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The lost tax may grow even more as smokers turn increasingly to lower cost options, particularly the Internet and Native American stores, according to economist Brian P. O'Connor of Ridgewood Economic Associates.
The report from the Ridgewood, N.J., firm for a coalition of food industry and convenience store associations is perhaps the most thorough analysis on lost tobacco revenues since New York began dramatically raising its cigarette taxes in recent years. It shows the state lost nearly $1.5 billion over the past two years and the losses are rising. The groups called on Gov. George Pataki to resolve what they called inequities in the state's enforcement of sales tax collection. Pataki has been reluctant to use his authority to enforce tax laws. Philip Morris also has been active on a separate issue related to escrow payments made by small cigarette manufacturers that did not participate in the landmark 1998 Master Settlement Agreement between tobacco manufacturers and the states. The Senate bill beefs up the states abilities to enforce escrow payments, a measure Philip Morris had sought.The state is losing $900 million a year by failing to collect excise taxes on 50 million cartons of cigarettes sold in New York, according to a report released Tuesday.
"I can't answer why government isn't doing anything," said Dan Finkle, president of Finkle Distributors of Johnstown. "Taxpaying businesses are at a disadvantage and the failure of those businesses means even less taxes are being paid to municipalities." The study found the majority of the lost dollars comes from 35 million cartons of cigarettes sold over the Internet, through 800 numbers and at some of the 80 smoke shops run by Indians in New York.
Calling itself the Fair Application of Cigarette Taxes (FACT), the coalition contends Native Americans in New York have an unfair advantage because they don't tax any sales. Indian stores can be required to collect taxes on items sold to non-Native Americans.

The lost revenue doesn't even include uncollected taxes on gasoline sold at Native American stores, added James Calvin, president of the convenience store association. The coalition also inferred that the shops aren't necessarily guarding against sales to minors.
O'Connor said that with the state facing multibillion dollar budget deficits, it must figure out a way to collect from Indian stores and the more than 200 Internet sites selling tobacco products.

Mark Emery, spokesman for the Oneida Indian Nation said the Oneida stores are checked frequently for compliance on sales to minors and staff are trained to obey strict rules. He said the cigarettes are sold with a 5 percent surcharge used to fund tribal programs, so prices are competitive to taxable stores.
"It's funny they called themselves FACT because a lot of this is fiction," said Emery.
Kevin Quinn, a state budget division spokesman, said the administration would look at the group's recommendations and that, "We're concerned about the loss of revenue."