American Indian governments and states have been fighting over the issue of state cigarette taxes since the 1970s. The U.S. Supreme Court issued three decisions in this long battle in 1976, 1980, and 1994.
Under the 1980 case, it seems certain that if tribes manufacture and package cigarettes on their reservations that they can do so free of state taxes because the Court held that state governments cannot tax "value generated on the reservation."
Thus, several tribes, including the Squaxin Island Tribe in Washington have long been producing cigarettes on their rervations.
The New York Times reports today that the Oneida Indian Nation, located in New York state, is making cigarettes by using rolling machines that fashion the cigarettes to be sold at a dozen tribal convenience stores between Syracuse and Utica.
The cigarettes sell for as little as $39.95 for a 10-pack carton — much cheaper than those at non-Indian retailers — and bring in millions of dollars a year to the tribe.
The CEO of the Nation, Ray Halbritter, states: “We tried poverty for 200 years. We decided to try something different.”
The NY Tiimes says the "Oneidas’ cigarette manufacturing business is part of a new strategy that is quickly being embraced among New York’s eight federally recognized Indian tribes. After years of fighting a losing battle against the state over the taxation of name-brand cigarettes sold on reservations, many are now manufacturing their own cigarettes."
The tribes are sovereign nations, as recognized in the U.S. Constitution, and they argue that the cigarettes they produce are exempt from the state’s $4.35-a-pack excise tax.
Gov. Andrew Cuomo asserts that New York has the right to tax even Indian-made cigarettes if they are sold to non-Indians. But the state has done little to test or enforce that claim, leaving tribes free to sell their own cigarettes.
Experts believe there are at least a dozen Indian cigarette manufacturers operating across upstate New York, more than in the other 49 states put together.
Mr. Halbritter laments that tobacco had come to symbolize the tensions over sovereignty. “It’s sort of a shame that it has to be cigarettes, which is very distasteful to us,” he said. “Yet at the same time, the principle is the same, if we were manufacturing whatever it was.”