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    New York Law a Boost for Retailers

    State's budget crunch finally prompts lawmakers to enforce ban on Internet cigarette sales.

    By John Lofstock

    The modern-day fight between New York and Native Americans continues, fought not over land, but over taxes. This time, in June, three years after being passed into law, the state began enforcing a measure to a halt all Internet and mail-order sales of tobacco products in hopes of collecting millions of dollars in taxes on cigarette sales by Native Americans.

    While this is clearly a victory for the convenience store industry, retailers should keep in mind that the decision to finally start enforcing this law was purely a financial move by the state to raise revenue. As far as convenience store retailers are concerned the state's altruistic tendencies go only as far as the money they generate. Fortunately, the state's dire fiscal crisis sent it looking for new taxable sources and the swelled Native American coffers seemed like a logical first step for Albany.

    At stake for New York is the ripple effect of millions of dollars being lost in untaxed cigarettes sold on the Internet to customers in all 50 states. Some estimates place the loss at $900 million to the state.

    The state Department of Taxation and Finance sent written notices in May to shippers and retailers that violations of the Internet sales ban are punishable with large civil fines and jail time for violators, stern penalties for crimes that previously went unpunished.

    Non-native American retailers praised the decision to finally enforce the measure. "This law and the enforcement of this law is a major step in the direction of leveling the playing field for cigarette retailers in New York," said James Calvin, executive director of the New York State Association of Convenience Stores.

    But Calvin, who has been one of the hardest-working men in the industry at trying to achieve a level playing field with Native Americans for New York's convenience store retailers, knows not too get too excited about New York's latest effort to crack down on tax-free sales of cigarettes. He is a man of action and New York lawmakers, in this area anyway, historically have not been.

    Another Standoff?

    In 1997, Gov. George Pataki quickly capitulated and rescinded a similar state law after a violent confrontation between state troopers and about 1,000 members of Seneca Nation, the state's largest Native American tobacco retailer, and their supporters on the New York State Thruway.

    Seneca Nation business leaders again vow to wage a long battle. At stake, Seneca business leaders say, are about 1,500 jobs with an estimated $28 million annual payroll, economic development on the nation's two reservations and tribal sovereignty.

    "We basically intend to seek an injunction against the law," said Scott Maybee, owner of Smokesignals.com, one of the biggest Seneca online smoke shop businesses. "It would be a big blow to my business and devastating to my employee base of about 85 workers."

    If diplomatic efforts fail, Maybee said, the Senecas will shut down the Thruway where it crosses Seneca lands "and any other roads necessary to get the attention of the State Legislature," a tribal official told The Buffalo News, speaking on the condition of anonymity.

    There's also a lot at stake for smokers, already hit by repeated and steep increases in state and local cigarette taxes. A carton of Marlboros that sells for $28 to $32 online can sell for $75 in New York City, according to the Online Tobacco Retailers Association. Overseas firms can charge as little as $10 a carton for other brands.

    "Our people will go into stores and customers will say, 'I just need a pack now because my order is coming from the Internet,"' said Dan Finkle, an independent distributor to convenience stores and leader of the Fair Application of Cigarette Taxes group.

    Finkle said his distribution business lost 40 percent of its business — 20,000 cartons a week at a $500,000 annual loss — over the last three years as huge cigarette taxes drove smokers to Internet purchases.

    He said the losses forced a layoff of 25 people from his 170-person work force.

    By John Lofstock
    • About John Lofstock

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