Opinion ID: 216352
Heading Depth: 4
Heading Rank: 1

Heading: Precollection of the Tax

Text: Under the amended tax law's precollection scheme, the wholesale price of taxable cigarettes includes the cost of the tax. Tribal retailers, like other New York retailers, pay the tax to wholesalers when purchasing inventory and recoup the tax by adding it to the retail price. The Oneida and Cayuga Nations argue that this prepayment obligation is, in effect, a categorically impermissible direct tax on tribal retailers. We disagree. As we have already explained, it is only the legal burden of a taxas opposed to its practical economic burdenthat a state is categorically barred by federal law from imposing on tribes or tribal members. See Chickasaw Nation, 515 U.S. at 460, 115 S.Ct. 2214 (rejecting economic reality as an unworkable measure of the scope of state taxation authority). Focusing on the economic impact of precollection, the Northern District concluded that the amended tax law in effect [impermissibly] requires the Oneida Nation to pay the tax. Oneida Nation, 2010 WL 4053080, at . This finding is not relevant, however, because the express language of New York's tax law places the legal incidence on the consumer, not the wholesaler or retailer. N.Y. Tax Law § 471(2) (It is intended that the ultimate incidence of and liability for the tax shall be upon the consumer.). In fact, the statute contains mandatory pass-through provisions that require wholesalers and retailers to pass on the tax to the consumer. Id. ([A]ny agent or dealer who shall pay the tax to the commissioner shall collect the tax from the purchaser or consumer.); id. § 471(3) (The amount of taxes advanced and paid by the agent . . . shall be added to and collected as part of the sales price of the cigarettes.). The Supreme Court has suggested that such `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, 126 S.Ct. 676 (citing Chickasaw Nation, 515 U.S. at 461, 115 S.Ct. 2214). [16] The statement of legislative intent and the mandatory pass-through provisions establish that the legal incidence of New York's tax falls on non-Indian consumers. Accordingly, whatever its economic impact, the tax is not categorically barred. The Oneida, Cayuga, and Unkechauge Nations argue that precollection, if not categorically barred, nonetheless places an undue and unnecessary economic burden on tribal retailers. For example, the Oneida Nation estimates that upon implementation of the precollection mechanism, it will need to front an additional $3.5 million per year to prepay the tax and spend over $200,000 per year to finance that increased cost in order to maintain its current cigarette inventory levels (approximately 80,000 cartons per year at all times). The Northern District concluded that these financing costs imposed an impermissible burden on tribal sovereignty. We disagree for two reasons. First, the precollection mechanism will undoubtedly impose an increased economic cost on tribal retailers who continue to market taxable cigarettes to non-member purchasers. But those costs result from the retailer's decision to participate in the taxable cigarette market, a market in which Plaintiffs and their members 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, 100 S.Ct. 2069. Second, New York's precollection scheme is materially indistinguishable from those upheld in Moe and Colville. Here, State Defendants have presented evidence of non-member tax evasion occurring through on-reservation cigarette purchases. Thus, as in Moe and Colville, the amended tax law's precollection mechanism constitutes a minimal tax collection burden that is reasonably necessary to prevent wholesale evasion of [New York's] own valid taxes without unnecessarily intruding on core tribal interests. Milhelm Attea, 512 U.S. at 75, 114 S.Ct. 2028 (brackets in original) (quoting Colville, 447 U.S. at 160, 162, 100 S.Ct. 2069). The Cayuga, Oneida, and Unkechauge Nations seek to distinguish Moe and Colville by pointing out that when those cases were decided Washington imposed a $1.60 per carton tax, see Colville, 447 U.S. at 141, 100 S.Ct. 2069, and Montana a $1.20 per carton tax, see Moe, 392 F.Supp. at 1313, whereas New York currently imposes a $43.50 per carton tax. The three Nations argue, and the Northern District agreed, that the significantly greater economic burden imposed by New York's tax distinguishes the precollection schemes upheld in Moe and Colville, and renders New York's unduly burdensome. Contrary to the Nations' arguments, it was the demonstrated need to prevent tax evasion by non-Indian purchasers, not the low cost of the state tax, that justified precollection in Moe and Colville. That justification remains valid even where the excise tax is high; the higher the tax rate, the greater the economic incentive to avoid it. The Nations also contend that precollection is not reasonably tailored to New York's tax collection interest because there are other less burdensome alternatives. The Northern District agreed with the Oneida Nation's argument that precollection is unnecessary to enforce payment of the cigarette tax because New York Tax Law § 471-a already requires each individual cigarette purchaser to remit the tax to the State within twenty-four hours of when liability for the tax accrued. See Oneida Nation, 2010 WL 4053080, at  (citing N.Y. Tax Law § 471-a). However, the New York Legislature has reasonably determined that collection of the cigarette excise tax through efforts directed at individual buyers is impractical, and that, if it is to be collected at all, the tax must be precollected when cigarettes enter the stream of commerce. The Oneida Nation, for example, purchased 1.5 million untaxed cartons of cigarettes in 2009, despite having only 1,473 members. The legislature was entitled to conclude on the basis of this and other evidence that collection of the tax through efforts directed at individual purchasers is ineffective and unworkable. Cf. Milhelm Attea, 512 U.S. at 75, 114 S.Ct. 2028 (upholding New York's decision to stanch the illicit flow of tax-free cigarettes early in the distribution stream as a reasonably necessary method of preventing fraudulent transactions.) (internal quotation marks omitted). [17] Therefore, the Oneida, Cayuga, and Unkechauge Nations have failed to demonstrate a likelihood of success on the merits of their arguments against precollection of the tax.