Day Wholesale, Inc. v. State

• Decision Date: 02 May 2008
• Docket Number: CA 07-02540.
• Citation: 2008 NY Slip Op 04179,51 A.D.3d 383,856 N.Y.S.2d 808
• Parties: DAY WHOLESALE, INC., et al., Respondents, v. STATE OF NEW YORK et al., Appellants. (Appeal No. 1.)
• Court: New York Supreme Court — Appellate Division

51 A.D.3d 383

856 N.Y.S.2d 808

2008 NY Slip Op 04179

DAY WHOLESALE, INC., et al., Respondents, v. STATE OF NEW YORK et al., Appellants. (Appeal No. 1.)

CA 07-02540.

Appellate Division of the Supreme Court of the State of New York, Fourth Department.

May 2, 2008.

Andrew M. Cuomo, Attorney General, Albany (Andrew D. Bing of counsel), for appellants.

Margaret A. Murphy, Buffalo, for respondents.

Barr & Associates, P.C., Stowe, Vermont (Daniel A. Seff of counsel), Dale T. White, Hogansburg, and Hobbs, Straus, Dean & Walker, LLP, Washington, D.C., for the Saint Regis Mohawk Tribe, amicus curiae.

OPINION OF THE COURT

GREEN, J.

Tax Law § 471-e (as amended by L 2005, ch 61, part K, § 2; ch 63, part A, § 4) embodies the Legislature's most recent effort to collect taxes on cigarettes sold on Indian reservations. The primary issue before us is whether the amended version of the statute is presently in effect. We conclude that it is not.

Plaintiff Day Wholesale, Inc. (Day) is a wholesale dealer of cigarettes (see Tax Law § 470 [8]) and a licensed cigarette stamping agent (see § 470 [11]), and plaintiff Scott B. Maybee is a member of the Seneca Nation of Indians (Seneca Nation) who owns and operates businesses engaged in the wholesale and retail sale of cigarettes on land owned by the Seneca Nation. Plaintiffs commenced this action seeking a determination that the amended version of Tax Law § 471-e is not in effect and injunctive relief preventing the enforcement of the amended version of the statute against them.

Pursuant to Tax Law § 471 (2), the ultimate liability for the cigarette tax falls on the consumer, but the cigarette tax is advanced and paid by agents such as Day through the use of tax stamps (see Tax Law § 473). The tax applies to "all cigarettes possessed in the state by any person for sale, except that no tax shall be imposed on cigarettes sold under such circumstances that this state is without power to impose such tax" (§ 471 [1]). Those circumstances pertain only to some of the cigarettes sold on Indian reservations. The amended version of Tax Law § 471-e is designed to serve dual goals, i.e., providing for the collection at the wholesale level of cigarette tax from non-Indians or Indians purchasing cigarettes off of their own reservation and exempting from the cigarette tax purchases made by qualified Indian consumers. In furtherance of the first goal, the statute mandates that "all cigarettes sold on an Indian reservation to non-members of the nation or tribe or to non-Indians shall be taxed, and evidence of such tax will be by means of an affixed cigarette tax stamp" (§ 471-e [1] [a]). In furtherance of the second goal, the statute creates a procedure enabling qualified Indians to purchase cigarettes for their "own use or consumption exempt from cigarette tax on their nations' or tribes' qualified reservations" (id.). Thus, with respect to the second goal, the statute provides for the distribution of Indian tax exemption coupons to Indian nations or tribes based upon a determination by the Department of Taxation and Finance (Department) of "probable demand of the qualified Indians on such nation's or tribe's qualified reservation plus the amount needed for official nation or tribal use" (§ 471-e [2] [b]).

"A reservation cigarette seller [may] present such Indian tax exemption coupons to a wholesale dealer ... in order to purchase stamped cigarettes exempt from the imposition of the cigarette tax. Qualified Indians may purchase cigarettes from a reservation cigarette seller exempt from the cigarette tax even though such cigarettes will have an affixed cigarette tax stamp" (§ 471-e [1] [b]).

Subdivision (2) (c) of section 471-e prescribes both the form of the Indian tax exemption coupons and the information to be included thereon. Subdivision (3) of that section addresses the use of such coupons by an Indian nation, tribe or reservation cigarette seller to make purchases of cigarettes without payment of the cigarette tax. Subdivision (4) permits a wholesale dealer to seek a refund of a cigarette tax paid but not collected because the wholesale dealer accepted an Indian tax exemption coupon from its purchaser.

The Legislature provided that the amended version of Tax Law § 471-e "shall take effect March 1, 2006, provided that any actions, rules and regulations necessary to implement the provisions of [the statute] on its effective date are authorized and directed to be completed on or before such date" (L 2005, ch 63, part A, § 4).

The Department, however, did not take any action or promulgate any rules or regulations necessary to implement the statute on or before March 1, 2006. Rather, on March 16, 2006, the Department issued an advisory opinion setting forth its position that, consistent with its longstanding policy of forbearance (see generally Matter of New York Assn. of Convenience Stores v Urbach, 275 AD2d 520, 522-523 [2000], appeal dismissed 95 NY2d 931 [2000], lv denied 96 NY2d 717 [2001], cert denied sub nom. New York Assn. of Convenience Stores v Roth, 534 US 1056 [2001]), it would not begin enforcement of the statute on March 1, 2006. Despite the Department's position, defendant Attorney General of the State of New York concluded that the amended version of the statute was effective and subject to enforcement as of March 1, 2006. Based on the Attorney General's conclusion, defendant Assistant Attorney General sent a letter to Philip Morris and other cigarette manufacturers advising them that Day and other wholesale cigarette dealers were continuing to sell unstamped cigarettes to Indian reservations "in direct violation" of the amended version of Tax Law § 471-e, and warning them that such sales were a matter of "significant concern" to the Attorney General. Philip Morris responded by suspending sales to Day until Day provided assurances to Philip Morris and the Attorney General that it would not sell unstamped Philip Morris cigarettes to Indian reservations or, alternatively, until defendant State of New York provided assurances that the sale of unstamped cigarettes on Indian reservations was not in violation of applicable laws.

After Philip Morris suspended sales to Day, plaintiffs commenced this action asserting that, until the Department takes the actions necessary to implement the amended version of Tax Law § 471-e, the amended version is not in effect. By plaintiffs' order to show cause "with temporary restraining order" signed by Supreme Court, the court enjoined defendants from taking any action to enforce the amended version of Tax Law § 471-e "until a determination is made as to whether or not this Law is in effect." Plaintiffs moved for a preliminary injunction and defendants cross-moved to dismiss the complaint. The court granted the motion, denied the cross motion and preliminarily enjoined defendants from enforcing the amended version of Tax Law § 471-e "until such time as the [Department] has adopted the necessary rules and regulations to implement the Indian Tax Exemption Coupon System and has distributed Indian tax exemption coupons to the recognized governing bodies" of specified Indian nations and tribes. We conclude that the order should be affirmed.

Contrary to defendants' contention, we conclude that the effective date clause expresses the Legislature's intent that the amended version of Tax Law § 471-e would become effective only in the event that "any actions, rules and regulations necessary to implement" its provisions were complete on or before March 1, 2006 (L 2005, ch 63, part A, § 4 [emphasis added]). At a minimum, the actions, rules and regulations necessary for the implementation of the statutory scheme include the issuance of Indian tax exemption coupons. As defendants contend and plaintiffs correctly concede, there is no question that the Legislature intended to create a procedure that would permit the State to collect cigarette taxes on reservation sales to non-Indians and non-members of the nation or tribe while simultaneously exempting from such tax reservation sales to qualified Indian purchasers. Because both aspects of the procedure must function simultaneously, the Legislature provided for a system utilizing Indian tax exemption coupons to distinguish taxable sales from tax-exempt sales. Without the coupon system in place, cigarette wholesale dealers and reservation cigarette sellers have no means by which to verify sales to tax-exempt purchasers. The Legislature recognized the necessity of the coupon system when it provided that the statute "shall take effect March 1, 2006, provided that any actions, rules and regulations necessary to implement the provisions of [the statute] on its effective date are authorized and directed to be completed on or before such date" (L 2005, ch 63, part A, § 4 [emphasis added]).

Based on the necessity of the implementation of the coupon system to the functioning of the procedure set forth in the amended version of Tax Law § 471-e, we conclude that the effective date clause at issue in this case makes this case distinguishable from N.Y.A.A.D., Inc. v...