By JAMES FINK
jfink@bizjournals.com | 716-541-1611

New York's effort to collect sales tax from tobacco-products sold by Native American tribes has been thwarted.

U.S. Western District Federal Court Judge Richard Arcara granted a temporary restraining order Tuesday that prevents New York from collecting tobacco-related sales taxes from Indian nations. The motion was brought before him Aug. 17 by the Seneca Nation of Indians, which was joined in the legal action by the Cayuga Indian Nation of New York.

The restraining order only governs the Seneca Nation and Cayuga Nation of Indians. New York may attempt to collect sales taxes from four other Indian tribes in the state.

New York, beginning Wednesday, will attempt to collect $4.35 in new taxes for each pack of cigarettes sold by Native American businesses to non-Native Americans. Tobacco product sales are traditionally considered state tax free, as covered by an 1842 treaty.

"The fight is not over," said J.C. Seneca, co-chairman, Seneca Nation Tribal Council.

Both sides were expected to be back before Arcara Thursday afternoon as he begins another round of legal discussions concerning the temporary restraining order and New York's ability to collect the sales tax.

"There are no guarantees with this," Seneca said.

Cash-strapped New York said the additional sales tax could generate more than $110 million in new revenue.

Seneca and other leaders, however, said the issue could harm Native American businesses.

"This (Tuesday's action) doesn't solve the underlying problem," said Robert Odawi Porter, Seneca Nation senior policy adviser. "These battles have been going on for 200 years. This is just one battle of many, but the restraining order is pretty clear."

Arcara granting the order was the latest in a series of legal maneuvers and action taken by the Seneca Nation of Indians.

On Aug. 30, just a few hours after state Supreme Court Justice Carol Siwek lifted an injunction that prevented New York from collecting the taxes, the Seneca Nation's tribal leaders voted to withhold future exclusivity payments for slot fees generated from its three casinos. According to Seneca, he and other tribal leaders felt the state violated its compact with the Indian nation by allowing slot machine operations on non-sovereign territory, including Hamburg Casino at the Fairgrounds, Batavia Downs and Finger Lakes Gaming and Racetrack.

Seneca Gaming Corp. has paid the state $707.2 million in slot fees since 2002, including $58.2 million last year and $32 million through June.

"Timing is everything," Seneca said.

Siwek's ruling focused on procedural issues connected to the June 21 decision by Paterson and state lawmakers to attempt to collect tobacco-based sales taxes from Native American tribes.

The federal case pinpointed the legality of the state legislation.

"They are two very different claims," Porter said.

The Senecas and Cayugas are appealing Siwek's ruling.

A recent poll commissioned by the Seneca Nation shows overwhelming support for the tribe in its legal battle against state lawmakers. Seven out of every 10 New Yorkers support Indian nation treaties that offer protection against collecting taxes on Native American-sold goods.

The poll, conducted during the week of Aug. 23 by Zogby International, shows that of 702 respondents, 68.4 percent believe New York should honor existing Indian treaties.

"The public is clearly upset with what the state is trying to do to us," Seneca said.

Porter, meanwhile, said he found Arcara's two-page ruling to be "pretty clear." It was released following a five-minute status conference with an army of lawyers.

"The judge is saying slow down," Porter said.