Osage Nation Renews Call for Arbitration in Cigarette Tax Case

By Davis, KirLee | THE JOURNAL RECORD, February 21, 2006 | Go to article overview

Osage Nation Renews Call for Arbitration in Cigarette Tax Case


Davis, KirLee, THE JOURNAL RECORD


Citing irreparable harm from a series of emergency cigarette tax rules, the Osage Nation pressed its call for arbitration in Tulsa federal court.

In two filings late Friday before U.S. District Judge Terence Kern, attorneys representing the Osage attacked arguments made by the state and the Oklahoma Tax Commission concerning the Feb. 1 Osage lawsuit. It claimed the state infringed on the tribe's sovereign commerce and contract rights in enacting emergency rules developed by the commission and signed into law Jan. 13 by Gov. Brad Henry.

Any harm that the state would suffer as a result of the alleged loss of tax revenue is minimal when compared to the harm to the Osage Nation's sovereignty by allowing an intrusion of state law such as that imposed by the emergency rule, the motion said.

If the state believes that the Osage Nation is allowing the sale of cigarettes in violation of the terms of the compact, particularly retail-to-retail sales, then the state has a remedy in the compact, and that remedy is arbitration, the document said. By the adoption of the emergency rule, the state is unilaterally attempting to legislate the parties' rights under the compact, something they cannot do without circumventing the remedies the parties negotiated in the compact.

Besides seeking arbitration, the Nation called for a declaratory judgment holding the emergency rule unconstitutional, a temporary restraining order on its implementation, and court costs.

The Osage motions further warned that new emergency rules, to be considered at 1:30 p.m. today by the commission, are even more onerous than the January laws.

The new rule would, in blatant violation of Section 3 of the compact, require Osage retailers located in an exception rate area to purchase cigarettes bearing an 85.75 cents-per-pack stamp when the compact expressly authorizes these retailers to purchase at the exception rate of 5.75 cents per pack. The new rule also keeps the restriction on quantity in place, the motion claimed. Such an irresponsible disregard for the Osage Nation's rights provides an even greater justification for injunctive relief.

Like other Indian compacts signed in 2003, the Osage agreement with the state backed cigarette sales taxation at the wholesale level, with an exception rate set for smoke shops near out-of-state competitors boasting lower taxes. But after Oklahoma wholesale tax rates rose on Jan. 1, 2005, regulators found many smoke shop operators licensed by several tribes, including the Osage, buying low-tax cigarettes at exemption-rate stores and selling them at their non-exception rate shops.

The state considers such sales illegal. But the Indian nations claim such retailer-to-retailer business falls under their sovereign rights to regulate commerce, as protected by federal law and the U.S. Constitution.

Identifying $3.8 million in monthly tax collection losses due to such sales, the Oklahoma Tax Commission crafted this year's first set of emergency rules, limiting wholesaler sales of low-tax cigarettes to match the buying smoke shop's 2004 inventory level plus 10 percent. That sparked this lawsuit and other court battles, with smoke shop operators saying the rules ignored the tremendous increase in sales many enjoyed in 2005.

In the Feb. 6 hearing before Kern, Osage Nation Tax Commission administrator Mary Mashunkashey testified that just over 1.2 million cartons of cigarettes were sold last year by the 11 Osage smoke shops and four licensed casinos, up from 351,588 cartons in 2004. Mashunkashey estimated the increase kicked $400,000 more into the Osage coffers.

The state has countered that much of that increase represented resold low-tax cigarettes. They also suggested this may have actually caused the Indian nations to lose revenue, because the state rebates half of its cigarette tax revenues to the tribes. …

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Osage Nation Renews Call for Arbitration in Cigarette Tax Case
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