N.Y. C-Store Industry Sues Pataki

Tax fairness at heart of matter, group says

Published in CSP Daily News

ALBANY N.Y. -- New York's convenience store industry filed a legal action against the Pataki administration for a breach of its constitutional duties that is costing the state's taxpayers $1 million a day, according to the New York Association of Convenience Stores (NYACS).

The group filed the lawsuit in State Supreme Court in Albany County; it seeks an order directing Governor George Pataki and state Tax Commissioner Andrew Eristoff to enforce Sections 471-e and 284-e of the Tax Law, which require collection of state sales and excise taxes on the vast [image-nocss] quantities of cigarettes, motor fuel and other products sold by Native American stores to non-Native American state residents.

The suit also seeks an injunction barring wholesale distributors of cigarettes from delivering untaxed cigarettes to Native American tribal stores in violation of the law. By offering dramatically but artificially lower prices, the tribes have lured countless non-Native American customers away from licensed, tax-collecting c-stores, NYACS said.

The Pataki administration's outright refusal to collect these taxes has abetted a tax evasion epidemic that not only costs licensed retailers more than $1 billion a year in lost sales, the group said, but also costs state government at least $450 million a year in lost tax revenueabout $1.2 million every day. That means the other forms of tax New Yorkers pay are subsidizing someone else's tax-free purchases.

Three times, Gov. Pataki took an oath to faithfully execute the laws of New York State, said James Calvin, President of the New York Association of Convenience Stores, the lead plaintiff. He and Commissioner Eristoff don't get to pick and choose which laws to enforce. It desecrates the constitution, and it hurts taxpayers and small businesses.

He added, We respect the right of Native American tribes to operate commercial enterprises, and the right of licensed distributors to supply them with legal products. But in conducting commerce with non-Native American consumers, everyone in the supply chain should play by the same rules, including collecting state and local taxes.

The March 1 law requires that wholesalers pre-pay the taxes before delivery to the tribal store, but that an exception be made only when the store presents state-issued tax-exempt coupons to the distributor. The U.S. Supreme Court has held that New York is entitled to collect taxes on purchases by non-Native American customers from Native American retail outlets, and that a similarly designed system for collection was constitutionally sound.

While the legal action focuses primarily on cigarette taxes, the new tax collection law applies to cigarettes, motor fuel and other products sold by Native American outlets, NYACS said.

Represented by the Scott Group PLLC and Kelley Drye & Warren LLP, the plaintiffs are NYACS and c-store retailers Nice N Easy Grocery Shoppes, Canastota N.Y., and MWS Enterprises Inc.,, East Amherst N.Y.

Named as defendants in addition to Pataki and Eristoff were wholesale distributors known or believed to supply various New York Native American tribes with untaxed cigarettes, including Day Wholesale Inc., Tupper Lake N.Y.; Milhelm Attea & Bros., Buffalo N.Y.; Gutlove & Shirvint, Long Island City N.Y.; Mauro Pennisi, Lindenhurst N.Y.; and Frank Colucci Inc., Niagara Falls N.Y. The suit seeks a preliminary injunction barring them from selling unstamped cigarettes to tribal customers.

NYACS wrote to cigarette distributors March 1 urging them to obey the new law. Since then, at least two other distributors are believed to have ceased delivery of untaxed cigarettes to Native American retailers, the group said.