The fate of a New York law that would impose taxes on certain tobacco sales on Indian reservations won’t impact tax-exempt bonds issued to finance Seneca Nation projects, a Standard & Poor’s analyst said.
The $4.94 per-pack state tax, which was to go into effect Sept. 1, was projected to raise $150 million for the state’s general fund in fiscal 2011. A state appellate judge blocked the tax, which would have applied only to non-Native Americans purchasing tobacco products on reservations, pending a hearing next week.
The Seneca Nation of Indians Capital Improvements Authority sold $119.5 million of tax-exempt bonds in 2007 backed by revenue from the Seneca Gaming Corp., which operates three casinos and two hotels in western New York. The bond proceeds funded water and sewer projects, construction of an administrative building, and other capital projects on Nation land.
Standard & Poor’s rates the bonds BB.
“The retail aspect at the casinos themselves, where they would sell the cigarettes, would be impacted by the implementation of taxes on those — but it’s a very small piece of the business the gaming corporation does,” said Standard & Poor’s analyst Mike Listner. “They derive almost entirely all of their revenue from hotel rooms and gaming operations.”
The western New York city of Salamanca in Cattaraugus County is on a reservation. Salamanca, a city of 6,007, has 11 wholesale and retail tobacco stores, according to a business directory on its official website.
Cattaraugus County clerk John Searles said that because tobacco sold on reservation land has not been subjected to any taxes, a ruling in favor of the state wouldn’t have a direct impact on county revenue. But there could be an indirect effect because of the economic activity the sales bring to the area.
“There has been very heavy traffic in and out of all those Native American smoke shops,” Searles said. “Is there additional money that is going around in the community that is tied to the sale of cigarettes? Yes, there is.”
The law would require that cigarette wholesalers levy the tax on reservation tobacco sellers rather than the sellers charging individual customers.
“What we are hearing is the Seneca Nation of Indians is looking at alternate sources for the procurement of their cigarettes,” Searles said. “They’re projecting being able to continue on with business.”
Calls to officials in Salamanca and the Seneca Nation were not returned by press time.
