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