The state of New York won a key ruling today in its effort to impose a tobacco tax in Indian Country.

Under a new law and new regulations, wholesalers who do business with tribes must pay the state's tobacco tax up front. Exemptions are granted for sales to tribal members but the state determines how many tax-free coupons each tribe gets.

Nine tribes filed lawsuits and said the system infringed on their sovereignty and violated treaty rights. In one of the cases, a federal judge granted an injunction that prevented the state from moving forward with the effort.

The 2nd Circuit Court of Appeals, however, lifted the injunction in a unanimous decision today. The judges considered both the pre-collection issue and the coupons in the ruling.

"Tribal retailers, like other New York retailers, pay the tax to wholesalers when purchasing inventory and recoup the tax by adding it to the retail price," Judge Richard C. Wesley for the majority. "The Oneida and Cayuga Nations argue that this prepayment obligation is, in effect, a categorically impermissible direct tax on tribal retailers. We disagree."

As for the coupons, the court said the tribes aren't required to accept them. But "If a tribal government chooses the coupon system, then it likewise accepts the correlated responsibility to design an effective allocation system, if necessary," the decision stated.

Get the Story:
Capitol Confidential: Federal court vacates Indian tax injunction (The Albany Times-Union 5/9)

2nd Circuit Decision:
Oneida Nation v. Cuomo (May 9, 2011)