NYC sues reservation smoke shops

September 29, 2008 1:59:22 PM PDT
Eight smoke shops that sell tax-free cigarettes on a Long Island Indian reservation are under fire from Mayor Michael Bloomberg, who is suing the shops because he said New York City is being cheated out of millions in tax revenues.The lawsuit, filed in federal court in Brooklyn, accuses the small cluster of shops on the Poospatuck Indian Reservation of breaking state and federal law by selling massive quantities of cigarettes to bootleggers, who then smuggle the cartons off the reservation and resell them throughout the metropolitan area.

The shops are permitted to sell untaxed cigarettes to reservation residents, but the city contends that sale records indicate something else is going on. The numbers show that each Poospatuck resident would have to be smoking 960 packs a day to consume the quantity of tax-free cigarettes sold in those stores.

The practice has existed for years, but Bloomberg said it costs the city $195 million per year in tax revenue, and the state is also losing millions. He said at a City Hall news conference on Monday that those losses matter even more now in a financial crisis.

"Selling these untaxed cigarettes to the public is a clear violation of the law, with real costs to the people of New York City," he said.

Bloomberg also took aim at Gov. David Paterson, and his predecessors, for failing to enforce the state's tax laws for cigarettes sold on reservations.

"The governor should go to the reservations and say, 'As of tomorrow morning, stop this practice,"' Bloomberg said. "And if it requires law enforcement, that's what the governor has the state police for, to enforce the law."

Paterson, along with former Governors Eliot Spitzer and George Pataki, didn't enforce the law passed by the Legislature that could have provided hundreds of millions of dollars a year more to the state. All have said they sought negotiated settlements instead, and closed-door talks have gone on for years.

The issue has long been one of Albany's most difficult. Tribes held violent protests in 1995 when the state tried to collect the tax on sovereign land using state police. Conflict with state police briefly closed the Thruway, leaving some of it scorched by protesters burning tires.

Tribal authorities have long acknowledged that smuggling is a problem, but they have defended the right of the shops to sell cigarettes without collecting state tobacco taxes.

Reservation cigarette dealers have also claimed repeatedly that any bootlegging happens without their knowledge, but in its lawsuit, the city accused the Poospatuck shops of being willing partners in such schemes.

It said the shop owners actively structure and conceal illegal bulk sales, help load contraband cigarettes into vans headed for New York City, and even make their own bulk deliveries off the reservation.

City lawyers are seeking an injunction barring the shops from selling untaxed cigarettes in any quantity to people who aren't members of their tribe.

The suit also seeks money damages equal to the lost city tax revenue. It doesn't specify an amount, but the total could be in the millions, based on state sales figures.

The per-pack tax on cigarettes is $4.25; $1.25 is a city tax and $2.75 is state.

The lawsuit is the latest salvo in a legal battle that New York City has been waging against reservation cigarette dealing for several months.

It has already sued several tobacco wholesalers that supply the tribes, arguing that they are also knowingly fueling an illicit trade.

State law requires wholesalers to collect excise taxes on cigarettes shipped to reservation stores, but the rule has never been enforced, either for the Long Island shops or on tribal lands upstate.

The eight shops named as defendants in the suit are the Golden Feather Smoke Shop, the Kimo Smoke Shop, the Smoke and Rolls Smoke Shop, Monique's Smoke Shop, the Red Dot and Feather Smoke Shop, the Smoking Arrow Smoke Shop, TDM Discount Cigarettes and the Peace Pipe Smoke Shop.

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