Dep't of Taxation & Finance of Ny, v. Milhelm Attea & Bros.

• Decision Date: 13 June 1994
• Docket Number: 93377
• Citation: 512 U.S. 61,114 S.Ct. 2028,129 L.Ed.2d 52
• Parties: DEPARTMENT OF TAXATION AND FINANCE OF NEW YORK, et al., Petitioners v. MILHELM ATTEA & BROS., INC., etc., et al
• Court: U.S. Supreme Court

512 U.S. 61

114 S.Ct. 2028

129 L.Ed.2d 52

DEPARTMENT OF TAXATION AND FINANCE OF NEW YORK, et al., Petitioners

v MILHELM ATTEA & BROS., INC., etc., et al.

No. 93-377.

Supreme Court of the United States

Argued March 23, 1994.

Decided June 13, 1994.

Syllabus^*

Enrolled tribal members purchasing cigarettes on Indian reservations are exempt from a New York cigarette tax, but non-Indians making such purchases are not. Licensed agents precollect the tax by purchasing stamps and affixing them to cigarette packs in advance of their first sale. Determining that a large volume of unstamped cigarettes was being purchased by non-Indians on reservations, petitioner tax department enacted regulations imposing recordkeeping requirements and quantity limitations on cigarette wholesalers selling untaxed cigarettes to reservation Indians. As relevant here, the regulations set quotas on the quantity of untaxed cigarettes that wholesalers may sell to tribes and tribal retailers, and petitioner must approve each such sale. Wholesalers must also ensure that a buyer holds a valid state tax exemption certificate, and must keep records of their tax-exempt sales, make monthly reports to petitioners, and, as licensed agents, precollect taxes on nonexempt sales. Respondent wholesalers are licensed by the Bureau of Indian Affairs to sell cigarettes to reservation Indians. They filed separate suits in state court alleging that the regulations were pre-empted by the federal Indian Trader Statutes. The trial court issued an injunction. Ultimately, the Appellate Division upheld the regulations, but the Court of Appeals reversed, distinguishing this Court's decisions upholding taxes imposed on non-Indian purchasers of cigarettes, see Moe v. Confederated Salish and Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96; Washington v. Confederated Tribes of Colville Reservation, 447 U.S. 134, 100 S.Ct. 2069, 65 L.Ed.2d 10, on the ground that they involved regulating sales to non-Indian consumers whereas New York's regulations applied to sales by non-Indian wholesalers to reservation Indians. The court concluded that the Indian Trader Statutes, as construed in Warren Trading Post v. Arizona Tax Comm'n, 380 U.S. 685, 85 S.Ct. 1242, 14 L.Ed.2d 165, deprived the States of all power to impose regulatory burdens on licensed Indian traders, and, alternatively, that if States could impose minimal burdens on the traders, the State's regulations were invalid because the burdens were significant.

Held: New York's regulations do not, on their face, violate the Indian Trader Statutes. Pp. ____.

(a) Because respondents have made essentially a facial challenge, this case is confined to those alleged defects that inhere in the regulations as written, and the Court need not assess for all purposes each feature of the tax scheme that might affect tribal self-government or federal authority over Indian affairs. P. ____.

(b) Indian traders are not wholly immune from state regulation that is reasonably necessary to the assessment or collection of lawful state taxes. Although broad language in Warren Trading Post suggests such immunity, that proposition has been undermined by subsequent decisions in Moe (upholding a state law requiring Indian retailers on tribal land to collect a state cigarette tax imposed on sales to non-Indians), Colville (upholding in relevant part a state law requiring tribal retailers on reservations to collect cigarette taxes on sales to nonmembers and to keep extensive records), and Oklahoma Tax Comm'n v. Citizen Band of Potawatomi Tribe of Okla., 498 U.S. 505, 111 S.Ct. 905, 112 L.Ed.2d 1112. These cases have made clear that the States have a valid interest in ensuring compliance with lawful taxes that might easily be evaded through purchases of tax-exempt cigarettes on reservations; that interest outweighs tribes' modest interest in offering a tax exemption to customers who would ordinarily shop elsewhere. Thus, there is more room for state regulation in this area. In particular, these cases have decided that States may impose on reservation retailers minimal burdens reasonably tailored to the collection of valid taxes from non-Indians. It would be anomalous to hold that a State could impose tax collection and bookkeeping burdens on reservation retailers who are enrolled tribal members but not on wholesalers, who often are not. Pp. ____.

(c) New York's scheme does not impose excessive burdens on Indian traders. Respondents' objections to the regulations setting quotas and requiring that petitioner preapprove deliveries provide no basis for a facial challenge, although the possibility of inadequate quotas may provide a basis for a future challenge to the regulations' application. The requirements that wholesalers sell untaxed cigarettes only to persons with valid exemption certificates and keep detailed records are no more demanding than comparable measures approved in Colville. Moreover, the precollection obligation placed on wholesalers is the same as the obligation that, under Moe and Colville, may be imposed on reservation retailers. The United States' arguments supporting its position that the scheme improperly burdens Indian trading are also rejected. Pp. ____.

81 N.Y.2d 417, 599 N.Y.S.2d 510, 615 N.E.2d 994, reversed.

STEVENS, J., delivered the opinion for a unanimous Court.

G. Oliver Koppell, New York City, argued for petitioners.

Joseph E. Zdarsky, Buffalo, NY, and Beth S. Brinkmann, Washington, DC, argued for the U.S. as amicus curiae, by special leave of the Court.

Justice STEVENS delivered the opinion of the Court.

Cigarette consumers in New York are subject to a state tax of 56 cents per pack. Enrolled tribal members who purchase cigarettes on Indian reservations are exempt from this tax, but non-Indians making purchases on reservations must pay it. To prevent non-Indians from escaping the tax, New York has enacted a regulatory scheme that imposes recordkeeping requirements and quantity limitations on cigarette wholesalers who sell untaxed cigarettes to reservation Indians. The question presented is whether New York's program is pre-empted by federal statutes governing trade with Indians.

I

Article 20 of the New York Tax Law imposes a tax on all cigarettes possessed in the State except those that New York is "without power" to tax. N.Y.Tax Law § 471(1) (McKinney 1987 and Supp.1994). The State collects the cigarette tax through licensed agents who purchase tax stamps and affix them to cigarette packs in advance of the first sale within the State. The full amount of the tax is part of the price of stamped cigarettes at all subsequent steps in the distribution stream. Accordingly, the "ultimate incidence of and liability for the tax [is] upon the consumer." § 471(2). Any person who "willfully attempts in any manner to evade or defeat" the cigarette tax commits a misdemeanor. N.Y.Tax Law § 1814(a) (McKinney 1987).

Because New York lacks authority to tax cigarettes sold to tribal members for their own consumption, see Moe v. Confederated Salish and Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 475-481, 96 S.Ct. 1634, 1642-1645, 48 L.Ed.2d 96 (1976), cigarettes to be consumed on the reservation by enrolled tribal members are tax exempt and need not be stamped. On-reservation cigarette sales to persons other than reservation Indians, however, are legitimately subject to state taxation. See Washington v. Confederated Tribes of Colville Reservation, 447 U.S. 134, 160-161, 100 S.Ct. 2069, 2084-2085, 65 L.Ed.2d 10 (1980). In 1988, New York's Department of Taxation and Finance ¹ determined that a large volume of unstamped cigarettes was being purchased by non-Indians from reservation retailers. According to an affidavit submitted by an official in the Department's Audit Division, the volume of tax-exempt cigarettes sold on New York reservations in 1987-1988 would, if consumed exclusively by tax-immune Indians, correspond to a consumption rate 20 times higher than that of the average New York resident; in 1988-1989, putative reservation consumption was 32 times the statewide average. See Record 244-246 (Affidavit of Jamie Woodward). Because unlawful purchases of unstamped cigarettes deprived New York of substantial tax revenues—now estimated at more than $65 million per year—the Department adopted the regulations at issue in this case.²

The regulations recognize the right of "exempt Indian nations or tribes, qualified Indian consumers and registered dealers" to "purchase, on qualified reservations, cigarettes upon which the seller has not prepaid and precollected the cigarette tax imposed pursuant to article 20 of the Tax Law." 20 N.Y.C.R.R. § 336.6(a) (1992). To ensure that non-exempt purchasers do not likewise escape taxation, the regulations limit the quantity of untaxed cigarettes that wholesalers may sell to tribes and tribal retailers. The limitations may be established and enforced in alternative ways. A tribe may enter into an agreement with the Department "to regulate, license, or control the sale and distribution within its qualified reservation of an agreed upon amount of [untaxed] cigarettes," in which case wholesalers must obtain the tribe's approval for each delivery of untaxed cigarettes to a reservation retailer. § 336.7(c)(1). In the absence of such an agreement—and apparently there have been none to date—the Department itself limits the permitted quantity of untaxed cigarettes based on the "probable demand" of tax-exempt Indian consumers. § 336.7(d)(1).

The Department calculates "probable demand" in either of two ways. If a tribe "regulates, licenses or controls the sale and distribution of cigarettes within its reservation," the Department will rely upon evidence submitted by that tribe concerning local demand for cigarettes. § 336.7(d)(2)(i).³ Otherwise, the Department fixes the untaxed cigarette limit for a tribe by multiplying the "New York average [cigarette]...