Smoke shops on the Yakama Nation of Washington must continue to collect taxes on sale of tobacco to non-Indians, the 9th Circuit Court of Appeals ruled on Friday.

The tribe claimed the state's tax imposed an economic hardship on the smoke shops. The 9th Circuit judges didn't dispute the argument but they said U.S. Supreme Court precedent doesn't allow them to take that into account.

"While a party bearing an economic burden, perhaps as the result of reduced sales, may also bear the legal incidence of the tax, the Supreme Court has clarified that an economic analysis of the “realities” of taxation should not be a substitute for legal-incidence analysis," Judge Milan D. Smith, Jr. wrote in the decision.

In this instance, the incidence falls on the consumer -- not the tribe or the tribal licensed smoke shops, Smith said. "While it would be prudent for any Indian retailer to pass on and then collect the tax from consumers, the Act does not require it; rather that is an economic choice left to the Indian retailers," the court noted.

Judge Andrew J. Guilford concurred in the outcome of the decision. But he wrote separately to acknowledge the economic hardship posed to tribal retailers.

"[H]ere, a review of these economic realities likely would reveal that the tax at issue imposes an economic burden on Indians in the Yakama Nation," he wrote. "But the law requires an analysis through a prism that blocks economic reality. Thus, following Supreme Court authority, without the guidance of economic reality, I must concur with the majority’s opinion."

The tribe could ask the Supreme Court to hear the case, Yakama Nation v. Gregoire.

Get the Story:
Federal appeals court says tribe must pay state cigarette tax (The Yakima Herald-Republic 9/28)

9th Circuit Decision:
Yakama Nation v. Gregoire (September 23, 2011)