NY Indian Smoke Shops Feel the Heat

Judge’s ruling requires Indian reservation smoke shops to begin collecting tobacco taxes on sales to non-Indians by September 24.
NEW YORK – Having sold one in every seven packs of cigarettes in New York as recently as 2007 because it wasn’t required to assess state tobacco excise taxes, the Poospatuck Indian reservation has found its tobacco operations in serious jeopardy, as New York will begin a legal battle to assess tobacco taxes on reservation sales, the Associated Press reports.
Later this month, Poospatuck stores are supposed to begin collecting taxes for the first time, because of a federal judge’s ruling that untaxed tobacco sales to non-Indians are illegal.
The Poospatuck case is being watched closely by other states that are looking for ways to collect taxes on reservation sales to non-Indians.
At issue is what federal investigators call “buttleggers” — those who operate with the assistance of storeowners to buy large quantities of reservation smokes and resell them in the New York City at a markup. The profit margin at stake is wide — in New York City, a carton of cigarettes costs roughly $95, which includes $42.50 in state and local taxes.


"There's no difference between the cigarette business and the drug business. It's the same type of individuals involved," said Kyron Hodges, a former drug dealer from Brooklyn who has been transporting tax-free cigarettes from the Poospatuck reservation to the city. "I took all of my street knowledge and applied it to cigarettes."


In recent years, police have arrested more than 200 non-Indians leaving the Poospatuck reservation with cigarettes (by law, New York allows Indian merchants to sell tax-free cigarettes only to tribe members). However, the law has never been applied against the Indian smoke shops, despite what New York officials estimate at a $700 million a year loss in state and local tax revenue.


Things are beginning to come to a head, though. In an August 25 ruling, a U.S. District Judge ordered Poospatuck stores to begin collecting taxes on sales to non-Indians within 30 days. And Philip Morris ordered its wholesalers last year to cease selling its products to shops on the Poospatuck reservation because of smuggling.


"After 20 years of ever-worsening cigarette tax evasion in New York, the pendulum finally seems to be swinging in the direction of tax fairness," said James Calvin, president of the New York Association of Convenience Stores. "Experience has taught us not to get overconfident that the cigarette tax evasion epidemic will be cured, but the signs are encouraging."


One store on Poospatuck has already closed, and three others face uncertain futures.