Milhelm Attea & Bros., Inc. v. Department of Taxation and Finance of State of N.Y.

• Decision Date: 10 June 1993
• Citation: 81 N.Y.2d 417,599 N.Y.S.2d 510,615 N.E.2d 994
• Parties: , 615 N.E.2d 994 MILHELM ATTEA & BROS., INC., Also Known as Milhem Attea & Brothers, Inc., Appellant, v. DEPARTMENT OF TAXATION AND FINANCE OF the STATE of New York et al., Respondents. Elias H. ATTEA, Jr., Appellant, v. James W. WETZLER, as Commissioner of Taxation and Finance of the State of New York, et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 510

599 N.Y.S.2d 510

81 N.Y.2d 417, 615 N.E.2d 994

MILHELM ATTEA & BROS., INC., Also Known as Milhem Attea &

Brothers, Inc., Appellant,

v.

DEPARTMENT OF TAXATION AND FINANCE OF the STATE of New York

et al., Respondents.

Elias H. ATTEA, Jr., Appellant, v. James W. WETZLER, as Commissioner of Taxation and Finance of

the State of New York, et al., Respondents.

Court of Appeals of New York.

June 10, 1993.

[81 N.Y.2d 418] Zdarsky, Sawicki & Agostinelli, Buffalo (Joseph E. Zdarsky, Guy J. Agostinelli and Gerald T. Walsh, of counsel), and Williams, Stevens, McCarville & Frizzell, P.C., Buffalo (Timothy M. O'Mara, of counsel), for appellants in the two above-entitled actions.

[81 N.Y.2d 419] [615 N.E.2d 995] Robert Abrams, Atty. Gen., Albany (Lew A. Millenbach, Jerry Boone and Peter H. Schiff, of counsel), for respondents in the two above-entitled actions.

Block & Colucci, P.C., Buffalo (Joseph F. Crangle, of counsel), for Seneca Nation of Indians' Honor Indian Treaties Supporters Tribal Council Committee and others, amici curiae.

[81 N.Y.2d 420] Sonosky, Chambers, Sachse & Endreson, of the District of Columbia Bar, admitted pro hac vice (Douglas B.L. Endreson and Anne D. Noto, of counsel), and Hagerty & Brady, Buffalo (Michael A. Brady of counsel), for the Seneca Nation of Indians, amicus curiae.

Hodgson, Russ, Andrews, Woods & Goodyear, Albany (Robert D. Plattner, of counsel), for the Independent Petroleum Marketers of New York and another, amici curiae.

[81 N.Y.2d 421] Zapruder & Odell, of the District of Columbia Bar, admitted pro hac vice (Bradley S. Waterman and Samuel M. Maruca, of counsel), for the Saint Regis Mohawk Tribe and another, amici curiae.

Roland, Fogel, Koblenz & Carr, Albany (Emilio Petroccione and Usher Fogel, of counsel), for Empire State Petroleum Ass'n, Inc., amicus curiae.

OPINION OF THE COURT

SIMONS, Judge.

This appeal requires the Court to assess the validity of tax regulations applicable to cigarette sales made on Indian reservations located in New York State. Although the challenged regulations are designed to prevent the avoidance of State taxes by non-Indians who purchase untaxed cigarettes from Indian retailers, and the incidence of the sales tax is intended to be borne by the ultimate non-Indian consumer, the tax provisions nevertheless regulate, to a significant degree, trade between wholesale distributors and their Indian purchasers, an area that relevant decisions of the Supreme Court and this Court have found preempted by Federal law. Accordingly, there must be a reversal.

I

Under New York Tax Law § 471(1), a tax is imposed on all cigarettes purchased in New York. The tax is paid by the purchase of stamps which must be affixed to the cigarette packages as a precondition to the first taxable sale by the wholesaler or distributor. The tax is added and collected as a part of the selling price of the cigarettes along the distribution chain, until it is ultimately added to the retail price and is paid by the consumer.

Indians and Indian tribes are exempt from State taxation within their own territory and wholesale dealers may sell unstamped cigarettes to them. Consequently, many non-Indians travel to Indian reservations to buy unstamped cigarettes and avoid the sales tax which should attach to all sales to non-Indians. In an effort to prevent this circumvention of the sales tax and prevent the sale of untaxed (unstamped) cigarettes to non-Indians at retail outlets on Indian reservations located in New York, the State Commissioner of Taxation and Finance adopted the regulations now challenged.

Under these regulations, only reservation retailers who have registered with the State Department of Taxation and Finance are permitted to purchase unstamped cigarettes, and then only in a predetermined amount calculated by the Department to approximate "probable demand of qualified Indian consumers in the trade territory" (20 NYCRR 335.7[d][1] [now 20 NYCRR 336.7(d)(1) ]; see, 20 NYCRR 335.6[d] [now 20 NYCRR 336.6(d) ]. ^* Indian retailers may purchase an unlimited quantity of stamped cigarettes but, with respect to unstamped cigarettes, the wholesalers supplying them must (1) request a copy of the retailer's tax exempt certificate, (2) keep records of their sales, (3) obtain approval prior to each sale, from either the Indian nation or the Department of Taxation and Finance, of the quantity of untaxed cigarettes which may be delivered, and (4) after completion of the sale, forward to the Department of Taxation and Finance a copy of the retailer's tax-exempt coupon, a document issued by the Department and entitling the retailer to receive a predetermined maximum quantity of untaxed cigarettes.

II

Plaintiffs are business enterprises which sell cigarettes at wholesale to Indians on various Indian reservations in New York State. They commenced these actions claiming that the regulations, which impose additional burdens on their dealings with the Indians, are preempted by the Indian trader statutes (25 U.S.C. § 261 et seq.). The trial court granted plaintiffs' motion for summary judgment, and the Appellate Division initially affirmed. It found that "the tax scheme under review here fails because it imposes some burden, although only minimal, on the Indian trader contrary to the Court of Appeals interpretation of the applicable Supreme Court decisions" (164 A.D.2d 300, 303, 564 N.Y.S.2d 491, relying on Herzog Bros. Trucking v. State Tax Commn., 69 N.Y.2d 536, 516 N.Y.S.2d 179, 508 N.E.2d 914, vacated and remanded 487 U.S. 1212, 108 S.Ct. 2861, 101 L.Ed.2d 898, prior determination adhered to on remand 72 N.Y.2d 720, 536 N.Y.S.2d 416, 533 N.E.2d 255).

On appeal, the United States Supreme Court vacated the judgment and remanded to the Appellate Division "for further consideration in light of Oklahoma Tax Commission v. Citizen Band Potawatomi Indian Tribe of Oklahoma, 498 US [505, 111 S.Ct. 905, 112 L.Ed.2d 1112]." (--- U.S. ----, 112 S.Ct. 926, 117 L.Ed.2d 99.) Upon reconsideration, the Appellate Division reversed itself, 181 A.D.2d 210, 585 N.Y.S.2d 847, reading the Potawatomi decision to indicate that the "minimal burdens" imposed upon Indian traders by New York's tax scheme are not barred by Federal preemption, a holding which would create considerable uncertainty about the reasoning underlying our decision in Herzog.

III

In Herzog Bros. Trucking v. State Tax Commn., 69 N.Y.2d 536, 516 N.Y.S.2d 179, 508 N.E.2d 914, supra, fuel distributors challenged a State motor fuel tax assessed against them. Like the cigarette tax, the motor fuel tax was designed to be paid ultimately by the consumer as it passed through the distribution chain. The legislation initially imposed a tax on wholesale sales of motor fuel to Indian retailers on Indian reservations but allowed a refund to distributors for previously paid taxes on fuel sold to Indians exempt from taxation. The Federal Indian trader statutes (25 U.S.C. § 261 et seq.), enacted pursuant to article I, § 8, cl (3) of the Federal Constitution, vest the Commissioner of Indian Affairs with the sole power and authority to regulate trade with Indians and, because the tax scheme in Herzog imposed obligations upon wholesale Indian traders, we held that it was preempted by Federal law (see, Herzog Bros. Trucking v. State Tax Commn., 69 N.Y.2d, at 545-546, 516 N.Y.S.2d 179, 508 N.E.2d 914). Upon remand from the United State's Supreme Court, we adhered to that determination (see, Herzog Bros. Trucking v. State Tax Commn., 72 N.Y.2d 720, 536 N.Y.S.2d 416, 533 N.E.2d 255, supra ). We conclude the regulations at issue in this case suffer from the same infirmity.

IV

As a general proposition Congress has preempted the field of regulating Indian traders. As the Supreme Court stated when referring to the Indian trader statutes and the regulations promulgated thereunder by the Commissioner of Indian affairs, "[t]hese apparently all-inclusive regulations and the statutes authorizing them would seem in themselves sufficient to show that Congress has taken the business of Indian trading on reservations so fully in hand that no room remains for state laws imposing additional burdens upon traders" (see, Warren Trading Post v. Tax Commn., 380 U.S. 685, 690, 85 S.Ct. 1242, 1245, 14 L.Ed.2d 165).

Notwithstanding the body of law supporting this view, defendants contend that "minimal burdens" may be placed upon wholesale distributors, i.e., Indian traders, if the tax is ultimately borne by non-Indian consumers and the tax scheme is designed merely to prevent the evasion by those consumers of a legally imposed tax. They rely principally on two Supreme Court decisions in which the Court approved tax schemes which required Indian retailers to collect a tax validly imposed on non-Indian purchasers (see, Moe v. Salish & Kootenai Tribes, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96; Washington v. Confederated Tribes, 447 U.S. 134, 100 S.Ct. 2069, 65 L.Ed.2d 10). Explaining the result in Confederated Tribes, the Court stated that: "[t]he Indian traders statutes * * * incorporate a congressional desire comprehensively to regulate businesses selling goods to reservation Indians for cash or exchange [citing Warren Trading Post v. Tax Commn., supra], but no similar intent is evident with respect to sales by Indians to nonmembers of the Tribe" (see, Washington v. Confederated Tribes, 447 U.S. at 155-156, 100 S.Ct. at 2082-2083, supra [emphasis added]. Thus, the Supreme Court deemed it acceptable to place "minimal burdens" upon Indian retailers selling goods to non-Indians to aid a State in collecting and enforcing its taxes validly imposed upon non-Indian purchasers (see, Washington v. Confederated Tribes, 447 U.S. at 159, 100 S.Ct. at 2084, supra ).

Defendants assert that the tax regulations at issue here are substantially the same as those at issue in Moe and Confederated Tribes. They contend that inasmuch as the Supreme Court approved the imposition of...