State and Local Government Finance
State and Local Government Finance PPA 735
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Date Created: 10/21/15
MEMORANDUM TO NYS DEPARTMENT OF TAXATION AND FINANCE FROM KATHERINE CORIALE SUBJECT SALES TAX COLLECTION ONEIDA INDIAN NATION S TURNING STONE RESORT AND CASINO DATE 582006 CC ELIOT SPITZER NYS ATTORNEY GENERAL The Oneida Indian Nation located in Oneida County NY sued New York State and Madison and Oneida counties 30 years ago for the return of 250000 acres of land the state had purchased from the Oneidas in the 18th and 19th centuries 1 The sovereignty of this land is under dispute the Oneida Indian s claim it is their rightful sovereign land while the Smte mainmins that only part of the land in question is sovereign In 1993 the Oneida Indian Nation constructed a gaming casino and resort It is now being debated whether the Nation is obligated under law to pay property taX on said land and collect sales taX from noniNatives for the purchase of such goods as gasoline and cigarettes in Indian stores The Indian Gaming Regulatory Act of 1988 allows for tribes to operate casinos if such gaInbling is allowed in the state and the state and tribes enter into compacts allowing such gaming 6 In New York State gaming casinos can only operate on Indian land This law also shields the casino from having to collect state taxes as a sovereign nation and does not require it to report its revenues to the State as gaming revenues may not be taxed If casinos can only operate on Indian land and the law shields them from having to collect sales mx the Casino was originally built under the premise that it was on sovereign land otherwise the Casino would be operating illegally The Indian Gaming Regulatory Act of 1988 does not distinguish between Natives and noniNatives for the collection of sales taX 7 the law would need to be amended to clarify who sales taX can be collected from Currently Turning Stone Resort and Casino is operating as mandating by law and the compact Prior to March 1 2006 The New York State Department of Taxation and Finance did not enforce legislation to collect sales taX from noniNatives for goods purchased on the Indian land 2 By willfully ignoring the current tax law the Department of Taxation and Finance has aroused much concern by local and state officials as well as business owners and interest groups in the surrounding communities of the casino As of March 1 2006 the Department of Taxation and Finance was supposed to enforce the collection of sales taX from noniNatives The Department states it will not begin collecting the sales taX until the Legislature rules on the requested year extension of non collection as recommended by Governor Fataki Z The following economic analysis is assuming the Oneida Nation land is deemed sovereign and the Turning Stone Resort and Casino has a legal compact to operate in New York Smte under the provisions of the Indian Gaming and Regulatory Act of 1988 The analysis will focus on the issue of sales tax collection from noniNatives as compared to the economic development the Casino has brought to the region and state New York State should grant a tax break to noniNative purchases as the loss in revenue to the state is made up elsewhere by the Casino Currently Natives and noniNatives do not pay sales tax on gasoline cigarettes or other items purchased on the sovereign land It is being proposed to have noniNatives pay sales tax In evaluating a sales tax efficiency equity and administration must be considered With the ability to buy untaxed items on the reservation consumer s choices are distorted between taxed and untaxed items The opportunity cost of driving to the reservation to avoid the tax versus going to a local business is a valid concern The purchasing of cigarettes for example which have an inelastic demand is favorable to the consumer as they will not bear the burden of paying the tax which is ordinarily passed on to them To balance the equity argument is the nonicollection of sales tax fair to surrounding businesses that have to apply the mx No although later I will demonstrate the added benefits the presence of the Resort and Casino bring to these businesses Administratively the tracking of purchases made by Natives as compared to noniNatives may place an undue burden on the Indian stores What technical systems would need to be implemented How easily could this be enforced and monitored by outside officials It has been suggested to give tax exempt coupons to Native members for their purchases but there is little control over the possible black market that could arise for these coupons Taxes on cigarettes are inordinately high within New York State and many users look for ways to escape paying the taxes The highly contested rights of the Oneida lndian Nation and the operation of the resort and casino must be analyzed in an economical and social framework taking into account costs and benefits Federal and State governments must balance the economic development and revitalization due to the construction and continual operation of the casino with the possible negative social externalities associated with the gaming casino its impact on the surrounding areas and the loss of revenue 1 will demonstrate that the benefits of running a gaming casino outweigh the potential detriment to society and local businesses The presence of the Turning Stone Resort and Casino in Upstate New York has had many significant impacts on the revitalization of the economy and adjacent communities When the Casino was constructed the area was already in a smte of decline 7 Griffiss Air Force Milimry Base was closed the population was aging and retention of persons was difficult as the economy was becoming depressed and employment was difficult to find The areas per capita income was decreasing for years as growth and development slowed The Oneida Nation lndians not only gave the local economy a boom by constructing the Casino but Turning Stone had far reaching impacts on State and Federal governments and still continues to do so The Oneida Nation s mission statement is to generate revenues substantial enough to support its members and to fund economic and social development including contributing to the local areas 1 Pro ts realized by the casino are partially redistributed to the tribe members on a monthly basis a profitisharing mechanism The Nation is striving to be selfisufficient not having to rely on public funding while still significantly contributing to economic development Simultaneously the Nation plans to use the economic incentives available to a sovereign nation to inject new wealth and create jobs for the Oneida community and signi cantly the surrounding communities 1 The Turning Stone Resort and Casino opened in 1993 creating 4000 jobs worth over 85 million in employee wages and over 2 billion in construction spending in New York Smte The Resort and Casino brought in entertainment resmurants sports and leisure activities provided a business venue and attracted millions of tourists to an area not well known for tourism The jobs created by the Resort and Casino ranked the Nation as the largest employer both public and private in Oneida and Madison counties In 1999 nearly 90 of 3000 workers were noniNative Lucrative business connections were established with vendors and suppliers creating approximately 500 jobs external to the Casino and spending reached 100 million in 1999 Further in 1999 the Nation set an example by returning 26 million in federal funding which they are entitled to from the US Department of the Interior 1 This demonstrated their continued dedication to becoming selfisufficient They have created their own health foundation and police force they work cooperatively with government agencies and fund many public projects The economic benefits were not realized by the Oneida Nation alone millions of dollars have been injected into local regional and state economies The Zogby Study 1 conducted in 1999 by a local upstate noniprofit found remarkable impacts the Oneida Nation s Turning Stone Resort and Casino have had on the economy of New York far outweighing the social costs Thousands ofjobs were created with the resurgence of the market resulting in the collection of264 million in Federal and State Income Taxes NoniNatives employed by vendors and suppliers of the Casino contributed 227 million in Smte Income Taxes and sales taxes Unemployment rates for Oneida and Madison counties had reached an all time low in the decade as compared to the state average when 4500 jobs were created in the Syracuse and UticaiRome areas between August 1998 and 1999 as reported by the NYS Department of Labor New York State Thruway toll collections increased by 137 or 37 million Visitor spending was believed to reach nearly 120 million in Oneida County Areas surrounding the Nation saw an increase in registration for licenses as 200 new businesses smrted up Additionally the Zogby study 1 reported the Nation voluntarily directly contributes to the community through their Silver Covenant Chain grants In 1999 reacquired lands that had public schools on them received 200000 over two years from the Nation Area school districts received grants in excess of1 million This totaling to 15 times more then Oneida County would have received in property taxes Oneida County was able to freeze property axes in 2000 due to these contributions and even increased spending in their budget Oneida County received an A rating from the three national credit rating agencies Moody s and Standard amp Poor gave credit to the Nation for the economic upsurge The higher tax rating saved Oneida taxpayers approximately 400000 in borrowing costs in 1999 according the County Comptrollers Office and nearly 49 million in past years The Nation also paid 31 million to New York State to cover the costs of the state Racing and Wagering Board and the NYS Police In recognizing the social costs we can look at the implications to individuals as well as to the State Individuals who frequent the casino in Upstate New York are most likely persons of lowi middle income status In other words they spend a larger percentage of their disposable income at the casino compared to those who are wealthier These are also the same individuals who escape the regressive sales tax when they make purchases at Indian stores Gambling can be addictive in nature and have ramifications such as nancial instability bankruptcy divorce domestic violence crime corruption not to mention the moral smndpoint of gambling in general These costs are born by society not the Indians and are challenging to quantify Further it is believed individuals will spend their disposable income on the reservation rather than in surrounding areas decreasing sales tax revenues gross receipt tax GRT at the smte and local level 6 This substitution effect for example is seen by the increase in cigarettes and gasoline purchased on the reservation with no sales tax instead of at a non7lndian store where taxes are mandated Some would argue this is forcing other businesses to close which would in effect decrease employment This redistribution ofincome creates leakages where revenues collected from casino gaming are not subject to sales tax The Attorney General s office found in 2005 95 billion packs of cigarettes were sold with no tax resulting in 300 million oflost revenue not incorporating lost sales to other businesses 4 However this 300 million figure does not quantify which purchases were made by Natives as compared to non7Natives 7 Natives are exempt and those profits would never be realized Other forms of gambling are seen throughout the state 7 horse and dog racing off track betting internet gambling and lotteries The revenue lost by not collecting sales tax from non7 Natives at the Indian stores is outweighed by the economic advantages the Turning Stone Resort and Casino bring to Upstate The presence of the Resort and Casino is not only a tourist attraction bringing attention to a once floundering region but the Indians have revitalized the economy and created a financially sustainable future 8 I would also recommend the Oneida Nation contribute the federal funds they receive each year from the Department of the Interior to New York State What has been several million dollars in past years could help offset the perceived lost revenue that would have been generated from sales tax The new law being proposed to counteract the non7collection of sales tax is aimed at wholesalers of cigarettes Regulation will force them to stop providing untaxed unstaInped cigarettes to the Nation Coupons will be provided to tribe members to purchase cigarettes with no tax applicable 2 Just as the Department ofTaxation and Finance has not enforce the collection of sales mx wholesalers may conduct business in a similar manner 7 enforcement will be difficult It would be a huge struggle to pull the wholesalers licenses to sell cigarettes as Eliot Spitzer offered up as a consequence Governor Pataki has recommended to the State legislature to extend non7 collection of sales tax for one year 2 This has not been ruled on yet The Governor is pushing for land claim settlements and casino compacts which would allow for five tribal casinos to be built in the Catskills 6 Recently the Oneida lndian Nation and the City of Oneida announced an agreement and signed a compact resolving all taxation and regulatory disputes between them Nation leaders presented the City with a check for 508898540 after completing negotiations 11 This further demonstrates the City s awareness and recognition of the positive benefits of the Resort and Casino References 1 quot1999 Annual Reportquot Oneida Indian Nation 18 Mar 2006 lthttpWWWOHCIC12 nationnetreporthtmlgt 2 Gormley M 2006 State warned on no sales collection The Pox Stanolarol Retrieved Mar 18 2006 from http WW vraru e com news smte no t tandard indeXssf base newsi 1g11407750527499OXm1ampcoll1 3 Cooper E 2006 Griffo mkes county39s land trust objection to DC UTICAODCOM Retrieved Mar 18 2006 from httD WWI lltiranrl nm apps Dbcsdll articlr DAID 70060307 603070370R7Qparrlq 73237643571124 4 Laws are meant to be enforced 2006 Niagara Gazelie Retrieved Mar 18 2006 from http wwwma arai quot tte ram opinion local storv 057002106 html 5 OdatoJ 2006 Spitzer urged to shut turning stone tirnemnionaorn Retrieved Mar 18 2006 from http wwxx time nnirm ram A n8torie storvaspstorvID347n WZ8TATFE he date 6 Gaming provides solid revenue stream for state government 2005 The Conniil othate Governments 7 Eastern Regional Coiyerenie Retrieved Mar 18 2006 from http Wx r reg taro naoea ni id eelzl P bulletin63 W Brown C 2005 The impact of the turning stone casino on employment taxation and social factors in the threeicounty area Retrieved Mar 18 2006 from http 1m fate rolcrate edn Ddf OIN hldv ndF 8 Madhusudhan R 1996 Betting on casino revenues lessons from smte experiences National Tax journal 49 Retrieved Mar 18 2006 from http ntjtaXorgg 9 Popp 2002 Indian casino gambling and state revenue some further evidence Paolii Finanie Review 30 Retrieved Mar 18 2006 from http nFr acrennb ram cgi reprint 30 4 320gtma to bo ampHITS10amphits10ampRP8I II TFOR MATampfullteXtindianca inmquot earrhid1ampFIRSTINDEX0amp or r nec mrre nn eZHWCIT 10 National Indian Gaming Commission nd Retrieved Mar 18 2006 from httpq wwwnigcgov g nigc g indeXj sp 11 Oneida nation city ofoneida reach compac g 5 million payment settles all taX regulatory issues 2006 OneidaNeuJnet Retrieved 21 03 2006 from httponeidanewsnetviewcontentfullc nkey32ampid2211
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