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The future of how New York treats the sales of products by Indian nations now rests in the state's highest court.

Lawyers for the state and non-Indian business interests squared off before the Court of Appeals Tuesday in a case with sweeping legal, economic and political implications.

At issue is whether the state has to collect taxes on gasoline and tobacco products sold on Indian reservations to non-Indians. The case comes a year after Gov. Pataki first tried to collect the taxes, estimated to cost the state $100 million a year in lost revenue. In the aftermath of violent outburst on several reservations, Pataki last May backed off his insistence that the state get the sales tax money.

"The people of this state are being harmed," David Cherubin, a lawyer for the New York Association of Convenience Stores, told the appeals court justices at a hearing Tuesday.

The convenience store group, supported by petroleum interests in the fight, sued to forced Pataki to enforce the state's sales tax laws.

The groups claim businesses near reservations are being forced to unfairly compete with the Indian nations.

But Patrick Feeley, a Manhattan lawyer for the Seneca Nation of Indians, told the court it is "ironic" that the non-Indian business interests are claiming they are the victims of discrimination.

"This court, as well as all New Yorkers, is well aware of the abuse, the near extermination and callous discrimination the Seneca Nation and all Indian nations have endured for centuries. . . . Let's look at this unfairness issue in the proper perspective," Feeley said.

The non-Indian business groups, however, say state law already has decided that the taxes should be collected and that Pataki's tax department can't unilaterally decide not to enforce the law.

But Pataki's lawyers insisted they tried enforcing the law last year, but it didn't work.

Moreover, Andrew Bing, an assistant attorney general in the Department of Law, said there is "some rational basis" for treating taxation of products differently on Indian reservations.

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