(CN) – Justice Ruth Bader Ginsburg and Justice Sonya Sotomayor said they would have reviewed the tax dispute between New York and Indian tribes over cigarette sales, but the rest of the court’s silence closed the door to the case Monday.
The 2nd Circuit had ruled in May that New York can charge tax when non-tribe members buy cigarettes from the tribes on reservations.
A federal judge for New York’s Northern District had granted the Oneida an injunction against the state’s comprehensive new regulations, but four other tribes lost their bid for the same relief in New York’s Western District.
Those unsuccessful tribes – the Seneca, Cayuga, Unkechauge and Mohawk – appealed, as did the state officials who were rejected in the Oneida case.
New York tax officials determined in the 1980s that, given the volume of their sales, reservation retailers must have been selling tax-free cigarettes to non-Indian New Yorkers, and that is was costing the state about $65 million annually.
The Unkechauge Nation, for example, has about 376 members, yet bought roughly five million untaxed cartons of cigarettes in 2009.
“If only Unkechauge members had consumed these cigarettes, every man, woman, and child would have smoked 364 packs per day in 2009,” 2nd Circuit Judge Richard Wesley wrote for the three-judge panel.
“A substantial number of non-Indian New Yorkers clearly purchased their cigarettes from reservation retailers without paying the tax.” Historically, Indians do not have to pay tax for buying cigarettes on their own land.
Officials tried to rein in the tax evasion by promulgating regulations in 1988, but the attempt was later aborted “due to additional litigation, civil unrest, and failed negotiations,” the panel noted.
This gave way to a “forbearance” policy that allowed wholesalers to sell untaxed cigarettes to reservation retailers without restriction.
But in June 2010, state legislators took another shot at restricting on-reservation sales of untaxed cigarettes to non-Indians.
A new tax scheme was crafted, whereby wholesalers could sell tribal retailers an amount of untaxed cigarettes that mirrored the respective tribe’s “probable demand,” based on population and smoking statistics.
Legislators drafted amendments to New York tax law that were slated to take effect in September 2010.
After the tribes sued, however, implementation of the changes was stayedpending the outcome of a consolidated appeal to the 2nd Circuit.
Under the “prepayment” component of the new tax law, Indian cigarette retailers would pay wholesalers a price for cigarettes that included the $43.50-per-carton state excise tax, whereupon the Indians would include the tax in the retail price of cigarettes they sell to non-Indians.
The Oneida claimed that requiring Indian retailers to front the tax for non-Indian smokers would force the tribe to set aside $3.5 million annually for its pre-payment obligations.
On that basis, a federal judge granted the Oneida a preliminary injunction against enforcement of the new rules, agreed that the financing costs were an impermissible burden on tribal sovereignty.
The 2nd Circuit disagreed.
Although the changes will impose an increased economic burden on Indian retailers in their sales to non-Indians, the retailers are making a personal choice to participate in the taxable cigarette market, according to the ruling.
And the pre-collection scheme at issue is “materially indistinguishable” from Supreme Court-approved schemes in Montana and Washington.No Supreme Court justice issued a statement on the order to leave the 2nd Circuit decision intact.