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Legislators vote to raise taxes on cigarettes <br> Mandate collection on sales by Indians

Cigarette taxes imposed in the state will become the nation's highest under a measure approved Monday by the State Legislature. The state also will end two decades of debate by requiring the collection of taxes on cigarette sales by Indian retailers.

The moves against the tobacco industry and Indian cigarette merchants were driven by a revenue-finding frenzy -- in this case, $440 million in additional tax receipts -- by Gov. David A. Paterson and the Legislature trying to close the state's deficit.

The state's excise tax on cigarettes will rise July 1 by $1.60 per pack, to $4.35. The levies on cigars, snuff, chewing tobacco and pipe tobacco also will rise sharply, based on weight or wholesale prices. "Little cigars," growing in popularity with teenagers, will be taxed like cigarettes.

The legislation will permit the collection of taxes on cigarette sold by Indians to begin Sept. 1, a move the state has threatened for years. But critics said the measure includes a loophole to make it easier for Indian tribes, including the Seneca Nation, to seek redress in federal courts.

The bill also does not end tax-free Indian sales of noncigarette tobacco products, such as cigars, and does not cover gasoline sales. It also could make it easier, and more lucrative with the increase in cigarette taxes, for Indian businesses to manufacture and sell tax-free their own brand of cigarettes, an increasingly popular route in this state.

Talks slowed Monday on reaching a final, overall budget deal, but lawmakers kept insisting the budget for the current fiscal year can be wrapped up this week. Remaining issues include state aid levels for public schools and whether to begin property tax relief efforts.

The delay in a final deal is giving various interest groups time to lobby for limiting cuts in their programs or avoiding new taxation.

Even state agencies were getting in the act. The Board of Regents today will approve a contingency plan to cancel some annual standardized tests -- including possibly social studies exams for fifth- and eighth-graders and Regents' tests administered in January -- unless the state comes through with at least $7 million.

The State University of New York also found itself facing stronger public opposition in its major effort to relax some state controls, let it raise tuition annually and keep more of the tuition proceeds to benefit campus programs instead of going to the state's general funds.

Assembly Speaker Sheldon Silver, repeating the positions of some of his fellow Democrats, said the plan, pushed heavily by the University at Buffalo, would harm poor students.

The SUNY issue is just one of dozens of major matters on the table as lawmakers try to wrap up the budget in the next week or so and complete action on other bills before the end of the current session.

Monday night, the Senate approved a bill passed Friday by the Assembly to provide more than $20 billion for transportation and economic development programs.

In 12 weekly emergency bills since the fiscal year started April 1, about 70 percent of the budget has been enacted.

On the tobacco front, supporters said the higher taxes and collection on sales by Indians will produce a public health benefit by reducing the number of smokers by tens of thousands while bringing the state sorely needed tax revenues.

"Gov. Paterson has achieved what previous governors could not: a real plan to finally enforce our tax laws," said Sen. Jeffrey D. Klein, D-Bronx, and longtime supporter of collecting taxes on sales by Indians.

Seneca leaders took a different view.

"This is nothing less than a deliberate effort to sabotage our federal treaty rights and rape our economy to bail out New York State," Seneca President Barry E. Snyder Sr. said in a statement. "Gov. Paterson and members of the State Legislature should be ashamed of themselves for looting our economy because they've squandered theirs through overspending and poor management."

Snyder said 3,000 Seneca and non-Indian employees of Seneca-owned tobacco businesses risk losing their jobs if the tax is collected.

The state has tried to collect the taxes since the early 1990s. It's most serious effort, in 1995, led to a retreat following violence along the Thruway during a protest by Native Americans. One Seneca leader, J.C. Seneca, told The Buffalo News on Friday that the collection plan represents "an act of war" between the state and Indian tribes.

Not all tax collection advocates were pleased. Altria Group, which owns tobacco giant Philip Morris, and others had a small army of lobbyists at the Capitol on Monday trying to get amendments into the bill to ensure collection of the tax on sales by Indians.

They noted that 115 words buried in the bill create a loophole allowing the governor to settle any current or future federal lawsuits with Indian tribes without legislative approval. That, they argued, could lead to different collection efforts across the state.

Industry groups and some lawmakers said they feared the state will raise cigarettes by $1.60 per pack and will not, in the end, collect on the Indian sales, giving Indian merchants a $43.50 per carton pricing advantage over non-Indian retailers just on excise taxes.

"This is an old trick," said Assemblyman James Hayes, R-Amherst, told his colleagues during a floor debate. He said governors, as recently as 2008, have put revenue estimates on Indian tax collections into state budgets to increase spending only to back down later on the collection effort.

"It will be implemented because we need the money," Assemblyman Herman D. Farrell Jr., a D-Manhattan, and chairman of the chamber's Ways and Means Committee, vowed on the Assembly floor.

Sen. George D. Maziarz, R-Newfane, spoke of possible violence and "clash of cultures" Sept. 1 if tax collections begin on sales by Indians.

Besides the cigarette tax increase, taxes on such tobacco products as cigars will rise from 46 percent of the wholesale price to 75 percent. Taxes on snuff and chewing tobacco, taxed by weight, would more than double to $2 per ounce.

James Calvin, executive director of a trade group representing convenience stores, worried that the state will end up not collecting taxes on Indian-sold cigarettes, which, with the $1.60 per pack increase, simply would give smokers more reasons to avoid retailers who must charge the tax. "Is there anything else in the world that can be taxed in New York State other than tobacco to address this budget situation?" he asked.

But health groups said the higher tobacco taxes will reduce the number of adults who smoke by more than 100,000 and keep especially price sensitive teenagers from taking up smoking in the first place.

"It's going to have a great impact," said Julianne Hart, advocacy director for the American Heart Association in New York.

e-mail: tprecious@buffnews.com

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