Federal Court Orders Long Island, N.Y. Tribal Smoke Shops to Stop Selling Untaxed Cigarettes to General Public

Washington, D.C. — In a major victory for public health and New York taxpayers, a federal judge in Brooklyn, N.Y. has ruled that cigarette selling businesses based on Indian tribal lands are not exempt from federal, state or New York City tax laws. Judge Carol Bagley Amon of the U.S. District Court for the Eastern District of New York has issued a preliminary injunction stopping smoke shops on the Poospatuck reservation on Long Island, N.Y from selling and distributing cheap, tax-free cigarettes to non-tribal customers. Judge Amon's ruling will not only increase New York City and State cigarette tax revenues but also, by collecting taxes and raising prices, directly reduce New York smoking rates and related harms and costs.

The ruling came as a result of a federal lawsuit filed by the City of New York and New York mayor Michael Bloomberg claiming that the city and state had lost $840 million in tax revenue as the result of illegal cigarette sales and trafficking by the smoke shops on the Poospatuck reservation. Judge Amon ordered that tax-free cigarettes could be sold by the smoke shops only to members of the Unkechaug tribe, which controls the reservation, and not to the general public.

This lawsuit is the first instance of a state or locality successfully using the federal Contraband Cigarette and Smokeless Tobacco Trafficking Act, which was amended in 2006 to allow for state and local enforcement to stop tax-evading cigarette sales and deliveries. Judge Amon's ruling shows that states and localities can effectively stop tax-evading sales of tobacco products on or from tribal lands, while fully respecting tribal sovereignty rights, simply by taking full advantage of available laws and legal procedures.

Mayor Bloomberg's successful efforts to stop illegal tobacco sales from tribal lands in New York stand in sharp contrast to the lack of effective action by New York State Governor David Patterson. Laws are already on the books that give the state government broad authority to collect taxes on cigarettes sold on tribal lands, while fully honoring tribal sovereignty and immunity rights. Governor Patterson's reluctance to implement or effectively enforce these laws is depriving the state of hundreds of millions of dollars in needed tax revenue. At the same time, the sale of cigarettes at low, tax-free prices directly increases overall smoking rates and smoking-caused harms and costs throughout New York State.

Governor Patterson should follow Mayor Bloomberg's example and take more aggressive action to stop the sale and trafficking of tax-free cigarettes from tribal lands. Ideally, the Indian tribes will enter into mutually beneficial agreements with the state to collect and share all taxes owed on tobacco products sold on or from tribal lands. But if the tribes do not cooperate, Governor Patterson should take full advantage of existing law, as clarified in Judge Amon's ruling and other court decisions, to stop the illegal trafficking of tax-free cigarettes on tribal lands.

Other states and localities would do well to follow New York City's example and use all the existing laws that can be validly applied to stop illicit cigarette smuggling and tax evasion. Judge Amon's ruling proves that the federal Contraband Cigarette and Smokeless Tobacco Trafficking Act is an extremely effective new tool for state and local law enforcement. More state and local governments should consider using it to protect their tobacco tax revenues and improve public health.