Opinion ID: 216352
Heading Depth: 4
Heading Rank: 2

Heading: Law Regarding Allocation of Tax-Free Cigarettes

Text: In Milhelm Attea, the Supreme Court analyzed the 1988 version of New York's tax law. Milhelm Attea, 512 U.S. at 78, 114 S.Ct. 2028. As the Western District correctly noted, the general features of the 1988 versionprecollection, probable demand limitations, allocation through the use of coupons and prior approvalwere similar to the main features of the amended tax law. See Seneca Nation, 2010 WL 4027796, at -10 &  (comparing the amended tax law and 1988 version). In Milhelm Attea, wholesalers that were federally licensed to sell cigarettes to reservation Indians challenged the 1988 regulations as being preempted by the Indian Trader Statutes. Under the Indian Trader Statutes, the Commissioner of Indian Affairs has sole authority to make such rules and regulations . . . specifying the kind and quantity of goods and the prices at which such goods shall be sold to the Indians. 25 U.S.C. § 261. The wholesalers argued that the federal government's authority to regulate Indian Traders precluded New York from both limiting the quantity of tax-free cigarettes wholesalers could sell to reservation retailers and requiring wholesalers to obtain approval before making tax-free sales. The Court disagreed. Relying on Moe and Colville, the Court recognized New York's valid interest in ensuring compliance with lawful taxes that might easily be evaded through purchases of tax-exempt cigarettes on reservations, and concluded that the balance of state, federal, and tribal interests left appreciable room for state regulation of on-reservation cigarettes sales to non-member purchasers. Milhelm Attea, 512 U.S. at 73, 114 S.Ct. 2028. Congress enacted the Indian Trader Statutes to protect reservation Indians who do business with non-Indians. Thus, the Court reasoned, it would be anomalous to forbid states from imposing on non-Indian wholesalers the same tax collection and bookkeeping burdens that, under Moe and Colville, states could validly impose on reservation retailers. Id. at 74, 114 S.Ct. 2028. Just as tribal sovereignty does not completely preclude States from enlisting tribal retailers to assist enforcement of valid state taxes, the Indian Trader Statutes do not bar the States from imposing reasonable regulatory burdens upon Indian traders for the same purpose. Id. The Court also rejected the argument that the tax-free allotments and prior approval requirement imposed excessive regulatory burdens on wholesalers or Indian trading. Specifically, the Court held that the probable demand mechanism validly related to New York's decision to stanch the illicit flow of tax-free cigarettes early in the distribution stream and constituted a reasonably necessary method of preventing fraudulent transactions, . . . without unnecessarily intruding on core tribal interests. Id. at 75, 114 S.Ct. 2028 (internal quotation marks omitted). The Court observed that [i]f the Department's `probable demand' calculations are adequate, tax-immune Indians will not have to pay New York cigarette taxes. . . . Id. Finally, it held that [t]he associated requirement that the Department preapprove deliveries of tax-exempt cigarettes in order to ensure compliance with the quotas does not render the scheme facially invalid. Id. at 76, 114 S.Ct. 2028. Importantly, in analyzing the 1988 regulations, the Court construed the wholesalers' preemption challenge as essentially a facial one. Id. at 69, 114 S.Ct. 2028. Accordingly, the Court declined to rest [its] decision on consequences that, while possible, are by no means predictable, and limited its analysis to those alleged defects that inhere in the regulations as written. Id. Regarding the probable demand mechanism, for example, the Court noted that [w]hile the possibility of an inadequate quota may provide the basis for a future challenge to the application of the regulations, [it was] unwilling to assume in the absence of any such showing by respondents, that New York will underestimate the legitimate demand for tax-free cigarettes. Id. at 75-76, 114 S.Ct. 2028. The prior approval requirement, the Court observed, should not prove unduly burdensome absent wrongful withholding or delay of approvalproblems that can be addressed if and when they arise. Id. at 76, 114 S.Ct. 2028. The Court added that [a]greements between the Department and individual tribes might avoid or resolve problems that are now purely hypothetical. Id. at 77, 114 S.Ct. 2028.