Opinion ID: 623760
Heading Depth: 3
Heading Rank: 1

Heading: Excise Tax Statute

Text: Because the excise tax falls on non-Indians purchasing cigarettes and other tobacco products in Indian country,7 we must analyze both potential barriers to its application—preemption and infringement on tribal self-government. We hold that MCN failed to state a plausible claim that the Excise Tax Statute is either preempted by federal 7 Okla. Stat. tit. 68, § 302 states that the impact of the tax is on “the vendee, user, consumer, or possessor of cigarettes in [Oklahoma] . . . and shall . . . be . . . recovered from the ultimate consumer or user.” “[S]uch ‘dispositive language’ from the state legislature is determinative of who bears the legal incidence of a state excise tax.” Wagnon, 546 U.S. at 102 (quoting Chickasaw, 515 U.S. at 461). -27- law or infringes on MCN’s tribal self-governance.
Each time the Supreme Court has examined whether federal law preempts taxes on non-Indians who purchase cigarettes in Indian country, the Court has found that it does not. See, e.g., Milhelm Attea, 512 U.S. at 78; Colville, 447 U.S. at 157; Moe, 425 U.S. at 483. These decisions establish that the state has a valid interest in collecting revenue. Colville, 447 U.S. at 157 (“The State also has a legitimate governmental interest in raising revenue” through taxes.). They also establish that: “[t]ribes have no vested right to a certain volume of sales to non-Indians, or indeed to any such sales at all.” Colville, 447 U.S. at 151 n.27. Thus, the Court has found that tribal interests do not outweigh those of the state in this area. In Milhelm Attea, the Supreme Court addressed whether the Indian Trader Statutes preempted a New York cigarette law similar to the Excise Tax Statute at issue here. 512 U.S. at 70. The Court summarized its prior cases involving state taxation of cigarettes in Indian country and applied them to the “particularized inquiry” and balancing required under Bracker. Id. at 73. It stated: Moe, Colville, and [Oklahoma Tax Com’n v. Citizen Band] Potawatomi [Indian Tribe of Oklahoma, 498 U.S. 505 (1991),] make clear that the [s]tates have a valid interest in ensuring compliance with lawful taxes that might easily be evaded through purchase of tax-exempt cigarettes on reservations; that interest outweighs tribes’ modest interest in offering a tax exemption to customers who would ordinarily shop elsewhere. The balance of state, federal and tribal interests in this area thus leaves more room for state regulation than in others. -28- Id. (quotations omitted) (citation omitted). The Court concluded that the Indian Trader Statutes did not preempt “circumvention of ‘concededly lawful’ taxes owed by nonIndians.” Id. at 75 (quoting Moe, 425 U.S. at 482-83); see also Colville, 447 U.S. at 15556 (“The Indian Trader Statutes incorporate a congressional desire comprehensively to regulate businesses selling goods to reservation Indians for cash or exchange but no similar intent is evident with respect to sales by Indians to nonmembers of the Tribe.” (citations omitted)). The Supreme Court has concluded that a state’s interest in collecting its lawful tax outweighs a tribe’s interest in selling tax-exempt cigarettes to non-tribal members who might normally shop elsewhere but for the discounted prices. 8 Accordingly, we see no reason why, under the backdrop principles of tribal self-government, MCN’s interest in being free from state regulation outweighs the State’s interest in collecting its valid tax. 8 MCN argues that it is inappropriate for us to perform the “particularized inquiry” and balance the federal, state, and tribal interests because this case comes to us from the grant of a motion to dismiss. It wishes to develop the record regarding its interest in being free from the Excise Tax. Although we remanded in Sac & Fox Nation to allow the tribe an opportunity to provide more information to aid us in performing the balancing preemption test, 213 F.3d at 585-86, we need not do so here. The considerations to do so in Sac & Fox Nation, such as needing to ascertain the portion of fuel sales made to tribal members compared to the general public, id. at 585, are not present in this case. The Supreme Court has already conclusively addressed the validity of taxes nearly identical to the excise tax here, and found that tribes do not have an interest in marketing an exemption from valid state taxes. See Colville, 447 U.S. at 155 (“We do not believe that principles of federal Indian law, whether stated in terms of preemption, tribal self-government, or otherwise, authorize Indian tribes thus to market an exemption from state taxation to persons who would normally do their business elsewhere.”). -29- Therefore, we hold that the Indian Trader Statutes do not preempt the Excise Tax Statute.
We also must consider whether the Excise Tax Statute violates MCN’s tribal sovereignty—the right to “make [its] own laws and be ruled by them.” Williams, 358 U.S. at 220. “[T]ribal sovereignty does not completely preclude States from enlisting tribal retailers to assist enforcement of valid state taxes . . . .” Milhelm Attea, 512 U.S. at 74. A state may impose “minimal burdens” on Indians to collect cigarette taxes from non-Indians for transactions occurring in Indian country. Moe, 425 U.S. at 483 (“The State’s requirement that the Indian tribal seller collect a tax validly imposed on nonIndians is a minimal burden designed to avoid the likelihood that in its absence nonIndians purchasing from the tribal seller will avoid payment of a concededly lawful tax. . . . We see nothing in this burden which frustrates tribal self-government . . . .”); see also Potawatomi, 498 U.S. at 513, 512 (“[T]he doctrine of tribal sovereign immunity does not prevent a State from requiring Indian retailers doing business on tribal reservations to collect a state-imposed cigarette tax on their sales to nonmembers of the Tribe.” It also “does not excuse a tribe from all obligations to assist in the collection of validly imposed state sales taxes.”). In Moe, the Supreme Court determined that a state could require tribal retailers to collect a tax on the sale of cigarettes to non-Indians. 425 U.S. at 482-83 (rejecting the tribe’s contention that making “the Indian retailer an ‘involuntary agent’ for collection of taxes owed by non-Indians is a ‘gross interference with (its) freedom from state -30- regulation’”). In Colville, the Court upheld more extensive burdens such as requiring tribal retailers to keep detailed records of both taxable and nontaxable transactions because such requirements were a “reasonably necessary . . . means of preventing fraudulent transactions.” 447 U.S. at 159-60. Finally, in Milhelm Attea, the Court upheld New York’s probable demand formula for determining a quota of the tax-free cigarettes for tribal members, as well as precollection and recordkeeping requirements. 512 U.S. at 75-76 (noting that these requirements do not intrude on the Indians’ “core tribal interests” (quoting Colville, 447 U.S. at 162)). The burdens that the Excise Tax Statute place on MCN’s tribal retailers do not exceed the permissible “minimal burdens” upheld in Moe, Colville, and Milhelm Attea. Apart from the legal incidence of the excise tax that falls on non-Indian consumers, the principal burden of the Excise Tax Statute falls on the OTC-licensed cigarette and tobacco wholesalers who must purchase and affix the tax and tax-free stamps, maintain detailed records, and precollect some taxes. None of these burdens fall on MCN’s tribally-licensed retailers. Even if these burdens did fall on MCN’s tribal retailers, Moe, Colville, and Milhelm Attea instruct us that such burdens are permissible. MCN, however, argues that the Excise Tax Statute indirectly burdens the tribe and interferes with its tribal self-governance. We will address MCN’s four arguments in turn.
The Excise Tax Statute requires tribally-licensed retailers to purchase cigarettes and other tobacco products from OTC-licensed wholesalers. Thus, if MCN wishes to -31- operate a tribal wholesaler and distribute cigarettes and other tobacco products to triballylicensed retailers, that wholesaler must be licensed by the OTC. MCN argues that these requirements infringe on its tribal self-government because it cannot obtain cigarettes or other tobacco products without either doing business with other OTC-licensed wholesalers or having its tribal wholesaler obtain a license from the OTC. Although some authority suggests that the State cannot require MCN’s tribally operated wholesaler to obtain a license from the OTC, see Moe, 425 U.S. at 480-81 (prohibiting vendor license fee as applied to tribal member conducting business on Indian country); State ex rel. Okla. Tax Comm’n v. Bruner, 815 P.2d 667, 669-70 (1991) (prohibiting the OTC from imposing a license and permit requirement on tribally licensed cigarette retailers in Indian country but permitting a registration requirement), in Rice v. Rehner, 463 U.S. 713 (1983), the Supreme Court held that where a tribal retailer sells to non-tribal members, state licensing requirements do not “infringe upon tribal sovereignty.” Id. at 720 (“To the extent that [the Indian trader] seeks to sell to nonIndians, or to Indians who are not members of the tribe with jurisdiction over the reservation on which the sale occurred, the decisions of this Court have already foreclosed [the Indian trader’s] argument that the licensing requirements infringe upon tribal sovereignty.”). Even if we were to question such a licensing requirement, MCN provides no authority for why the State cannot require it to purchase cigarettes and other tobacco products from an OTC-licensed wholesaler. The precedent on this question goes the -32- other way. In Milhelm Attea, the New York statutory scheme that the Court reviewed required “licensed agents [to] purchase tax stamps and affix them to cigarette packs in advance of the first sale within the State.” 512 U.S. at 64. Requiring wholesalers, who are the stamping agents, to be OTC-licensed helps protect the State’s valid interest in preventing evasion of its valid cigarette tax. See Id. at 75 (“We are persuaded . . . that [the State’s] decision to stanch the illicit flow of tax-free cigarettes early in the distribution stream is a ‘reasonably necessary’ method of ‘preventing fraudulent transactions,’ one that ‘polices against wholesale evasions of [the State’s] own valid taxes without unnecessarily intruding on core tribal interests.’” (quoting Colville, 447 U.S. at 162)). Therefore, we hold that either requiring MCN’s wholesaler to obtain a license from the OTC or requiring its tribally-licensed retailers to purchase cigarettes and other tobacco products from OTC-licensed wholesalers does not infringe on MCN’s tribal selfgovernment.
MCN argues that the Excise Tax Statute impermissibly restricts the number of taxfree stamps that an OTC-licensed wholesaler may receive from the OTC. The Supreme Court addressed this argument in Milhelm Attea, where the petitioners, federally-licensed Indian traders, challenged a New York statute that had a similar probable demand formula for the distribution of tax-free cigarettes. 512 U.S. at 75-76. Because the Indian traders had brought a facial challenge to the statute, the Court refused to consider “consequences that, while possible, are by no means predictable.” 512 U.S. at 69. Thus, -33- it rejected the Indian traders’ challenge to the limitation of tax-free cigarettes based on the probable demand mechanism. Id. at 75. The Court stated: While the possibility of an inadequate quota may provide the basis for a future challenge to the application of the regulations, we are unwilling to assume, in the absence of any such showing . . . that [the State] will underestimate the legitimate demand for tax-free cigarettes. . . . This procedure should not prove unduly burdensome absent wrongful withholding or delay of approval—problems that can be addressed if and when they arise. Id. at 75-76. Like the petitioner in Milhelm Attea, MCN has not alleged that wholesalers, and as a result, its tribally-licensed retailers, are not receiving a sufficient amount of cigarettes with the tax-free stamps. Thus, “we are unwilling to assume, in the absence of any such showing” that the State will underestimate the amount of tax-free cigarettes to send to wholesalers. See id. at 75-76. Furthermore, MCN does not address the provision in the Excise Tax Statute that permits the tribe to comment on the initial calculation of the probable demand or the provision that allows wholesalers to request more tax-free stamps or other tobacco products provided the wholesaler and/or the tribe establish “good cause shown by verifiable information.” Okla. Stat. tit. 68, §§ 349.1(C)(5); 349.1(D)(5). For these reasons, we do not find that the probable demand quota is an impermissible burden.
MCN argues that the method by which the Excise Tax Statute is applied to tobacco products other than cigarettes creates a financial disincentive for OTC-licensed -34- wholesalers to do business with MCN. The OTC-licensed wholesalers must bear the initial incidence of the excise tax and receive a refund at the end of the month equal to the lesser of 1/12 of their allocated share of the probable demand or their verifiable tax-free sales to tribally-licensed retailers, see Okla. Stat. tit. 68, § 349.1(D)(5). The Supreme Court, however, has held that a tax on non-Indians “may be valid even if [the tax] seriously disadvantages or eliminates the Indian retailer’s business with non-Indians.” Colville, 447 U.S. at 151; see also Wagnon, 546 U.S. at 114 (“But the Nation cannot invalidate the [state] tax by complaining about a decrease in revenues.”). The Court has never “go[ne] so far as to grant tribal enterprises selling goods to nonmembers an artificial competitive advantage over all other businesses in a State.” Colville, 447 U.S. at 155. Thus, even if the application of the Excise Tax Statute to other tobacco products disadvantages MCN’s tribally-licensed retailers, it does not infringe on MCN’s tribal self-governance.
MCN complains that the State’s practice of enforcing the Excise Tax Statute by seizing cigarettes outside Indian country that do not have a tax or tax-free stamp infringes on its tribal sovereignty. The Supreme Court again instructs us otherwise. Such seizures are permissible, especially when, as here, a tribe fails to cooperate and collect valid state taxes on sales of cigarettes to non-tribal members on Indian country. See Colville, 447 U.S. at 161-62. In Colville, the Court stated: Although the cigarettes in transit are as yet exempt from state taxation, they -35- are not immune from seizure when the Tribes, as here, have refused to fulfill collection and remittance obligations which the State has validly imposed. . . . By seizing cigarettes en route to the reservation, the State polices against wholesale evasion of its own valid taxes without unnecessarily intruding on core tribal interests. Id. at 161-62 (citation omitted). The Supreme Court reaffirmed this view in Potowatomi: “States may of course collect the sales tax from cigarette wholesalers . . . by seizing unstamped cigarettes off the reservation.” 498 U.S. at 514; see also Muscogee I, 611 F.3d at 1237 (collecting cases). The State’s seizure of unstamped cigarettes to enforce the Excise Tax Statute is accordingly not an impermissible burden on MCN. For these reasons, we hold that the Excise Tax Statute does not violate MCN’s right to “make [its] own laws and be ruled by them.” Williams, 358 U.S. at 220.