Bloomberg Stands By “Cowboy” Remark in State Cigarette Tax Dispute with Seneca Tribe

New York’s cigarette tax of $4.35 (raised this year from the already-high $2.75) is sufficiently high relative to its neighbors to induce schemes to bring in cigarettes from out-of-state. Determined to overcome this resistance, the state is thinking up new efforts to clamp down on smuggling and illegal sales.

One is by going after the Seneca tribe of Native Americans. Cigarettes are sold on tribal lands, and the state tax does not apply as it is sovereign land. New York is unhappy with this arrangement – in 2005, the tribe sold as many cigarettes as the rest of New York altogether – and they claim that New Yorkers are illegally smuggling cigarettes from the reservation to the state. So they passed a law, to go into effect today, requiring the Seneca to collect New York cigarette tax on sales to non-tribal members, if the cigarettes are bought wholesale from outside the reservation.

The Seneca, who rely heavily on the sale revenues themselves, went to court and got a federal judge to suspend implementation of the new tax requirement. The Oneida and Onondaga, two other nearby tribes, will stop buying wholesale and switch to brands produced on the reservation. New York was hoping for $150 million from the scheme, but that probably won’t happen.

New York City Mayor Michael Bloomberg tastelessly implied the use of more brutal force against the Seneca for refusing to collect New York taxes on their reservation:

Bloomberg said on a radio show that Paterson needs to grab a “cowboy hat and a shotgun” and demand the money himself.

The Seneca Nation reacted harshly, demanding that the mayor either apologize or resign, calling on Paterson to distance himself from Bloomberg and threatening to pursue a hate crimes case against him.

Bloomberg’s office said no apology or resignation would be forthcoming and that the tribes should just “follow the law.”

This is a classic case of states reaching across jurisdictional lines to use force to prop up a broken tax system. New York’s high cigarette tax is causing these problems, and to ameliorate them, the state should bring it in line with competitors.

More on cigarette taxes here. Previous:

• Seneca Object to New York Cigarette Tax Law, December 18, 2008

Note: Updated to include New York’s new cigarette tax rate, effective July 1, 2010.