Tax Law: Another Setback For Seneca Cigarette Seller

Robert Gordon has lost another round in his legal battle to distribute tax free cigarettes from his upstate New York Indian reservation. Last week United States District Court Judge Jesse M. Furman denied the Gordon’s motion to dismiss a lawsuit filed by the City of New York aimed at enforcing the “Prevent All Cigarette Trafficking Act” (PACT) on their cigarette sales.

Robert Gordon is an enrolled member of the western New York Seneca Nation of Indians, which is the largest of the six Native American nations in New York State comprising the Iroquois Confederacy or Six Nations. Gordon and his non-Indian wife Barbara run a company “All of Our Butts” that ships bulk discount cigarettes to consumers.

The PACT is the latest effort of Congress to battle tobacco sales to minors, cigarette trafficking, and American Indian payment of state taxation requirements. The Gordons have been aggressive in their challenge the legality of the Act, suing the Justice Department in 2011 in prevent it from enforcing the Act against his company. Indian sovereignty has been one of the Gordons’ central claims, and their tax exempt status allowed them to pass on their tax savings to the consumers.

In 2012 New York City brought a suit in Manhattan in the United States District Court for the Southern District alleging that since 2002 the Gordons sold thousands of cartons of untaxed cigarettes to customers throughout the country, and in particular to New York City residents. In fact, the Gordons conceded they sold more than 10,000 untaxed cigarettes to New York City residents, but claimed, among other things, that as Indians in “Indian Country” they were exempt from the PACT taxing provisions.

Judge Furman disagreed, ruling, “The law is clear that, while states (and cities) may not tax cigarettes sold to Native Americans on Native American reservations, they may tax cigarettes sold by Native Americans to non-Native American consumers,” and that “this case raises no novel or complex issues regarding Native American sovereignty.”

In 1980 the United States Supreme Court struck a hard blow against Indian tribes selling non-taxed cigarettes on the reservation even to non-Indians when it decided Washington v. Confederated Tribes of Colville Reservation.  Since Colville cigarette sales on Indian reservations have been a diminishing source of revenue in Indian Country.

It was not clear whether the Gordons will appeal to the Second Circuit Court of Appeals to reverse Judge Furman’s decision, but it is likely that the PACT and taxation of Indian cigarettes will be subject to more challenges and litigation.

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