Cayuga Indian Nation of N.Y. v. Gould

• Decision Date: 11 May 2010
• Citation: 904 N.Y.S.2d 312,14 N.Y.3d 614,930 N.E.2d 233
• Parties: CAYUGA INDIAN NATION OF NEW YORK, Respondent, v. David S. GOULD, as Cayuga County Sheriff, et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

904 N.Y.S.2d 312

14 N.Y.3d 614

930 N.E.2d 233

CAYUGA INDIAN NATION OF NEW YORK, Respondent,

v.David S. GOULD, as Cayuga County Sheriff, et al., Appellants.

Court of Appeals of New York.

May 11, 2010.

Harris Beach PLLC, Pittsford (Philip G. Spellane, Karl J. Sleight, Daniel J. Moore, Russell E. Maines, James P. Nonkes and Joan P. Sullivan of counsel), for appellants.

Jenner & Block LLP (David W. DeBruin, of the District of Columbia bar, admitted pro hac vice, Joshua M. Segal, David Z. Moskowitz and Matthew E. Price of counsel) and French-Alcott, PLLC, Syracuse (Daniel J. French, and Lee Alcott of counsel), for respondent.

Andrew M. Cuomo, Attorney General, Albany (Barbara D. Underwood, Andrew D. Bing and Rajit S. Dosanjh of counsel), for State of New York, amicus curiae.

Ignacia S. Moreno, Assistant Attorney General, Washington, D.C., Charles R. Scott and Kathryn E. Kovacs for United States of America, amicus curiae.

Kathleen B. Hogan, District Attorney, White Plains (Anthony J. Servino, John J. Carmody and Morrie Kleinbart of counsel), for District Attorneys Association of New York State, amicus curiae.

Robert Odawi Porter, Salamanca, Christopher Karns and Kanji & Katzen, PLLC, Seattle, Washington (Riyaz A. Kanji and Cory J. Albright of counsel), for Seneca Nation of Indians, amicus curiae.

Stephen J. Acquario, General Counsel, New York State Association of Counties, Albany, Robert W. Gibbon and Jeffrey D. Klein for New York State Association of Counties and another, amici curiae.

Patrick McKenna, General Counsel, American Cancer Society, Eastern Division, Inc., Albany, and Schnader Harrison Segal & Lewis LLP, New York City (Bruce Strikowsky and Allison N. Fihma of counsel), for American Cancer Society, amicus curiae.

Michael A. Cardozo, Corporation Counsel, New York City (Stephen J. McGrath, Victoria Scalzo, Eric Proshansky and William H. Miller of counsel), for City of New York, amicus curiae.

Margaret A. Murphy, Hamburg, for Day Wholesale, Inc., amicus curiae.

[14 N.Y.3d 622, 930 N.E.2d 234]

OPINION OF THE COURT

GRAFFEO, J.

In this appeal involving a dispute between law enforcement authorities and the Cayuga Indian Nation concerning the collection of cigarette sales taxes, two principal

[930 N.E.2d 235, 904 N.Y.S.2d 314]

issues are presented. The first is whether the Cayuga Indian Nation was entitled to a declaration that two convenience stores it operates in Central New York are located on "qualified reservation" property within the meaning of Tax Law § 470(16)(a). The second is whether, absent the implementation of a statutory or regulatory scheme addressing the specific tax collection issues posed by the retail sale of cigarettes on Indian reservations, Nation retailers can be prosecuted for the possession and sale of untaxed cigarettes under Tax Law § 471.

I. The background of this dispute

The current controversy between the Cayuga Indian Nation and law enforcement authorities in Seneca and Cayuga Counties cannot be resolved without an understanding of New York State's past efforts to collect taxes derived from the retail sale of cigarettes on Indian reservations. Since 1939, New York has imposed sales taxes on cigarettes sold in this state under Tax Law § 471, which generally requires the use of tax stamps that are purchased by cigarette wholesalers and then affixed to packages of cigarettes. Under the statute, the "agent"-typically the wholesaler-is "liable for the collection and payment of the tax on cigarettes ... and shall pay the tax to the tax commission by purchasing" tax stamps (Tax Law § 471[2] ). Having prepaid the sales taxes, wholesalers pass the tax obligation on todistributors who, in turn, collect the taxes from retailers, until they are finally paid by consumers. Thus, the "ultimate incidence of and liability for the tax [falls] upon the consumer" (Tax Law § 471[2] ). Tax Law § 1814 declares that it is a misdemeanor to willfully evade the cigarette tax.¹

Tax Law § 471(1) recognizes that there are certain instances when the State must forgo cigarette tax collection because it is "without power to impose such tax." At the time of its enactment in 1939, one of those situations included the sale of cigarettes occurring on Indian reservations since states were not authorized to tax goods sold by an Indian Nation on its reservation until 1976. That year the United States Supreme Court decided Moe v. Confederated Salish & Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 483, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976), which held that states may impose sales taxes on goods sold by members of an Indian nation on reservation land to purchasers who are not members of the nation, particularly when it is the non-Indian purchaser who bears the ultimate tax burden under state law.

In the aftermath of Moe, in 1988 the New York Department of Taxation and Finance promulgated regulations aimed at implementing a scheme to calculate and collect the sales taxes due from sales to non-Indians on reservation properties in New York. The regulations adopted a "probable demand" mechanism that limited the quantity of unstamped-i.e., "untaxed"-cigarettes that wholesalers or distributors could sell to tribes and tribal retailers. The Department would either project the "probable demand" for cigarettes attributable to members of a particular Indian tribe or nation, thereby restricting the quantity of unstamped cigarettes that could be sold to that tribe or nation to that estimated number, or enter into agreements with tribal leaders to determine probable demand. Tax exemption coupons would be issued to Indian retailers representing their monthly allotment under the probable

[930 N.E.2d 236, 904 N.Y.S.2d 315]

demand formulation and the retailers could then exchange those coupons with wholesalers for unstamped cigarettes. Retailers were to sell unstamped cigarettes only to "qualified Indians," who would be provided with individual exemption certificates to present to retailers when purchasing cigarettes.

The 1988 regulations were never implemented by the Department, however, because the proposed tax collection scheme wasimmediately challenged by cigarette wholesalers who claimed the regulations were preempted by federal statutes governing trade with Indians. The litigation proceeded to the United States Supreme Court, which ultimately rejected the wholesalers' contention in 1994 ( see Department of Taxation & Finance of N.Y. v. Milhelm Attea & Bros., 512 U.S. 61, 114 S.Ct. 2028, 129 L.Ed.2d 52 [1994] ). The Supreme Court reaffirmed the principle articulated in Moe and further declared that "States may impose on reservation retailers minimal burdens reasonably tailored to the collection of valid taxes from non-Indians" ( id. at 73, 114 S.Ct. 2028). Thus, the Court recognized the authority of states to collect sales taxes relating to cigarettes sold to non-Indians on reservation property or other Indian lands provided the regulatory scheme is not "unduly burden-some" ( id. at 76, 114 S.Ct. 2028).

After analyzing New York's regulations, the Milhelm Court concluded that they were not preempted by federal laws regulating Indian trading, but it did not "assess for all purposes each feature of New York's tax enforcement scheme that might affect tribal self-government or federal authority over Indian affairs" ( id. at 69, 114 S.Ct. 2028). Without endorsing every aspect of the New York approach, the Supreme Court approved in principle the "probable demand" methodology, while acknowledging that an "inadequate quota may provide the basis for a future challenge to the application of the regulations" ( id. at 75, 114 S.Ct. 2028). The Court emphasized that "[i]f the Department's 'probable demand' calculations are adequate, tax-immune Indians will not have to pay New York cigarette taxes and neither wholesalers nor retailers will have to precollect taxes on cigarettes destined for their consumption" ( id.). ² Finally, the Court concluded that the record-keeping requirements imposed under the regulations were less onerous than comparable provisions that had been upheld in Moe and would not impermissibly interfere with Indian trading activities ( id. at 76, 114 S.Ct. 2028).

Because Milhelm was commenced by non-Indian wholesalers, the Supreme Court addressed the narrow preemption issue before it and did not fully explicate the interests of Indian nations or tribes affected by the regulations ( id. at 68-70, 114 S.Ct. 2028).Although it rejected the wholesalers' facial challenge to the regulations, the Court was clearly aware of the enforcement difficulties that states faced when attempting to collect sales taxes directly from Indian tribes given their immunity from civil suits for nonpayment; it acknowledged that tax collectors must employ "alternative remedies" to ensure compliance, such as entering into agreements with the tribes, pursuing civil damages actions against individual members or engaging in off-reservation interdiction efforts ( id. at 72, 114 S.Ct. 2028).

[904 N.Y.S.2d 316, 930 N.E.2d 237]

Enforcement of the regulations was stayed during the course of the Milhelm litigation but the release of the decision in June 1994 seemingly paved the way for implementation. But, soon after Milhelm was decided, the Department announced that enforcement efforts would be delayed pending consideration of other issues arising from the decision and to allow for negotiations with the tribes in an attempt to enter into compacts or agreements pertaining to the collection of sales taxes. When the regulations had still not been put into effect more than a year later, an association of convenience store owners commenced an action in 1995 to compel enforcement of these regulations and similar provisions relating to sales taxes on motor fuel ( see Matter of New York Assn. of Convenience Stores v. Urbach, 92 N.Y.2d 204, 677 N.Y.S.2d 280, 699 N.E.2d 904 [1998] ). The Association claimed that the equal protection rights of its members had been violated by the...