"Faced with a crushing state deficit, angry American Indians, and uncooperative tobacco companies, Paterson on December 15 signed into law a bill designed to take on one of America’s most lucrative black markets: the underground trade in cigarettes flowing through the state’s 10 Indian reservations.

New York’s 70-year-old tobacco black market exploded after 2002, as cigarette tax hikes encouraged smuggling from out of state and through reservations. The traffic is part of a nationwide boom in smuggled cigarettes, but the trade has reached a peak in New York. In 2007, one in three cigarettes sold in New York was channeled untaxed through Indian smoke shops, robbing the state and New York City of nearly $1 billion in tax revenue.

Ironically, this illicit trade has been protected in part by the state’s own reluctance to enforce cigarette tax collection on reservations, a policy known as forbearance. Indians protested violently at the state’s last attempt at collecting the tax in 1997, briefly shutting down the New York State Thruway. Since then, New York governors have vowed to end the black market, but ultimately have shied away from enforcing cigarette tax laws on reservation sales.

It remains unclear whether Paterson will be any different from his predecessors. If implemented, the new law will require manufacturers to supply only wholesalers that can certify that cigarettes won’t be re-sold tax-free to reservations.

The stakes are high. The law moves enforcement up the supply chain to the wholesale and manufacturing level, charging tobacco companies with ensuring that their products are not smuggled. “This means cutting off cigarettes at the factory door,” said Russell Sciandra, director of the Center for a Tobacco Free New York.

That may not be easy to do. Within hours of the bill’s enactment, Philip Morris USA, maker of Marlboro, criticized the legislation. “We applaud the government in trying to move forward with something . . . [but] we are not sure that is going to lead to tax collection,” said Joe Murillo, a Philip Morris counsel. Among the challenges Murillo cited: the state’s forbearance policy as well as current and possible litigation by wholesalers and Native Americans."

Get the Story:
Big Tobacco’s New York Black Market (The Center for Public Integrity 12/19)

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Center: 'Risky business' in Indian Country (11/19)