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Cayuga Indian Nation of New York v. Cayuga County Sheriff David S. Gould and

July 10, 2009


Appeal from a judgment (denominated order) of the Supreme Court, Monroe County (Kenneth R. Fisher, J.), entered December 10, 2008 in an action for, inter alia, a declaratory judgment.




The judgment, inter alia, denied the motion of plaintiff for summary judgment and granted the cross motion of defendants Cayuga County Sheriff and Seneca County Sheriff for summary judgment

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 plaintiff's 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.

Opinion by HURLBUTT, J.P.:

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; 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 plaintiff's two convenience stores are located within a " '[q]ualified reservation' "as that term is defined in Tax Law § 470 (16) (a) (as amended 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 plaintiff's 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, 21 Misc 3d 1142[A], 2008 NY Slip Op 52478[U]) should be reversed.

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 (51 AD3d 383) that the amended version of Tax Law § 471-e was not "in effect"based on the failure of the Department of Taxation and Finance (Department) to take action to implement that statute by issuing necessary coupons. We wrote in Day Wholesale that section 471-e, entitled "Taxes imposed on qualified reservations,""embodie[d] the Legislature's most recent effort to collect taxes on cigarettes sold on Indian reservations"(id. at 384). Thereafter, law enforcement officials in Cayuga and Seneca Counties determined that plaintiff was selling unstamped cigarettes from non-reservation lands in violation of Tax Law § 471 and former § 1814. On November 25, 2008, a detective from the Cayuga County Sheriff's Office and an investigator from the Seneca County District Attorney's Office obtained search warrants in Supreme Court in each county and, pursuant thereto, law enforcement officials seized various items of property, including large quantities of unstamped cigarettes, from both stores.

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 plaintiff's 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 plaintiff's motion. The court granted judgment declaring, inter alia, that Tax Law § 471-e did not "exclusively govern the imposition of sales and excise taxes on cigarettes"sold from the two stores and determined that the two stores in question are not located on qualified reservations. The court also "declared"that this Court's decision in Day Wholesale did not invalidate prosecutions under section 471 and former section 1814 (Cayuga Indian Nation of N.Y., 2008 NY Slip Op 52478[U], at *17). Although we agree with the court that plaintiff properly sought declaratory relief, we disagree with the court's remaining conclusions. Instead, we conclude that section 471-e is the exclusive statute governing the imposition of sales and excise taxes on cigarettes sold on reservations. We further conclude that both stores are located within a qualified reservation, as that term is defined in section 470 (16) (a).

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 (44 NY2d 700) and Matter of Morgenthau v Erlbaum (59 NY2d 143, cert denied 464 US 993). We reject that contention. Although courts of equity "will not ordinarily intervene to enjoin the enforcement of the law by prosecuting officials"(Reed v Littleton, 275 NY 150, 153), a declaratory judgment action is available "in cases where a constitutional question is involved or the legality or meaning of a statute is in question and no question of fact is involved"(Dun & Bradstreet, Inc. v City of New York, 276 NY 198, 206; see Cooper v Town of Islip, 56 AD3d 511, 512; Ulster Home Care v Vacco, 255 AD2d 73, 76-77).

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 Rental the Court of Appeals uses the term "criminal proceeding"instead of "criminal action,"a criminal action had been commenced in that case when the declaratory judgment action was brought (id. at 702; see Matter of Beneke v Town of Santa Clara, 9 AD3d 820, 820-821). Thus, under the facts of Kelly's Rental, plaintiff was not precluded from bringing this action inasmuch as a criminal action against it had not yet been commenced.

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 id. at 152). In that case, the Court of Appeals stated that only the People could challenge an interlocutory ruling of a criminal court in the defendant's favor, noting that a defendant "always has available a right to appeal (id.). The declaratory judgment action in Morgenthau, however, was commenced during the pendency of a criminal action, rather than prior to its commencement (see id. at 146). Thus, we conclude that the court properly determined that it could entertain this action insofar as it involved the "application of certain statutes to plaintiff's undisputed conduct"and not "collateral review of the validity of the search warrants or the manner of [their] execution"(Cayuga Indian Nation of N.Y., 2008 NY Slip Op 52478[U], at *4; see generally New York Foreign Trade Zone Operators, Inc. v State Liq. Auth., 285 NY 272, 276-278; Dun & Bradstreet, 276 NY at 206; Bunis v Conway, 17 AD2d 207, 208-209, lv dismissed 12 NY2d 645, 882).

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 Commn. v Citizen Band Potawatomi Indian Tribe of Okla., 498 US 505, 512-513; Washington v Confederated Tribes of Colville Reservation, 447 US 134, 151, 160-161, reh denied 448 US 911; Moe v Confederated Salish & Kootenai Tribes of Flathead Reservation, 425 US 463, 481-483).

Prior to 2003, this State's attempts to collect the tax on cigarette sales to non-Indians were based solely on regulations promulgated by the Department (see e.g. 20 NYCRR former 336.6, 336.7). 20 NYCRR former 336.6 (b) (3) defined qualified reservation as "the following reservations of the exempt Indian nations or tribes: Allegany Indian reservation, Cattaraugus Indian reservation, Oil Spring Indian reservation, Oneida Indian territory, Onondaga Indian reservation, Poospatuck Indian reservation, St. Regis Mohawk (Akwesasne) Indian reservation, Shinnecock Indian reservation, Tonawanda Indian reservation and Tuscarora Indian reservation." Under that definition, plaintiff's stores are not located on property that constituted a qualified reservation. Effective April 29, 1998, however, those regulations were repealed, based in part on enforcement difficulties faced by the Department (see NY Reg, Apr. 29, 1998, at 22-24), and the Department adopted a policy of forbearance, pursuant to which it suspended all attempts to collect the tax on reservation sales of cigarettes (see generally Matter of New York Assn. of Convenience Stores v Urbach, 92 NY2d 204, 213-215).

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, 275 AD2d 520, 522-523, appeal dismissed 95 NY2d 931, lv denied 96 NY2d 717, cert denied 534 US 1056). Thereafter, in June 2001, the United States District Court for the Northern District of New York held in Oneida Indian Nation of N.Y. v City of Sherrill, N.Y. (145 F Supp 2d 226) that various properties that had been acquired by the Oneida Nation of New York (OIN) on the open market were not taxable by the City of Sherrill and the counties in which they were located based on the doctrine of sovereign immunity (see id. at 253-254). Although the District Court's judgment was affirmed by the Second Circuit Court of Appeals and ultimately reversed by the United States Supreme Court (id., affd 337 F3d 139, revd 544 US 197, reh denied 544 US 1057), we note that the District Court found "no evidence of any congressional act that disestablished the [OIN] Reservation"between the 1794 Treaty of Canandaigua, which confirmed and guaranteed the Reservation, and the present day (id. at 254). On May 15, 2003, while the appeal from the District Court's judgment was pending before the Second Circuit, the Legislature overrode the Governor's veto to pass chapter 62 of the Laws of 2003. Chapter 62, part T3, section 4 (as amended by L 2003, ch 63, part Z, ยง 4) ...

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