HCI Distribution building (Native8a/Flickr)

New York State Holds Seized Cigarettes in Defiance of Court Order

Gale Courey Toensing
7/4/12

The New York state is holding onto a truckload of untaxed Indian-made cigarettes worth $2 million despite a court ruling ordering the state to return the shipment of tobacco products to its owner.

State police and the Cuomo administration say they are not changing their enforcement practices despite the court ruling, according to an Associated Press report. The court ruling was issued June 18 by New York State Supreme Court Justice David Damarest, who said the state had no legal authority to seize and hold 26,160 cartons of Signal brand cigarettes and cigars and 72 bags of loose tobacco that HCI Distribution Inc., a company owned by the Winnebago Tribe of Nebraska, had purchased from Ohserase Manufacturing, LLC.  Ohserase is a federally-licensed manufacturer that is organized under the laws of the St. Regis Mohawk Tribe and is owned by St. Regis citizens.

The products, worth more than $2 million, were manufactured on St. Regis territory and were being trucked to HCI on Winnebago territory in Nebraska when New York border patrol officers stopped the semi-trailer transport truck transporting the tobacco products at a checkpoint in St. Lawrence County in northern New York on January 23. The police broke the seal on the cargo doors of the truck without a warrant even though the driver’s shipment papers were all in order. The driver was detained for hours then released, but the cigarettes were seized and have remained in the state’s possession for more than six months now. HCI had filed against the state police, St. Lawrence County District Attorney Nicole Duve and her assistant, Jonathan Becker, arguing the state had no authority to seize and hold the cigarettes that had been legally purchased and were being transported with legal paperwork. Five more trucks carrying federal- and tribal-licensed cigarettes manufactured on Mohawk land and destined for Indian territories were stopped and their contents seized over the next four months.

This is the latest skirmish in the decades-long tobacco war between the indigenous nations and New York in which the state has attempted to force the nations to collect state taxes on cigarettes they sell on their reservations. New York’s Department of Taxation and Finance (DTF) amended the state’s cigarette tax law in early 2010 to force Indian tobacco businesses to collect state taxes by requiring all cigarettes sold to reservations to have an affixed $4.35 cigarette stamp. The nations responded by announcing they would no longer buy the famous brand cigarettes manufactured by Philip Morris (Altria), Reynolds-American and Lorillard. Instead they would manufacture and sell their own brands of cigarettes.

Demarest established in his ruling that no taxes were due on the seized cigarettes. “The ultimate taxable event in New York is the sale of cigarettes to a non-member of an Indian tribe within the boundaries of New York State,” he wrote. But, he noted, the consumer is responsible for paying the tax. Quoting a section of the tax law, Demarest says the law “makes it quite clear that ‘the ultimate incidence of and liability for the tax shall be upon the consumer.’ The requirements of (tax) stamping are merely a way to collect the tax, if, in fact, there is a tax due,” he wrote. New York Tax Law also clearly states that no tax will be imposed on cigarettes sold to out-of-state purchasers, he wrote.

New York Attorney General Eric Schneiderman filed an appeal notice July 2 that temporarily halts Demarest’s order to the state “to return, immediately, any and all property seized” from HCI Distribution.

Soon after Demarest’s ruling was issued, Joseph Messineo, an attorney with the firm of Frederick Peebles & Morgan who represents HCI, filed a notice of intent to file a civil claim against the state and county for monetary damages should the shipment of cigarettes be unusable. “The appeal was not a surprise,” Messineo told Indian Country Today Media Network in an email on July 3. “I can’t comment on this right now with any specificity. We are working with the state for the release of our cigarettes ASAP. I am confident that we will get them released. We will, of course, seek to uphold the (state) Supreme Court’s decision at the appellate division.”

In his ruling, Demarest also threw out the state’s argument that Indian cigarette manufacturers can only make out-of-state sales through state-licensed agents or become agents themselves. “There is no such requirement either in the New York Tax law or in any regulations. Where the law is clear that no tax is due, for the court to extrapolate the type of regulatory scheme proposed by Respondents would be improper,” Demarest wrote. His comment that the issue should be left for the Department of taxation and Finance or the legislature raised a red flag among the nations, who indicated that any movement in that direction will be met by resistance. Messineo told ICTMN that any attempt to pass such a law or regulation would be challenged. “They have very little jurisdiction. The only thing the (state) Supreme Court has said is the state has enough interest in collecting the tax on sales to non-Indians on Indian land,” Messineo said.

Paul Thompson, the newly elected chief of the St. Regis Mohawk Tribe, said he intends to tackle the ongoing tobacco war and seizures of Native-manufactured cigarettes head-on, the Daily Courier Observer reported. Thompson, who previously served as chief from 1996 to 2003, was sworn into office on July 1. “I’ve been dealing with that for 30 years. They [New York state] won’t be happy until they take all our businesses,” Thompson said at the swearing in ceremony. Thompson said he would like to see the tribal council show public support for Demarest’s ruling. “That was a great ruling. He hit it right on the head,” Thompson said.

The Seneca Nation of Indians also weighed in even though no seizures of their products or purchase were made. “There is one thing you can be sure of: the Seneca Nation will vigorously defend against any attempt by New York State to tax product or intrude upon our sovereign right to regulate our own commerce, and particularly Native-made tobacco products,” Richard Nephew, the chair of the Seneca Nation Council, said in a statement.

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