A state appeals court on Friday ruled that the Cayuga Indian Nation of New York can continue to sell untaxed cigarettes - to Indians and non-Indians alike - because the tribe's convenience stores in Union Springs and Seneca Falls are on “qualified reservation” land and the state law that sought to impose the taxation was not in effect.

Dan French, an attorney for the Cayugas, said that the stores resumed selling cigarettes shortly after 3 p.m. Friday and the tribe planned to sue Cayuga and Seneca counties for “millions of dollars” for the loss of the cigarettes seized by the counties, the loss of business revenue and legal fees.

In a 3-1 decision, the Appellate Division, Fourth Judicial Department of the State Supreme Court overturned a state Supreme Court decision against the Cayugas, ruling that because the state's efforts to collect taxes on sales to non-Indians failed to provide a way to ensure that Indians would not be taxed, that state tax law was insufficient to charge the Cayugas with a violation.

“The prosecutions were improper from the outset and should never have been brought,” French said in a news release.

French said that the Cayugas had been selling unstamped cigarettes for five years before the seizure and had never been prosecuted by the state or other authorities, demonstrating “that the counties' actions were driven by politics and not the interests of achieving justice.”

Cayuga County Sheriff David Gould on Friday said that he was “absolutely disappointed” by the court's decision.

“I truly feel that this was a violation of law,” he said. “Whatever the courts do, I will respect their decision, but I am disappointed.”

The legal battle was sparked in November after law enforcement officials raided two Cayuga-owned Lake Side Trading convenience stores in Union Springs and Seneca Falls. During the raid, deputies from the Cayuga County Sheriff's Office seized approximately 1.5 million untaxed cigarettes as well as surveillance tapes and other evidence.

Both Cayuga County District Attorney Jon Budelmann and Seneca County District Attorney Richard Swinehart expressed intentions to pursue criminal investigations of Cayuga Nation officials on allegations of felony tax evasion. However, the Cayugas quickly challenged in state Supreme Court the legality of the raids and investigations.

The nation then closed the stores in December after State Supreme Court Judge Kenneth Fisher, who signed the warrant approving the raid, ruled in favor of the counties. In his decision, Fisher stated the Cayugas don't operate the stores on legally recognized reservations, making them accountable to state tax laws.

The nation appealed Fisher's ruling to the Appellate Division, which granted an injunction temporarily halting any further criminal investigation until the appeal is reviewed. The Cayugas reopened the stores and continued selling untaxed cigarettes following the injunction, though a Cayuga County grand jury did issue a sealed indictment in the case before the ruling.

Fisher then ordered the nation to stop selling cigarettes until the Appellate Division rules on the appeal, and that order was upheld by an appeals court judge. Fisher also denied a motion to return the evidence seized during the November raid.

Tax collection on cigarette sales has become a contentious issue both locally and statewide in recent years.

State law dictates the Cayuga Indian Nation does not have to charge sales tax on purchases made by American Indians. Local law enforcement officials claim the tribe should be collecting those taxes on sales to non-Indians.

But Indian nations in New York have claimed a total exemption to sales taxes because they view their businesses as being protected by their sovereign nation status. State officials have said the state loses hundreds of millions of dollars in revenue each year from untaxed cigarettes.

“The question of whether the Cayuga Nation's 64,015-acre reservation remains intact has been answered in favor of the Nation by numerous courts,” French said. “This ruling only further confirms this fact.”

French said the appellate court's ruling leaves the nation free to pursue lawsuits based on the loss of the seized cigarettes and the related loss of revenue at the stores.

French said that the counties opened themselves up to greater liability by refusing requests to return the confiscated cigarettes after the raids.

“The Nation was even willing to admit the quantity of cigarettes that had been seized but the counties insisted on retaining perishable property to the point where it can no longer be sold,” French said.

“Now, the counties not only face a claim for the Nation's damaged property and loss of business revenue but also owe their own lawyers legal fees already in excess of $180,000 which the state has refused to pay.”

Budelmann has said in the past that the county has an insurance policy that would cover any damages that might be awarded to the Cayugas should they succeed in a lawsuit. He could not be reached Friday night for comment on the latest decision.