Federal Appeals Court Says Tribe Must Pay State Cigarette Tax

A federal appeals panel has upheld the state in its long-running battle to force Yakama tribal smoke cigarettes shops to collect the $3.03 state cigarette tax from non-Indian buyers.

The U.S. 9th Circuit Court of Appeals on Friday upheld U.S. District Judge Robert H. Whaley, who ruled last year that tribal smoke cigarettes shops on the 1.2 million-acre Yakama reservation must collect the tax.

The ruling not only levels the playing field between tribal and non-tribal retailers, but clears up decades of dispute, said state Department of Revenue spokesman Mike Gowrylow.

"We're pleased that the appeals court reaffirmed the district court's decision that the state has the right to expect the tribe to assess the state tax to non-Indians on the reservation," he said. "This is all about the state saying if you're going to sell discount cigarette online in this state to the general public, then you need to collect the state cigarette tax."

But the ruling doesn't affect King Mountain cigarette sales on the reservation, he said. Both tribal members and nonmembers alike can still purchase that brand on the reservation free of state taxes because its buy cigarettes are manufactured on tribal land by a tribal member, Delbert Wheeler.

Yakama Tribal Council Chairman Harry Smiskin, who spearheaded the lawsuit, didn't return phone calls Tuesday seeking comment on whether the tribe would appeal to the U.S. Supreme Court.

Yakama tribal leaders argued in their U.S. District Court case that the state tax unfairly burdens tribal smoke cigarettes shop owners.

But the three-judge appeals panel didn't see it that way, saying that the tax burden ultimately falls on the buyer.

"The precollection obligation is a minimal burden on the tribes and their retailers and does not change the legal incidence calculation," the judges wrote.

Non-Indian retailers complained that the tax exemption gave tribal smoke cigarettes shops an unfair price advantage, and Department of Revenue officials said the loophole has cost the state millions annually in lost tax revenue.

Disputes often led to state and federal confiscation of untaxed smokes headed for the reservation and raids of tribal smoke cigarettes shops.

Over the past decade, the state has been reached cigarette tax agreements with many other tribes in the state.

In 2004, the Yakamas and the state agreed on a tax compact that had tribal smoke cigarettes shop owners ramp up a tax over a few years. The tribe was allowed to keep the revenue.

But a few years later, tribal smoke cigarettes shops said the tax was causing them to lose business because it was driving prices too high. The state, in turn, said smoke cigarettes shop owners failed to submit required audits of cigarette sales and the tax agreement subsequently unraveled.

It's not clear if the recent ruling would send the tribe and state back to the table to possibly work up a new tax agreement, Gowrylow said.

"We haven't had any indication from the tribe that they are interested in another compact," he said.

The state isn't sure yet how it's going to enforce the tax requirement on non-Indians.

"At this point, it's too soon to speculate on what the next step is going to be," Gowrylow said. "But certainly what this does is remove a legal threat that challenges whether the state can expect tribal smoke cigarettes shops to assess the state's cigarette tax on (non-Indians)."