NEW YORK (AP) - Tucked away on just 55 acres in a nondescript
Long Island suburb, the Poospatuck Indian Reservation is easy to
miss on the long drive up the coast from New York City. But to
anyone looking for cheap tobacco, the 60-mile haul is worth the
Cigarettes are sold tax free on tribal lands in New York, and
the savings are eye-popping. Once lawmakers approve the state's
latest hike, crafted last week, smokers will be able to avoid $2.75
in taxes per pack by buying on the reservation. The discount jumps
to $4.25 if you factor in the municipal tax added in New York City.
That huge price difference is one of the reasons why smoke shops
on New York's Indian reservations sold nearly 304 million packs of
cigarettes last year - nearly a third of the state's recorded
The numbers are equally eye-popping when broken down by
reservation. The Poospatuck reservation, with a population of about
270, accepted shipment of about 100 million packs of cigarettes
last year - enough to supply every smoker in New York City with a
pack a day for 3½ months, according to the state's finance
But Indian reservations are far from the only source of tax-free
Law enforcement agents say smugglers now routinely use container
ships to import counterfeit cigarettes from China. Criminal gangs
stock up on cigarettes in low-tax states like Virginia and
illegally truck them north. Buyers big and small order an untold
number of untaxed cartons on the Internet.
Some experts are concerned that instances of smuggling,
bootlegging and questionable reservation sales will only increase
when the tax goes up, and they caution that the problem extends far
beyond New York.
"This is a global problem. It is a national problem," said
Phillip Awe, a chief tobacco law enforcer for the U.S. Bureau of
Alcohol, Tobacco, Firearms and Explosives.
Already, from coast to coast, contraband cigarettes are
trafficked daily by schemers exploiting differences in tax rates,
Awe said, at a cost of "billions and billions of dollars" in lost
revenue to the states.
Traditionally, the illicit cigarette business has flourished in
cities with organized crime, but lately there have been incentives
for the trade to expand elsewhere.
Fourteen states have increased tobacco taxes in the past two
years, according to the Tobacco Merchants Association, an industry
Legislation asking for hikes is pending in another 19 states,
including a proposed 50-cent increase in South Carolina, where the
current 7-cent tax is the nation's lowest, and New York, which
would jump from 16th to 1st by raising its tax from the current
$1.50 per pack. The tax increase will bring the cost of a pack of
cigarettes to about $9 in New York City.
Higher taxes could mean the potential for even bigger profits
for entrepreneurs who buy cigarettes from untaxed sources and
illicitly resell them, said Arthur Katz, executive director of the
New York State Association of Wholesale Marketers and Distributors,
a group that represents tobacco dealers.
"You'd have to be crazy to go and buy cigarettes at the store
at almost $9 per pack," Katz said.
The business is already a big one.
California officials estimate that taxes go unpaid on about 15
percent of all tobacco sold in its markets, at a cost of $276
million per year. New York put its losses at more than $576 million
in a study released in 2006.
The issue has already prompted some action. The ATF said it is
refining its national strategy for combating trafficking in
contraband cigarettes and has substantially expanded its
investigations, opening up some 700 new cases in the last five
In March 2005, major credit-card companies agreed to stop
processing payments from Internet retailers. Shippers DHL and UPS
Inc. agreed to stop shipping cigarettes to residential addresses.
U.S. Rep. Anthony Weiner, D-N.Y., has proposed a bill that would
increase the penalties for smuggling, bar the shipment of
cigarettes through the U.S. Postal Service, and make it a federal
offense for Internet retailers to ignore state tax laws. A hearing
on the bill has been scheduled for April 15.
Weiner also called it a "great mystery" why New York hadn't
also cracked down on bulk purchases of cigarettes at Indian
reservations by scofflaws who resell them elsewhere. Cigarettes
sold on New York's reservations now routinely turn up for sale in
other states and in Canada.
"You go stand in front of the Shinnecock Reservation on Long
Island, in the Hamptons, and you can see people loading boxes and
boxes and cases into their trucks," Weiner said.
For years in New York, state officials fearing tribal protests
have hesitated to enforce an existing law requiring reservation
smoke shops to collect taxes from non-Indian buyers.
They have been especially reluctant to interfere in western New
York, where the Seneca Nation, a major distributor of cigarettes,
is an economic force in a region that is struggling financially.
But New York City has gone to court to force the issue; the
lawsuit against tobacco wholesalers is pending.
Law enforcement agencies have at times put reservation smoke
shops under surveillance to try and catch outsiders illegally
loading up on cigarettes, and over the years there have been dozens
On the Poospatuck Reservation, federal authorities have also
charged the owner of the Peace Pipe Smoke Shop, Rodney Morrison,
with engaging in a "reign of terror" to protect his
multimillion-dollar cigarette business.
Prosecutors said Morrison orchestrated the 2003 murder of an
associate who opened a competing store, robbed another rival of
tens of thousands of dollars, and set fire to the car of a third
competitor. Morrison's lawyers say he is innocent. A jury began
deliberating in the case last week.
Harry Wallace, the owner of a smoke shop on the reservation and
the chief of the Unkechaug Nation, is quick to point out that
Morrison is not an American Indian by birth; before marrying into
the tribe and moving to the reservation, he lived in Brooklyn,
where prosecutors said he was once a cocaine dealer.
"Whatever crimes he's committed, or not committed, we're not
like he is," Wallace said. He said the tribe didn't condone
purchases of tobacco on the reservation by anyone who doesn't
intend it for "personal use."
As for New York's expected tax hike, Wallace predicted it would
bring nothing but pain to Indian cigarette merchants, and he called
it "an absolute certainty" that there will be a pressure for the
state to begin taxing reservation sales.
"We're going to be scapegoated again as the sole reason why
there is all this illegal activity."
(Copyright 2008 by The Associated Press. All Rights Reserved.)