Opinion ID: 623760
Heading Depth: 2
Heading Rank: 1

Heading: The Oklahoma Statutes at Issue

Text: Before delving into the procedural history of this case, we first review the three Oklahoma statutes underlying MCN’s complaint. 1. Okla. Stat. tit. 68, § 349.1—the Excise Tax Statute Under Oklahoma’s Excise Tax Statute, the OTC imposes an excise tax on the sale of cigarettes and other tobacco products. The OTC collects the tax from OTC-licensed wholesalers. See Okla. Stat. tit. 68, §§ 302 to 302-5; 402 to 402-3. The wholesaler must purchase stamps from the OTC to show that it has paid the excise tax. Id. §§ 302; 403. Although the wholesaler initially pays the tax when it purchases the stamp, the tax is ultimately passed down to the consumer. See Id. §§ 302 to 302-5. Indian tribes can choose to enter into compacts with the State to govern the collection of state taxes on cigarettes and tobacco products sold in Indian country. See id. § 346(C). Tribes that enter into such compacts are deemed “compacting,” whereas tribes, such as MCN, who do not, are deemed “noncompacting.” -3- The Excise Tax Statute, Okla. Stat. tit. 68, § 349.1, governs the tax on cigarettes and other tobacco products sold by noncompacting tribes. Section 349.1 exempts from the tax the sale of such products by Indian tribes and tribally-licensed retailers to the tribe’s own members when those sales occur in the tribe’s Indian country.1 When a tribally-licensed retailer sells cigarettes to a member of a noncompacting tribe on that tribe’s Indian country, the cigarettes must bear a stamp issued by the OTC (a “tax-free stamp”) evidencing that they have been purchased free from the excise tax. Id. § 349.1(C). The OTC distributes these tax-free stamps to OTC-licensed wholesalers that supply cigarettes to tribally-licensed retailers. Id. § 349.1(C)(5). The number of tax-free stamps that the OTC distributes to a wholesaler depends on the “probable demand.” Id. § 349.1(C)(4). The OTC determines the probable demand for each tribe by multiplying the population of the tribe located in Oklahoma by the 1 Under 18 U.S.C. § 1151, Indian country is defined as: (a) all land within the limits of any Indian reservation under the jurisdiction of the United States Government, notwithstanding the issuance of any patent, and, including rights-of-way running through the reservation, (b) all dependent Indian communities within the borders of the United States whether within the original or subsequently acquired territory thereof, and whether within or without the limits of a state, and (c) all Indian allotments, the Indian titles to which have not been extinguished, including rights-ofway running through the same. Okla. Stat. tit. 68, § 348(3), which also defines the term “Indian country,” includes the three definitions from 18 U.S.C. § 1151, but expands the definition by adding “land held in trust by the United States of America for the benefit of a federally recognized Indian tribe or nation.” -4- percentage of smokers in Oklahoma or the percentage of smokers in the United States, whichever is greater. Id. § 349.1(C)(1). The OTC then multiplies this number by the average yearly consumption of cigarettes by smokers in Oklahoma or smokers in the United States, whichever is greater. Id. After the OTC calculates its preliminary determination of the probable demand, it must furnish that calculation to the governing bodies of the tribes, which may then submit information regarding the sufficiency of the probable demand, including “a verifiable record of previous sales to tribal members or other statistical evidence.” Id. § 349.1(C)(2). After considering this information, the OTC must make a final determination of the probable demand and furnish it to the tribe. Id. § 349.1(C)(3). The OTC then distributes the tax-free stamps to its licensed wholesalers based on its probable demand calculation. Once a wholesaler has received its allocated share of tax-free stamps, the wholesaler may not receive more “absent good cause shown by verifiable information submitted by the wholesaler and/or that tribe or nation, which shall be considered and determined by the [OTC] on a case-by-case basis.” Id. § 349.1(C)(5). Different provisions apply to the sale of tobacco products other than cigarettes. See id. § 349.1(D). Unlike with cigarettes, OTC-licensed wholesalers are required to affix a tax stamp to all other tobacco products, even those to be sold by tribally-licensed retailers to tribal members on that tribe’s Indian country. Id. The OTC-licensed wholesalers must bear the initial incidence of the excise tax on these sales. At the end of each month, OTC-licensed wholesalers may request a refund or credit for the previous -5- month’s tax-free sales equal to the lesser of 1/12 of their allocated share of the probable demand or their verifiable tax-free sales to tribally-licensed or tribally-owned retailers. Id. at § 349.1(D)(5). The probable demand is calculated in the same manner as the calculation for cigarettes, substituting use and users of other tobacco products for use and users of cigarettes. Id. § 349.1(D)(1). Once an OTC-licensed wholesaler has received a refund or credit for a particular month, it may not receive any further refund or credit for that month “absent good cause shown by verifiable information submitted by the wholesaler and/or the noncompacting tribe or nation, which shall be considered and determined by the [OTC] on a case-by-case basis.” Id. § 349.1(D)(5). 2. Okla. Stat. tit. 37, §§ 600.21-600.23 and tit. 68, §§ 360.1-360.9 —the Escrow Statute and the Complementary Act In 1998, Oklahoma entered into a Master Settlement Agreement (“MSA”) with leading United States tobacco product manufacturers. See Okla. Stat. tit. 37, § 600.21(C). The MSA requires the participating manufacturers to make settlement payments to the State to cover, among other things, health costs generated by tobacco use among Oklahoma residents. Id. § 600.21(B), (C). To prevent the non-participating manufacturers from receiving a competitive advantage over the participating manufacturers, the State enacted the Escrow Statute. See id. § 600.21(D). The Escrow Statute requires all tobacco product manufacturers selling cigarettes to consumers in Oklahoma to be an MSA member or pay specified amounts into a qualified escrow fund. Id. § 600.23(A). -6- The amount that non-participating manufacturers must pay into the escrow fund is based on “units sold.” Id. § 600.23(A)(2). “Units sold” are “the number of individual cigarettes sold in the state by the applicable tobacco product manufacturer . . . during the year in question . . . measured by excise taxes collected by the state on [cigarettes] bearing the excise tax stamp . . . .” Id. § 600.22(10). Thus, the Escrow Statute applies only to cigarettes bearing the Oklahoma excise tax stamp and not to cigarettes bearing tax-free stamps. To aid the Attorney General in enforcing the Escrow Statute, Oklahoma in 2004 enacted the Master Settlement Agreement Complementary Act (the “Complementary Act”). Okla. Stat. tit. 68, §§ 360.1, 360.2. The Complementary Act requires every tobacco product manufacturer selling cigarettes in Oklahoma to certify to the Attorney General and the OTC that it is either participating in the MSA or that it has made payments to the escrow fund as required by the Escrow Statute. Id. § 360.4(A). The Attorney General maintains a directory of all complying tobacco product manufacturers, participating and non-participating, and the brand families that they produce. Id. § 360.4(B). The Complementary Act makes it unlawful to affix a tax-stamp to a package or container of cigarettes if its manufacturer or brand family is not listed on the Attorney General’s directory. Id. § 360.4(C)(1). It is also unlawful to “[s]ell, offer, or possess for sale, in [Oklahoma], or import for personal consumption in [Oklahoma]” cigarettes from a manufacturer or brand family not listed on the Attorney General’s directory. Id. § 360.4(C)(2). “[C]igarettes that have been sold, offered for sale, or -7- possessed for sale in [Oklahoma] or imported for personal consumption in [Oklahoma], in violation of the [Complementary Act]” are contraband and subject to seizure and forfeiture. Id. § 360.7(B).