’re making smoking more affordable than it should be,’’ said Cummings, who spoke with Calvin at the office of Erie County Executive Joel Giambra, a former smoker who survived throat cancer.  Last week, members of the Seneca Indian Nation — the leaders of reservation cigarette sales — gathered in much larger numbers to try to sway Spitzer in the other direction. About 500 members traveled from their Allegany and Cattaraugus reservations in western New York for a show of force outside Buffalo City Hall.  ‘‘We would like to make a statement to the newly elected governor of New York State, Eliot Spitzer,’’ Seneca President Maurice John announced. ‘‘We will not become tax collectors for New York state.’’  "New York has added multiple and high taxes to a pack of cigarettes," John said on Wednesday. "The Seneca Nation has chosen not to add to the price of cigarettes to those smokers who want them. New Yorks so-called sin tax has nothing to do with the sovereign Seneca Nation." The Senecas contend federal treaties dating to the 1700s shield the nation from state taxation. The state’s attempts to collect tax a decade ago resulted in violent clashes between Senecas and state police.  Tribal leaders said their smoke shops and gas stations support hundreds of jobs held by Senecas and non-Senecas.  Calvin said the contribution is appreciated, ‘‘but being an economic force does not excuse any entity from abiding by duly enacted standards for conducting commerce with New Yorkers, and that includes taxation.’’   The Buffalo News - March 18, 2007  Focus: Taxing Cigarette Sales. The State and the Senecas: Who Will Blink First?  With tough new leaders on both sides and old problems festering, a State-Seneca confrontation is brewing. Retired State Police Capt. David O’Connor remembers when tire burnings and clashes on the Thruway a decade ago disrupted traffic as Senecas went up against state police over the Native American taxation issue. “It was the worst situation I was ever in,” said O’Connor, who suffered a knee injury in physical confrontations with Seneca protesters when the state last tried, in 1997, to collect tobacco taxes from reservation businesses. Given the current climate, there’s concern that history will repeat itself. The looming confrontation between the state and the Seneca Nation over cigarette tax collections comes at a time when the two governments have been taken over by tough, new leaders intent on protecting very different interests. As far apart as they are on the tax stalemate, Gov. Eliot L. Spitzer and Seneca President Maurice A. John have similarities that could shape the situation’s outcome — for better, or, some fear, for worse. Both men can be stubborn. Both are under pressure to hold fast to their positions. And both have proven they can deliver on promises. “There’s got to be some give and take on both sides. I’d just say be careful and keep everyone’s tempers under control,” O’Connor said, adding that the time for the state to have acted on ending tax-free sales by Indian tribes has long since passed. “Possibly if [the state] had done something early, but it’s grown so big and there’s a lot of money involved,” he said. During the campaign last year and since he became governor Jan. 1, Spitzer has vowed the state will resolve the long-standing tax dispute under his watch and end what he says are the “not legal or appropriate” tax-free cigarette sales by Indian retailers. John, citing Seneca sovereignty and centuries-old treaties, insists the Senecas will never be party to a deal seeing Indian retailers serving as tax collectors for another government. “I don’t think he is going to back down at all. He’s the kind of guy that is going to stand up and fight and not back down,” said Sally Snow, who co-chairs the Seneca Nation’s Free Trade Association. At last week’s Niagara Square rally, John insisted he does not want to see violence. “Our people feel very strongly about this issue [but] we do not want violence. Violence is what we are trying to avoid, but I can’t even get the governor to meet with me,” he said. Spitzer has made it clear violence from the Senecas will not resolve the dispute. “It’s counter-productive even to foment the discussion about it on their part, so I certainly hope that is not what folks are doing because it’s not the best way to get a resolution here certainly,” he said. A tougher governor?  But following a boisterous Seneca rally last week in Buffalo, in which protesters held signs comparing the Jewish governor to Adolf Hitler, tensions have begun to rise. Spitzer isn’t the first governor to try to collect taxes from the Senecas. Mario Cuomo tried in 1992. George E. Pataki tried in 1997. Both attempts ended in violence. Both governors backed down. In Spitzer, the Senecas are dealing with a governor who, unlike Cuomo or Pataki, has a long track record of trying to end the tax-free sales before he even became governor. As state attorney general for the past eight years, Spitzer took a series of steps that, while not ending the tax-free sales, made them harder. He convinced carriers such as Federal Express to stop shipping Seneca Internet sales of cigarettes, pushed credit card companies to stop processing the sales and brought pressure upon wholesalers who supply the Senecas with cigarettes. In his first three months in office Spitzer has shown himself to be a man who not only refuses to shy away from confrontations but relishes them. He has battled some of Albany’s most potent special interests and personally has taken on legislative leaders to make his points. “It’s clear from the first almost 90 days of his administration that Spitzer is focused, that Spitzer is principled and that Spitzer is tenacious and does not back down,” said James Calvin, executive director of the New York Association of Convenience Stores, the most vocal lobbying group in Albany over the years pressing for an end to the tax-free sales. Health groups pushing Spitzer, who has made reducing tobacco use among his public health priorities, say the governor’s motivation is more than just money and leveling the playing field between Indian and non-Indian retailers. “He wants the state to get the money, but I do think there is also some appreciation of the public health benefits in doing this, and some recognition that reducing smoking rates ties into his other major effort, which is reducing health care costs,” said Russell Sciandra, director of the Center for a Tobacco Free New York. Indeed, Spitzer’s 2007 budget plan counts on collecting nearly $124 million in taxes from Indian cigarette sales. The State Senate has issued an even more optimistic revenue outlook, figuring the state could count on getting an additional $160 million. Steadfast traditionalist  Three hundred miles away from the Capitol, “Moe” John is viewed by his fellow Senecas as a traditionalist, admired for standing up for the nation’s sovereignty. John was arrested in the late 1980s for ripping up surveyor stakes when the Southern Tier Expressway went through the Allegany Reservation. He then filed a federal suit, saying the City of Salamanca had no right to require permits because his business was on Seneca territory, and thus not subject to the city’s rules. A judge disagreed. One of the first Senecas to sell tax-free gasoline and cigarettes on the Allegany Reservation, John was jailed for contempt of court in 1990 for refusing to tell a federal judge how much gas he sold. When eventually released, he described himself as a prisoner of war. “And as such,” he said, “I gave my name, Ha Nang Gan Go, and that I am an Indian, and I always will be an Indian.” John also has refused to pay taxes on the millions of dollars he made selling tax-free gasoline, and he and his wife owe the Internal Revenue Service a combined $9.1 million, plus interest, that they have refused to pay, according to publicly filed judgments. He wears his federal tax lien like a badge of honor — which is how many other Senecas also view it. “We’re pretty strong on our treaties and we feel we have the right to sell tax free,” said Snow, operator of one of the biggest Seneca gasoline and tobacco retail outlets. Hard lines  Whether a middle ground can be found has yet to be seen. “We’ll talk to them,” Spitzer said. “We always welcome conversations. If they’re open to a meaningful compromise, that would be great, but we’ve got to move forward.” Asked to elaborate, he talked of “many creative ideas that could be out there,” but he offered no specifics. But there’s no question the governor remains convinced the state has the legal right to collect taxes from Indian retailers. “I know that there is some upset on the part of the [Seneca] Nation. But, having said that, I keep coming back to this point that we are anomalous not because we are seeking to collect the taxes but because we don’t,” Spitzer said of other states, including Washington, that have resolved the Indian tax issue. “There is a factual and legal reality that we have the right to collect them. Everybody else does. So, I’m not terribly sympathetic to the notion that they should get an advantage that nobody else has,” Spitzer said in an interview last week with The Buffalo News. John declined to be interviewed for this report, but addressed the issue at last week’s rally. “We are a sovereign nation,” he said. “Taxing us would be like taxing Canada. The Seneca people feel very strongly about this issue.”   NY Post - March 4, 2007  Pol Signals Smoke-Tax Health Aid Millions in proposed state health-care cuts could be restored - and then some - if New York could recoup the lost tax revenue from cigarettes sold on Indian reservations, a new report shows.  The report from state Sen. Jeffrey Klein (D-Bx./W'chester) maintains that $270 million of uncollected tax revenue is lost to tribal sellers - more than enough to restore Gov. Spitzer's proposed $219 million proposed cuts to programs funded through the Health Care Reform Act of 2000.  Those funded programs provide health care for more than 1.3 million uninsured New Yorkers, as well as provide added prescription-drug coverage for seniors and funding for a variety of health and smoking-prevention activities.  "It is estimated the amount of state revenue lost to the state as a result of purchasing untaxed cigarettes at between $436 million and $576 million in 2004," the report states.  "Recent estimates from an internal New York state Senate document attribute more than $270 million of those lost cigarette tax revenues to Native American sellers operating on reservations and on the Internet."  New York already has a law banning most cigarette sales via the Internet or by telephone or mail to state residents, and online cigarette merchants can no longer legally accept credit cards.  But forcing tribal sellers to collect taxes has been more difficult, the report notes.  "Gov. Spitzer inherited a dysfunctional system of cigarette-excise taxation whose provision are still entirely unenforced on tribal sellers despite a 12-year-old Supreme Court decision upholding that enforcement," the report states.  The report recommends the governor resume negotiations with tribes to share tax revenue. Klein said he will introduce legislation requiring tribal merchants to collect cigarette taxes - but providing those revenues be evenly split between the state and tribal governments.   NY Post - February 12, 2007  Cig-tax Dodgers Spared  Thousands of cigarette-tax cheats are off the hook after city officials determined that it didn't pay to pursue them, The Post has learned.  The Finance Department is giving a pass to about 21,500 smokers who made cigarette purchases over the Internet without paying the $1.50-a-pack tax.  Owen Stone, a department spokesman, said lists of tax evaders obtained last year from two Web sites included 20,000 buyers who owed less than $500 each and about 1,500 who made one-time purchases resulting in $15 tax liabilities.  Deciding it would have cost more to hunt down the smokers than the city could get back, officials decided to concentrate on the top 4,000 tax dodgers - who ducked a total of $5.8 million in taxes.  "We succeeded in raising awareness on the issue and determined we were at the point that the resources needed to research the data, track down buyers and collect cigarette taxes from smaller purchasers who were not likely to be reselling cigarettes were better put to use on other enforcement alternatives," Stone said.  The big buyers have forked over about $2.3 million so far.  The department's action comes after City Councilman David Weprin (D-Queens) complained that constituents socked with high tax bills deserved some leeway because they weren't aware they were breaking the law.   Queens Chronicle - September  14, 2006  Up In Smoke: City Wants Cigarette Money Numerous city residents, including many from Queens, are being asked by the city to ante up thousands of dollars in cigarette taxes—or face the threat of garnishment of wages and liens on property.  Letters to 16,000 city residents went out in August to people who previously bought cigarettes over the Internet, where no payment of city or state taxes were required.  Although the sales were made in 2002 and 2003, there was no prior warning or notification to the online cigarette purchasers. Councilman David Weprin (D Hollis), chairman of the Finance Committee, said he is outraged by the city’s heavy handed action and plans to do something about it.  He was accompanied on Tuesday in his district office by a constituent, Joseph Maletzky of Bayside, who was charged $1,155 for purchasing 77 cartons of untaxed cigarettes in one year. “These are scare tactics,” Weprin said. “I am in favor of collecting taxes, but not on the backs of senior citizens and others who didn’t know they were doing anything wrong.”  Maletzky, 53, is disabled and unable to work. He counts on his disability check every month. “I’d be in big trouble if they (checks) are garnished,” he said. “The cigarette Web site never mentioned city or state taxes.”  Weprin will hold a news conference on the steps of City Hall Sunday at 11 a.m. where he will call for the Department of Finance to make several changes. He will first ask for a 30 day moratorium by the agency on collecting the back taxes. During that time, the councilman will meet with officials to come up with an equitable resolution.  He also believes each case should be handled individually. “Someone who buys 77 cartons a year is obviously not selling them in a store and should not be punished,” Weprin said. “The cigarette buyers were acting in good faith and if it’s for personal use, they shouldn’t have to pay.”  In other cases, he believes people should pay a reduced amount or work out a payment schedule. The city is demanding the tax money be paid within 30 days. “It’s absurd to have to pay up so quickly,” Weprin added.  He also wants to give the Department of Finance time to alert the public about current and future cigarette sales that are subject to taxes. Online cigarette sales are no longer legal in New York state. “People should be able to go down on an interview to discuss their cases and not to have to pay interest or penalties,” Weprin said.  If interest and penalties were applied to Maletzky, it could double his payment—something that he doesn’t want to contemplate. “My wife and I just can’t afford it,” he added.  The city is hoping to take in $6.95 million in unpaid cigarette taxes. Penalties for non payment will be assessed at up to $200 per carton. The city’s tax is $1.50 per pack of cigarettes.  Owen Stone, a Department of Finance spokesman, said his agency is standing behind its policy. “The letter people got is the warning. If they want to work out a payment plan, they can do so,” he added.  But Weprin said his office has gotten dozens of calls from residents who had no idea they were breaking the law and now are being penalized without any warning. Many, such as senior citizens, are on fixed incomes and bought cigarettes over the Internet to save money.  The city got the names of online purchases from the companies after filing a lawsuit against 30 such firms. While the case was pending, 15 of the companies settled with the city, paying fines and giving up lists of their New York City customers. Many of the companies then went out of business. Although the city eventually lost the case on a technicality, it is appealing. For Maletzky, who now has respiratory problems in addition to other health concerns, he is still purchasing online to save money. He buys through Indian reservations, which are exempt from collecting taxes. “I know I have to quit smoking,” Maletzky added.  Jill Perrone, of Rego Park, also got a letter from the city saying she owed $1,230 for purchasing 82 cartons of cigarettes. “I was shocked at the letter and scared to death not to pay,” she said.  Perrone added that she purchased them for personal use. “It’s okay to pay taxes if you bought them in the city, but outside, you shouldn’t owe,” she said.    NY  Post - August 10, 2006  Cough Up Web Cig Taxes: City  If you ordered cigarettes from Dirtcheapcigs.com, expect to find a bill from the city for unpaid taxes in your mailbox soon. The Finance Department is mailing out bills to more than 16,000 people telling them to pay cigarette sales taxes -- or face fines of up to $200 a carton. The city hopes to collect up to $7 million in unpaid taxes from sales to the Kentucky-based company, which is no longer in business, as part of a settlement from a 2003 lawsuit. "There's no such thing as a tax-free cigarette," warned Finance Commissioner Martha Stark. The city has also billed 12,012 customers of Esmokes.com for $4,484,010 in unpaid taxes; 2,313 customers of Affordablecigs.com for $956,340; 136 customers of Cigoutlet.com for $120,845; and 1,221 customers of Smokesforless.com for $277,695.   NY Daily News - August 10, 2006  City to smokers: Cough up 7M in owed Net taxes More than 16,000 New Yorkers who bought cheap cigarettes over the Internet are now tax targets of the city. City officials announced yesterday that they intend to go after the smokers - who bought from www.dirtcheapcigs.com, a now-defunct Web site - for nearly $7 million in unpaid cigarette taxes. The city obtained the names of the smokers through a legal settlement with the former Kentucky-based firm. The sellers ignored a state law barring the sale of tax-free cigarettes to New York State residents. Violators face a potential civil liability of three times the uncollected taxes if the city eventually wins its suits. This is the fifth and largest such settlement the city has won since filing a series of federal civil suits in 2003 against some 40 Internet tobacco merchants, according to attorney Eric Proshansky of the city's Law Department. The four prior settlements involved a combined $4.5 million in unpaid city cigarette taxes owed by 15,682 buyers. So far, more than $800,000 in unpaid taxes has been collected from smokers who opted to pay within 30 days after getting dunning letters - rather than risk penalties of up to $200 for each untaxed carton they had bought. Collection efforts, which could include filing property liens or salary garnishees, are still in the works for buyers who haven't coughed up their unpaid cigarette taxes. "We have an obligation to collect all taxes owed to the city and create a level playing field for local retailers who properly collect the cigarette tax," asserted Finance Commissioner Martha Stark. The buyers in the latest settlement made their Internet buys from 2000 to mid-2003.    Associated Press - August 7, 2006  Tobacco Wholesalers Mull Suit Over NY Cigs  BUFFALO, N.Y. — Tobacco wholesalers frustrated by mixed messages from the state over whether they are still allowed to supply Indian retailers with untaxed, unstamped cigarettes are ready to ask a court to intervene. At issue is a law that went on the books March 1 that bars wholesalers from selling cigarettes to reservation retailers who sell them tax-free. Attorney General Eliot Spitzer says the law is in effect; the state Department of Taxation and Finance says it is not yet being enforced. The conflicting positions have meant headaches for businesses like Day Wholesale in Franklin County, which finds itself scrambling to preserve its supply of cigarettes for reservation and non-reservation customers. According to a lawyer for Day, Philip Morris USA has given wholesalers that supply New York Indian tribes until noon Wednesday to promise to stop selling unstamped cigarettes on reservations or provide written proof that such sales are legal. Otherwise, a July 11 letter said, Philip Morris would stop shipping cigarettes. The wholesalers say they are in the middle of a political fight between the attorney general's office and the Pataki administration's Department of Taxation and Finance over an issue that has sparked violence in the past. "It's the state of New York that doesn't seem to have everybody together as to what they're supposed to do," said attorney Margaret Murphy, who represents Day Wholesale. The letter from Philip Morris came two weeks after an attorney from Spitzer's office sent letters to tobacco companies, including Philip Morris, telling them that Day and other wholesale clients were continuing to sell tax-free cigarettes to Indian retailers in violation of state law. "By this letter, we are putting you on notice of this conduct and asking for your cooperation in ending it," the letter from Assistant Attorney General David Weinstein, said. Philip Morris USA spokesman Bill Phelps declined to comment Monday except to say that the company supports the legislation governing sales by wholesalers to reservations. Murphy said a lawsuit to be filed this week will seek to end the uncertainty. In the meantime, she said, her client will stop selling unstamped cigarettes to avoid being shut off by Philip Morris. "We're bringing a lawsuit against the state of New York, against the attorney general, asking a court to resolve the issue," Murphy said. "Is the law in effect? What is the obligation of licensed wholesalers?" Murphy contended the legislation is not active because certain provisions _ including the issuance of coupons that would allow Indian retailers to sell untaxed cigarettes to tribal members while taxing other customers _ have not been met. A spokesman for Spitzer said that doesn't matter. "The sale in New York of unstamped cigarettes is a clear violation of the law, regardless of who is doing it," Marc Violette said, "regardless of whether it's a private individual or an Indian nation or anybody else." A spokesman for the Department of Taxation and Finance did not return a call for comment Monday. The law aimed at wholesalers is among the latest attempts by the state to collect millions of dollars of tax revenues on cigarettes sold by Indian retailers to non-Indian customers. Tribes such as the Seneca Indian Nation, which operates numerous smoke shops in western New York, say centuries-old treaties shield them from having to collect taxes on their sovereign territories. That allows them to sell at lower prices than their non-Indian competitors. Seneca retailers sold $347.5 million worth of tobacco products in 2003. A 1997 attempt by the state to collect tax on reservation sales resulted in violent clashes between state police and tribal members in western New York.   Adirondack Daily Enterprise - August 5, 2006  Cigarette Tax Dispute Leaves Day Wholesale Facing Lawsuits  TUPPER LAKE — Day Wholesale is facing several lawsuits seeking damages against cigarette wholesalers who sell untaxed cigarettes to non-natives on Indian reservations in the state. It’s a fight that’s pitting cigarette wholesalers, the city of New York, Indian reservations and the state’s tax and finance authority against each other, with a string of unlikely alliances. Attorneys for the city of New York said a 2005 city Department of Health survey found that about 15 percent of all smokers consume untaxed cigarettes. In 2004, a state DOH study projected that the state loses as much as $576 million in lost tax revenue through the sale of untaxed cigarettes, the city’s lawsuit said. “The claim against (wholesalers) is that they’re simply selling untaxed cigarettes,” city lawyer Eric Proshansky told the Enterprise. The reason the city is aggressively pursuing the case now is to enforce legislation passed in March requiring cigarette taxes and tax stamps on all cigarettes sold within New York state, he said. Peter Day, owner of Day Wholesale in Tupper Lake, says his company has done nothing wrong and is following the legal advice of the agency that regulates state cigarette tax, the Department of Taxation and Finance. “The law hasn’t really changed,” Day said.  In fact, it’s this authority in charge of regulating cigarette taxes that is — indirectly — rising to the defense of wholesalers. In a legal opinion released March 16 by the Department of Taxation and Finance, wholesalers were advised that the department, “has no intention to alter its long-standing policy” regarding the sale of untaxed cigarettes on Indian reservations. The new law, the legal opinion said, needs to be amended to respect Indian sovereignty and “avoid excessive entanglement in Indian commerce.” Taxation and Finance spokesman Tom Bergin said he couldn’t comment because of the litigation involved, but he confirmed that his department is advising cigarette wholesalers that the law is not being enforced until the law is amended to the satisfaction of the commissioner of Taxation and Finance.  “We said we’re not going to enforce this law,” Bergin said. “We’re going to consider some amendments” before directing wholesalers to change their business practices. Proshansky said the city takes issue with the Department of Taxation and Finance’s selective enforcement of laws. “We believe, regardless of what an agency does, it’s on the books,” Proshansky said. “It’s a law; you have to obey it — regardless of whether an agency enforces it.” But Day said he and other wholesalers will continue to follow the advice of the Tax and Finance commissioner, and he expects the lawsuits against wholesalers to be thrown out of court. Day, who employs 22 people in Tupper Lake, said he’s been doing business with the Indian reservations for 18 years and is confident that he’ll prevail in court. About 80 percent of his revenue is from the sale of cigarettes and tobacco products to Indian reservations, Day is quoted as saying in a deposition with Seneca County attorneys. Day said the whole issue is the result of rising taxes, which naturally increases demand for tax-free products. With the state collecting $15 per carton in excise tax and $3.60 in sales tax, it is the state that profits the most from the sale of cigarette sales, Day said. And New York City collects even more, with an additional $1.50 per pack. “The simple solution is for state government to reduce onerous excise taxes on cigarettes, tobacco and motor fuel,” Day said. “Then there would not be the incentive for people to go shopping on the reservations. But all they want is to get the Indians out of the cigarette business.”  In the federal lawsuit, which the wholesalers are expected to answer by the end of the month, the City of New York seeks damages from the wholesalers, including city excise and sales taxes lost as a result of alleged violations of the March statute requiring that cigarettes to non-Indians be taxed.  The lawsuit is also asking the court to cease the practice of selling unstamped cigarettes and tobacco products in the state. This lawsuit, filed in U.S. District Court in Brooklyn last month, was preceded by two similar lawsuits, brought by Seneca County and the New York Association of Convenience Stores. Day said he’s confident these lawsuits will be thrown out as they impinge on tribal sovereignty, which only the U.S. Congress can legislate. “The Indi