Muscogee (Creek) Nation v. Henry
| Decision Date | 30 December 2010 |
| Docket Number | Case No. CIV–10–019–JHP. |
| Citation | 867 F.Supp.2d 1197 |
| Parties | MUSCOGEE (CREEK) NATION, a federally-recognized Tribe, Plaintiff, v. Brad HENRY, Governor of the State of Oklahoma; W.A. “Drew” Edmondson, Attorney General of the State of Oklahoma; The Oklahoma Tax Commission; Thomas Kemp, Jr. Chairman of the Tax Commission; Jerry Johnson, Vice–Chairman of the Tax Commission, and Constance Irby, Secretary of the Tax Commission, Defendants. |
| Court | U.S. District Court — Eastern District of Oklahoma |
OPINION TEXT STARTS HERE
Conly J. Schulte, Joseph V. Messineo, Fredericks Peebles & Morgan, Omaha, NE, A. Robert Rhoan, Fredericks Peebles & Morgan, Sacramento, CA, Gregory D. Nellis, Michael A. Simpson, Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, Tulsa, OK, Roger F. Wiley, Muscogee (Creek) Nation, Okmulgee, OK, for Plaintiff.
Edward Clyde Kirk, Office of the Attorney General, Larry D. Patton, Oklahoma Tax Commission–Legal, Oklahoma City, OK, Leisa Gebetsberger, Oklahoma Tax Commission, Tulsa, OK, for Defendants.
Now before the Court is the Motion to Dismiss filed on behalf of the Oklahoma Tax Commission and its members [Doc. 35], and the Motion to Dismiss filed on behalf of Attorney General Edmondson [Doc. 36]. The instant case, commenced by the Muscogee (Creek) Nation, a federally-recognized Indian Tribe (“the Nation”), concerns the Nation's sale of cigarettes and tobacco products. The Nation challenges Oklahoma Tax Statutes which impose an excise tax on all non-tribal member consumers who purchase cigarettes and tobacco products from retailers located on the Tribe's Indian Country, and which provide for tax-free sales to members of the Nation.
The Nation also challenges two related statutes. Okla.Stat.tit. 37, §§ 600.1 through 600.23 is an escrow statute which requires third party cigarette manufacturers who have not joined the Master Settlement Agreement with the State to make escrow payments.1 The amount of the escrow payments are based upon the sales of cigarettes and tobacco products and are used to compensate the State for the financial burden caused by the use of cigarettes and tobacco products. The escrow requirement is not imposed upon tobacco retailers, rather, it is imposed only upon cigarette manufacturers. Therefore, the escrow requirement is not imposed upon the Nation or its retailers. More importantly, the escrow requirements imposed by the challenged statutes apply only to sales of tobacco products that are taxed. Thus, the Escrow Statute is not applicable to non-taxed sales to the Nation's members.
The Nation also challenges a companion statute, the “Oklahoma Tobacco Master Settlement Agreement Complementary Act,” Okla. Stat.tit. 68, §§ 360.1 through 360.9, which was enacted to aid in the enforcement of the Escrow Statute. Because this Complementary Act is designed to aid in the enforcement of the Escrow Statute, and because the Escrow Statute does not apply to sales to the Nation's members, the Complementary Act is also not applicable to non-taxed sales to the Nation's members.
The Nation seeks declaratory and injunctive relief against the Defendants: Brad Henry, Governor of the State of Oklahoma 2; W.A. “Drew” Edmondson, Attorney General of the State of Oklahoma; The Oklahoma Tax Commission, and its members, Thomas Kemp, Jr., Chairman of the Commission, Jerry Johnson, Vice–Chairman of the Commission, and Constance Irby, the Commission's Secretary.
The Nation concedes it is not cooperating with the State by collecting and remitting state tax due on the sale of cigarettes and tobacco products sold to non-members on the Nation's alleged Indian Country.3 Rather, the Nation claims under various theories that sales of tobacco products in its Indian Country are exempt from Oklahoma's cigarette excise tax of $1.03 per pack of twenty (20) cigarettes.4 This gives the Nation's retailers a price advantage of as much as $10.30 per carton over other Native American and non-Native American retailers. The Nation also claims that sales of cigarettes in its Indian Country are exempt from the manufacturers escrow payment which results in an additional price advantage over other Native American and non-Native American retailers of $5.49 per carton, a total of as much as $15.79 per carton—all on sales to non-tribal members.5
In considering the Nation's challenge to the State cigarette tax statutes and the escrow and escrow enforcement statute, this Court is not writing on a blank slate; United States Supreme Court precedent is both controlling and consistent. The Nation and the State must comply with federal mandates and federal law, which, in part, define their relationship.
In defining this relationship, the United States Supreme Court in Mescalero Apache Tribe v. Jones, 411 U.S. 145, 93 S.Ct. 1267, 36 L.Ed.2d 114 (1973), rejected the broad assertion that the Federal Government has exclusive jurisdiction over Tribes:
At the outset, we reject—as did the state court—the broad assertion that the Federal Government has exclusive jurisdiction over the Tribe for all purposes and that the State is therefore prohibited from enforcing its revenue laws against any tribal enterprise ‘(w)hether the enterprise is located on or off tribal land.’
The Mescalero Court discussed the application of State law on a reservation:
The upshot has been the repeated statements of this Court to the effect that, even on reservations, state laws may be applied unless such application would interfere with reservation self-government or would impair a right granted or reserved by federal law.
Id. at 148 (emphasis added). Additionally and significantly, the Mescalero Court held that, “Indians going beyond reservation boundaries have generally been held subject to nondiscriminatory state laws.” Id. at 145–49.
With respect to the application of state tax on cigarette sales within Indian Country, the United States Supreme Court has been specific. First, in Moe v. Confederated Salish and Kootenai Tribes of the Flathead Reservation, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976), the Supreme Court held a State's requirement that a tribal seller of cigarettes must collect a tax validly imposed on non-Indians was a minimal burden designed to avoid the likelihood that in its absence, non-Indians purchasing from the tribal seller would avoid payment of the state taxes.
Later, in Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980), the United States Supreme Court was faced with the State's assertion that it had the power to apply its sales and cigarette tax to Indian residents on the reservation who were not enrolled in the governing tribe. Reaffirming its decision in Moe, the Supreme Court concluded that the imposition of Washington's tax on Indian consumers who were not members of the governing tribe did not contravene Id. at 161, 100 S.Ct. 2069.
The United States Supreme Court rejected the Tribes' exemption claims, holding:
We do not believe that principles of federal Indian law, whether stated in terms of pre-emption, tribal self-government,or otherwise,
authorize Indian tribes thus to market an exemption from state taxation to persons who would normally do their business elsewhere.
Id. at 155, 100 S.Ct. 2069 (emphasis added).
The Court came to this conclusion even though it found imposition of the State tax would result in the Tribal smokeshops losing “a large percentage of their cigarette sales and the Tribe [would] forfeit substantial revenues.” Id. at 154, 100 S.Ct. 2069.
The Colville Court concluded the imposition of Washington State's sales and cigarettes taxes was not preempted by federal statutes, including the Indian Reorganization Act, the Indian Financing Act, the Indian Self–Determination and Education Act, and the Indian Trader Act, even when giving those statutes “the broadest reading to which they are fairly susceptible....” Id.
The Colville Court also held the record keeping requirements imposed by the State upon tribal retailers and wholesalers were valid in toto. Id. at 160. Finally, the Colville Court approved the State's power to seize unstamped cigarettes as contraband if the Tribes did not cooperate in the collection of State taxes:
We find that Washington's interest in enforcing its valid taxes is sufficient to justify these seizures. Although the cigarettes in transit are as yet exempt from state taxation, they are not immune from seizure when the Tribes, as here, have refused to fulfill collection and remittance obligations which the State has validly imposed. It is significant that these seizures take place outside the reservation, in locations where state power over Indian affairs is considerably more expansive than it is within reservation boundaries.
Id. at 161–62, 100 S.Ct. 2069 (emphasis added).
In Oklahoma Tax Commission v. Citizen Band Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505, 111 S.Ct. 905, 112 L.Ed.2d 1112 (1991), the United States Supreme Court reaffirmed its holdings in Moe and Colville.
In Department of Taxation and Finance of New York v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 114 S.Ct. 2028, 129 L.Ed.2d 52 (1994) the Supreme Court upheld State regulations regarding the sale of cigarettes and tobacco products on Indian land that were challenged as being preempted by provisions of the Indian Trader Statute. New York's regulations, similar to the tax statutes challenged in the instant case, contained provisions to ensure non-exempt purchases were restricted to tribal members and all other...
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