Internet Kiosks Skirt NY Tobacco Taxes

The Oneida Indian Nation is installing tobacco kiosks in some Buffalo, NY, area convenience stores that will allow smokers to order cartons of cigarettes from the reservation online by mail and skirt New York state's taxes.

The move comes as an increase on the per-pack tax on cigarettes of 39 cents took effect in New York on April 3, bringing the total state tax to $1.50 per pack, the highest in the nation.

The Oneida Indian Nation, which also operates a gambling casino in Verona, NY, installed the first Internet tobacco kiosk in a Buffalo Yellow Goose convenience store the day before the new tax took effect. Six kiosks are planned and, if they are successful, a full 33-store rollout across the western New York chain.

The kiosks, a customized IBM product, allow touch-screen ordering using a credit card of most major cigarette brands through the Oneidas' Web site, Orders are fulfilled from the Oneidas' tobacco distribution center in Oneida, NY.

For an example of possible savings, the site on April 4 offered cartons of Marlboros for $33.50 each. At the same time, the Yellow Goose in which the first kiosk was installed was selling taxed Marlboros over the counter for $5.93 per pack. There are 10 packs of cigarettes per carton.

State officials have voiced concern that the kiosks may violate tax laws, and that they may allow minors to make purchases.

The Oneidas, however, contend that enough safeguards are in place to prevent those under 18 from buying cigarettes through them.

The kiosks are next to the stores' counters. They require a $65 minimum order, and orders must be shipped to a street address that is the same as the billing address.

“The nation believes that everything it is doing is within all applicable laws,” said Mark Emery, director of media relations for the Oneida Nation.

The Oneidas, who contend that as a sovereign tribe they do not need state approval for the tax-free venture, also say they informed New York state of their plans beforehand.

A representative for state Attorney General Eliot Spitzer's office, which is reportedly looking into the issue, did not immediately return a call for comment.

Meanwhile, other reservations are eyeing the Oneidas' venture to see whether it stands up to legal scrutiny.

“It's an obvious attempt to thwart the tax,” said Paul Pierce, general manager of the A&B Smoke Shop run by Seneca Indians on the Cattaraugus Indian Reservation in Irving, NY, just south of Buffalo.

“There will be legal issues without a doubt,” he said, adding that he thinks the venture raises more than simply “nexus” issues, where mail-order marketers do not have to collect sales taxes on merchandise delivered to states in which they have no physical presence.

“I'm assuming Yellow Goose is getting a cut [of sales]. It seems to me [the Oneidas] are selling a portion of their sovereignty,” said Pierce, noting that the Yellow Goose chain is not owned by Native Americans.

He said that other retailers, who for years have been complaining that Indian-owned stores have an unfair advantage, would certainly join Yellow Goose if the Oneida venture succeeds, and that the Senecas would be willing to become a supplier to them.

Mark Sidebottom, who operates the Yellow Goose chain, did not immediately return a call for comment.

According to the Buffalo News, he said, “They [the kiosks] really aren't any different than ordering cigarettes from the Oneida Indians from your home. We simply are providing a service for those customers who don't have computers in their home.”

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