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NEW YORK -- Gristede's, based here, has filed a civil lawsuit in Brooklyn federal court this week against two Long Island, N.Y.-based American Indian tribes alleging that they engaged in acts of racketeering, false advertising, and unfair competition in selling cigarettes to non-Indians without collecting state and local sales taxes as required by law.
"In filing this lawsuit, I have a simple goal," said Gristede's owner John A. Catsimatidis in a statement supplied to Progressive Grocer, "that these Indian retailers pay the sales taxes that Gristede's must pay. This is a matter of simple fairness; by refusing to collect the taxes, these retailers have an unfair advantage over those of us who do. The damages that we seek, $20 million, represent what we believe these defendants cost Gristede's in lost revenue every year through their illicit sales of untaxed cigarettes."
The cost of a carton of cigarettes in New York City, including state and local taxes, is over $60. Cartons from stores run by the tribes named in the suit sell for about $20, with delivery by mail.
The tribes named in the suit are the Unkechauga Poospatuck and the Shinnecock. The damages sought in the suit could triple to an aggregate of $60 million under the provisions of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. The suit additionally seeks attorney fees and a court injunction against both tribes, barring further sales of untaxed cigarettes to non-Indians.
"New York State and City impose the highest taxes on cigarettes in the nation, $3 a pack [$1.50 by the state, and $1.50 by the city], and impose on us licensed retailers the obligation to collect those taxes," noted Catsimatidis. "Also, the state directs retailers to enforce such regulatory and public health policies as determining that our cigarette customers are 18 or older."
Catsimatidis further alleged that the defendants could be "supplying the black market...with bulk sales of untaxed cigarettes."
Tribal officials have denied all allegations of illegal activity, including claims in the suit that their cigarette shops fund organized crime or terrorist groups.
Cigarette sales to American Indian customers are tax-exempt, but New York state law requires taxes to be collected on sales to non-Indian purchasers. Tribes object to the law as interfering with their sovereignty, but Gristede's maintains that the issue doesn't apply in this case, since the federal government doesn't officially recognize either the Poospatuck or the Shinnecock.
A new law regulating the state's collection of taxes from reservation sales to non-Indians was slated to become effective March 1, but the state commissioner of the Department of Taxation and Finance has put off enforcing the policy. In the past there have been what Gristede's terms "incidents of violence" in response to vigorous enforcement of the state tax laws.
Gristede's operates more than 45 supermarkets and drug stores in New York City.