State Law Challenges Tribal Autonomy

Native American Heritage Month will see a key test of sovereignty in the U.S. 10th Circuit Court of Appeals when the Muscogee Creek Nation argues against imposing a revised Oklahoma tobacco tax code on tribal lands and contests placing burdens on commerce in trust territory.

Oral argument was scheduled for November 16 in the lawsuit brought by the Nation against the Oklahoma attorney general and members of the Oklahoma Tax Commission, appealing a lower court refusal to charge state officials with helping to violate federal laws by hindering tribal tobacco sales.

Changes in Oklahoma law governing tobacco taxation in Indian country centered on collecting excise taxes on cigarette sales to Indians and non-Indians, licensing wholesalers, specifying brands of cigarettes that can be sold, and imposing civil and criminal penalties for non-compliance.

But state tax officials “have no authority to ban the sale of tobacco products that are manufactured, marketed or sold exclusively in Indian commerce, whether to tribal members or non-members,” the lawsuit filed earlier in District Court summarized. “The state has no authority to require Native manufactured tobacco products to carry a state tax stamp or state tax-free stamp.”

Limited numbers of tax-free stamps are available and are based on “probable demand,” determined by multiplying the number of tribal members in the state by the number of cigarettes consumed by the average Oklahoma or U.S. resident, whichever is greater, the petition notes.

The state has created a “unilaterally imposed system of taxation that dictates how many cigarettes can be sold to Indians, what kind of cigarettes may be sold to Indians, and at what price cigarettes may be sold to Indians in the Indian country of non-compacting tribes”—those without a compact with the state regarding tobacco sales and taxation. Further constraints were placed on smoke shops without tobacco sales agreements with the state and on tribal wholesalers who must be state-licensed.

The petition in District Court in Oklahoma said the state tax code confers state jurisdiction over Indian country and violates tribal self-government, issues raised in earlier controversy.

An amended complaint concerning seizures of the Nation’s tobacco products by the Oklahoma Tax Commission was dismissed in federal court in Tulsa, Oklahoma and the dismissal was upheld July 9, 2010 by the 10th Circuit.

A three-judge panel of the appellate court cited Oklahoma state law which provides that unstamped cigarettes sold or shipped to tribally owned or licensed stores by unlicensed wholesalers for the purpose of sale may be stopped in transit by law officers for inspection and possible seizure.

Although the Nation charged violation of Constitutional protections against unreasonable search and seizure, it also wanted a halt to the state cigarette tax enforcement scheme from which the Nation claimed exemption because of its sovereign status, the court said.

The court said the Nation objected to Oklahoma’s tax enforcement that “authorizes interference with (Nation’s) vehicles and seizures of their lading” while those vehicles are in transit between Indian country destinations because “such seizures purportedly interfere with ‘Indian commerce.’”

Tribal officials said the tribe/state conflict began in earnest in May 2009 when, over a five-day period, the Oklahoma Highway Patrol stopped three trucks owned by the Nation for, respectively,“weaving,” for “following too close,” and, finally, for making an “unsafe lane change.”

Two of the trucks were carrying Nation tobacco products from tribal headquarters in Okmulgee to two locations in Tulsa County and the third was transporting plumbing supplies.

In the first two instances, without the drivers’ permission and without a search warrant, Highway Patrol officers allowed tax officials to seize the tobacco products, Nation court documents state, because the tax commission said the products constituted “contraband”and could be seized under state law.

The tobacco products did not carry tax stamps indicating appropriate taxes had been paid nor did some of the products appear on the “approved list of cigarette brands resulting from the Oklahoma Tobacco Master Settlement Agreement,” a liability-related compact with the four major tobacco companies.

“This case is about the state’s right to tax commercial transactions between two Indian nations,” Roger Wiley, the Nation’s attorney general, said at the time, and also concerns “the state’s right to stop, search and seize tobacco being transported from Indian country to an Indian retail store on federal trust land or restricted land.”


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State Law Challenges Tribal Autonomy