Opinion ID: 216352
Heading Depth: 2
Heading Rank: 3

Heading: Amended Tax Law

Text: The amended tax law requires state-licensed stamping agents ( i.e. wholesalers) to prepay the tax and affix tax stamps on all cigarette packs, including those intended for resale to tax-exempt Indians. See N.Y. Tax Law § 471(2); N.Y. Comp.Codes R. & Regs. tit. 20, §§ 74.6(a)(2),(3). To account for tribal tax immunity, the amendments distinguish between taxable and tax-free cigarettes sold to tribes or reservation retailers. The tax applies to all cigarettes sold on an Indian reservation to non-members of the Indian nation or tribe. N.Y. Tax Law § 471(1). Thus, when purchasing inventory of taxable cigarettes, tribes or reservation retailers must prepay the tax to wholesalers. Because the tax does not apply to cigarettes sold to qualified Indians for their own use and consumption on their nations' or tribes' qualified reservation, id. § 471(1), [8] tribes or reservation retailers may purchase a limited quantity of cigarettes without prepaying the tax to wholesalers. Wholesalers, in turn, are entitled to refunds of taxes prepaid on cigarettes eventually sold tax-free. See id. §§ 471(5)(b), 471-e(4). To prevent non-exempt purchasers from evading the tax, the amendments limit the quantity of untaxed cigarettes wholesalers may sell to tribes or tribal retailers. This limitation mirrors each tribe's probable demand. See id. § 471-e(2)(b); N.Y. Comp.Codes R. & Regs. tit. 20, § 74.6(e). To calculate probable demand, the Department analyzes a tribe's population and per-capita smoking statistics. See N.Y. Comp. Codes R. & Regs. tit. 20, § 74.6. [9] Additionally, tribes may submit evidence of prior consumption for the Department's consideration. Id. In this appeal, Plaintiffs do not challenge the Department's probable demand figures. The amendments offer two mechanisms by which tribes and reservation retailers may obtain tax-free cigarettes: (1) an Indian tax exemption coupon system and (2) a prior approval system. See N.Y. Tax Law § 471(1); N.Y. Comp.Codes R. & Regs. tit. 20, § 74.6(a)(4). [10]
The recognized governing body of an Indian . . . tribe may annually elect to participate in the Indian tax exemption coupon system for that year. N.Y. Tax Law § 471-e(1)(b). No Plaintiff has elected the coupon system. [11] If a tribal governing body elects the coupon system, the Department provides the tribal government a quantity of tax exemption coupons each quarter that corresponds to the tribe's probable demand. See id. § 471-e(2)(a). The tribal government may use all or part of the coupons itself or distribute them to its reservation retailers. Although neither the statute nor the regulations require tribal governments to distribute coupons among private retailers, the State expressly intend[s] that the Indian . . . tribes will retain the amount of Indian tax exemption coupons they need each quarter. . . , and will distribute the remaining Indian tax exemption coupons to reservation cigarette sellers on such . . . tribe's qualified reservations. Id. Tribes or reservation retailers then exchange the coupons with wholesalers to purchase cigarettes without paying the cost of the excise tax. Id. Tribal members may purchase these cigarettes tax-free. Wholesalers, in turn, submit the coupons to the Department for a refund of prepaid taxes. Id. § 471-e(4).
Where a tribal government does not elect to participate in the coupon system, the prior approval system governs by default. Id. § 471(5)(a). Under this system, wholesalers must obtain the Department's approval before selling cigarettes tax-free to a tribal government or retailer. Id. § 471(5)(b). Wholesalers who sell cigarettes to a tribe or reservation retailer tax-free without the Department's prior approval violate the terms of Article 20 of the Tax Law, N.Y. Comp.Codes R. & Regs. tit. 20, § 74.6(d)(3), and face sanctions, see N.Y. Tax Law § 484(5). Moreover, without prior approval and proof of a legitimate tax-free sale, wholesalers cannot recoup prepaid taxes. Both the statute and regulations authorize the Department to determine the manner and form by which it grants prior approval. See N.Y. Tax Law § 471(5)(b); N.Y. Comp.Codes R. & Regs. tit. 20, § 74.6(d)(3). The Department has provided a general description of the prior approval system's intended operation. See Technical Memorandum 5. [12] According to the Department, a website will display each tribe's quarterly tax-exempt allotment. The Department contemplates that [u]pon receipt of a purchase request from a . . . tribe or reservation cigarette seller, a wholesaler will sign into the website, check the tribe's available allotment, and request approval to sell all or part of that allotment. Id. at 5-6. Once the request is submitted, the remaining quantity available [on the website] will be reduced. Id. at 6. The wholesaler then has forty-eight hours from the time of prior approval to sell the tax-exempt quantity to the applicable tribe or retailer and confirm the sale with the Department. Id. The Department expedites refunds for confirmed tax-exempt sales. N.Y. Tax Law § 471(5)(b). If the wholesaler does not confirm the sale within forty-eight hours, then the balance of the quantity not reported as sold will be added back to the quantity available for Indian tax-exempt sales. Technical Memorandum 6. The website may be modified by the Department in response to evidence that the prior approval system operates to prevent tribal members from receiving an adequate supply of tax-free cigarettes for personal and tribal use.