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New York State Cigarette Tax Report

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Long Island Press Cover Image about Taxing the Indian Cigarette Trade

In a stunning revelation this week, the federal government has concluded the Shinnecock Indians are indeed Indians. The lightning pace at which they arrived at this determination can only mean we are days away from declaring independence from British rule and uniting the colonies!

This is not another column longing for the day when the United States comes to the realization federal recognition is a bogus, unilateral stamp of approval for a gaming license and has nothing to do with the qualifications of a group’s “Indianness.” It’s as ludicrous as it is insulting. It cannot, however, match the absurdly racist and discriminatory report authored by State Sen. Craig Johnson (D-Port Washington) and released the same week as the Shinnecock Nation celebrates the farcical honor of being told they actually exist.

The report issued by Johnson’s committee is the result of several months of testimony and supposed research into the issue of tax collection on Indian reservation territories within New York State. The fact the committee chose the one week everyone knew the Shinnecock Nation was to achieve, at the very least, a moral victory and celebrate its federal recognition offers keen insight into the scandalously insensitive nature of these lawmakers. While New York State is hamstrung by infighting and ineptitude and barely staving off a historic shutdown, this committee issues a report so rife with inconsistencies and backward logic that it could have taken minutes, not months, to produce.

The only thing that is clear is this speciously crafted report, replete with one-sided arguments, is intended to obfuscate the fact that The Empire State is the primary culprit in squandering enormous sums of potential revenue from cigarette taxes. By affixing his name to this report, Johnson is less of a patsy in this regard than he is a “cleaner”—much like Harvey Keitel’s “Wolf” character in Pulp Fiction, here brought in to clean up Albany’s mess.

Much of the text in the report is written in a decidedly patronizing tone that attempts to assuage the ultimate message to Indian tribes of New York: Pay up or face the consequences. The committee rationalizes this stance by ignoring the numbers given by its own tax department and instead recognizing the more advantageous figures given by people who stand to gain from legislation that would negatively impact the tribes. The testimony of the tribes was an exercise in futility as it is glaringly apparent this committee and the “powers that be” in Albany are determined to continue their centuries-old mission to ethnically cleanse Indians from New York through economic warfare.

Unfortunately, none of this is a surprise. What is utterly disheartening was the conclusion of the 20-page report. The final line of the report simply states: “The State should revoke its recognition of the Poospatuck Tribe.”

First of all, the tribe is Unkechaug. The reservation is Poospatuck. Second, not only is there no legal precedent for this ridiculous recommendation, there have been numerous opinions written by New York State itself declaring this idea (not the first attempt at this) unconstitutional.

This recommendation can only be classified in the following categories:

A)      Stupid
B)      Ignorant
C)      Racist
D)     All of the above

For those of you keeping score at home, the correct answer is “D.” Attempting to revoke the status of a nation that predates our own and eradicate an entire race is the type of Machtpolitik that should evoke terror in our society. We should bristle at this type of caustic political language that stokes the fire of hatred and intolerance. Instead, the headlines referring to Indians on Long Island revolve around speculation regarding the location of a Shinnecock casino now that the tribe is federally recognized.

Recently, veteran White House correspondent Helen Thomas made a similar remark recommending all Jews leave Palestine and return home to Germany, Poland, the United States, and “everywhere else.” Helen Thomas, at least, had the good sense to hang up her cleats after allowing us to peer into her cold, black soul. Hers was an epic lapse in judgment caught on video by a citizen journalist that went viral. Conversely, the recommendation Poospatuck be obliterated was carefully considered over a period of months and delivered as the kicker in an official government report. There is no apology that can mitigate what was written and every person on this committee has been revealed for what they truly are: bigots. Unlike Helen Thomas, however, I doubt any of them will have the decency to retire.

Big Tobacco and US Government Seek to crush Indian Cigarette Trade

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Press Cigarette Cover

Cover Image from the Long Island Press cover story

Tucked away along a waterway in Mastic, Long Island is Poospatuck, the smallest Indian reservation in New York State. It means “Where the water meets” and is home to 400 enrolled members of the Unkechaug tribe of Native Americans. It’s difficult to discern where exactly the reservation begins and ends. There are no visible signs to guide your way, no glow from a towering casino to mark the spot. Once you happen upon Poospatuck, however, there’s no mistaking you have arrived.

Large billboards advertising native-brand cigarettes adorn the façades of several homes converted to tobacco shops and traffic moves briskly in and out of parking areas. People are finding their way here for one reason only: cheap cigarettes.

Harry Wallace is the elected chief of the Unkechaug Nation who has found himself at the center of one of the largest controversies facing Indian nations today. He is also the owner of Poospatuck Smoke Shop, a bustling retail enterprise nestled in a wooded area deep within the reservation. Hanging boldly from the deck of the quaint wood shop on Wallace’s property is a sign that reads “Sovereignty Yes, Taxes No.”

Behind the shop is an office where Wallace conducts the business of his enterprise and the tribe. On the right side of the office is a wall of legal books that remind visitors that Wallace is not just an entrepreneur but a lawyer, a skill that has proven vital to the survival of Poospatuck. As I enter, he is talking to his staff and admits to being slightly irritable due to a strict diet and having recently kicked the caffeine habit.

“I’m trying to take care of my health,” he says.

Poospatuck Smoke Shop

A front view of the Poospatuck Smoke Shop, owned by Unkechaug Chief Harry Wallace.

Wallace was recently diagnosed with diabetes, one of the most common diseases plaguing Native Americans. This affliction makes him a statistic. Harry Wallace hates being a statistic.

Born in Flushing, Queens, Wallace lived there until his grandmother’s house burned down, forcing his family to move to Williamsburg, Brooklyn. As a kid he would make frequent trips to Poospatuck and recalls a beautiful place.

“People built their own homes and kept the powwow grounds in good shape,” he remembers. “They had socials and there was this old dock with rowboats and you could actually swim in the river.”

In the early ’70s, Wallace got what was then a rare opportunity for a financially supported college education at Dartmouth College in New Hampshire. This chapter in his life would change him forever and connect him with his heritage in a way he never conceived of before.

As it turns out, the Dartmouth years provided as much education as they did turbulence, as Wallace was at times confronted with blatant racism. “I ran into a conflict the first day I got there,” he laughs, recollecting a fight stemming from a racist comment made by a football player.

After college, Wallace moved back to Brooklyn to start a family and received his law degree from New York Law School. He began practicing law in New York City in 1983, which he did for nearly 10 years before returning to Poospatuck.

“My mother asked me to,” shrugs Wallace. “She said, ‘We need your help to take care of our land.’”
Upon his return he describes finding only “desolation.”

Gone were the pristine waters of his youth, sullied, he says, by industry and the refuse from duck farms at the mouth of the canal that Poospatuck lies adjacent to. The shellfish were gone and many of the residents who had existed on a marine economy had fallen into abject poverty; not an unfamiliar condition on reservation land throughout the country. Time and natural resources had run out for the inhabitants of this tiny reservation until the most unlikely of scenarios provided a dubious light at the end of a dark tunnel.

“It’s cigarettes, man.”

Because so many states have driven up the cost of cigarettes due to tax levies, they are cheaper to purchase from retailers on Indian reservations who don’t recognize government taxes on retail tobacco. The disparity has led to an economic boon that is creating newfound wealth and generating badly needed funds in some of the most poverty-stricken areas of the country.

But not everyone is happy about the burgeoning success of Native Americans. Many state and federal elected officials feel as though they are being cheated out of sorely needed tax dollars and anti-cancer advocates claim that tobacco consumption hasn’t decreased as a result of taxes; demand has merely shifted toward the unregulated Indian marketplace. Ironically, the biggest threat to the native cigarette industry may actually be from the cigarette companies themselves.

With the Great Recession as the backdrop to this unfolding drama, the stage is set for a David versus Goliath battle between Indian Country, the US government and Big Tobacco.

The price disparity between cigarettes available from reservations and traditional American-based retailers is at an all-time high. A carton of Marlboro cigarettes, the most popular brand in America, will run the consumer as much as $95 in New York City (NYC), where Mayor Michael Bloomberg has initiated an all-out war on smoking. The same carton costs somewhere in the neighborhood of $43 at a Native American-owned smoke shop on reservation land. This is the result of so-called “sin taxes” applied by state and local governments who use the additional tax to balance budgets and discourage consumption for public health reasons. While retailers and local municipalities have cried foul for several years about the inequity of cigarette pricing, it wasn’t until recently that these cries reached a fever pitch.

But the rise of the Native American tobacco entrepreneur has also contributed positively to the overall economic conditions on some reservation territories. The burgeoning Indian cigarette trade is having the ironic effect of creating tribe-funded public welfare systems that address health issues such as diabetes, drug addiction and heart disease that have crippled Native Americans.

The stunning growth of the Indian tobacco trade has drawn the ire of some powerful people and corporations, and together they are collaborating with remarkable efficiency to wage an epic political and economic war against Native American tribes. The cast of characters involved in the battle is like something out of the movie The Insider. Senators, governors, congressmen and women, local politicians, the U.S. Postal Service, Homeland Security and the mayor of Gotham are all playing key roles in targeting the native Indian tobacco trade. But it is Big Tobacco that is controlling the game and moving these powerful interests around the chess board like a master.

Don’t Tread on Us

New York State (NYS) is ground zero for the attack on the native cigarette trade. On one end of the spectrum, the 55-acre Poospatuck reservation is being called a bootlegger’s paradise and is a defendant in several high-profile lawsuits from neighboring municipalities. At the other end is this highly organized and extremely well-funded Seneca Nation, located on three territories in upstate New York. If Poospatuck is a minor league ball team in this scenario, then the Seneca Nation is the New York Yankees. Both tribes are fighting enormous, yet entirely different, political battles.

Chief Harry Wallace

Unkechaug Chief Harry Wallace is spearheading the fight to save the native cigarette trade on the Poospatuck Reservation

Despite the differences in size and resources, both nations cite the same reason for why the US government, at any level, is forbidden from interceding in their affairs: sovereignty. To understand sovereignty, it is helpful to think of these nations not as territories within US borders, but as geographically and politically independent nations far away. In every instance the theory of sovereignty is invoked by Native Americans, imagine it being invoked by leaders of small nations abroad instead of in your backyard.

The economic extremes that Poospatuck and Seneca Nation represent are as divergent as their take on the nature of sovereignty and the legal rights associated with it. For its part, Poospatuck is not federally recognized as a reservation, but it is recognized by NYS. Chief Wallace of Poospatuck believes that the fact the Unkechaug never sought federal recognition is perhaps an even greater claim of sovereignty than any agreement could possibly provide.

“The BIA [Bureau of Indian Affairs] cannot confer sovereignty,” scoffs Wallace. “All it was, all it is and continues to be, is an agency that manages funds. This whole notion of sovereignty was created as fiction during the Nixon administration. You cannot confer sovereignty, you can only recognize it.”

Conversely, the Seneca believe their sovereign rights are superior to other tribes who are federally recognized because Seneca territories in western New York are protected by what is known colloquially as the Buffalo Creek Treaty of 1842. The treaty explicitly states that the “lands of the Seneca Indians, within the State of New York” are protected from “all taxes.” For the Seneca people this is impenetrable language and the basis of their claim of total sovereignty and independence.

But as one quickly learns from reporting on Indian issues, nothing is absolute in Indian Country.

Chief Wallace believes that the Seneca stance may have deleterious repercussions on Poospatuck’s assertion of sovereignty. “When we negotiated with the state in the past we had a unified coalition with the League of First Nations,” says Wallace. “Most of the Indian Nations were a part of that coalition. That unified front is not there today.”

Robert Odawi Porter, the senior policy advisor and counsel to the Seneca Nation, offers a slightly different viewpoint. “We’re still united with other nations in the state but our constitutional government is what sets us apart. We’re a stronger and more functional government.” Then he carefully adds, “There are times that our advocacy is common.”

NYS Senate Hearing on Tobacco Taxation

Tribal members from all over New York gather at the State Senate hearing at Manhattan Community College.

Standing together at this time may be more important than ever before, as impending federal laws and mounting legal challenges against these nations have everyone running for cover, leaving the tribes to defend their economic rights on their own. Even a representative from the New York Civil Liberties Union said that Native American issues are “not our area of expertise” and declined to comment on the issue.

As to why no organizations or individuals are likely to come to their defense, it’s simple. As Chief Wallace says, “It’s cigarettes, man.”

The Long and Winding Trail

Because cigarettes have such a deservedly unsympathetic role in modern society, it’s no wonder there is little support for any cigarette retailers. Questions of fairness and free enterprise fly out the window due to the simple fact that cigarettes kill people. Even still, Wallace is incredulous at the attack on the Native American smoke trade for reasons beyond the economic peril it places them in.

“They’re the ones that turned a Native American sacrament into a carcinogen,” he says in disgust.

When America declared itself free, indigenous people were herded like animals onto isolated areas of the burgeoning nation. Stretches of remote desert lands and parcels nestled in the secluded woodland areas became homesteads for Native Americans. Their numbers were decimated and the survivors were humiliated. Yet, in the beginning, there was still food to eat and some freedom to move about. But the influx just kept coming.

Says Porter: “Personally I don’t think it sunk in with our people that the usage of our land was so severely restricted. We weren’t used to lines being drawn on a map.”

Over time, a sea of white faces pushed deeper and deeper into the country—slowly at first, then like a dam bursting, they rushed through the forests and across the plains. Pretty soon they were everywhere. They brought machines and ushered in the Industrial Revolution. Gradually, the skies turned gray, the waters turned brown and the earth lay fallow.

This part of the story took 400 years. The next part took much less time.

Native Americans became like prison inmates adapting to life on the “inside.” By the mid-20th century the Native American population living on reservation land was among the poorest on Earth. The game was long gone and the earth and seas were poisoned. Fast food, low-wage jobs and hustling were part of the daily routine. If you stayed, you hustled. And you probably drank. If you were a woman, there was a one-in-three chance of being raped in your lifetime.

This was life on “the res” and for many tribes, it still is.

JC Seneca

JC Seneca

For the most part, reservations are rural ghettos, forgotten wastelands with few opportunities to get ahead. This concept of “getting ahead” in America usually starts very simply. Find a job. Buy a home. Take out a home equity loan to start your business. As the business grows, you have the option of paying off that loan and securing business financing. But this is precisely where the Indian economic dream ends.

Because reservation land cannot be owned by anyone, the land and any structure on it cannot be leveraged. Put simply, if it cannot be repossessed, you can’t take out a loan on it. Therefore, even the most industrious Indian entrepreneur has been unable to tap into the source of financing that is behind nearly every great American story of growth and industry.

As an attorney, Chief Wallace was able to make a living practicing in New York City and save enough to open a business on the reservation. He credits his business savvy to this experience, saying, “I always worked for myself as a lawyer and not in a firm.” But expanding his business was more challenging. “I have tried many times to get credit. When [lenders] realize they can’t secure my building, the conversation always ends there.”

Then along came the ’80s and, for some tribes, everything changed.

The Indian Gaming Regulatory Act of 1988 articulated a one-size-fits-all approach to establishing gambling on Indian lands. For some tribes gambling brought indescribable wealth. For others it was marginally effective. For most it had little impact because their remote locations made it nearly impossible to draw large enough crowds to ensure profitability.

Other tribes, particularly in western states, found economic success by exploiting the natural resources beneath reservation lands. In one of the more ironic twists of fate, the barren lands turned out to be more resource rich than anyone would have anticipated. But just as selling cigarettes and running casinos present moral challenges, blasting apart the earth to retrieve fuel for an increasingly industrial world presents an ethical challenge to a population long considered to be stewards of the environment. But when faced with third-world poverty and few prospects for a better life, you do what you have to do.

Of all the paths that lead out of poverty, selling cigarettes became by far the most consistent and profitable trade for most reservations.

Tobacco Wars: In the Trenches

In January 2009, NYS Assemblyman Michael Benjamin (D-Bronx) floated a bill to remove “the Poospatuck Indian Reservation from being recognized as an Indian Tribe in NYS.” Benjamin introduced the legislation “in response to a New York Times investigation of the Poospatuck Indian tribe, which seems to be nothing more than a criminal enterprise.” When I visited Wallace late last year, he had choice words for Benjamin, calling him “a political hack whose premise is based on newspaper articles. You don’t deserve the seat you hold. No wonder the state is fucked up if you’re indicative of the talent that emanates from that office.”

But people like Benjamin are more of an annoyance than the gathering storm of deadly serious lawsuits that Poospatuck finds itself defending. In 2009, Judge Carol Amon of the U.S. District Court for the Eastern District of New York issued a ruling requiring Poospatuck to pay taxes on all cigarettes sold to non-natives from reservation smoke shops. Amon essentially ruled that Poospatuck could not claim protection as a sovereign entity.

With the Amon decision on appeal, the tribe caught a break shortly thereafter when Judge Kiyo Matsumoto, also of the Eastern District, issued a vastly differing opinion on a separate suit brought by Gristedes. Matsumoto found that the Unkechaug people of Poospatuck met the burden of proof of establishing that they are legally recognized as a sovereign tribe by federal standards. Although this is different than federal recognition by the BIA, for Poospatuck it is just as powerful and has provided temporary cover. While Wallace is confident that the judicial system will ultimately clear Poospatuck of the immediate hurdles, the fight is taking its toll.

Through it all, NYC and NYS assert that Poospatuck is little more than a weigh station for cheap, untaxed and unstamped cigarettes that are being sold in massive quantities off the reservation. The state, during the waning days of the Cuomo administration, crafted legislation to establish a couponing system that would track these sales and require reservations to pay taxes on all cigarettes sold to non-native customers. Any cigarettes sold to enrolled members of the tribe would be exempt from the tax. The New York tribes were up in arms, having not been consulted on the matter, and argued that any law passed by a foreign government such as New York that is not recognized and adopted by the tribes themselves is unenforceable.

The Pataki administration attempted to enforce the regulations, known as 471-e, in 1992 and 1997. Both attempts were met with angry throngs of organized and armed Indians who blockaded the NYS Thruway, held up traffic and burned tires in protest, ending in a standoff with state troopers. Wishing to avoid further conflict, the Pataki administration instituted a policy of forbearance, which basically acknowledges that although New York deems the law to be valid, without tribal consent there is no clear and official method of enforcement, and the issue was dropped.

Desperate to close a rapidly expanding budget deficit yet anxious to avoid similar conflict, NYS Gov. David Paterson sent a letter last September to the U.S. Attorney’s Office, inquiring as to the level of support NYS could expect if it decided to pursue visiting a coupon program on Indian reservations.

It was the last line of the letter, which was leaked almost immediately, that provoked strong interest in several channels and brought the debate back to the front lines. In it, Paterson wrote: “I would be grateful if you would please review this matter and provide me with your assessment as to the likelihood of violence and civil unrest should the Tax Department begin the implementation of Tax Law 471-e. Furthermore, I would appreciate your operational commitment to help mitigate any disturbances that might occur in each of your Districts if implementation were to occur.”

Tribes throughout New York saw this as a shot across the bow and all eyes shifted to the Seneca Nation.

Richard Nephew

Richard Nephew, co-chair of the Seneca Nation of Indians Foreign Relations Committee

With the state running out of money, Mayor Bloomberg on the offensive in court and unrest among the tribes, the state legislature turned its focus to the tribes’ booming cigarette trade. In October 2009, the Senate Standing Committee on Investigations chaired by NYS Sen. Craig Johnson (D-Nassau) held a hearing to determine the extent of the loss in tax revenue to New York. In a spirited session before a packed room of Indians from nations across New York, the panel attempted to nail down an answer, which proved to be nearly impossible.

According to the testimony of William J. Comiskey, the deputy commissioner in the Office of Tax Enforcement, the department estimates “that if all cigarette transactions conducted through Native American merchants with non-Indians were properly taxed, New York would collect additional state revenue of approximately $220 million. Because complete compliance is not likely, the actual number achievable would be less.”

Eric Proshansky, from the Corporation Counsel of the City of New York, zeroes in on the Poospatuck Reservation in his testimony claiming that the deliveries to Poospatuck “amounted to a $155 million tax loss in 2007 alone, for the State alone.” He then concluded that “if those cartons replaced sales in the City, as the evidenced proved that many of them did, that amounts to City tax loss of up to another $155 million in 2007 alone.”

Steve Rosenthal, former tobacco retailer and frequent testifier at tobacco hearings, estimated the annual loss of tax revenue to NYS to be approximately $1.6 billion.

For his part, Proshansky is largely critical of the Paterson administration, stating that the “failure of the State of New York to enforce the laws with respect to reservation sales is directly responsible for the loss of many billions of dollars that rightfully should have gone into the public treasury.” He went on to say that, “It hardly seems like good public policy to leave so much lawful tax money in the pockets of bootleggers.”

Richard Nephew of the Seneca Foreign Relations Committee dismisses the city’s claims altogether. “Long before the Indians started selling cigarettes there was a black market of cigarettes heading into New York City,” Nephew tells the Press. “They’re just utilizing us as scapegoats.”

Yet with all of the talk about numbers of cartons and billions of dollars lost to reservations, the city and state are reluctant to talk about how much is lost to bordering states and states as far away as North Carolina due to lower state tax penalties. For all of the attention that focuses on Indian reservations there is no discussion of requiring other states to curb the sale of tobacco to New York residents. Theoretically, if it abided by the same regulation, it is attempting to pass with respect to Indian reservations, then NYS should be sending state troopers into Pennsylvania demanding the records of all tobacco transactions to New Yorkers and payment thereof. This, of course, is never going to happen.

Up In Smoke?

The hearing began to head down a slippery slope when the panel brought JC Seneca, Tribal Councillor for Seneca Nation, up to testify. During the question and answer period, NYS Sen. Martin Golden (R-Brooklyn) said it was only fair that the New York tribes share the burden of the financial crisis, sending the crowd and the Seneca members into a frenzy. Sensing the growing anger of the attendees and referencing the conflicts during the Pataki years, Golden tried to strike a conciliatory note with JC Seneca, saying he didn’t seem like the type of person that would resort to violence. Seneca simply replied, “Then you don’t know me very well.”

Not wanting to agitate the situation further during the hearing, the committee members turned their attention to the governor’s representative. But Peter Kiernan, counsel to Governor Paterson, refused to take the bait when pressed aggressively by the committee. Reluctant to engage either the legislature or the tribes present, Kiernan offered testimony that included language like: “A US dollar spent on an Indian reservation in New York is a dollar put into motion in the New York State economy. Every time that dollar is re-spent or invested is good for New York.”

But with Gov. Paterson barely holding onto his office, there is blood in the water. On March 2, NYS Sen. Carl Kruger (D-Brooklyn) called for full compliance and the revocation of the forbearance policy and went as far as to call Gov. Paterson “a willing and active partner in a longstanding travesty that has hurt legitimate businesses and robbed billions from our state.”

In a statement issued exclusively to the Press, Seneca’s Richard Nephew fired back, saying: “It should occur to some that we are heading into an important election year for New York State politicians. I believe this is largely politics being played out for the public. Paterson, Klein, Kruger, Golden and others may be blowing their own brand of smoke, engaging in political theatrics against the backdrop of New York’s economic crisis.”

Perhaps in an effort to show strength during a troubled time, Gov. Paterson reversed his stance in recent weeks, proposing a new set of regulations that would essentially choke the supply to reservations located in New York.

Included in the regulations are exact calculations for how many cigarettes would be allowed to be delivered to reservations from certain state-approved wholesalers. The law calculates Poospatuck, for example, would only be allowed to take delivery of 8,100 packs of cigarettes every quarter. The calculations are based upon the number of enrolled members each tribe reports and the theoretical consumption on Indians who live on the reservation. Sales of any other tobacco in the state that is not through these approved retailers would be strictly prohibited and the manufacturers would then bear the burden and risk losing the ability to do business in New York.

This proposal is currently in the public comment period and will most likely be met with several reservation-based challenges for the courts to untangle once again. But in a state with as many problems as New York right now, these efforts are child’s play compared to what is taking place on the federal level.

Gods and Generals

There is impending doom for the tribes in federal legislation that seeks to curtail the growing Indian cigarette trade, known as Prevent All Cigarette Trafficking Act of 2009 (PACT). It’s an act that has the support of almost every sitting politician in America today. The act itself would prevent retailers from mailing cigarettes purchased by catalog or on the Internet through the U.S. Postal Service (USPS). Private delivery services such as United Parcel Service and Federal Express already have voluntary bans in place to prevent bulk mail order purchases of tobacco, but the USPS operates under no such agreement. Cancer organizations and elected officials are supporting PACT for the obvious reason of protecting public health by cutting off part of the cigarette supply chain, but there is another unlikely supporter of this bill: Big Tobacco.

The growing cigarette trade on tribal lands was never much of a concern to the multi-billion dollar tobacco industry until Native American retailers began manufacturing and promoting native-owned brands. Brands such as King Mountain and Seneca (unrelated to the tribe) have gained a tremendous following and begun encroaching on Philip Morris’ territory by gaining market share. This phenomenon has turned the relationship between Big Tobacco and Indian smoke shops on its ear. As the tobacco industry and US government combine efforts to attack Indian cigarette sales, the dispute between Big Tobacco and Indian Country grows by the day. Wallace has already banned all Philip Morris products and claims to have felt only a minimal impact to his gross sales.

As this relationship erodes, Philip Morris has ratcheted up its lobbying effort to support the government ban on shipping cigarettes through the mail. It’s a stance that on the surface seems confusing, but the tobacco industry is no stranger to the upside of paradox.

One of the most notable examples was the effect of the cigarette advertising ban on television and radio imposed in 1970. Due to the ban on broadcast advertising, the major tobacco companies at the top of the industry were able to protect their positions because a new entrant to the market was unable to effectively advertise its brand to a broad audience. Indeed, the advertising ban has contributed to freezing these positions in a time capsule with companies such as R.J. Reynolds (Camel), Lorillard (Newport) and worldwide leader Philip Morris (Marlboro) maintaining levels of market share domestically.

A more recent example was in 1998 when it appeared as though Big Tobacco might be dealt a significant blow. Under pressure from several states with massive pending lawsuits against them, Big Tobacco entered into a landmark agreement known as the Master Settlement Agreement (MSA). Under the terms of the deal, the tobacco companies would fork over $200 billion over a 20-year period to 46 states that enjoined in an action against the major tobacco companies. The states who received this money were then supposed to put the funds to good use toward health care and anti-smoking initiatives. In return, the tobacco companies would be indemnified from future claims against them.

Instead of Big Tobacco’s wallet being negatively impacted by the MSA, the opposite occurred, with the tobacco manufacturers simply hiking the base price of cigarettes to a level that covered the payments to the states while receiving full indemnification against future claims.

Big Tobacco’s ability to display contrition and a willingness to address public health concerns while reaping huge rewards as a result of this behavior provides a useful context in which to understand its support of the PACT Act. The only businesses affected by the ban on cigarettes in the mail are the native retailers who have exploited the tax disparity issue and reinvested into native-owned brands. By targeting this methodology, Big Tobacco gives the appearance of cooperating with the government, showing a concern for public health and eliminating competition for market share.

Native American entrepreneurs in turn became victims of their own success.

The last remaining step in the process, or nail in the coffin, is to guarantee passage of the PACT Act. So Big Tobacco tied it to an issue that most elected officials would never argue with: Terrorism.

Terrorism and Tobacco

In April 2008, U.S. Rep. Peter King (R-Seaford) issued a report titled “Tobacco and Terror.” The report attempts to draw a straight line between the sale of untaxed cigarettes on Indian reservations to non-Native Americans and terrorist groups such as Hezbollah. In it, King wrote: “It is possible for these Arab networks to rely on suppliers in lower tax states such as Virginia and North Carolina as well as Hezbollah-linked front companies in various free trade zones around Latin America. However, sources told the committee that in NYS the smuggling networks rely primarily on access to the Native American Indian reservations for tax-free cigarettes—for obvious financial reasons.”

King’s primary evidence is “a North Carolina based operation that forwarded a total sum of $100,000 to Hezbollah in 2000.” Before 9/11. Based upon this data, the report arrives at the conclusion that: “In just two months of illicit cigarette trade operations, a motivated terrorist cell could generate sufficient funds to carry out another September 11th-style attack, in which operational costs were estimated to be $500,000.”

That’s a pretty sensational conclusion from the evidence proffered in this report. But it may be all the fuel necessary to provide the impetus to pass the PACT Act. The link to terrorism has many, including Chief Wallace, concerned beyond the impact of this bill. “National Security interests,” he says, “may play a part in taking the rest of our land.”

PACT has seen relatively few bumps along the road to passage—quite a feat given the climate of severe partisanship that currently chokes Washington. The key to this lies in the main body of the bill authored by U.S. Sen. Herbert Kohl (D-WI), which says: “We can no longer continue to let terrorist organizations exploit weaknesses in our tobacco laws to generate significant amounts of money.” With that, Kohl closed the loop begun by King by linking the Altria (Philip Morris)-backed bill to prevent mail- and Internet-order tobacco retailing. Seneca Nation saw this coming.

“When Peter King came out with his report,” sighs Seneca’s Porter, “that was the brush that all Indians were painted with. Those types of propaganda are hard to fight against.”

JC Seneca was, however, not impressed with the new strategy. “We’ve been fighting terrorism since 1492. The issue is sovereignty. To protect what we have today like what our ancestors fought for.”

PACT has already passed the House with unanimous support from all of New York’s Congressmen and women. The U.S. Senate version lists Senators Charles Schumer and Kirsten Gillibrand, both Democrats, as co-sponsors. While Schumer recently opened the door to listening to the Seneca Nation, which would be most affected by the bill’s passage, Gillibrand has remained publicly silent on the issue. This has Indian Country enraged and crying foul at Gillibrand’s much-touted ties to Altria, the parent company of Philip Morris, who Porter alleges to be the one “banging the drum” for the passage of PACT. According to a New York Times report, while an attorney, Gillibrand represented Philip Morris in a sensitive case and as senator she has taken in tens of thousands of contribution dollars from the tobacco giant.

But another Times article this week indicates that the Senecas have been actively lobbying elected officials with some measure of success. According to the report, “two or three Democratic senators” are trying to stop the bill. But with the PACT Act being shopped as an anti-terrorism bill, time may be running out for New York’s Indians.

The Inevitable Conclusion

The past 20 years have brought a sense of optimism and independence to Native Americans, who have begun to create infrastructure on reservation land and become, in some cases, a vital part of the economic engine in the regions they exist within. In western New York, according to the Seneca Annual Report, the Nation “operates a $1.1 billion economy that employs more than 6,300 people, Seneca and non-Seneca.”

As the Seneca economy grew over the past two decades, it poured funds back into areas like health care and badly needed projects. Seneca’s Richard Nephew takes a shot at the U.S. government, saying: “We’re a government that provides for our people,” moreover, “we’re not emptying people’s pockets.” Porter likewise adds, “We have what Americans are fighting for: top-to-bottom health care.”

JC Seneca cites the problem New York has in losing big business to other regions of the country and wonders why politicians, particularly an upstate official like Gillibrand, wouldn’t want to work together with the Seneca people. “We’re not a company that’s going to pack up and head out of state.”

Though not on the same scale, Chief Wallace also argues that Poospatuck has increasingly contributed to the local economy.

“We approved fuel oil for our seniors from a local company,” he says proudly. “We spent $1.8 million on home improvement with approved contractors through the [Suffolk] county. We spent about $200,000 hooking up water to municipal services. Put drains in, improved powwow grounds and purchased a new building.” Wallace points out that a local contractor was chosen to construct a new community center at the heart of the reservation.

Perhaps most impressively, the leaders of Poospatuck created a fund that last year gave every household $15,500 toward home improvement. The funds had to be made payable to an approved third party home improvement contractor to ensure that they went exclusively toward construction and beautification. Tribal members call it the “fifteen five.”

Wallace Wilson, a 29-year-old member of the tribe who works for Chief Wallace, says: “The impact of the fifteen five was a complete change. Just last year it was a dump.”

In New York, the new regulations proposed by Paterson would restrict the flow of cigarettes to reservations while the PACT Act will block Indian retailers from fulfilling cigarette orders through the mail. If the US government is successful in clamping down on the cigarette trade on reservation lands, then this brief encounter with prosperity will most likely come to an unceremonious end. An economic noose is being gradually slipped over Native Americans, who are being quietly led to the gallows, as they have been so many times before. Under the executioner’s mask is the tobacco industry, preparing to pull the lever and release the floor beneath them.

But the tribes have vowed that they won’t go down without a fight. “There are two paths we can go on,” states JC Seneca. “Diplomacy or controversy and confrontation. They want controversy and confrontation? They’ll get it.”

Should the tribes find themselves on the losing side of the battle, they may be forced back into another prolonged era of poverty and hopelessness. The resulting job losses and increased dependence upon social services and welfare may have the ironic effect of forcing the states to pick up the tab.

The only winner here is Big Tobacco, able to once again manipulate the public and our politicians at will to maintain dominant market share. Their products are addicting to people and their power is intoxicating to politicians, because, as Wallace so aptly puts it: “It’s cigarettes, man.”

Testimony at Native Tax Hearing

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New York is in dire financial straits and its politicians are seeking refuge through taxation to cover up their own negligence. They claim that the sale of cigarettes to non-natives from the reservation is unjustly enriching Native Americans and is contrary to established law in New York. Of course none of this was a real issue until our government ran out of money. So while the state is struggling to maintain solvency, several reservations are gaining economic momentum. In essence, you tolerate them so long as they’re poor but now that the tables have turned your true colors are showing.

When billions of dollars from the landmark tobacco settlements were dispersed among the 46 states enjoined in the lawsuit, New York did what it does best: took the funds in a one shot, wrapped them up in a fancy Wall Street financial instruments and bonded out our future. To make up for the further budget shortfalls the state hiked taxes on cigarettes and artificially inflated the price of tobacco thereby creating a disparity in pricing on and off the reservation and causing a rift between retailers and the tribes. New York continued to maintain its pattern of reckless spending and found itself on the wrong side of this recession.

Long before the cigarette industry was booming on reservations, Indian nations sold cigarettes as a means of basic survival. Now they are being persecuted for succeeding. Unfortunately, the very unsympathetic status cigarettes hold in our society casts a dark cloud over the critical issues of taxation and jurisdiction and places in doubt the immutable right of self determination these tribes enjoy.

Instead of working with tribal leaders the government inquires about the possibility of obtaining federal law enforcement support against these nations and crafts unilateral policies that directly affect tribal lands. But without tribal consent these unilateral policies are unenforceable and exist in a vacuum; no different than attempting to legislate activities within France or Canada.

Mr. Benjamin who testified today actually introduced legislation to abolish the Poospatuck reservation writing that it “seems to be nothing more than a criminal enterprise.” Mr. Benjamin would exile a people who Judge Matsumoto, in her October 8th decision of this year, found to have “met its burden of establishing, by a preponderance of the evidence” that they are recognized as belonging to a sovereign nation. What Mr. Benjamin and this panel don’t understand is that the very nature of sovereignty, by definition, holds that no legislative decision, judicial decision or executive decision outside reservation land has any bearing on activity conducted on reservation territory. The Supreme Court of the United State of America has repeatedly ruled that Indian Nations are sovereign nations recognized by, but not governed by, the Constitution of the United States.

In the end this is not about taxes, bootlegging or the black market. This is an issue of sovereignty and you are out of your jurisdiction, out of your league and out of your mind if you think these nations or its leaders will give up their rights with respect to it.

So before you examine the operations of the Longhouse, I suggest you turn your attention to cleaning up your own house.

Written by jmorey

November 14, 2009 at 4:59 pm

Poospafucked

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cig-squash-259x300Poospatuck reservation, the 52 acres that is home to the Unkechaug Nation,  comprises approximately 250 people and boasts a booming local cigarette trade that has some very powerful people up in arms. Located in Mastic, Poospatuck is the smallest reservation in New York State and the focal point of a billion dollar legal battle. Nearly every current elected official and state agency in New York—from Mayor Bloomberg to the U.S. District Court—is angling to curb this trade and send a message to all tribal leaders that the free ride on Tobacco Road is over. 

While Poospatuck presents several unique challenges, the debate over tobacco sales on Indian land has raged for decades throughout the United States. For many Indian nations, it is the primary source of revenue, save for the few tribes that have secured the right to run extensive gambling operations. The standoff between New York State and the tribes within its borders boils down to whether or not the tribe is required to collect state imposed taxes from non-native customers from off the reservation.

Put simply from the consumer perspective, it’s less than five bucks to buy a pack of brand name cigarettes on the reservation. The same pack will be more than $8 at a local convenience store and more than $10 in the city. The state contends that the law is clear regarding this issue and that the nations are required to collect and remit taxes on tobacco sold to non-natives. The Indian nations contend that the tribal leadership, not the state, is a sovereign body with the right to determine economic policy on tribal land. The essence of the legal impasse comes down to the definition of sovereignty.

The concept of hundreds of disparate conquered nations within our borders continues to be a haunting issue for both the conquered and the conqueror. Although the U.S. government has struggled for years to define sovereignty as it relates to tribal land, the Supreme Court of the United States has repeatedly ruled that Indian Nations are “quasi-sovereign” nations recognized by, but not governed by, the Constitution of the United States. The only exclusion noted by the Supreme Court is to prohibit tribes from negotiating treaties with other nations. Theoretically, all other matters are exclusively tribal. In practice, however, this is rarely the case.

In the case of Poospatuck, a great deal is at stake on both sides of the debate. Chief Harry Wallace of Poospatuck contends that they have the right as a sovereign nation to sell tobacco without having to collect and remit the taxes levied on all other tobacco retailers in the surrounding jurisdictions.  Critics of Wallace and Indian policy in general say this provides a severe competitive advantage to Indian nations over licensed retailers and circumvents the collection of meaningful tax dollars. On the surface it seems hard to argue with New York State’s logic that $1 billion annually is robbed from state coffers. But like everything regarding U.S. and Native American relations, it’s not that simple.

To fully comprehend this issue, consider Poospatuck in a different light. New York can craft any law it desires regarding these territories and it simply doesn’t matter because these are separate nations no different than France, North Korea or Latvia. You don’t have to like this fact to recognize that it is indeed a fact.

The only reason many tribal lands work in conjunction with neighboring municipalities is that their economic survival depends upon it, and striking a tenuous deal with the conquering nation is simply a means of survival. What’s happening on Poospatuck, however, is jarring because their economic survival no longer depends upon our welfare, hand-outs and menial jobs. Here’s the bottom line about this debate: None of this was a real issue until our government ran out of money. So while municipalities throughout New York are struggling to maintain solvency, Poospatuck is gaining momentum and making a handful of Indians really rich. For several cash-strapped and desperate public officials, this economic shift is wholly unacceptable.

Leading the charge of outspoken public officials is none other than Gotham’s anti-smoking billionaire mayor, Michael Bloomberg. Now that the city is bankrupt Bloomberg is circling around these tribes like Gollum in Lord of the Rings, spitting and frothing about while trying to reach into their pockets and grab the brass smoke ring. The rest of the state isn’t far behind. New York, like so many other states, is in dire financial straits because it blew through surplus money in the good times and didn’t prepare for a rainy day. Here’s where it gets good: A good chunk of that rainy day surplus was from the tobacco settlements that required cigarette manufacturers to pay billions of dollars to several state governments that joined in the lawsuit.

This windfall for the individual states was supposed to be used to offset healthcare costs theoretically associated with ailments resulting from tobacco use. New York State did what it does best, however, and leveraged the future payments from the settlement by taking the money in advance through a state-controlled corporation that issued bonds that were securitized by the future payments of the tobacco companies. In theory, everyone was a winner. The state got its money early, Wall Street placed its grubby paws on a new investment vehicle and private investors were able to profit on the misfortune of the tobacco companies that secured the debt.

But here’s the catch: New York blew all the money, maintained a pattern of reckless spending and found itself on the wrong side of one of the worst recessions in American history. To make matters worse, local governments in New York also ran out of money along the way. Together with the state they hiked taxes on cigarettes to balance their budgets; in doing so they artificially caused the price of tobacco to skyrocket and effectively created a black market for cigarettes. Embarrassed and out of money, the government is  cracking down on the black market it essentially created in the hopes of getting its money back.

The only problem is they have no right to go and get it.

Long before the cigarette industry was booming, Indian nations sold cigarettes as a means of survival. Now they are being persecuted for succeeding at this endeavor. But the very unsympathetic status cigarettes hold in our society and the issue of bootlegging cast a dark cloud over the critical issue of taxation and places in doubt the inalienable right of self determination they should be otherwise enjoying. But instead of working with tribal leaders, the FBI, Suffolk police and the Suffolk District Attorney have chosen to perform hostile search and seizures on reservation land.

This isn’t Waco. These are sovereign tribal lands belonging to a people here long before we were. The opportunity to work together exists once these agencies figure out that collecting taxes on cigarettes sold to natives and non-natives on the reservation itself is simply off the table. Only then can both sides engage in meaningful dialogue and tactics that will curtail illegal bootlegging on non-tribal land.

Written by jmorey

November 13, 2009 at 10:11 pm