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Indian tribes make own cigarettes to avoid n.y. tax –

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Inside, employees of the Oneida Indian Nation dump the shredded tobacco leaves into rolling machines and fashion them into cigarettes to be sold at a dozen tribal convenience stores midway between Syracuse and Utica.

The cigarettes, branded with names like Niagara s and Bishop, sell for as little as $39.95 for a 10 pack carton much cheaper than those at non Indian retailers and bring in millions of dollars a year to the tribe, which also has a resort casino, five golf courses and a multimedia production house.

“We tried poverty for 200 years,” the Oneidas leader, Ray Halbritter, said in an interview. “We decided to try something different.”

The Oneidas cigarette manufacturing business is part of a new strategy that is quickly being embraced among New York s eight federally recognized Indian tribes. After years of fighting a losing battle against the state over the taxation of name brand cigarettes sold on reservations, many are now manufacturing their own cigarettes.

The tribes argue that because they are sovereign nations, the cigarettes they make are exempt from the state s $4.35 a pack excise tax, the highest in the United States. But the tobacco industry and owners of other convenience stores say tribal cigarette manufacturing is just an elaborate form of tax evasion.

The administration of Gov. Andrew M. Cuomo, which pursued the legal fight to tax name brand cigarettes sold on reservations, asserts that New York has the right to tax Indian made cigarettes sold to non Indians. But it has done little to test or enforce that claim, leaving the tribes, at least for the moment, free to sell their own cigarettes at cut rate prices to any and all comers.

Some tribes fear that the state could try to intercept trucks ferrying their cigarettes on state roads. The Cuomo administration has thus far opted not to do that, but the State Police and other law enforcement agencies have seized more than 60,000 cartons of Indian made cigarettes discovered in trucks pulled over for traffic violations over the last eight months.

A few Indian entrepreneurs have long manufactured their own brands. Smokin Joes, for example, have been produced on the Tuscarora reservation, near Niagara Falls, since 1994.

But the practice is now spreading rapidly. Though the tribes do not release sales figures for their brands, industry experts believe there are now at least a dozen Indian cigarette manufacturers operating across upstate New York, more than in the other 49 states put together.

A month before Mr. Cuomo took office, the Cayuga Nation paid $135,000 for a former scrap metal plant in the Finger Lakes region, and last year started producing Cayuga brand cigarettes, which it offers at two Cayuga owned stores and also sells to other Indian owned retailers.

And cigarette production is booming on the St. Regis Mohawk reservation in the North Country and at the Seneca Nation of Indians in western New York. There are four cigarette manufacturing enterprises on Seneca land, and around the tribe s Cattaraugus territory, near Lake Erie, white placards advertising Buffalo, Gator and Senate cigarettes dot the roadside.

The Onondaga Nation, with territory near Syracuse, is also considering establishing its own manufacturing operation.

J. C. Seneca, a tribal councilor who started selling cigarettes out of a trailer two decades ago, began making his own cigarettes on Seneca land four years ago. His plant, behind a tobacco shop that serves also as a gas station and diner, is a modest operation his production line requires about a dozen workers, and his equipment, imported secondhand from England and carefully maintained like a vintage car engine, dates to the 1980s.

“I always believed that there was another day coming, and I wanted to be prepared,” Mr. Seneca said. “Now, Marlboro s out, and we re in.”

The Oneidas jump started their manufacturing efforts by buying a private cigarette maker they paid $6.6 million in 2008 for Sovereign Tobacco, which had a plant in an old grocery store in Erie County. The tribe then moved the plant s equipment to the former bingo hall, a nondescript metal warehouse down the street from the longhouse where the Oneida tribal council holds meetings.

For the tribe, which has about 1,000 members, tobacco manufacturing is just one of several business ventures, including the Turning Stone resort and casino, which altogether employ more than 4,500 people in this part of the state. Unlike in some other Indian nations, the Oneida cigarette business is run by the tribe, not private entrepreneurs the proceeds support programs like college scholarships, housing assistance and a health clinic.

“It s not what we wanted to do,” Mr. Halbritter, the tribe s leader, said. “It s all we could do.”

Mr. Halbritter lamented that tobacco had come to symbolize the tensions over sovereignty. “It s sort of a shame that it has to be cigarettes, which is very distasteful to us,” he said. “Yet at the same time, the principle is the same, if we were manufacturing whatever it was.”

New York s governors have for years tried, and failed, to collect taxes from tribes for cigarette sales. The sales are substantial in the first six months of 2011, for example, the state s Indian nations imported 9.6 million cartons of brand name cigarettes, according to the State Department of Taxation and Finance.

The issue was recast last year when the state won a court ruling allowing it to demand tax payments from the American wholesalers that were supplying cigarettes to tribes for resale. The tribes then stopped buying the name brand cigarettes and resolved instead to stock the shelves of their convenience stores with their own cigarettes.

“Premium brand untaxed cigarette sales have virtually disappeared,” Edward Walsh, a tax department spokesman, said.

The New York Association of Convenience Stores, which had urged Mr. Cuomo to collect taxes on name brand cigarettes sold by tribes, is now pushing the governor to target Indian brands. “There remains an enormous tax evasion problem to be addressed,” James Calvin, the association s executive director, said.

David Sutton, a spokesman for Altria, the parent company of the country s largest cigarette maker, Philip Morris, said, “All cigarettes sold to non Native American New Yorkers need to be tax paid regardless of who manufactures them or New York State will continue to lose legitimate and significant tax revenue, and law abiding retailers will continue to be impacted by cigarette tax evasion.”

Howard B. Glaser, the director of state operations for Mr. Cuomo, said the state believed it had the right to collect taxes on the sale of Indian made cigarettes to non Indians. But Thomas H. Mattox, the state tax commissioner, said it was “much more efficient” for the tax department to focus enforcement efforts elsewhere.

“It s much easier mechanically to operate at the wholesale level than it would be to literally go store by store, or reservation by reservation, to collect that excise tax,” Mr. Mattox said. “We really have not talked about on reservation activities.”

The tax dispute has one clear beneficiary budget conscious smokers, who in many cases say they are compromising on convenience and the taste of their cigarettes.

“They re cheap,” said Danielle Silipo, a correctional officer from Rome, who was buying cigarettes the other day at
one of the Oneidas SavOn gas station convenience stores, which, with their green and yellow color scheme, are ubiquitous in this area. A sign on the door featured the logos of the tribe s four brands, with the message, “Why pay more?”