Lead Opinion
OPINION OF THE COURT
This appeal presents two primary substantive issues for our consideration. First, we must determine whether Tax Law § 471-e (as amended by L 2005, ch 61, part K, §§ 2, 7; ch 63, part A, § 4) provides the exclusive means by which to tax cigarette sales on an Indian reservation to non-Indians or to Indians who are not members of that nation or tribe where the reservation is located (hereafter, non-member Indians), or whether Tax Law § 471 provides an independent basis for imposing a tax on such sales. Second, we must determine whether plaintiffs two convenience stores are located within a “ £[q]ualified reservation’ ” as that term is defined in Tax Law § 470 (16) (a) (as added by L 2005, ch 61, part K, § 1). We agree with plaintiff with respect to both issues, i.e., that section 471-e is the exclusive means for taxing such cigarette sales and that plaintiffs two stores are located within a qualified reservation. We therefore conclude that the judgment of Supreme Court (Cayuga Indian Nation of N.Y. v Gould,
Factual Background
In 2003 plaintiff purchased property on the open market in Union Springs, Cayuga County and in Seneca Falls, Seneca County and has been operating a convenience store on the property in each county. It is undisputed that plaintiff sells from both stores unstamped cigarettes, upon which New York State sales taxes have not been paid, to both its Indian and non-Indian customers {see Tax Law § 471 [1]; § 471-e [1] [a]).
In May 2008 this Court determined in Day Wholesale, Inc. v State of New York (
Procedural History
On November 26, 2008, plaintiff commenced this action seeking, inter alia, the return of the property seized during the execution of the two search warrants and a declaration that plaintiff was not violating Tax Law §§ 471, 471-e, 473 or former § 1814 by selling unstamped cigarettes. The first cause of action seeks a declaration that, “because [section] 471-e is not in effect, [p]laintiff is under no obligation to pay or collect taxes on the cigarettes [it] sell[s].” The second cause of action alleges that, because Tax Law § 471-e is not in effect, the search warrants and subsequent seizure of property were illegal. The third cause of action seeks the return of a computer on the ground that it was outside the scope of the applicable search warrant. The fourth cause of action seeks, inter alia, a preliminary injunction enjoining defendants “from alleging that [p]laintiff and/or its employees have violated . . . Tax Law §§ 471, 471-e, 473, or [former §] 1814.”
On the same day that plaintiff commenced this action, plaintiff also moved by order to show cause for relief similar to that requested in the complaint. The Cayuga County Sheriff and the Seneca County Sheriff (defendants) cross-moved to dismiss the complaint against them on several grounds. In the alternative, defendants sought to convert their cross motion to one for summary judgment dismissing the complaint against them. Upon notice to the parties, Supreme Court, Monroe County, converted plaintiffs motion to one seeking summary judgment, and also converted defendants’ cross motion to one for summary judgment. Although the court rejected defendants’ contention that declaratory relief was not a remedy available to plaintiff, the court denied plaintiffs motion. The court granted
Availability of Declaratory Relief
As a preliminary matter, we note that defendants and amicus District Attorneys Association of New York State contend that a declaratory judgment action cannot be maintained by a party against whom a criminal proceeding is pending, relying primarily on Kelly’s Rental v City of New York (
In this case, plaintiff commenced the action the day after the search warrants were executed but before a “criminal action” was commenced against it by the filing of an accusatory instrument (CPL 1.20 [17]). Plaintiff sought a declaration concerning its criminal liability pursuant to Tax Law §§ 471, 471-e, 473 and former § 1814, and no factual issues are in dispute. The reliance by defendants and amicus on Kelly’s Rental for the proposition that a party cannot bring a declaratory judgment if a “[c]riminal proceeding” (CPL 1.20 [18]) is pending against that party is misplaced. Although in Kelly’s
The reliance by defendants and amicus on Morgenthau for the proposition that only the People may commence a declaratory judgment action in this context is also misplaced (see
Legislative and Executive History
Section 471 (1) of the Tax Law provides in relevant part that “[t]here is hereby imposed and shall be paid a tax on all cigarettes possessed in the state by any person for sale, except that no tax shall be imposed on cigarettes sold under such circumstances that this state is without power to impose such tax . ...” It is well settled that a state is without power to tax cigarettes to be consumed on reservations by tribal members but has the power to tax on-reservation sales to non-Indians and non-member Indians (see generally Oklahoma Tax Comm’n v Citizen Band of Potawatomi Tribe of Okla.,
Soon after the repeal of the aforementioned regulations, litigation initiated by non-Indian convenience store owners resulted in the determination that the Department had a rational basis for refusing to enforce the regulations and could not be compelled to do so (see Matter of New York Assn. of Convenience Stores v Urbach,
As noted, the Second Circuit thereafter affirmed the District Court’s judgment in the OIN’s favor, holding that the OIN’s aboriginal reservation was not disestablished by the 1838 Treaty of Buffalo Creek and that, because the OIN’s properties in the City of Sherrill that were purchased on the open market “are located within that reservation, . . . Sherrill can neither tax the land nor evict the [OIN]” (Oneida Indian Nation of N.Y.,
On April 23, 2004, the District Court determined that plaintiff’s original reservation of approximately 64,000 acres had not been disestablished and that plaintiff was not subject to local zoning regulation (see Cayuga Indian Nation of N.Y. v Village of Union Springs,
In June 2004, the Legislature passed a bill that essentially tracked the language of the Department’s proposed regulations, including the definition of qualified reservation and the current language of Tax Law § 471-e (see 2004 NY Senate Bill S6822-B). The bill’s Senate sponsor noted that, despite the passage of former section 471-e in 2003, the Department had refused to implement a system to collect “non-Indian taxes” (Sponsor’s Mem, Veto Jacket, 2004 NY Senate Bill S6822-B). The legislation was vetoed by the Governor (see Governor’s Veto Message No. 265, Veto Jacket, 2004 NY Senate Bill S6822-B).
On March 27, 2005, the same proposed legislation, with minor amendments, came to the floor of the Senate and Assembly. On
On March 16, 2006, 15 days after coupons necessary to allow member Indians to purchase tax-free cigarettes were to be issued by the Department (see generally L 2005, ch 63, part A, § 4), the Department issued an advisory opinion stating that it was adhering to its policy of forbearance (see NY St Dept of Tax & Fin Advisory Op No. TSB-A-06[2]M, available at http:// www.tax.state.ny.us/pdf/advisory_opinions/misc/a06_2m.pdf). On May 2, 2008, this Court issued its decision in Day Wholesale holding that Tax Law § 471-e was not in effect because the Department had not issued the necessary coupons (see
Discussion
I. Section 471-e
Our first task is to discern the intent of the Legislature in its enactment of chapter 61 of the Laws of 2005. As amended by that chapter, Tax Law § 471-e (1) (a) provides that
‘ ‘ [n] otwithstanding any provision of this article to the contrary . . . Indians may purchase cigarettes for [their] own use or consumption exempt from cigarette tax on their nations’ or tribes’ qualified reservations. However, . . . Indians purchasing cigarettes off their reservations or on another nation’s or tribe’s reservation, and non-Indians making cigarette purchases on an Indian reservation shall not be exempt from paying the cigarette tax when purchasing cigarettes within this state. Accordingly, all cigarettes sold on an Indian reservation to non-members of the nation or tribe or to non-Indians shall be taxed, and evidence of such tax will be by means of an affixed cigarette tax stamp.”
In resolving the parties’ dispute concerning the meaning of Tax Law § 471-e, we are mindful that our function “is to
The Legislature’s express imposition of the cigarette tax in Tax Law § 471-e and adoption of the language of the proposed regulations of the Department demonstrate the intention of the Legislature to overhaul the statutory scheme and, in our view, to provide a single statutory basis for taxing cigarette sales on qualified reservations. Historically, the State of New York has not attempted to impose taxes on reservation cigarette sales unless a specific regulatory or statutory scheme was in place to differentiate between sales to Indians and sales to non-Indians or non-member Indians. Without such a scheme in place, it logically follows that no taxes may be collected or owed to the State by plaintiff. Moreover, the Legislature acted after the courts had determined that the Department had a rational basis for refusing to enforce the regulations (see New York Assn. of Convenience Stores,
As this Court noted in Day Wholesale,
“there is no question that the Legislature intended to create a procedure that would permit the State to collect cigarette taxes on reservation sales to non-Indians and non-members of the nation or tribe while simultaneously exempting from such tax reservation sales to qualified Indian purchasers. Because both aspects of the procedure must function simultaneously, the Legislature provided for a system utilizing Indian tax exemption coupons to distinguish taxable sales from tax-exempt sales. Without the coupon system in place, cigarette wholesale dealers and reservation cigarette sellers have no means by which to verify sales to tax-exempt purchasers” ( 51 AD3d at 387 [emphasis added]).
Given the recognition of the Legislature that the sovereignty considerations attendant upon imposing and collecting a state cigarette tax on reservation sales render Tax Law § 471 alone insufficient to impose the tax and its express imposition of the tax in section 471-e, as well as our decision in Day Wholesale that section 471-e is not in effect, we are compelled to conclude that there is no statutory basis for the imposition of a cigarette tax on a qualified reservation as that term is defined in section 470 (16) (a). Thus, possession or sales of untaxed cigarettes on qualified reservations cannot subject the seller or possessor to criminal prosecution.
II. Qualified Reservation
Of course, if the convenience stores in question were not situated on a qualified reservation, as defendants contend, then Tax Law § 471-e would be inapplicable, and the stores would be fully subject to taxation under section 471 and, more to the point, to criminal prosecution under former section 1814. We conclude, however, that the Legislature intended to include the subject properties within the definition of a qualified reservation. Tax Law § 470 (16) provides a four-part definition of the term qualified reservation. We note that of relevance in this case is the fact that paragraph (a) defines a qualified reservation as £<[l]ands held by an Indian nation or tribe that is located within the reservation of that nation or tribe in the state.” In 2003, when the Department drafted the proposed regulations that were then adopted by the Legislature, federal common law provided that Indian nations or tribes could purchase land on the open market and regain sovereignty over that land provided that the land was within that nation’s or tribe’s original reservation (see generally Oneida Indian Nation of N.Y.,
We acknowledge that the language of Tax Law § 470 (16) (a) does not take into consideration the Supreme Court’s determination in Oneida Indian Nation of NY. that Indian nations cannot regain sovereignty over such lands (see
As the legislative and executive history preceding the enactment of chapter 61 of the Laws of 2005 noted above makes clear, the Legislature intended the definition of qualified reservation to comport with the holdings of the District Court and Second Circuit Court of Appeals in Oneida Indian Nation of NY. that there has been no disestablishment of the reservation lands ceded to the OIN (and to plaintiff) by the Treaty of Canandaigua (see
Conclusion
In sum, the legislative purpose, context and history of Tax Law § 471-e lead to the conclusion that it exclusively governs the imposition of sales and excise taxes on cigarettes sold on a qualified reservation as that term is defined in section 470 (16)
Accordingly, we conclude that the judgment should be reversed, plaintiffs motion granted in part, judgment granted in favor of plaintiff declaring that section 471-e exclusively governs the imposition of sales and excise taxes on cigarettes sold on a qualified reservation as that term is defined in section 470 (16) (a) and that plaintiffs two stores in question are located within a qualified reservation as that term is defined in section 470 (16) (a), defendants’ cross motion denied and the declarations vacated.
Dissenting Opinion
I respectfully dissent, and would affirm. I agree with the majority that plaintiff’s two convenience stores are located on a “[qjualified reservation” as that term is defined in Tax Law § 470 (16) (a) and that declaratory relief is available to plaintiff on the facts of this case. I cannot agree with the majority’s conclusion, however, that Tax Law § 471-e is the exclusive statute governing the imposition of sales and excise taxes on cigarettes sold on Indian reservations. In my view, the majority’s conclusion is belied by the plain language of the statute and its legislative history. The statutory tax obligation on all cigarettes possessed for sale in New York State—including cigarettes sold by reservation retailers to non-Indians and Indians who are not members of that nation or tribe where the reservation is located (non-member Indians)—is imposed by Tax Law § 471. In my view, section 471-e does not circumscribe the long-standing tax obligation imposed by section 471. To the contrary, section 471-e establishes a statutory mechanism for the collection of that tax from reservation sales to non-Indians and non-member Indians which have historically evaded the cigarette tax.
Statutory Text
“It is fundamental that a court, in interpreting a statute, should attempt to effectuate the intent of the Legislature” (Patrolmen’s Benevolent Assn. of City of N.Y. v City of New York,
“There is hereby imposed and shall be paid a tax on all cigarettes possessed in the state by any person for sale, except that no tax shall be imposed on cigarettes sold under such circumstances that this state is without power to impose such tax ... It shall be presumed that all cigarettes within the state are subject to tax until the contrary is established, and the burden of proof that any cigarettes are not taxable hereunder shall be upon the person in possession thereof’ (emphasis added).
Section 471 (2) requires that stamping agents “purchase stamps and affix such stamps in the manner prescribed to packages of cigarettes to be sold within the state.” There is no language in section 471 exempting reservation sales from the cigarette tax or otherwise limiting the applicability of the tax based upon where in the state such sales take place or to whom such sales are made. Rather, the plain language of section 471 imposes a tax on all cigarettes possessed for sale in the state except where the State lacks the power to impose such a tax (see § 471 [1]). It is by now well settled that a state is without power to tax reservation cigarette sales to tribal members for their own consumption (see Department of Taxation & Finance of N Y. v Milhelm Attea & Bros.,
“imposes a tax on all cigarettes possessed in the State except those that New York is ‘without power’ to tax . . .
“Because New York lacks authority to tax cigarettes sold to tribal members for their own consumption, . . . cigarettes to be consumed on the reservation by enrolled tribal members are tax exempt and need not be stamped. On-reservation cigarette sales to persons other than reservation Indians, however, are legitimately subject to state taxation” (512 US at 64 [emphasis added]).
Thus, the clear, mandatory language of section 471 requires
The enactment of the current version of Tax Law § 471-e in 2005 did not, as the majority concludes, alter the tax obligation imposed by section 471. Rather, section 471-e sets forth a comprehensive procedure to collect cigarette taxes in connection with reservation sales to the general public while permitting tribal members to purchase tax-free cigarettes for their own consumption (see Day Wholesale, Inc. v State of New York,
“Notwithstanding any provision of this article to the contrary qualified Indians may purchase cigarettes for such qualified Indians’ own use or consumption exempt from cigarette tax on their nations’ or tribes’ qualified reservations. However, such qualified Indians purchasing cigarettes off their reservations or on another nation’s or tribe’s reservation, and non-Indians making cigarette purchases on an Indian reservation shall not be exempt from paying the cigarette tax when purchasing cigarettes within this state. Accordingly, all cigarettes sold on an Indian reservation to nonmembers of the nation or tribe or to non-Indians shall be taxed, and evidence of such tax will be by means of an affixed cigarette tax stamp.”
Subdivision (1) (a), the introduction to section 471-e, merely recites the undisputed proposition that cigarettes purchased by enrolled tribal members on tribal lands are tax exempt, while cigarette sales to all other persons are subject to the cigarette tax. The remainder of the statute establishes a system for the collection of the cigarette tax as applied to reservation sales to non-Indians and non-member Indians. Reading section 471 together with section 471-e thus compels the conclusion that
The statutory text therefore does not support the majority’s conclusion that Tax Law § 471-e limits the scope of section 471. In my view, if the Legislature intended to supersede or restrict the long-standing tax obligation imposed by section 471 with respect to reservation cigarette sales to non-Indians and nonmember Indians, it would have so stated. Under the plain language of section 471, cigarettes sold by Indian retailers to the public are subject to the State’s cigarette tax. In the absence of limiting language in section 471 or an explicit legislative directive in section 471-e, the enactment of the latter statute does not extinguish the tax liability imposed by the former statute.
Legislative History
The legislative history of Tax Law § 471-e also supports my view that the Legislature’s intent in enacting that provision was to provide a statutory collection mechanism for the tax imposed by section 471. For more than two decades, the State has attempted—without success—to devise an effective means of enforcing and collecting the cigarette tax established by section 471 from reservation sales to non-Indians and non-member Indians. As this Court explained in Day Wholesale, section 471-e simply “embodies the Legislature’s most recent effort to collect taxes on cigarettes sold on Indian reservations” (
In 1988, the Department of Taxation and Finance (Department) promulgated a series of regulations to facilitate the collection of sales and excise taxes on reservation sales, including cigarette sales, to non-Indians (see 20 NYCRR former 335.4, 335.5; Matter of New York Assn. of Convenience Stores v Urbach,
After the repeal of the regulations, the Department publicly articulated a “forbearance” policy, pursuant to which it suspended its enforcement efforts to collect the tax imposed by Tax Law § 471 on reservation sales of cigarettes (see Milhelm Attea & Bros.,
“[w]here a non-native American person purchases, for such person’s own consumption, any cigarettes ... on or originating from native American nation or tribe land . . . , the commissioner shall promulgate rules and regulations necessary to implement the collection of sales, excise and use taxes on such cigarettes or other tobacco products.”
It is clear from the face of the statute that the purpose of section 471-e was not to impose a tax on cigarettes sold to non-Indians and non-member Indians on reservations, but to require the Department to establish the rules and regulations required to collect the tax imposed by section 471. The Governor’s veto message explained that the statute “would mandate that the Department . . . begin collecting taxes on retail purchases by non-Native Americans on Native American reservation land” (Governor’s Veto Message No. 2, Veto Jacket, 2003 NY Assembly Bill A2106-B [emphasis added]). The Commissioner of the Department criticized the bill, noting that “the Tribes are not inclined to assist the State in the collection of state taxes,” and
Pursuant to Tax Law former § 471-e, the Department developed regulations to collect taxes on reservation cigarette sales to non-Indians (see NY Reg, Sept. 24, 2003, at 18-21). The stated purpose of the regulations was “[t]o implement the collection of excise taxes and sales and compensating use taxes on retail sales made to non-Indians on New York State Indian reservations” (id. at 18; see also id. at 20 [“Chapters (62) (Part T3) and 63 (Part [Z]) of the Laws of 2003 mandate that the Commissioner adopt rules and regulations to effectuate the collection of taxes on retail sales made to non-Indians on Indian reservations in this State”]). Significantly, the Department noted that “[t]his tax liability of non-Indian consumers is a feature of current law and has been for some time” (id. at 20). Thus, the Department recognized that section 471-e did not impose a new tax. Instead, the statute directed the Department to establish a “mechanism! ]” for the collection of taxes long imposed by New York law (id.).
The proposed regulations, however, were never adopted. Thus, in June 2004, the Legislature passed a bill mirroring the language of the proposed regulations and including the current language of Tax Law § 471-e (see 2004 NY Senate Bill S6822-B). As the Senate sponsor stated, “[t]his bill codifies existing Department . . . regulations to implement its provisions to collect taxes from non-Native Americans who purchase cigarettes ... on Native American reservations. [The bill] allows . . . New York State to collect [those] taxes at the distributor level before they are transported onto the reservation” (Sponsor’s Mem, Veto Jacket, 2004 NY Senate Bill S6822-B). Although that bill was vetoed by the Governor, it was reintroduced with minor amendments the following year, and it was signed into law on April 12, 2005 (see L 2005, ch 61, part K, § 2).
As the legislative history of the statute makes plain, Tax Law § 471-e did not create a new tax or limit the scope of the tax liability imposed by section 471. Rather, when the Department refused to implement a regulatory framework for the collection of the tax imposed by section 471, the Legislature enacted a comprehensive statutory collection scheme by means of the amended section 471-e. Far from impairing the tax obligation established in section 471, the clear intent of section 471-e was
The Impact of Day Wholesale
In my view, this Court’s decision in Day Wholesale does not compel a different result. In that case, we merely determined that the specific collection method outlined in Tax Law § 471-e is not in effect because the State failed to implement the tax exemption coupon system, which we determined was necessary “to the functioning of the procedure set forth in the amended version of Tax Law § 471-e” (
“Pursuant to Tax Law § 471 (2), the ultimate liability for the cigarette tax falls on the consumer, but the cigarette tax is advanced and paid by agents . . . through the use of tax stamps . . . The tax applies to ‘all cigarettes possessed in the state by any person for sale, except that no tax shall be imposed on cigarettes sold under such circumstances that this state is without power to impose such tax’ . . . Those circumstances pertain only to some of the cigarettes sold on Indian reservations” (id. at 384).
The fact that, as a result of Day Wholesale, the particular collection scheme established in section 471-e is no longer “in effect” (id.) does not relieve reservation retailers of their legal obligation to sell only tax-stamped cigarettes to non-Indian and nonmember Indian purchasers. The tax liability imposed by section
In a recent federal case, the District Court of the Eastern District of New York rejected the defendants’ claims that our decision in Day Wholesale altered the scope of Tax Law § 471 (see Milhelm Attea & Bros.,
“This Court does not disagree with the contention that [section] 471-e was intended by the New York legislature to provide a mechanism to collect taxes on re-sales of cigarettes by Native American retailers to non-tribe members. The current enforceability of that statute, however, does not alter the scope of [section] 471 or its legal force. Those sales . do not become non-taxable events with the Appellate Division’s decision in Day Wholesale-, rather, the court in that case found that statutorily prescribed pre-conditions for one proposed mechanism of collection have not been met” (id. at 237-238).
The Department’s Forbearance Policy
The majority states that
“[hjistorically, the State of New York has not attempted to impose taxes on reservation cigarette sales unless a specific regulatory or statutory scheme was in place to differentiate between sales to Indians and sales to non-Indians or non-member Indians. Without such a scheme in place, it logicallyfollows that no taxes may be collected or owed to the State by plaintiff.”
I cannot agree with the majority’s reasoning. As discussed above, the State has imposed taxes on cigarette sales to non-Indians—whether on or off a qualified reservation—for decades. While it is true that the Department has adopted a longstanding policy of “forbearance”
Conclusion
The tax liability imposed by Tax Law § 471 is independent of any particular regulatory or statutory framework established to collect the tax. Accordingly, I would affirm the judgment denying plaintiff’s motion for summary judgment and granting defendants’ cross motion for summary judgment and declaring that section 471-e does not exclusively govern the imposition of sales and excise taxes on cigarettes sold in plaintiffs two stores and that our decision in Day Wholesale does not foreclose prosecutions under the Tax Law. Regardless of whether the State can effectively collect cigarette taxes on reservation sales to non-Indians and non-member Indians, section 471 (1) mandates that all such sales are “subject to tax” and, thus, reservation retailers who flout that obligation risk prosecution under Tax Law former § 1814.
It is hereby ordered that the judgment so appealed from is reversed, on the law, without costs, the motion is granted in part and judgment is granted in favor of plaintiff as follows:
It is adjudged and declared that Tax Law § 471-e exclusively governs the imposition of sales and excise taxes on cigarettes sold on a qualified reservation as that term is defined in Tax Law § 470 (16) (a), and
It is further adjudged and declared that plaintiffs two stores in question are located within a qualified reservation as that term is defined in Tax Law § 470 (16) (a), and the cross motion is denied and the declarations are vacated.
Notes
In my view, the fact that the Department has a “forbearance policy” with respect to the collection of cigarette taxes from Indian sellers suggests that the tax obligation is independent of any regulatory or statutory framework for the collection of such taxes.