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State aims to collect Indian tax, but how?

New York State's budget will be in the hole $200 million if it does not begin collecting taxes this year on the sale of tobacco and petroleum products by Indian retailers.

That is the amount Gov. Eliot L. Spitzer and lawmakers agreed to place into the 2007 budget, as part of revenues needed to balance the state's fiscal books.

"It's another encouraging sign," said James Calvin, executive director of the New York State Association of Convenience Stores, which has been pushing for more than a decade to collect taxes on tobacco and gasoline that Indian retailers sell to non-Indians.

How the taxes will be collected, though, remains uncertain.

The Seneca Nation, the biggest sellers of Internet and mail-order cigarettes among Indian tribes, has made clear it will not become tax collectors for the state. The Senecas point to treaties dating to the 1790s that they say make today's tax-free tobacco commerce legal.

The Spitzer administration has not revealed how it intends to collect the tax. A law is already on the books requiring the state to collect the tobacco tax at the wholesale level before the products reach Indian retailers. Former Gov. George E. Pataki did not enforce that law.

The new state budget counts on $124 million in cigarette excise taxes now sold tax free on Indian reservations being collected and turned over to Albany, according to Christine Pritchard, a Spitzer spokeswoman.

When petroleum products are included, the state assumes $200 million in its new financial plan will come from taxes on products currently sold tax free by Indian retailers.

Seneca President Maurice A. John said Tuesday he is disappointed the state included the $200 million from Indian sales in its budget. Seneca lawyers are trying to work out some kind of compromise, he said.

Can a compromise be reached?

"I'm not a fortuneteller," he responded.

For now, the Spitzer administration is negotiating. While tax and state police officials have examined the possibility of collecting the taxes through direct enforcement of the tax stamp system, all sides remember the violence along the Thruway in 1997, the last time the state tried to collect.

The state recently signed a tentative deal with the St. Regis Mohawks to collect taxes on its northern New York reservation. The agreement was part of a broader deal involving a proposed Catskills casino for the tribe.

Talks are under way with other tribes on the tax issue, according to Darren Dopp, a Spitzer spokesman.

"We are encouraged by their willingness to discuss the matter. It is much too early to determine what the outcome will be, but the talks are substantive," Dopp said.

Conversations between the state and Seneca Nation are scheduled for later in the week, he added.

Compared to other tribes in New York, the Senecas have the most at stake. The tribe has some 200 tobacco and gasoline businesses on its two reservations.

Taking advantage of New York's relatively high excise tax of $1.50 per pack, not including sales tax, the Indian retailers have thrived on selling to high-tax areas, such as New York City, where a local tax adds another $1.50 per pack to the state levy.

Legislators have estimated that more than $400 million a year in revenue is lost to Indian tax-free tobacco sales. The $124 million the state expects to take in this year is far lower than that sum, in part, because the state does not anticipate the collections will occur during the entire fiscal year.

One plan kicking around Albany is for Spitzer to strike separate deals with Indian tribes that would have the Indian retailers charge the excise tax, but then the tribe would get to keep half the revenues.

For the Senecas, that would make their tobacco products priced at about the same level as those sold by non-Indians -- probably drying up much of their market.

Advocates of collecting the tax say the issue will be a major test for the new governor, who has vowed that he will collect the taxes.

"It was encouraging when Governor Spitzer put it in his proposed executive budget, and it's even more encouraging now that it is officially part of the 2007-2008 state budget," Calvin said of the tobacco revenue estimate. "We are still very anxious for the law to be enforced. We hope that Governor Spitzer will act sooner rather than later."

News reporter Dan Herbeck contributed to this story.

e-mail: tprecious@buffnews.com

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