Like other levies on sin, collecting on nicotine habits is one of politicians’ favourite ways to raise revenue — higher prices usually mean less people smoking, leading to better health, which is hard to argue with. And crucially, those who continue to induldge their habit provide much needed revenue for government coffers via high taxes.
New York City mayor Mike Bloomberg has taken cigarette taxes to the extreme. The city currently has the most expensive smokes in the country — they can retail for more than $11 a pack, thanks to a $2.75 state tax plus a $1.50 city tax.
And recently, with city budgets hurting, the mayor is pushing the limits of the law to collect all the money smokers are supposed to pay.
Spencer Morgan’s new article in New York Magazine examines the case of the tiny Unkechaug Indian Nation on Long Island, who Bloomberg is going after in court for selling untaxed cigarettes to New Yorkers.
New York: Bloomberg has declared war on smoking, and wherever there is smoke, he wants his cut. So last September, the city filed a motion in federal court against a group of Unkechaug retailers, claiming hundreds of millions in lost city tax revenue.
But, as Morgan explains, the law vis-a-vis Indian nations is tricky, and has been for 400 years.
The Unkechaugs, like all recognised tribes, are exempt from state and many federal taxes, but beyond this their economic status is murkier, based on whatever arrangement the state and the Indians can agree on. In 1994, the U.S. Supreme Court ruled that New York is entitled to collect taxes on Indian sales of cigarettes and motor fuel to non-Indians. Coming up with a way of enforcing that tax has been the trouble.
There’s no question about millions of dollars being spent on cigarettes at reservation smoke shops in New York state, which deprives the city and state tax revenue ($1 billion a year for New York City, according to one estimate). And millions of cigarette packs are smuggled into the city from Indian land, from which some funds have gone to Hezbollah and other militant groups via the black market dealers (a good primer in the whole issue is here).
But the law governing Indian cigarette sales is less clear, and Bloomberg’s latest suit has been similarly muddled in court. As Morgan summarizes:
On August 25 of this year, a federal-court judge in Brooklyn handed down a verdict addressing the Unkechaug’s motion to dismiss. Federal Judge Carol Amon denied the motion and ruled that the state appellate court had misinterpreted the law in question. She ruled that regular tax law indeed applied to the tobacco trade on Indian reservations, as it does everywhere in the state. She issued a temporary injunction banning all further cigarette sales at four stores identified in the city’s suit. Chief Wallace and the Unkechaug appealed. On September 25, the court announced that though the appeal would be heard, the injunction would continue. But that leaves 10 other smoke shops in the Poospatuck reservation, and the cars are still backed up around Squaw Lane.
It may take another 400 years to get the issue sorted out.
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