MATTER OF NEW YORK ASSOCIATION OF CONVENIENCE STORES v. Urbach

• Decision Date: 03 August 2000
• Citation: 275 A.D.2d 520,712 N.Y.S.2d 220
• Court: New York Supreme Court — Appellate Division
• Parties: In the Matter of NEW YORK ASSOCIATION OF CONVENIENCE STORES et al., Appellants,<BR>v.<BR>MICHAEL H. URBACH, as Commissioner of the Department of Taxation and Finance of the State of New York, et al., Respondents.

275 A.D.2d 520

712 N.Y.S.2d 220

In the Matter of NEW YORK ASSOCIATION OF CONVENIENCE STORES et al., Appellants,

v.MICHAEL H. URBACH, as Commissioner of the Department of Taxation and Finance of the State of New York, et al., Respondents.

Decided August 3, 2000.

Peters, Mugglin, Rose and Lahtinen, JJ., concur.

Crew III, J. P.

This litigation arises out of the sale of tobacco and fuel products by Indian retailers to non-Indians on Indian reservations. Tax Law articles 12-A, 20 and 28 impose sales and excise taxes on tobacco and motor fuel sold within this State. While Federal law forbids collection of these taxes on goods sold on Indian reservations to enrolled tribal members (see, Moe v Salish & Kootenai Tribes, 425 US 463), such taxes are collectible when sales thereof are made to non-Indian customers (see, Washington v Confederated Tribes, 447 US 134).

In 1988, respondent Department of Taxation and Finance adopted regulations requiring reservation retailers to pay such sales and excise taxes. The regulations allowed Indian retailers to purchase a limited amount of untaxed tobacco and motor fuel based upon estimates of the demand for otherwise taxable goods by reservation members. All remaining allotments of tobacco and motor fuel were subject to State taxes.

Following adoption of the regulations, a proceeding was commenced by Indian merchants seeking to permanently enjoin the Department from enforcing them and, as a result, the Department then suspended implementation pending the outcome of that litigation. Ultimately, the US Supreme Court held that the regulations were not preempted by Federal law (see, Department of Taxation & Fin. v Milhelm Attea & Bros., 512 US 61). In spite of the outcome of that litigation, the Department continued its nonenforcement policy, as the result of which petitioners, trade organizations representing convenience stores and corporations owning and operating retail stores in New York that sell tobacco and motor fuel, initiated this CPLR article 78 proceeding seeking to compel respondents to determine, assess and collect the taxes relating to the sales of those products when made to non-Indian consumers.

Following commencement of this proceeding, respondents unsuccessfully moved to dismiss the petition on the ground that petitioners lacked standing. Thereafter, Supreme Court granted the petition. On appeal, we found that petitioners had standing, but held that the favorable treatment afforded Indian retailers by the nonenforcement policy constituted a "suspect classification" based upon race. Because respondents sustained their heavy burden of demonstrating that such racially based policy was constitutional, we affirmed Supreme Court's finding in that regard (230 AD2d 338).

The Court of Appeals agreed with this Court that petitioners had standing based upon an equal protection claim. The Court disagreed, however, with this Court's conclusion that the Department's failure to enforce the tax laws constituted race-based discrimination subject to the heightened "strict scrutiny" analysis (92 NY2d 204, 212), concluding that Indian tribes possess attributes of sovereignty and that preferences may therefore be granted to them, not as a discreet racial group but as members of quasi-sovereign tribal entities. Accordingly, the Court of Appeals held that whether...