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    New York Tribe Defies State on Taxes

    Onondaga Nation threatens toll for traffic crossing territory.

    ALBANY, N.Y. -- The Onondaga Nation will never collect a tax on cigarettes for New York, nation lawyer Joe Heath said, but it is willing to negotiate to resolve some of the state's concerns about the regulation of Native American businesses.

    Native American nations across New York are gearing up to protest the state's latest effort to collect millions of dollars in taxes on cigarettes and gasoline sold to non-natives on Indian territories. If the state tries to force the Onondaga Nation to collect taxes on the cigarettes the nation sells, Onondaga Chief Virgil Thomas said, the Onondagas will build a toll booth on Interstate 81 and charge a fee for those who cross their territory, according to the Syracuse (N.Y.) Post Standard.

    The state Tax Department issued new proposed regulations concerning the collection of taxes on Indian nations Sept. 12. But leaders of the six Indian nations that make up the Iroquois Confederacy maintain that the Iroquois treaties with New York bar the state from imposing taxes on Indian land. In the past week, leaders of the Oneida Indian Nation, Cayuga Indian Nation, Seneca Nation of Indians, Tuscarora Nation, Tonawanda Band of Senecas, and St. Regis Mohawks have vowed to resist any effort by the state to collect taxes on sales on their lands.

    "This is not going to get resolved," said John Kane, a Mohawk manager at Ross John Enterprises, which owns four cigarette and gasoline shops on the Seneca Nation's territories in western New York. "The state is going to back down again."

    Such vows raise images of 1997 -- the last time the state attempted to force the collection of taxes in Indian nations. That attempt spurred demonstrations, roadblocks and other incidents at Indian territories across the state. The state abandoned the effort. The new state regulations would require businesses on Indian territories to purchase cigarettes and motor fuel from wholesalers. The state would charge the wholesalers the $15-per-carton excise tax on cigarettes. The wholesalers would pass the state excise taxes on to the Indian businesses.

    The Native American vendors would be expected to pass the cost on to non-Indian customers. Native American consumers would receive state-issued coupons so they could buy cigarettes from businesses on Indian lands and avoid paying the $15 per carton excise tax. The state said it would also require non-Indians who buy cigarettes and other items from Indians on reservations to pay the state and local sales taxes, which range up to 7.25 percent. Consumers would not pay the sales tax at the register, but through a new line on their state income tax returns, the report said.

    The state could prosecute anyone who fails to pay the sales tax on their income tax return. Native American businesses are also expected under the proposal to pass on to non-native customers the 36.8 cents per gallon state taxes on gasoline, based on a $1.85 per gallon price. The tax department estimated that the new regulations would help the state collect an extra $20 million in the state fiscal year that ends March 31 and $64.5 million in the following year.

    New York lost about $500 million in 2001 and as much as $895 million in 2002 by failing to collect taxes on tobacco products sold by Native American businesses, over the Internet, and by bootleggers, according to a study paid for in 2002 by the FACT Alliance for the Fair Application of Cigarette Taxes.

    Meanwhile, non-Native American convenience store owners are unhappy that the state has allowed Indian businesses to have an unfair competitive advantage because of the tax issue. Because of the price differences, there's been a huge shift of customers away from the tax-paying convenience stores to unlicensed, unregulated tax-free Native American stores selling cigarettes and gas, said James Calvin, president of the New York Association of Convenience Stores, which represents 1,800 stores.

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