Proposed Cigarette Tax Collection Regulations:
Good Step, Now Let's See Follow-Through
On February 24, the NYS Department of Taxation and Finance announced that it is issuing proposed regulations "that would limit the quantity of tax-free cigarettes that may legally be supplied to the Indian nations or tribes" and rescinding its long-standiong "policy of forbearance" on the lawful collection of taxes on tribal sales of cigarettes to non-Indian customers.
The Department said the proposal "would serve to address a longstanding issue that has proved problematic for previous administrations and frustrating for local, non-reservation retailers who have not been able to compete for sales on a level playing field."
Issuing the proposed regulations is the beginning of a public comment period and administrative review process, not the start of tax collection. But it is a welcome sign that Governor Paterson is serious about trying to resolve the issue. It is a positive step. But it is a step that has been taken by the Tax Department several times in the past 10 years, each time ending with the regulations either being repealed or abandoned.
The new regulations spell out how the Department would enforce the 2008 Magee-Nozzolio bill, rather than the original March 2006 law requiring collection of these taxes. Both measures were designed to accomplish the same goal. The 2008 Magee-Nozzolio bill was passed by the Legislature out of frustration that the 2006 law wasn't being enforced. It was signed by Governor Paterson but subsequently frozen by a court injunction, which the Governor now says he will seek to overcome by proposing new legislation clarifying the law.
Under the new regulations, wholesale distributors would be required to certify, under penalty of perjury, that they have pre-paid the state taxes on all the cigarettes they are selling to an Indian tribe except the quantity that has been approved as tax-exempt under a probable demand formula spelled out in the new regulations. These tax-exempt quantities will be calculated by the Tax Department for each tribe periodically and posted on the Department's web site, and the wholesalers would have to adhere to them. Interestingly, there is no mention of the Indian tax-exemption coupons prescribed by the Tax Law.
The administration's choice to focus the regulations on the 2008 law means that they only pertain to cigarettes, not motor fuel, a glaring omission.
They plan to publish the proposed regulation in the March 10 New York State Register. The State Register notice will trigger a 45-day public comment period, during which opponents of fair tax collection will likely mount an expensive print, broadcast and online advertising campaign to pressure the Paterson administration to back off. Then the Department would spend a period weeks or months reviewing the comments and weighing possible changes to the proposed regulations. If and when the final regulations are published in the State Register, they would take effect the first day of the quarter after publication.
Below are the Tax Department press release, text of the regulations and related documents.
Press release on Proposed Regulations
Text of Proposed Regulations
Regulatory Impact Statement
Regulatory Flexibility Analysis for Small Business and Local Governments
Rural Area Flexibility Analysis
Job Impact Statement