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N.Y. Assoc. of Convenience Stores v. Urbach, 1998 N.Y. Int. 097 (July 9, 1998).




Whether the State Department of Taxation and Finance's policy of forbearance on collecting excise and sales taxes on Indian reservations constitutes an equal protection claim that is subject to strict scrutiny analysis.


No. The Court of Appeals rejected a strict scrutiny analysis for the State's forbearance policy and upheld the right of the State to adopt laws and policies giving preference to sovereign Indian nations. The court adopted a "rational basis" standard and remitted the case to the Supreme Court. The order of the Appellate Division was reversed.


Collection of sales and excise taxes on cigarette and motor fuel sold on Indian reservations to tribal members is forbidden by federal law, but allowed when the goods are sold to non Indian customers. The New York State Department of Taxation and Finance spent more than a decade litigating its right to collect these taxes from the Indian reservations, but recently changed course and adopted a policy of forbearance. Several non reservation convenience stores and their representative associations commenced the action, alleging that their own competitive interests and those of all New York State taxpayers were being impaired by the differential enforcement of those taxes and sought a judicial directive compelling the State to resume tax enforcement against the Indian reservation retailers.

The Supreme Court upheld Respondent's standing and held that the Tax Department's failure to uniformly enforce the tax laws was unconstitutional. The court directed equal implementation and enforcement of the tax laws.

The Appellate Division upheld petitioners standing on the theory that the forbearance policy represented a denial of equal treatment. Because the policy was based on the suspect classification of race, the court held that none of the rationales for the policy met the strict scrutiny standard. Accordingly, the Appellate Division upheld the Supreme Court's decision.

The Court of Appeals affirmed on the question of standing, but found that the Appellate Division erred in applying strict scrutiny analysis. The court reversed the Appellate Division's order. The court held that the "rational basis" standard is the appropriate standard of review, since no invidious discrimination is involved; however, because the State Tax Department repealed its regulations on the collection of the excise and sales taxes several weeks after the appeal was argued, no decision was required. The court left open for resolution the issue of whether the Tax Department's forbearance policy was sustainable under a rational basis analysis. The court reversed the order of the Appellate Division and remitted the case to the Supreme Court for reconsideration in light of the policy changes.

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