Under the leadership of Governor David A. Paterson, New York State Department of Taxation and Finance Acting Commissioner Jamie Woodward today announced that the Department has proposed regulations that would limit the quantity of tax-free cigarettes that may legally be supplied to the Indian nations or tribes.   

The regulations would ensure that an adequate quantity of tax-free cigarettes would be available for purchase for the use of each Indian nation or tribe and for personal consumption by the nation’s or tribe’s members.  At the same time, they would prevent the unlimited flow of tax-free cigarettes to Indian reservation retailers.
 
The proposal would serve to address a longstanding issue that has proved problematic for previous administrations and frustrating for local, non-reservation retailers who have not been able to compete for sales on a level playing field.

The Department invites comments from any interested party on the content of the regulations.  Comments are due within 45 days of the publication of the proposed regulations.  The complete text of the regulations, and how the public can contact the Department, can be found on the Department’s website, www.nystax.gov. 

The regulations require that cigarette manufacturers may sell cigarettes to a licensed cigarette stamping agent only when the agent certifies that the sale is in compliance with the Tax Law.  In addition, a methodology is provided to calculate the amount of tax-free cigarettes that may be sold by agents to each Indian reservation.  Licensed agents are prohibited from selling quantities of untaxed cigarettes to a reservation in excess of this amount.

Concurrently with proposing these regulations, Acting Commissioner Woodward also revoked Advisory Opinion TSB-A-06(2)(M), previously issued on March 16, 2006.  Current judicial injunctions that prevent the Department from enforcing the tax laws as they relate to sales by stamping agents to reservation sellers and reservation sales at retail to non-Indians remain in place.

Along with these proposed regulations, Governor Paterson will soon propose legislation to clarify that Tax Law §471(4), the basis for the certification process, is independent of the mechanism set out in Tax Law §471-e.  This statutory clarification is intended to address the injunction preventing enforcement of the certification process.