Judge upholds ban on mailing of cigarettes but rejects tax collection

A judge today upheld the federal government's right to ban the mailing of cigarettes by Seneca Nation tobacco businesses, but rejected for the time being the collection of taxes on those cigarettes.

The ruling by U.S. District Judge Richard J. Arcara upholds the crux of a new federal law that Seneca business owners say will cripple their mail-order operations.

In short, the judge banned the sale of tobacco products through the mail but allowed for other forms of interstate sales of tax-free cigarettes. Under the law, buyers would still be required to pay the taxes on those cigarettes.

The Prevent All Cigarette Trafficking Act, or PACT Act, is viewed by both critics and supporters as sweeping legislation with billions of dollars in tax revenue and thousands of jobs at stake.

Arcara, in his decision, rejected a request by Seneca businesses for a preliminary injunction that would have prevented the government from enforcing a law that applies to all businesses that mail tobacco products.

The judge, however, did issue an injunction against one aspect of the law -- the right of federal, state and local governments to collect taxes on other forms of interstate sales of tobacco products.

Earlier this month, Arcara issued a temporary restraining order that, in essence, gave the businesses a reprieve from the laws enforcement.

The new law prohibits the U.S. Postal Service from delivering commercial cigarette shipments, and requires companies that engage in interstate cigarette sales to pay all federal, state and local taxes where the buyer lives.

The law also requires cigarette businesses to register with the state where they are headquartered and make periodic reports to state tax departments. It also requires they check the age and identification of customers who buy tobacco products.

In defending the law, government lawyers said it was enacted to prevent underage smokers from obtaining cigarettes through the mail and to end a practice that cost governments billions of dollars a year in lost taxes.

The government claims the federal measure was carefully drafted to adhere to the U.S. Constitution and to avoid infringing on the sovereign rights of Native Americans.

The bill, signed into law in March by President Obama, is backed by a coalition that ranges from anti-smoking groups to convenience store owners to large tobacco manufacturers.

The other side, most notably Seneca businesses, has portrayed the law as discriminatory against Indians, and as a windfall for non-Indian tobacco businesses.

The Seneca Fair Trade Association, which represents 140 businesses, has argued that the law is unconstitutional and, if enacted, would force hundreds of Seneca-owned businesses to close their doors and eliminate 3,000 jobs.

Can you imagine what our ancestors would have to say about this?

Jefferson had quite a lot to say.

"We must not let our rulers load us with perpetual debt. We must make our selection between economy and liberty or profusion and servitude. If we run into such debts as that we must be taxed in our meat in our drink, in our necessities and comforts, in our labors and in our amusements, for our callings and our creeds...our people.. must come to labor sixteen hours in the twenty-four, give earnings of fifteen of these to the government for their debts and daily expenses; and the sixteenth being insufficient to afford us bread, we must live.. We have not time to think, no means of calling the mis-managers to account, but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow suffers. Our landholders, too...retaining indeed the title and stewardship of estates called theirs, but held really in trust for the treasury, must...be contented with penury, obscurity and exile.. private fortunes are destroyed by public as well as by private extravagance.

This is the tendency of all human governments. A departure from principle becomes a precedent for a second; that second for a third; and so on, till the bulk of society is reduced to mere automatons of misery, to have no sensibilities left but for sinning and suffering... And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression." Thomas Jefferson

UPDATE

BUFFALO, N.Y. — Seneca Indians in the mail-order cigarette business can no longer use the post office to ship cigarettes while they fight to have a new law banning the practice struck down in court, a federal judge ruled Friday.

In a mixed decision, Judge Richard Arcara upheld the mail-order ban contained in the Prevent All Cigarette Trafficking Act but temporarily exempted more than 140 Seneca-owned businesses from a provision requiring them to comply with all taxing laws in the places they sell cigarettes.

The order will remain in place while a lawsuit claiming the PACT Act is unconstitutional works its way through the court.

The ruling disappointed Seneca Nation President Barry Snyder, who said it would not protect tobacco employees from losing their jobs.

Some Seneca businesses shut down even before the law took effect June 29, saying without the post office they had no way to ship the thousands of cartons of discount cigarettes ordered by phone and Internet each day by smokers around the country. UPS and FedEx voluntarily stopped shipping cigarettes several years ago.

“The nation urges Seneca business people to continue their court battle — all the way to the U.S. Supreme Court, if necessary — to allow mailing of legal tobacco products,” Snyder said.

Seneca-owned businesses are estimated to control 80 percent of the country’s mail-order cigarette market. Relying on tribal sovereignty, sellers do not collect state sales taxes, allowing them to sell cigarettes at prices far lower than nonnative competitors.

Native American sellers were offering cartons of Marlboros for $50.99 on Friday, compared with the $100 price tag in off-reservation convenience stores in New York, where the sales tax is $4.35 per pack.

Nonnative retailers are among PACT’s biggest supporters.

In his ruling, Arcara disagreed with claims by Seneca lawyers that the law violated the Constitution’s equal protection rights because it has a disproportionate effect on Native Americans. Congress knew leveling the playing field for nonnative retailers would hurt American Indian businesses, he wrote, “but took that action in spite of that fact, and not because of it.”

He also shot down challenges to the mail ban, saying Congress has the authority to prohibit tobacco shipments if it wants.

“It was Congress’s judgment that use of the mails .... facilitates illegal cigarette trafficking and enhances the accessibility of cigarettes for minors,” Arcara said.

But the judge said the law’s unprecedented requirement that sellers follow the taxing schemes of the cities and states into which they ship could have far-reaching effects and deserved a closer look.

“If Congress possesses the authority to subject out-of-state retailers to every state and local taxing jurisdiction into which their products are delivered, then it has the authority to do so for all commercial products, not just cigarettes,” Arcara said.

Plaintiff Aaron Pierce, whose 10-year-old Seneca Smokeshop does business in 46 states from the Cattaraugus reservation, planned to find an alternate delivery method, his lawyer said without elaborating.

SNIP

Arcara’s ruling came hours before an earlier temporary order blocking enforcement of the entire law was set to expire.

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