After years of political wrangling, in 2010 New York state taxing authorities instituted a regime to tax cigarette sales on Native American reservations. After courts rejected various challenges to the new regime, taxing authorities appeared poised to enforce the new requirements. But they didn’t.
Although major-branded cigarettes could no longer be sold on reservations through licensed distributors, Native American manufacturers were allowed to sell their products on their own reservations, and even transport their cigarettes for sale on other New York reservations. A leaked memorandum from New York taxing authorities confirmed the regulators’ apparent enforcement policy — the tax would not be enforced with respect to reservation-manufactured cigarettes sold on New York reservations.
New York state taxing authorities recently hinted at a change in their enforcement policy, suggesting that they will more aggressively enforce the reservation tax. State taxing authorities have apparently advised at least one tribe that they will not attempt to enforce the tax against reservation-manufactured cigarettes sold on that reservation. It seems clear that states lack this authority under the U.S. Constitution. But state taxing authorities have suggested they may begin intercepting shipments of reservation-manufactured cigarettes bound for other reservations.
Any such action is sure to prompt another round of litigation, and perhaps civil unrest as some tribal leaders have suggested. Such a move could also prompt reservation merchants to focus exclusively on cigarettes manufactured on that reservation, which in turn could increase the ranks of reservation-based manufacturers.
Could such a move also pressage increased reservation sales of roll-your-own tobacco? New York’s taxing regime for reservation cigarette sales appears to apply only to cigarettes. Whether intentional or inadvertent, roll-your-own tobaco appears to be exempted. Depending on whether state taxing authorities follow through on their enforcement threats, reservation tobacco economies may shift toward exclusive sales of roll-your-own and cigarettes manufactured on that reservation.