New legislation signed by Gov. David Paterson on Monday will not impact a felony tax evasion investigation into the Cayuga Indian Nation of New York's sale of untaxed cigarettes in Cayuga and Seneca counties, one of the prosecutors said Monday.

Cayuga County District Attorney Jon Budelmann said the new law, which will require wholesalers to pay excise taxes on cigarettes before they are shipped to retailers, does not change the fact that the Cayugas sold untaxed cigarettes from their Lake Side Trading stores in Union Springs and Seneca Falls.

“The crime in Cayuga County was already committed before this became a law,” Budelmann said. “The change in the law will not affect our case, it will only remove the possibility of the retailers possessing untaxed cigarettes in the future.”

A representative from the tribe could not be reached for a comment on Monday's developments.

According to state laws, taxes are supposed to be collected on purchases made between a nation-owned business and a customer who is not a member of that tribe. Indians are only exempt from collecting taxes when they make transactions with other members of their tribe.

The new law will not have an effect on the sale of untaxed gasoline or the collection of sales taxes.

Budelmann said he estimated the state was losing nearly $250,000 in cigarette excise taxes a week in Cayuga County, and about $26 million a year from both stores.

“For just two stores, that's a big number, especially with the economic problems the state is facing,” Budelmann said. “For other businesses, it's just not fair that Indian-owned businesses don't have to pay taxes while others do. I'm kind of a got-to-be-fair guy, that's why I do this job.”

The new law comes in the aftermath of a Nov. 25 raid in which sheriff's deputies from both counties seized nearly 3.5 million untaxed cigarettes between the two stores. Businesses that possess more than 10,000 untaxed cigarettes can be charged with felony tax evasion.

During a state Supreme Court hearing on Dec. 4, lawyers for the nation argued that the tribe cannot be charged with felony tax evasion because they are allowed to sell tax free cigarettes from their stores, which they said are located on a recognized reservation owned by a sovereign nation.

In a written decision, Supreme Court Judge Kenneth Fisher said that according to New York state tax laws, the Cayuga Nation does not have a reservation, and that even though the state failed to enforce its own laws, it does not prevent the district attorneys' offices in both counties from conducting their own investigations.

Dan French, an attorney for the nation, previously said the nation is filing an appeal against Fisher's decision, and that the tribe has suspended operations at the two stores until the legal situation is resolved.

French said the stores employed nearly 30 residents.

While Budelmann is not allowed to say when a grand jury will hear the tax evasion case, he said that if the grand jury decided there was enough evidence to pursue the charges, a county judge could issue a warrant or a court summons, or allow the DA to issue a summons.

“Hopefully this new law will prevent something like this from happening again in the future or put someone else on the hook instead of the nation,” Budelmann said. “Rather than paying the tax at the time of the purchase, the taxes will have to be paid up front.”

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