Opinion
01-CV-0004E(Sr)
January 9, 2002
MEMORANDUM and ORDER
Plaintiff, proceeding pro se, commenced this action January 3, 2001 by filing a Complaint in this Court alleging that the various defendants had denied him his right to equal protection, his right to vote and his right to due process when George E. Pataki, Governor of the State of New York, and Arthur J. Roth, the Commissioner of the New York State Department of Taxation, ("Executive defendants") issued an order repealing a prior law requiring Indians who sell cigarettes to non-Indians on their reservations to collect taxes from such non-Indians and to remit these taxes to the State. Plaintiff's Complaint also sets forth claims against several cigarette retailers located on Indian reservations who no longer have to collect taxes from non-Indians by virtue of the actions of the Executive defendants. Plaintiff filed his First Amended Complaint February 7, 2001 which was essentially identical to his Complaint except that it added as defendants John Does 1-20 and Jane Does 1-20. Plaintiff filed on November 16, 2001 his Second Amended Complaint which was essentially identical to his First Amended Complaint except that it sought class action certification, identified several previously unnamed defendants and dismissed the action as against John Does 1-20 and Jane Does 1-20. Presently before this Court is a motion by the Executive defendants to have the case dismissed as to them. For the reasons which follow the Executive defendants' motion will be granted without prejudice to plaintiff refiling this case in state court and this Court will also dismiss all of plaintiff's claims against all remaining defendants without prejudice to refiling in state court.
Plaintiff brought this challenge to the Executive defendants' repealing of 22 NYCRR §§ 336 et seq. under which Indians who sell cigarettes to non-Indians on Indian reservations must collect taxes from such non-Indians and remit these taxes to the state. The regulation had been needed because of the particular place Indians hold in American jurisprudence. States are prohibited from collecting taxes from Indians who purchase tobacco products on Indian reservations. Moe v. Salish Kootenai Tribes, 425 U.S. 463, 475-481 (1976). However, states can require Indian retailers to collect taxes from non-Indian customers. Oklahoma Tax Commission v. Citizen Band Potawomi Indian Tribe of Oklahoma, 498 U.S. 505, 512 (1991).
Under Article 20 of New York's Tax Law, a tax is to be imposed on all cigarettes possessed in the state except on those which the state is "without power" to tax. N.Y. Tax Law § 471(1). In response to a determination by the New York Department of Taxation and Finance that large volumes of untaxed cigarettes were being sold to non-Indians by reservation retailers, New York enacted sections 336 et seq. which limit the quantity of untaxed cigarettes that wholesalers could sell to tribes and tribal retailers. Retailers were to keep accurate records of those to whom they sold untaxed cigarettes and submit these records to the New York State Department of Taxation and Finance. This regulatory scheme was upheld by the United States Supreme Court as a permissible infringement on the sovereignty of Indian nations located within the State of New York. Department of Taxation and Finance of N.Y. v. Milhelm Attea Bros., Inc., 512 U.S. 61 (1994).
If the volume of tax-exempt cigarettes were consumed exclusively by tax-immune Indians, the consumption rate would be 20-32 times higher than that of the average New York resident. Department of Taxation and Finance of N.Y. v. Milhelm Attea Bros., Inc., 512 U.S. 61, 65 (1994).
The number of untaxed cigarettes which could legally be sold to a tribe or tribal retailer is determined by multiplying the number of enrolled members in the affected tribe by the "New York average [cigarette] consumption per capita." 22 NYCRR §§ 336.7(d)(1), (d)(2)(ii).
On or about April 28, 1995 the Executive defendants issued an order repealing sections 336 et seq. The effect of such is that cigarette retailers located on Indian reservations can sell an unrestricted number of untaxed cigarettes without keeping records or reporting to the Department of Taxation and Finance.
Plaintiff, an owner of a convenience store which presumably competes with the stores on Indian reservations for customers, filed the present suit alleging violations of his due process and equal protection rights and his right to vote.
The Executive defendants have argued that plaintiff does not have standing to bring this claim because he has not alleged a direct injury as a result of the Executive defendants' actions. Specifically, the Executive defendants argue that plaintiff, in his Second Amended Complaint, has alleged standing solely as a state taxpayer which is an insufficient basis to confer standing. Doremus v. Board of Education, 342 U.S. 429, 434 (1952). Plaintiff is proceeding pro se and therefore his pleadings are to be liberally construed to raise the strongest tenable argument. McPhercon v. Coombe, 174 F.3d 276, 280 (2d Cir. 1999). This rule for construction applies equally to issues of standing. Platsky v. C.I.A., 953 F.2d 26, 28-29 (2d Cir. 1991).
Standing generally requires that a plaintiff suffer an injury in fact which is not conjectural or hypothetical, that the injury must be caused by the targeted conduct and that it must be likely that the injury would be cured by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Here, although plaintiff asserts standing simply on his basis as a taxpayer, this Court opines that plaintiff could have suffered a very real economic injury as a result of the actions of the Executive defendants. Plaintiff owns a tobacco store which is in competition with such stores on Indian reservations. As a result of the repealing of sections 336 et seq., Indian reservations are no longer required to charge customers taxes on the cigarettes they purchase which means that non-Indian consumers will be able to purchase cigarettes cheaper on Indian reservations than at plaintiff's store. Federal Courts will normally reject challenges to the tax exempt status of third parties on the basis of lack of standing. Fulani v. League of Woman Voters Educ. Fund, 882 F.2d 621, 625 (2d Cir. 1989). However, when there is a clear nexus between the tax exempt status and the injury complained of, this rejection no longer applies — Id. at 627 — and plaintiff's possible competitive injury may serve as a basis for standing. Adams v. Watson, 10 F.3d 915, 919 (1st Cir. 1993). However, in order for plaintiff to have actual standing based on a possible competitive injury, he must set forth specific facts which show this injury. Whitmore v. Arkansas, 495 U.S. 149, 155-156 (1990). Plaintiff is pro se and would presumably not have known of this requirement and normally this Court would dismiss the Complaint without prejudice and grant him leave to file a third amended complaint in this Court alleging specific facts which he feels show that he has in fact suffered an economic injury as a result of the lifting of sections 336 et seq. — such as what his sales had been prior to the removal versus what they were thereafter.
However and as set forth below, this Court will dismiss plaintiff's claim without prejudice to the refiling of the same in state court but will not grant plaintiff leave to refile in this Court because plaintiff's suit is barred here on other grounds.
The Executive defendants challenge plaintiff's Complaint on the grounds that comity requires this Court to refrain from hearing a matter based on a state taxation scheme. Fair Assessment in Real Estate Assn. v. McNary, 454 U.S. 100, 116 (1981). The undersigned recognizes that this is the general rule which is to be applied in most situations; however, plaintiff cites to footnote 4 in that opinion in which the Supreme Court declined to "decide whether the comity spoken of would also bar a claim under § 1983 which requires no scrutiny whatever of state tax assessment practices, such as a facial attack on tax laws colorably claimed to be discriminatory as to race." Id. at 107 n. 4. This Court must therefore decide whether this is one of the rare occasions when a federal court can hear a case based on a state taxation scheme.
Plaintiff argues that the tax scheme at issue — allowing Indians to sell to non-Indians at a lower cost than non-Indians can sell to other non-Indians — is race-based discrimination against non-Indians. Schemes which favor Indians over non-Indians have however been described as political rather than racial in nature, Morton v. Mancari, 417 U.S. 535, 553 n. 24 (1974); La Pier v. McCormick, 986 F.2d 303, 305 (9th Cir. 1992). Therefore and because the challenged state tax scheme does not discriminate as to race, this Court, adhering to principles of comity, will refuse to hear this case so long as state remedies are available and adequate. McNary, at 116.
"A state remedy is plain, speedy and efficient if it is procedurally adequate." Long Island Lighting Company v. Town of Brookhaven, 889 F.2d 428, 431 (2d Cir. 1989). A finding of procedural adequacy requires only that the state provide "a full hearing and judicial determination at which [a taxpayer] may raise any and all constitutional objections to the tax." Roswell v. LaSalle Nat'l Bank, 450 U.S. 503, 512 (1981). Here there is no indication that, if plaintiff were to raise his claims in state court, he would not be provided adequate procedural protection. A similar claim was brought in state court seeking to require the State of New York to collect taxes from the sale of cigarettes on Indian Reservations and such relief was denied. New York Association of Convenience Stores et al. v. Urbach, 275 A.D.2d 520 (3rd Dept. 2000). Plaintiff has not shown that the procedure employed by the state courts would not adequately protect his interests.
Plaintiff however argues that the state remedies are inadequate because past efforts to collect state taxes by state agents have met with civil disobedience and violence. This Court opines that difficulty of enforceability by state officials does not equate to lack of an efficient state remedy.
In addition, assuming arguendo that this Court were to order that New York must collect taxes from the reservation, such Order would be carried out by state officials anyway.
Even though plaintiff is pro se and this Court should liberally read his pleading to look for the strongest arguments which would support plaintiff's standing, there is simply no legal argument that plaintiff could make which would allow him to overcome clearly established Supreme Court precedent holding that this type of case belongs in state, not federal, court. Therefore and because principles of comity prevent this Court from hearing plaintiff's case, the Executive defendants' motion to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction will be granted.
Plaintiff also alleges that he has been denied his right to vote because of a violation of separation of powers doctrine in New York laws on the grounds that Governor Pataki was without power to issue an executive order repealing a duly enacted tax scheme. However, this separation of powers was set out in the New York state constitution so there is no federal constitutional issue.
Because the Executive defendants are the only meaningful defendants and any claims which could not survive a motion to dismiss against the Executive defendants would not survive such a motion as against all other defendants, plaintiff's claims against all other defendants will similarly be dismissed for lack of subject matter jurisdiction.
Accordingly it is hereby ORDERED that the Executive defendants' motion to dismiss plaintiff's claims for lack of subject matter jurisdiction is granted without prejudice to plaintiff's refiling such claim in state court, that plaintiff's claims against all other defendants are dismissed without prejudice to plaintiff's refiling such claims in state court and that this case shall be closed in this Court.