In the summer of 2011, the Altria Group, the biggest of the Big Tobacco companies and the parent company of Philip Morris USA, released a “white paper” that urged New York State to clamp down on tax-free cigarettes manufactured on Indian land. The paper, replete with references to news reports, statutes and case law, was one more feint in a long line of efforts by Big Tobacco to get the federal and state governments to crack down on its competition—sovereign Indian nations and small tobacco manufacturers.
Native American Manufactured Cigarettes Sold to Nontribal Members Are Fully Subject to New York’s Tax, Distribution, and Other Tobacco Laws was issued about a year after New York’s Department of Taxation and Finance (DTF) amended the state’s cigarette tax law in early 2010 to force Indian tobacco businesses to collect state taxes by requiring all cigarettes sold to reservations to have an affixed $4.35 cigarette stamp. Prior to the new tax law and the passage that spring of the Prevent All Cigarette Trafficking Act, which stopped the shipment of cigarettes through the mail, Indian tobacco businesses could order unstamped, untaxed cigarettes to sell on the Internet or to customers who travelled to reservations to buy their tax-free smokes. Indian nations won a court injunction against the new tax law, but last summer the injunction was lifted and the law implemented. The nations responded by announcing they would no longer buy the famous brand cigarettes manufactured by Philip Morris (Altria), Reynolds-American and Lorillard. Instead they would manufacture and sell their own brands of cigarettes.
With imposed taxes in place and the hugely successful Indian cigarette mail order business knocked out, next Altria turned its attention to Native-manufactured cigarettes. “The sale and distribution of Native American brands to nontribal members are fully within the State’s power to tax, regulate and enforce,” Altria declared in its white paper. “There is no immunity for sales of Native American cigarettes to non-Indians or to members of other tribes. Any such exemption from the enforcement of the 2010 Tax Law amendment would not only be unprecedented and unsupported by the law, but would threaten to turn a significant public policy accomplishment into a setback.” Altria even warned that failure to clamp down on untaxed Indian-made cigarettes risked “potential civil unrest.”
Six months later, law enforcement agents in the state began stopping trucks near the St. Regis Mohawk Tribe’s territory and seizing cargoes of Native-manufactured cigarettes that are licensed and taxed by the federal and tribal governments. The cigarettes were being transported to reservations both in New York State and in other states.
The first seizure was in January, 2012, when HCI Distribution, a company owned by the Winnebago Tribe of Nebraska, purchased 26,160 cartons of Signal brand cigarettes and cigars and 72 bags of Signal brand pipe tobacco on the St. Regis Mohawk Tribe’s reservation, according to court documents relating to a lawsuit filed after the seizure. Those products, worth more than $2 million, were manufactured by Ohserase Manufacturing, LLC, a federally licensed manufacturer organized under St. Regis Mohawk Tribe laws and were owned by its citizens. Border Patrol officers pulled the truck over, then handed the matter over to the New York state police, who broke open the seal on the cargo doors of the semi-trailer transport truck without a warrant, court papers say. The driver was detained for hours and then released, but the cigarettes were taken off to state police barracks, where they remain as of the end of May.
The incident has generated a lawsuit in New York Supreme Court in St. Lawrence County by HCI Distribution against the New York State Police, St. Lawrence. County District Attorney Nicole M. Duvé, who directed the seizure, her assistant John Becker,and state police officials. HCI wants its cigarettes back. ”The State’s seizure and ongoing retention of HCI’s property threatens HCI with the loss of its business,” HCI attorneys wrote in the lawsuit. Because even if HCI wins the lawsuit, by that time the return of $2 million worth of stale cigarettes would be a hollow victory. Five more trucks carrying federal- and tribal-licensed cigarettes manufactured on Mohawk land were stopped and their contents seized over the next four months. Four of the trucks were destined for Indian territories outside New York State; the fifth was headed for a reservation on Long Island.
While no smoking gun has yet emerged connecting Altria’s “white paper” to the cigarette seizures, Indian attorneys say there’s plenty of reason to believe Altria has been pressuring state officials to act against the Native-manufactured cigarettes. “It would not surprise me at all,” says Joe Messineo, an attorney with the firm of Frederick Peebles & Morgan representing HCI Distribution in the lawsuit against Duvé. Last year, Big Tobacco was directly involved in writing measures in the Nebraska law that targeted the Indian tobacco economy in that state, Messineo said. “We have public records from the attorney general’s office in Nebraska that clearly show they not only have contact with Big Tobacco but that Big Tobacco gives its approval on laws. We have emails between a staff attorney in the AG’s office and a Big Tobacco attorney that say, ‘Hey, what do you think of this law?’ and the Big Tobacco attorney saying, ‘Why don’t you add this here or change that there.’”
The proposed “revisions” to Nebraska law included restricting the number of tax-exempt cigarettes that could be sold to tribal members on reservations; requiring tribes to prepay state excise taxes on cigarettes sold to tribal members, then seek reimbursement from the state; requiring escrow payments for tribally taxed sales; creating a “do-not-sell list” for any tribe that exercised its right of sovereign immunity; and prohibiting anyone from buying or selling products, including raw materials and manufacturing machinery, to any tribe on the list. HCI managed to derail some of the most harmful proposed revisions by exposing Philip Morris’s role in writing the legislation.
A spokeswoman in New York Attorney General Eric T. Schneidman’s office declined to say what involvement, if any, the attorney general had in initiating, coordinating, communicating or advising Duvé or other district attorneys regarding the seizures. The attorney general’s spokeswoman also declined to comment about any communications between her office and representatives of Altria Group/Philip Morris.
Altria and its subsidiary Philip Morris have long been interested in knocking the American Indian tobacco business out of the market, particularly in New York State, where astronomical state taxes created a fertile ground for the Seneca Nation and other Indian nations to develop a robust tax-free tobacco economy in the mid-1990s. Altria makes no secret of its efforts to influence legislation on both federal and state levels. In 2008, for example, Philip Morris spokesman David Sutton told Indian Country Today that the giant tobacco company wrote a bill that New York Assemblyman William Magee introduced into the Assembly that summer to force Indian retailers to collect taxes on cigarettes they sell to non-Indian customers on sovereign tribal land. That bill failed, but its concept was revived in a 2010 amendment that passed.
Sutton was at it again in March, 2010, when the Senate passed the Prevent All Cigarette Trafficking Act, a piece of legislation Philip Morris had pushed—and some say had a hand at writing—for years. “Philip Morris USA is proud to support the PACT Act,” Sutton said. “The sale of untaxed and under taxed cigarettes and smokeless tobacco products remotely—via the Internet, mail or phone—harms legitimate wholesale and retail businesses, consumers and government budgets.” At the time, Indian businesses handled around 95 percent of the mail order tobacco industry.
Altria has also spent big bucks on anti-Indian cigarette ads. In May 2010, for example, Altria Client Services paid for a full-page ad in upstate New York newspapers on behalf of area stores that were unhappy with Oneida Indian Nation’s sales of tax-free cigarettes: “The state loses revenue. Retailers lose sales. Their employees could even lose jobs. And it adds to the burden on hard-working taxpayers.”
This latest skirmish in the Indian Tobacco Wars plays out against the backdrop of the 1998 Master Settlement Agreement (MSA), in which Philip Morris USA and other large tobacco companies (participating manufacturers—PMs) agreed to pay $246 billion to states, including New York, to settle lawsuits brought by the attorneys general of 46 states to recover billions of dollars in costs associated with treating smoking-related illnesses.
The MSA requires participating states to enact and enforce a “qualifying escrow statute,” which requires cigarette manufacturers that didn’t sign the MSA (known as non-participating manufacturers—NPMs) to make annual escrow deposits of funds based on “units sold”—the number of cigarettes for which the state collects taxes. The escrow statute protects Big Tobacco from competition by forcing the NPMs to increase the price of their cigarettes so that they don’t have a cost advantage over the participating manufacturers who make annual MSA payments. But there are dozens of Native manufacturers that didn’t sign the MSA and are not required to make escrow payments because the cigarettes they sell don’t fall within the definition of “units sold”—they don’t have tax stamps affixed to them.
Furthermore, a provision of the MSA says that if Big Tobacco loses market share, it can withhold MSA payments to the states, putting the states in the conflicted position of needing Big Tobacco to keep its market share in order for the state to get its full annual MSA payment. The states and tobacco companies currently are in arbitration over payments of more than $5 billion that Big Tobacco has withheld since 2006, claiming the states haven’t done the “diligent enforcement” required by the MSA to stop small rival cigarette companies that didn’t sign the settlement from undercutting them on prices. Tribal nations had no role in the MSA, but since Big Tobacco is losing market share and can’t go after other manufacturers who signed on to the MSA, Messineo says it’s going after small and tribal companies instead. In urging New York State to clamp down on untaxed, Native-made cigarettes Altria argues in its “white paper” that tribes should be treated as if they were small cigarette companies rather than sovereign nations with inherent and treaty rights to trade on their land.
“It’s not hard to figure out why all this stuff is happening,” Messineo says. If the states manage to force Indian manufacturers to pay taxes via tax stamps on their cigarettes, they would have to make escrow payments on all cigarettes sold on Indian reservations or they could not lawfully sell their cigarettes. “It’s a perfect alliance between the state and Big Tobacco. The state protects Big Tobacco’s market share, they get the MSA payments and the extra tax revenues, and all they have to do is put some Indians out of business,” he adds.
A puzzling factor in the recent raids around Mohawk territory is that the cigarette seizures are at odds with a directive from the Department of Taxation and Finance to the state police written in July 2011 that outlines “possible scenario’s [sic] involving the movement of untaxed cigarettes in NYS (either premium alone, premium and native American or just native American) and when we could seize and/or charge.” The email instructs the state police not to seize shipments when Native Americans transport untaxed Native-manufactured cigarettes between reservations in New York State or to reservations outside of the state. When Native Americans transport Native-made smokes from a reservation outside of New York to a reservation inside, the email instructs police, “Don’t seize at this time. This may be the first type of Native American cigarettes that we seize.”
Assistant St. Lawrence County District Attorney John Becker, who is named as a respondent in HCI’s lawsuit, told the Times Union that the tax department memo is irrelevant. “[T]he District Attorney is not bound by the decisions of the (Department of Taxation and Finance), nor does this office need the consent, permission or participation of the DTF to prosecute cigarette smuggling,” he said.
Lorraine White, a former elected chief of the St. Regis Mohawk Tribe and the attorney for a driver who was arrested with a million Native-made cigarettes in another raid, questions both the timing and motive behind the recent cigarette seizures. “The big question, in light of that memo, is why is state government aggressively attacking Mohawk businesses now—businesses that are federally licensed and have been engaged in this type of business for years without interference, knowing full well that these seizures could completely cripple, if not destroy, the businesses of Native manufacturers located on the reservation?”
Both White and Messineo argue that there is no legal basis for seizing cigarettes manufactured on Indian territory in transit through New York to another Indian reservation. “The state is arguing that if you’re in New York State you have to pay New York State tax,” White says. “Does that hold true when you have Wal-Mart shipping products from Pennsylvania through New York State to Vermont? I don’t think so.”
Messineo speculates that the recent seizures around Mohawk territory are a test-case for wider action by the state government. “I don’t know what goes on in the smoky back rooms of New York government,” he says, “but the state has its pitchman, actually pitch-woman, in the district attorney for St. Lawrence County. My guess is they’ll see how far the county can push this and if the county is successful, then they’ll start doing some more statewide enforcement. They don’t want to get egg on their face and bring some case that the court laughs at and says, ‘You guys are out of your mind.’ So I guess they’re just letting the county do it first.”