Opinion ID: 216352
Heading Depth: 2
Heading Rank: 2

Heading: Cigarette Sales on Indian Reservations

Text: Federal law prohibits New York from taxing cigarette sales to enrolled tribal members on their own reservations for personal use. See Moe v. Confederated Salish & Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 475-81, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976). New York may, however, tax [o]n-reservation cigarette sales to persons other than reservation Indians. Dep't of Taxation & Fin. of N.Y. v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 64, 114 S.Ct. 2028, 129 L.Ed.2d 52 (1994) (citing Washington v. Confederated Tribes of Colville Reservation, 447 U.S. 134, 160-61, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980)). The on-reservation sale of both taxable and tax-free cigarettes and New York's limited on-reservation taxing authority complicate collection and enforcement. In the late 1980s, the Department determined that the volume of untaxed cigarettes that reservation retailers sold would, if consumed exclusively by tax-immune Indians, correspond to a consumption rate 20 times higher than that of the average New York resident. Id. at 65, 114 S.Ct. 2028. A substantial number of non-Indian New Yorkers clearly purchased their cigarettes from reservation retailers without paying the tax to either the retailer or the Department. The Department estimated the tax evasion to cost New York $65 million annually. Id. The Department first attempted to collect these taxes in 1988 by promulgating regulations similar to those Plaintiffs now challenge. [3] The Supreme Court upheld the 1988 regulations, and the scheme appeared ready for implementation. See id. at 78, 114 S.Ct. 2028. The Department never implemented the regulations, however, due to additional litigation, civil unrest, and failed negotiations between the State and individual nations and tribes. [4] Consequently, the Department repealed the regulations in 1998. Despite the New York Legislature's repeated efforts to the contrary, the Department adopted a forbearance policy and allowed wholesalers to sell untaxed cigarettes to recognized tribes and reservation retailers without restriction. Under the forbearance policy, non-member evasion of the cigarette tax proliferated. For example, the Unkechauge Nation has an estimated 376 enrolled members and yearly probable demand [5] of 3,240 cigarette cartons (10 packs per carton). Unkechauge retailers purchased approximately 5 million untaxed cigarette cartons from state-licensed stamping agents in 2009 and 3.5 million untaxed cartons from January through June 2010. If only Unkechauge members had consumed these cigarettes, every man, woman, and child would have smoked 364 packs per day in 2009. State Defendants present similar figures for the other Plaintiffs. [6] The Department estimates that curbing tax evasion on reservations will generate approximately $110 million in annual tax revenue. Accordingly, New York once again seeks to collect taxes on non-member, on-reservation cigarette sales. The Department revoked its forbearance policy in February 2010. In June 2010, the New York Legislature amended New York Tax Law §§ 471 and 471-e, and the Department adopted regulations to implement the tax on reservation sales. [7] The Department also issued a Technical Memorandum explaining certain aspects of the tax scheme. See Amendments to the Tax Law Related to Sales of Cigarettes on Indian Reservations Beginning September 1, 2010, TSB-M-10(6)M, (8)S (July 29, 2010) [hereinafter Technical Memorandum]. Together, the 2010 amendments, new regulations, and Technical Memorandum (collectively amended tax law or amendments) create a system to collect the excise tax on cigarette sales to non-members while exempting sales to tribal members for personal use. The amendments were scheduled to take effect September 1, 2010, but enforcement has been stayed due to the Northern District's preliminary injunction and the Western District's stays pending appeal.