Tobacco talk: Retailers, tribe get a scolding
Tobacco talk: Retailers, tribe get a scolding

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The Oklahoman Editorial

Published: April 1, 2008
Modified: March 31, 2008 at 7:33 pm

ARBITERS who were asked to resolve a dispute between the state and the Cherokee Nation over a tobacco compact gave the tribe a serious scolding. The question now is, what's next?

Will the tribe begin to abide by the compact it signed in November 2004, and force its licensed retailers to abide as well? Arbiters were clear in their ruling last week that the practice of selling low-tax cigarettes where they aren't allowed had deprived the state, and the tribe, of millions of dollars that should be going toward health care initiatives.

How binding is the ruling? Gov. Brad Henry and his top aide, Treasurer Scott Meacham, thought they had a sound compact, but the tribe felt otherwise and so did little or nothing to encourage retailers to follow it.

Will the Tax Commission now fully implement a rule it passed in 2006 that would limit the number of 6-cent tax stamps wholesalers can sell to retail outlets? The rule was seen as a way to curb the proliferation of cigarettes being sold at the low-tax rate. The arbitration panel found the rule does not violate the compact.

In their strongly worded ruling, arbiters said tribal retailers weren't allowed to sell cigarettes with 6-cent stamps outside of the border areas spelled out in the compact. Those low-tax smokes have been sold abundantly by retailers in the Tulsa area, where they should be taxed at 86 cents per pack.

As a result of this practice, "a few retailers are unjustly enriched and made inordinate profits,” arbiters said. In addition, they said, the state and the tribe have been deprived of tax revenue. They said the cheaper cigarettes encourage smoking and lead to health problems and increased health costs.

The ruling said the state never agreed to amend or repeal its tobacco taxes, as the tribe contended, and that the tribe didn't have the right to try to rescind the compact. "For over two and a half years — since the alleged breach occurred — they have accrued tens of millions of dollars to their benefit by their continued misuse of 6-cent exception rate stamps,” arbiters said. "That is, they have taken full advantage of the compact and its terms — as they interpreted it — and now seek to rescind it. They cannot do so.”

One more question: Will the state now consider reworking its compact, as some nontribal retailers fear? We would hope not. Arbiters ruled that the tribe, "through its own actions and the actions of Cherokee retailers, breached the compact through the sale or transfer of 6-cent exception rate cigarettes for resale in non-exempt locations.” Now it's time to begin following the rules.

Related Topics: Public Finance, Taxes