Tribe, state may revisit cigarette tax discussions

YAKIMA, Wash. -- A federal judge's ruling could draw Yakama tribal leaders and state officials back to the table to devise another cigarette tax agreement.

At issue is whether state authorities can enforce state cigarette taxes on non-Indian customers who buy from tribal smoke shops on the 1.2 million-acre reservation.

A sovereign nation, Yakama tribal members are exempt from state cigarette taxes, and state authorities have long complained that the exemption gives tribal smoke shops an unfair price advantage over
non-Indian retailers.

But on Monday, U.S. District Court Judge Robert Whaley in Spokane cited existing case law in reaffirming the state's authority to enforce its cigarette tax on non-Indian buyers at tribal smoke shops.

In response to the tribe's motion that the 1855 Treaty prohibits the state from any tax enforcement on the reservation, Whaley wrote "the Court cannot find that the Yakama Treaty preempts the state's taxation scheme as a whole.

"That may encourage the Yakama Nation to come to the table and work out an agreement," said attorney Heidi Irvin with the Attorney General's Office in Olympia.

Phone calls seeking comment to Yakama leaders and Spokane attorney Theresa L. Keys, who is representing the tribe in the case, weren't immediately returned Wednesday.

In hopes of ending a long-standing debate over cigarette taxes on the reservation, tribal leaders and state authorities in 2004 entered an agreement in which tribal smoke shops would assess non-tribal buyers a cigarette tax similar to the state's.

Under the agreement, the tribe was assessing a tax of $16.20 per carton, compared with the state's $20.25 per carton. In 2005, the tax generated more than $3 million.

The tribe kept revenue generated from the tax and only imposed it on non-tribal members.

But in July 2008, the state terminated the agreement after finding cigarettes at several tribal smoke shops lacking required tax stamps.

A federal ruling in 2005 that freed a Yakama tribal member from charges for possessing untaxed cigarettes has some tribal leaders questioning whether a compact was needed.

Citing the treaty, the ruling said Yakamas could freely bring goods, including cigarettes, to market without any state interference.

But Whaley's ruling Monday said that case only dealt with the transportation of untaxed cigarettes and not the actual sale of them.

Whaley ordered both the tribe and state to work together to prepare for the court any unresolved issues they want the court to address by Feb. 4.

It's hoped that the tribe will consider another compact with the state, said state Department of Revenue spokesman Mike Gowrylow.

The state's only concern is with non-Indian buyers avoiding state taxes, he said.

"Ultimately, we would be pleased to sit down and negotiate a compact with the tribe," he said. "We would like to return to a time when we had an agreement."

* Phil Ferolito can be reached at 509-577-7749 or pferolito@yakimaherald.com.