UNION SPRINGS - Patrol cars from the Cayuga County Sheriff's Office filled the parking lot of the Lake Side Trading convenience store in Union Springs for several hours on Tuesday as deputies executed a search warrant in connection with allegations of tax evasion by the tribe for the sale of untaxed cigarettes.

In a related operation, the Seneca County Sheriff's Offices executed a search warrant on Lake Side Trading's Seneca Falls store at the same time.

Cayuga County Sheriff David Gould said 15 of his deputies executed their warrant. Both stores are owned by the Cayuga Indian Nation of New York, which is not required to charge sales tax on purchases made by American Indians.

But the law enforcement officers who took part in Tuesday's operation said the tribe should be collecting those taxes on sales to non-Indians.

Representatives from the Cayuga Nation could not be reached for comment.

The tribe, along with other Indian nations in New York, has claimed a total exemption to sales taxes because they view their businesses as being protected by their sovereign nation status.

The debate has gained new attention this year as elected officials argue over how much money the state could gain if it enforced sales tax collection by Indian-owned businesses.

In Cayuga County, deputies seized more than 1.5 million cigarettes and collected several surveillance tapes and other pieces of digital evidence connected to the alleged sale of untaxed cigarettes, Gould said. Given the amount of cigarettes collected between the two counties, Cayuga County District Attorney Jon Budelmann estimated that the state was losing nearly $250,000 in cigarette and sales taxes a week just from the Cayugas.

Because it is easier to prove the possession of untaxed cigarettes, Budelmann said, there are no plans to investigate accusations that the store is also selling untaxed gasoline.

“We've collected all of the evidence. Now Jon Budelmann and I will have to sit down and decide where to go from here,” Gould said.

In what Gould called a coincidence, deputies also seized a small unmarked truck in the back of the store that was allegedly delivering nearly 644,000 untaxed cigarettes.

Budelmann said the possession of more than 10,000 untaxed cigarettes is a felony.

As the investigation continues, Budelmann said he plans to proceed to a grand jury to determine who in the Cayuga Nation's hierarchy can be charged with tax evasion.

“I have a feeling this is going to become a legal battle as the hundreds of millions in untaxed cigarettes comes to a head against the legal system itself,” Budelmann said.

John Rancier, a board member for Upstate Citizens for Equality, a group that has advocated against the Cayuga Nation's sale of untaxed cigarettes, said he was happy to see deputies blocking the store off from Route 90 with yellow police tape.

“The nation has been taking money for a long time, and they have been buying up all of this land,” Rancier said. “They have claimed they don't have to impose the taxes, but (the store) is not on sovereign land. Their unfair prices have been hurting a lot of businesses around here.”

Budelmann said one of the legal arguments for the warrant came from a 2005 U.S. Supreme Court case that ruled American Indians cannot exercise their sovereignty on land that is not part of a reservation. There are currently no recognized Cayuga Nation reservations in Cayuga or Seneca counties.

After Seneca County District Attorney Richard Swinehart approached him about a joint investigation late last winter, Budelmann said deputies set up surveillance and orchestrated controlled purchases to collect evidence for the search warrant, which was signed by state Supreme Court Judge Kenneth Fisher in Rochester.

Budelmann added that Gay Breed, of Lysander, who was charged with misdemeanor tax evasion on Oct. 22 for allegedly possessing five cartons of untaxed cigarettes purchased from the Union Springs store, was not connected to the current investigation. Breed is currently fighting the charges in town of Aurelius Court.

While the state was asked to participate in the investigation, Robert Megna, commissioner of the state's Department of Taxation and Finance, said Gov. David Paterson declined the request and instead opted to continue negotiations with the Indian nations regarding land claim, sovereignty and tax issues.

“Given these circumstances, we are constrained not to participate in your investigations,” Megna said in a letter addressed to Budelmann and Swinehart. “We recognize however, that as the chief law enforcement officers of your respective jurisdictions, you are free to pursue the investigations you described in your letters. It is our hope, however, that you exercise care to avoid taking actions that might disrupt or undermine the governor's current global negotiations.”

Even without state resources, Gould said the success of the searches Tuesday was a credit to the cooperation between all four agencies.

“If everyone does their own thing, nothing gets done,” Gould said. “I believe this was a success because everyone cooperated and communicated. We had both district attorneys and sheriff's offices working together on this one.”

While there were no reported incidents at either store, Auburn Police Chief Gary Giannotta said there were 10 state troopers stationed at the west end of the city just in case the deputies needed assistance. Instead of sitting around, the troopers were asked to assist city police by enforcing and writing traffic tickets.

After the deputies left the stores, Gould said both businesses were allowed to re-open. But at 3 p.m., nearly an hour after the last deputy had left, a Lake Side Trading employee in Union Springs said the store was closed and he was taping off the store's parking lot and gas pumps with caution tape to keep customers out. There was no indication when the store would re-open, or if the store in Seneca Falls had also closed.

Motorists who were in Union Springs looking to purchase gas or to take advantage of the untaxed cigarette prices advertised on more than 20 posters spread throughout the property, were forced to return emptyhanded or to find another vendor.

Sonny Smith, of Cayuga, said he came to Lake Side Trading daily to purchase gas or cigarettes, which he said were cheaper than any place else in the county.

“I feel bad about it,” Smith said, as he watched an employee wave off incoming traffic. “All the good things have gone out the window.”

Staff writer Nate Robson can be reached at 253-5311 ext. 248 or nathan.robson@lee.net