Following a year-and-a-half of litigation, the state's highest court is supporting the Cayuga Indian Nation's right to sell cigarettes tax-free. The Court of Appeals ruled 4-3 in favor of the Cayugas yesterday. The case started after Cayuga and Seneca County sheriff's deputies seized millions of cigarettes from two nation-owned stores. Our Kat De Maria has more.

ALBANY, N.Y. -- "The Cayugas are on a qualified Indian reservation and the Supreme Court, U.S. Supreme Court, has held that Indians have the rights to buy tax-free cigarettes," said attorney Dan French.

Indians may have that right. But under New York State law, not everyone else does. Without a system in place to differentiate between Indian and non-Indian buyers, state leaders simply don't enforce the law.

So in November of 2008, the Cayuga and Seneca County sheriff's departments decided to do so at two Lakeside Trading Stations.

"We looked at the tax law. We agreed with Seneca County's interpretation that the taxes were due and owing. We did a search warrant, recovered almost $1.5 million of cigarettes in this county and almost $2.5 million in Seneca County that were not taxed," Cayuga County District Attorney Jon Budelmann

As the counties started to build their criminal case, the Cayuga Nation launched a civil suit. Three rounds of proceedings have now ended in a Court of Appeals decision in favor of the Cayugas.

"These district attorneys took it upon themselves to try and enforce the law and they squandered hundreds of thousands of dollars of taxpayers' money to be proven wrong," French said.

"On a day when the governor and the legislature vote to furlough all of the state employees a day a week because we don't have enough money to meet our obligations, the highest court in the state has said a $1 billion worth of cigarette taxes will not be collected this year," said Budelmann.

The Court of Appeals is the highest in New York State. But even now that the court has decided the case, it seems the issues surrounding it are far from resolved.

"There's $500,000 in spoiled product the counties are in possession of, and the Cayuga Nation will now sue the counties for $500,000 in damages," French said.

Meanwhile, the district attorney says Cayuga and Seneca counties will consider moving forward with their criminal case against the nation, and even an appeal to the U.S. Supreme Court.

"I think they've raised a whole slew of federal questions. And I think it's appropriate to leave to the U.S. Supreme Court is appropriate here," Budelmann said.

As the proceedings continue, the Cayugas will continue to sell cigarettes. Although the district attorney warns non-Indians, buyer beware.