Tax deadline looms for reservation smoke shops

Cigarettes sold tax-free on Indian reservations now account for nearly a third of all packs sold in New York state, but the future of the multibillion-dollar business is in doubt.Smoke shops on Long Island's Poospatuck reservation face a Friday deadline to comply with a court order barring them from selling tax-free cigarettes to the public.
New York tribes have long refused to collect tobacco taxes, and since the mid-1990s a string of state governors have agreed not to enforce the law out of respect for Indian sovereignty.
That discount has made them among the state's largest suppliers of cigarettes.
The Cayuga Indian Nation of New York sells untaxed cigarettes from its stores in Union Springs and Seneca Falls.
A mid-level state appeals court has ruled that practice is legal, but Cayuga and Seneca counties are appealing that decision.
After New York City sued over hundreds of millions of dollars in lost revenue, a federal judge ruled in August that cigarette dealers on the Poospatuck reservation were acting illegally by selling huge quantities of untaxed product.
She gave the shops 30 days either to start collecting taxes or to limit sales to tribe members.
The merchants sought an emergency stay this week, which was denied Thursday by the 2nd U.S. Circuit Court of Appeals.
It wasn't immediately clear what the shops would do next.
An attorney for one group of owners, James Simermeyer, said they were still weighing their options and hoping the appeals court would reverse itself and issue a last-minute stay.
Harry Wallace, the chief of the Unkechaug tribe, which controls the reservation, did not return phone and e-mail messages, but has said he believes the state has no power to enforce its tax policies on tribal land.
An attorney for the city, Eric Proshansky, said in a court filing that the shops didn't deserve a reprieve.
“The defendants' greedy desire to continue raking in the millions of dollars that they divert from the public treasury by their tax-evading sales deserves no weight in any event, but certainly not balanced against the injury to the public health already proven in this case,” he wrote.
The judge's order only applies to eight Poospatuck shops sued by the city, but its findings could be influential in legal disputes involving tribes throughout the state. Separately, a federal jury convicted one of the Poospatuck smoke shop owners last year of racketeering for dealing in untaxed cigarettes. His sentencing is set for December.
Several of the shops sued by New York City have appealed, but it could be months or longer before a 2nd Circuit panel hears their case.
Cigarette sales on the reservations have topped more than 300 million packs a year, according to state tax officials.