Supreme Court of the State of New York
County of Erie
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Plaintiff, vs. ARTHUR J. ROTH as Commissioner of the New York State Department of Taxation and Finance and his successors in office, and GEORGE E. PATAKI as Governor of the State of New York, and JOSEPH PASSAFIUME as Director of the Erie County Division of Budget, Management & Finance, and COMMISSIONER OF THE ERIE COUNTY FINANCE DEPARTMENT, and COUNTY OF ERIE, NEW YORK Defendants |
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Verified Complaint
Index # I 2002-4880 |
Plaintiff, Daniel T. Warren, as and for his complaint for declaratory and injunctive relief pursuant to State Finance Law Article 7-a, General Municipal Law § 51, and CPLR § 3001 against the defendants herein allege:
1. Plaintiff, Daniel T. Warren is a resident of the Town of West Seneca, County of Erie and State of New York.
2. Plaintiff owns property in the County of Erie, State of New York and pays New York State Income Taxes, Town and County property taxes on property with an assessed value of more than $1,000.00 and sales taxes on all purchases made within the State of New York including all applicable sales and excise taxes on all purchases.
3. Plaintiff is a duly registered voter in the County of Erie and State of New York.
4. Defendant Arthur J. Roth is the duly appointed commissioner of the New York State Department of Taxation and Finance.
5. Defendant George E. Pataki is the duly elected Governor of the State of New York.
6. Defendant Joseph Passafiume is the duly appointed Director of the Erie County Division of Budget, Management & Finance.
7. Defendant County of Erie, New York, is a municipality organized and existing by virtue of the laws of the State of New York with its principle place of business located in the City of Buffalo, County of Erie and State of New York
8. That there is Indian Land situated within the County of Erie, New York under the control and governance of the Seneca Nation of Indians. This land has a number of retail establishments located therein.
9. Consumers in the State of New York are subject to a state tax on each sale of tangible personal property, cigarettes and motor fuel under Articles 12-A, 20, 28, & 29 of the New York Tax Law.
10. Each enrolled member of an Indian Tribe who purchases such items on reservations are exempt from this tax, but non-indians making purchases on Indian Land must pay it.
11. Article 20 of the New York Tax Law imposes a tax on all cigarettes possessed in the State except those that New York is without power to tax. New York Tax Law § 471(1). The State collects the cigarette tax through licensed agents who purchase tax stamps and affixes them to cigarette packs in advance of the first sale within the State.
12. The full amount of the tax is part of the price of stamped cigarettes at all subsequent steps in the distribution stream.
13. The ultimate incidence of and liability for the tax is upon the consumer. New York Tax Law § 471(2). Any person who willfully attempts in any manner to evade or defeat the sales tax commits a misdemeanor. New York Tax Law § 1814(a).
14. Cigarettes that are consumed on the reservation by enrolled tribal members are tax exempt and need not be stamped.
15. On-reservation cigarette sales to persons other than reservation Indians, however, are legitimately subject to state taxation.
16. Because unlawful purchases of unstamped cigarettes deprive New York of substantial tax revenues, estimated at between $65 and $500 million per year the New York State Legislature and the Department of Taxation and Finance adopted the statutes and regulations at issue in this case.
17. The statutes and regulations recognized the right of Indian nations or tribes, which allow qualified Indian consumers and registered dealers to purchase, on qualified reservations, cigarettes upon which the seller has not prepaid and pre-collected the cigarette tax imposed pursuant to Article 20 of the Tax Law.- 20 NYCRR § 336.6(a) (1992).
18. To ensure that non-exempt purchasers do not likewise escape taxation, the regulations limited the quantity of untaxed cigarettes that wholesalers may sell to tribes and tribal retailers. The limitations may be established and enforced in alternative ways. A tribe may enter into an agreement, subject to Congressional and legislative approval, with the Department to regulate, license, or control the sale and distribution within its qualified reservation of an agreed upon amount of untaxed cigarettes, in which case wholesalers must obtain the tribe's approval for each delivery of untaxed cigarettes to a reservation retailer. 22 NYCRR § 336.7(c)(1). In the absence of such an agreement, and upon information and belief there have been none to date with the Seneca Nation, the Department itself limits the permitted quantity of untaxed cigarettes based on the probable demand of tax-exempt Indian consumers 22 NYCRR § 336.7(d)(1).
19. The specific kind of state tax obligation that New York's regulations are designed to enforce which falls on non-Indian purchasers of goods that are merely retailed on a reservation stands on a markedly different footing from a tax imposed directly on Indian traders, on enrolled tribal members or tribal organizations, or on value generated on the reservation by activities involving the Tribes.
20. States have a valid interest in ensuring compliance with lawful taxes that might easily be evaded through purchases of tax-exempt items on reservations; that interest outweighs the tribes' modest interest in offering a tax exemption to customers who would ordinarily shop elsewhere. The balance of state, federal, and tribal interests, in this area thus leaves more room for state regulation than in others.
21. New York legislature's decision to stanch the illicit flow of tax-free cigarettes early in the distribution stream is a reasonably necessary method of preventing fraudulent transactions, one that polices against wholesale evasion of New York's own valid taxes without unnecessarily intruding on core tribal interests.
22. A similar statutory and regulatory scheme has been enacted respecting the sale on Indian reservations by Indians to non-Indian consumers for collection of motor fuel excise and sales taxes in Articles 12-A, 28,and 29 of the New York State Tax Law.
23. Defendant County of Erie, New York pursuant to New York Tax Law § 1210 has enacted a local law that establishes a sales and compensating use tax.
24. The New York State Department of Taxation and Finance is charged with the administration and collection of the taxes imposed by local laws enacted pursuant to Tax Law § 1210 by Tax Law § 1250.
25. That on or about April 28, 1998, the defendant/respondents repealed the regulations relating to the enforcement of the subject enabling tax statutes as it relates to purchases on Indian reservations, by executive or administrative action.
26. In its Notice of Adoption the Defendants/Respondents stated “Recent events have shown that the implementation of the system contained in the existing regulations is inconsistent with the State's objectives with regard to both the sovereignty of the Indian nations and to the general welfare of the people of this state. Additionally, statutory deficiencies impede our ability to administer the system contained in the existing regulations . . . finally, repeal of these regulations is in keeping with federal policies promoting tribal sovereignty. These factors make apparent the necessity for the repeal of these regulations. (20 NY Reg, April 29, 1998, Issue 17, Book 1, at 22-24.)’
27. Administrative agencies can only promulgate rules to further the implementation of the law as it exists; they have no authority to create a rule out of harmony with the statute.
28. Although administrative agencies have discretion in how to carry out their legislative mandates, they have no discretion to ignore those mandates or to alter the substantive standards set by the legislature. An agency may not "by regulatory fiat" countermand a legislative enactment.
29. In formulating and implementing the policy as stated in their Notice of Adoption the defendants have acted, and continues to act, in excess of their constitutional and statutory powers.
30. Defendants County of Erie, New York, Joseph Passafiume, and the Commissioner of the Erie County Finance Department has adopted this policy of non-enforcement and have taken no steps to collect their compensating and use tax.
31. The New York State Constitution Article 4 § 3 states that it is the duty of the governor of the State to ". . . take care that the laws are faithfully executed."
32. Articles 12-A, 20, 28, and 29 of the New York State Tax Law and the regulations promulgated thereunder where duly enacted into law by the lawful acts of the New York State and Erie County Legislature.
33. That to date these subject statutes, rules and regulations have not been implemented and/or enforced on sales to non-indians on Indian Lands.
34. The power to tax may not be delegated to administrative agencies or other governmental departments.
35. The constitutional principle of separation of powers, implied by the separate grants of power to each of the coordinate branches of government requires that the Legislature make the critical policy decisions, while the Executive Branch's responsibility is to implement and enforce those policies.
36. In the area of taxation the legislature levies the taxes and the executive branch assesses and collects the taxes levied.
37. This act was performed without the New York State or the Erie County Legislature amending the Tax or Local Law to provide an exemption to retailers and/or non-indian purchasers on Indian Reservations in violation of the separation of powers doctrine.
38. This action usurped the New York State and the Erie County Legislature’s policy making powers and is in violation of Article 16 § 1 of the New York State Constitution by granting a tax exemption without the state or county legislature passing on this policy.
39. Allowing, by the aforementioned acts and omissions in their enforcement, the wholesale evasion of these tax laws by the Indian businesses and their non-Indian consumers despite clear statutory mandate and interpretive caselaw is in violation of the New York State Constitution Article 7 § 8 and Article 8 § 1 prohibiting the gift or loan of state or county credit or money in aid of a public corporation or private enterprise.
40. Through the aforementioned acts and omissions defendants have and continue to waste, secrete, withhold, or is otherwise appropriating to their own use, or that of any person(s) other than the State of New York and/or the County of Erie, New York, or persons entitled thereto, the money that should have been collected on the subject transactions through their possession or custody by virtue of their office.
41. The sovereign rights of the Indian Governmental Entities located within the State of New York do not prohibit application of the subject tax laws to sales on Indian Land by retailers to non-Indians.
42. Any exemption from taxation must clearly appear, and where a statute or regulation authorizing an exemption is found, it will be construed against the taxpayer unless the taxpayer can point to some provision of law plainly giving the exemption.
43. In other words, the taxpayer claiming an exemption bears the heavy burden of establishing that clear and unambiguous statutory language creates such an entitlement.
44. The taxpayer must prove not only that his interpretation of the statute is plausible, but that it is the only reasonable construction.
45. There is no provision in Articles 12-A, 20, 28, and 29 of the New York Tax Law granting any exemption to retail transactions involving non-indians occurring on Indian Reservations.
46. That due to the loss of this revenue by the acts and/or omissions of the defendants the State of New York has been, and is continuing to be deprived of, this revenue and must continuously recoup this lost revenue by either raising personal income taxes, or shifting some of the programs it would normally fund to the counties and cities of the State of New York thereby causing an increase in property taxes and taxes on sales of items other than those sold to non-indians on Indian land (or less of a tax reduction) to the detriment of the plaintiff. Additionally the County of Erie relies on the State of New York to collect its share of sales taxes imposed on these subject items. Thereby, the County of Erie, State of New York, has been and is continuing to be deprived of this revenue and must continuously recoup this lost revenue by either raising property taxes and taxes on sales of items other than those sold to non-indians on Indian land (or less of a tax reduction) to the detriment of the plaintiff.
47. There is no adequate remedy at law.
WHEREFORE, plaintiff prays for an Order and Judgment of this court:
A) Declaring that there now exists de facto exemption from taxation on any sales to non-indian consumers on Indian Land under Articles 12-A, 20, 28 and 29 of the New York Tax Law;
B) Declaring that only the legislative branch of government may make a policy relating to taxation;
C) Declaring that the defendants usurped the powers of the New York and Erie County Legislature by making a policy relating to taxation
D) Declaring that the defendants shall only assess and collect taxes pursuant to a policy established by the legislative branch of government.
E) Declaring that the defendants’ de facto tax exemption constitutes a gift or loan of state and county money or credit in violation of New York State Constitution Article 7 § 8 and Article 8 § 1.
F) Declaring that the defendants’ policy constitutes a waste or misappropriation of assets that belong to the State of New York and the County of Erie, New York.
G) Permanently enjoining defendants, GEORGE E. PATAKI as Governor of the State of New York and ARTHUR J. ROTH as Commissioner of the New York State department of Taxation and Finance and their successors, to perform their mandatory, statutory and regulatory obligations to implement, collect, and enforce all tobacco, motor fuel, and sales taxes applicable to purchases by non-indians from retailers located on Indian Land;
H) Permanently enjoining the defendant ARTHUR J. ROTH as Commissioner of the New York State Department of Taxation and Finance to assess and collect from the Indian retailers unpaid sales taxes due the State of New York from sales to non-Indians for the period from the enactment of the subject statutes to date that are not outside of any applicable statute of limitation and to investigate and refer to the Attorney General of the State of New York for prosecution all businesses who have violated and are violating the subject statutes and regulations in accordance with his constitutional, statutory and mandatory duties;
I) Awarding reasonable costs and disbursements, as the Court deems just and equitable;
J) Any and all other relief which this court deems just and proper.
Dated: May 18, 2002
Buffalo, New York
Yours, etc.
Daniel T. Warren
Plaintiff, Pro Se
836 Indian Church Road
West Seneca, New York 14224
State of New York )
County of Erie ) ss:
City of Buffalo )
I Daniel T. Warren, am the Plaintiff in the within action. I have read the foregoing complaint and know the contents thereof. The contents are true to my own knowledge except as to matters therein stated to be alleged upon information and belief, and as to those matters I believe them to be true.
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Daniel T. Warren
Sworn to before me this
__ day of May, 2002
__________________________
Notary Public