Judge rules against Cayugas

By Nate Robson / The Citizen

Reprinted with permission

The Cayuga Indian Nation of New York will not be allowed to continue selling untaxed cigarettes to non-Indians, at least until an appeals court makes a ruling on the legality of doing so, a judge ruled Wednesday.

The same judge also decided the nation will not get back 3.5 million untaxed cigarettes seized during a raid by law enforcement authorities in Cayuga and Seneca counties.

In a written decision, state Supreme Court Judge Kenneth Fisher said the Cayugas have to obey his Dec. 9 ruling that had favored the counties until it is fully reviewed by the state Appellate Division in Rochester.

The latest decision is the result of the newest round of arguments that were heard on Friday between the tribe and the counties, as both sides prepare for an appeals hearing on the broader issues in the case in May.

Fisher is also the same judge who approved the search warrants allowing the counties to raid the Lake Side Trading stores in Union Springs and Seneca Falls on Nov. 25. A couple of weeks later, when the Cayugas took the counties to court challenging the legality of the raids and the investigation, Fisher ruled that the district attorneys can pursue a felony tax evasion prosecution against the tribe for selling untaxed cigarettes to non-Indian customers.

Fisher said that the nation does not have a recognized reservation according to New York state tax laws, causing it to fall under a different section of the tax law than other tribes.

The Cayugas then appealed that ruling, and secured a preliminary injunction against further work on the case by the counties until a final decision could be made on the appeal. But prior to that injunction, a grand jury had issued a sealed indictment.

While the nation did close its stores the day after Fisher’s December ruling, the tribe re-opened the businesses on Jan. 30 after the Appellate Division issued the injunction.

While the injunction did stop any new charges from being filed against the nation, Fisher said it did not mean that the nation was allowed to continue selling untaxed cigarettes.

“The injunction was designed to maintain the status quo, which clearly was upset when the stores opened and the (Cayugas) resumed sales of untaxed cigarettes to non-Indian customers,” Fisher said.

Despite the ruling, Lee Alcott, an attorney for the Cayugas, said the Cayugas will not close their stores.

“The nation will immediately appeal the decision,” Alcott said. “It fails to reconcile the root of the problem, which is that until Indian tax exemption coupons are issued, there is no way for the nation to determine whether it is selling to Indians or non-Indians, which is precisely the issue that the appellate court has already ruled in the nation’s favor.

“We will not close the stores, we will seek an order to show cause as soon as possible to stay (Fisher’s) order.”

According to a section of the state’s tax laws, American Indian tribes are supposed to be given coupon waivers to exempt them from the collection of excise taxes on purchases made between members of the same tribe while on reservation lands. Because those coupons have not been created and distributed, an appellate court has issued an injunction against that section of the law in a different case in western New York, preventing it from being enforced.

But Fisher’s ruling said the tribe’s stores are not located on a recognized reservation and therefore can be charged with tax evasion under a different section of the tax law.

The nation has appealed that decision, claiming their reservation was established by the Treaty of Canandaigua in 1794.

When arguments were heard in court on Friday, Cayuga County District Attorney Jon Budelmann asked the judge to find the nation in contempt for violating his previous decision or to explicitly tell the tribe that they have to abide by his ruling.

If the Cayugas do continue to sell untaxed cigarettes, Budelmann said, he may file another contempt motion against the nation.

“My plan is if they continue to flagrantly violate the law and ignore the judge’s decision, then it’s time to file for contempt again,” Budelmann said. “As far as I am concerned, the paperwork is already drawn up; the judge would just need to sign the order to shut them down.”

In a second decision, Fisher ruled that the district attorneys will not have to return any of the cigarette or computers seized in the raids because they are evidence in a case in which a sealed indictment has been issued.

While the nation has agreed to admit to the quantity of untaxed cigarettes seized from their stores, Fisher’s ruling maintained that the district attorneys are allowed to decide how to present the evidence if the case goes to a trial.

Because cigarettes are considered a perishable item, Alcott previously said that the nation will sue the counties for $500,000 to replace their products, if they go stale. Fisher’s ruling point out that because that type of remedy would be available to the tribe should they prevail in the case, they don’t need to have the seized cigarettes returned. He also said the tribe has demonstrated they have been able to run their businesses without the items seized, which also included computers, in the raids.

If the cigarettes do go stale, Budelmann said it is because the nation has repeatedly delayed the prosecution by filing injunctions and appeals. Budelmann also said that if Cayuga County loses a lawsuit and was ordered to pay the tribe for their lost property, that money would be covered by an insurance policy that it purchased for nearly $1,000.

As New York continues to deal with a financial crisis, Budelmann said he believes it is important for the state to collect excise taxes from every business.

Based on the quantity of cigarettes seized, Budelmann estimated that the state is losing $500,000 in excise taxes every week, while the county was losing $20,000 on sales taxes weekly.

“It’s a good day for the taxpayers of New York State,” Budelmann said. “We never said (the Cayugas) can’t sell cigarettes, just untaxed cigarettes. If they stop selling untaxed cigarettes, people will have to buy them lawfully and it will level the playing field for other small businesses.”