In a blog post on January 26, 2013, we discussed a case pending before the Idaho Supreme Court. The State of Idaho and the Idaho State Tax Commission sued Native Wholesale Supply Company, a native-owned tobacco distributor. Native Wholesale sold cigarettes that were not listed in the Idaho Directory to a native-owned business on an Idaho reservation.
The district court enjoined Native Wholesale from distributing cigarettes without a wholesale permit. The two considerations on appeal were whether: (1) the State can require Native Wholesale to have a wholesale permit to sell cigarettes to a tribal retailer; and (2) the State had the authority to regulate the cigarettes imported into Idaho.
The Idaho Supreme Court concluded that the trial court erred in finding that Native Wholesale was required to hold a permit because all of Native Wholesale’s sales were to a tax-exempt business. Whether Native Wholesale was required to obtain a wholesale permit hinged on the court’s interpretation of Idaho Code § 63-2503. A wholesale permit is required for those serving as a wholesaler that sells cigarettes which are subject to Idaho taxes. Native Wholesale only sold cigarettes to a native-owned business, and businesses owned by a tribal member are exempt from state excise taxes. Because all of Native Wholesale’s sales were to a tax-exempt business, Native Wholesale was not required to obtain a permit.
However, the Idaho Supreme Court concluded that the State had jurisdiction to regulate the importation of cigarettes to reservations within its borders. First, Native Wholesale argued that the trial court erred in finding it could be regulated by the State because Native Wholesale is an Indian for purposes of state regulation. While States are forbidden by federal law from interfering with a tribal member or a member’s business that operates on a reservation, the Idaho Supreme Court recognized that Native Wholesale is a corporation, and a corporation is not an Indian for purposes of immunity. Second, Native Wholesale argued that even if it is not an Indian, the sale of occurred on a reservation, and the State is forbidden from regulating on-reservation activity under the Indian Commerce Clause. Because Native Wholesale’s activity was not limited to a single reservation but included activity on several reservations, involved two countries and at least three states, the Idaho Supreme Court concluded that the activity was sufficient to transform the shipment of cigarettes into an off-reservation activity.