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Lawsuit seeks showdown over reservation taxes

New York's convenience stores filed a lawsuit against outgoing Gov. George Pataki (R) on Tuesday, seeking to force the collection of taxes on reservations.

In a 17-page complaint, the New York Association of Convenience Stores accused Pataki of disregarding a new state law. The group said his failure to collect taxes on the sale of goods to non-Indians costs taxpayers $450 million a year.

The lawsuit names several wholesalers who are accused of supplying cigarettes to reservation retailers without collecting the tax. But the group's main target appears to be the Indian and tribal businesses themselves, citing a $1 billion loss to non-Indian convenience stores.

"Native American tribes have every right to conduct business, as do their suppliers, but everyone in the supply chain should be required to play by the same rules," said James Calvin, the president of the group.

Tribal leaders and Indian entrepreneurs respond that they are indeed playing by the rules. They argue that treaties that are recognized as law by the U.S. Constitution protect them from encroachments on their sovereignty by the state.

Barry E. Snyder Sr., the president of the Seneca Nation, a tribe with a large number of independent retailers, said Indian businesses contribute to the state economy. In March, he warned "if the state does not respect our treaties and our sovereignty, hundreds of Seneca-owned businesses would be forced to close, putting 1,000 Senecas and non-Senecas out of work."

March 1 was the deadline for the new state law to go into effect. As passed by the Legislature, it requires the collection of state cigarette and motor fuel taxes on goods sold to non-Indians. Sales to tribal members are exempt from the state tax.

But in order to go around sovereignty concerns by requiring the tribal businesses to collect the taxes, the law seeks to impose the tax on wholesalers who supply cigarettes and gas to reservations.

Although tribes in several states have entered into compacts to address taxation, and Pataki has sought to negotiate similar deals, the issue holds national significance due to a recent U.S. Supreme Court case. In December, the justices upheld a Kansas state law that imposes a tax fuel sold on the reservation.

State lawmakers wrote the law with tribes in mind but placed the tax burden on off-reservation wholesalers who supply gas to reservations. As such, it "poses no affront to [tribal] sovereignty," Justice Clarence Thomas wrote for the 7-2 majority.

The ruling bolstered officials in Washington and Oklahoma, two states where Indian taxation has been an issue. Tribes in Washington are now seeking to address taxation through negotiation while some tax disputes in Oklahoma have already landed in court.

The resolution might not be so clear cut in New York. The lawsuit filed by the convenience stores, as well as the state law, notes that the tax burden ends up falling on the consumer.

In other cases, state and federal courts have struck down consumer-borne taxes as an infringement of tribal sovereignty. South Dakota and North Dakota have been ordered to provide refunds to Indian consumers while tribes in Idaho are pressing the state refund illegal taxes that were paid.

Although his administration says it is following the state law, Pataki has cited sovereignty in refusing to collect reservation taxes. The state court previously ruled that his stance is protected as a policy right.

The political and legal landscape are shifting, however, since Pataki is leaving office after three terms. The Democratic front-runner, state attorney general Eliot Spitzer, has said he would force the collection of reservation taxes if elected.

Relevant Links:
New York Association of Convenience Stores -
Seneca Nation -
Honor Indian Treaties -