Ninth Circuit Allows Federal Tax on Indian’s Tobacco Shop

SEATTLE (CN) — The Ninth Circuit ruled Tuesday that the Yakama Nation cannot stop the federal government from collecting taxes on a tribal member’s tobacco business.

King Mountain Tobacco, its owner Delbert Wheeler Sr. and the Yakama Nation sued the United States in 2011, claiming an 1855 treaty bars collection of excise taxes on tobacco products produced on the reservation.

King Mountain operates on 80 acres of Yakama land in White Swan, Wash., and was founded in 2006 by tribal member Wheeler, who died in July.

U.S. District Judge Rosanna Peterson granted the U.S. Treasury’s motion to dismiss King Mountain and Wheeler, but allowed the Yakama to pursue its claim.

Peterson sided with the government at summary judgment, however, finding that finished tobacco products — unlike unprocessed tobacco grown on the reservation — are not exempt from taxation under the General Allotment Act.

The Yakama appealed to the Ninth Circuit.

A three-judge panel ruled Tuesday that the Yakama have no standing to sue, vacated the lower court’s decision for lack of jurisdiction and remanded for dismissal.

The panel found the Anti-Injunction Act, which bars any suit that would restrain the assessment and collection of any tax, prevents the Yakama from intervening.

The Yakama argued that it is not a “person” subject to the Act’s jurisdictional prohibition.

But Circuit Judge Alfred Goodwin, writing for the majority, said the Act itself does not define person, but is part of the Internal Revenue Code, which states: “The term ‘person’ shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.”

Interpreting “person” to cover Indian tribes is consistent with precedent in other cases involving sovereign entities and tax codes, Goodwin wrote for the panel. He found that the lower court erred in finding the Yakama’s claims fell within the exception to the Act.

Randolph Barnhouse, who represents the Yakama and King Mountain, told the Yakima Herald newspaper that King Mountain is paying excise taxes and is current on all its obligations.

He said the Yakama Nation “isn’t on the hook” for any unpaid taxes and never was.