HARLESTOWN, R.I., Sept. 23 — The sign on the tan box
of a building on the Indian reservation here still says Narragansett Smoke
Shop, and lashed to a tree out front is a sales pitch for Salem cigarettes
at $31.99 a carton.
But inside, the place has been transformed into the Narragansett
Sovereignty Protection Headquarters. The only items for sale are two kinds
of T-shirts: one proclaiming "Sovereignty" and the other with the slogan
"Homeland Security. Fighting terrorism since 1492. In support of the
Narragansett Tribe, July 14, 2003."
That was the date the Rhode Island State Police raided the smoke shop
in a dispute over the Indians' insistence on selling tax-free cigarettes.
The raid erupted into a scuffle between state troopers and tribal members,
leaving eight people with minor injuries. Eight Indians were arrested,
including the tribe's leader.
The raid was an unusually pointed way to handle an issue that many
states are facing, the refusal by Indian tribes to collect sales taxes on
cigarettes and gasoline. Now Rhode Island and the Narragansetts are
battling in court over whether the state has the right to collect those
taxes or to send in police officers to enforce state law on Indian
land.
State governments say tribal tax-free sales, in stores and on the
Internet, deprive them of millions of dollars. Those losses have grown as
financially struggling states raise cigarette taxes, driving some smokers
to tribal stores. And with the deficit among the states projected to reach
more than $50 billion in the next fiscal year, legislators and governors
are increasingly trying to collect taxes from Indian businesses.
In New York, after a long history of sparring with tribes over taxes,
the state won a victory in 1994 when the Supreme Court backed its right to
collect taxes on sales to non-Indian consumers. But New York has never
collected the taxes, and in 1997, under Gov. George E. Pataki, the state
stopped trying after several tribes protested vehemently and blocked the
New York State Thruway.
Now New York is poised to try to collect the tax, which officials say
would bring in at least $64 million a year. The Legislature has ordered
the Department of Taxation and Finance to draw up new regulations, with
the intent of collecting taxes starting Dec. 1. Indians say they will
resist and have threatened to sue.
In Maine, Gov. John Baldacci wants to prevent the Aroostook Band of
Micmacs from opening tax-free tobacco shops. The Idaho legislature has
been trying since January to collect tribal cigarette taxes.
"There's quite a few states that are very furious about this tax
issue," said Robert J. Miller, an associate professor at Lewis and Clark
Law School in Portland, Ore.
The Supreme Court has ruled that states can collect taxes on tribal
cigarette sales to non-Indians and to members of other tribes, said Robert
N. Clinton, a law professor at Arizona State University. But because
tribes are also sovereign entities, states cannot sue them if they fail to
pay taxes, effectively neutering states' ability to enforce the tax
law.
"The tax in the abstract may be lawful, but all the accouterments
including the ability to sue the taxpayer are not in place," Professor
Clinton said. "The tribes are immune from state enforcement."
For the states, Professor Miller said, "this is what you call a right
without a remedy." And because the states have no enforcement power, he
said, many tribes have been opening tax-free businesses.
Several states have handled the issue by arranging compacts with
tribes. In Washington State, under a 2001 agreement, tribes must collect
taxes from non-Indian consumers but can keep the tax revenue, a deal that
generates money for the tribe and also helps the state by undercutting the
tribal businesses' competitive edge over non-Indian retailers.
In Oklahoma, tribes give the state a percentage of the taxes they
collect. New York intends to follow a different model, collecting the
taxes from wholesalers who sell cigarettes to the tribes; the wholesalers
could then pass on the tax in the price they charge Indian smoke
shops.
In Rhode Island, the situation has been complicated by an unusual law
concerning the relationship between the state and the Narragansett
tribe.
For a decade, the state of Rhode Island and the 2,600-member tribe have
feuded over the Narragansetts' desire to build a casino on its
reservation, in the southwest part of the state.
In May, facing yet another governor's opposition to the casino, the
tribe said it would open a smoke shop. Because the shop would not charge
consumers the state cigarette tax, which recently increased to $1.71 from
$1.32 per pack, it would cost the government $10 million to $12 million
annually, state officials say.
Tribal leaders agreed to delay the opening after Gov. Donald L.
Carcieri visited the reservation, becoming the first governor in decades
to do so, and offered to help the tribe find other ways to lower its high
rates of unemployment and poverty. But the tribe's leader, Chief Sachem
Matthew Thomas, said the proposals, which included a water-bottling plant
and an assisted-living facility, would not generate the revenue of a
casino or a smoke shop.
"They weren't really advantageous to the tribe," Chief Thomas said.
"They were creating jobs, but it's not self-sufficiency."
On July 12, the tribe opened the smoke shop along a rural road dotted
with trailer homes. State officials met with tribal leaders and asked them
to close it. Chief Thomas said the tribe offered to discuss a compact, but
only if Mr. Carcieri would no longer block a tribal casino.
Calling that condition "outrageous," the governor ordered state police
to the smoke shop to execute a search warrant. Tribal members, including
Chief Thomas, tried to block them from entering.
"Everything was out of control," said Bella Noka, the tribe's youth
director, who was arrested on disorderly conduct charges, along with her
husband, teenage son and daughter. "It was ugly, and it was only over
cigarettes."
Now, the tribe and the state are in federal district court in
Providence, their dispute centering on a 1978 federal law, the Rhode
Island Settlement Act. The act granted the Narragansetts 1,800 acres for
their reservation, but unlike laws that apply to tribes in other states,
it also made the tribe subject to the state's criminal and civil laws and
any income-producing activities on tribal land subject to state tax.
"They can't willy-nilly say `I'm going to start selling cigarettes
without taxes,' " Rhode Island's attorney general, Patrick C. Lynch, said
in an interview. "They should be treated no differently than the mom and
dad who run the store down the street or a Cumberland Farms convenience
store."
The Indians say the act gave the state authority only over the land,
not the Indians themselves. And in any case, they say, the act applied to
the Narragansetts only before they were a federally recognized tribe, a
status granted five years after the act was passed.
"Here's where the state, I think, takes their eye off the ball," Chief
Thomas said. "In 1983, when we became recognized, the relationship with
the state dissolved."
Several experts on Indian law said courts had previously ruled that the
settlement act did make the tribe subject to Rhode Island laws. But they
said it might be harder for the state to justify the raid.
Professor Miller of Lewis and Clark Law School said it was comparable
to Rhode Island sending state troopers to shut down a business in
Connecticut.
"A tribe is a government too," he said. "You don't send your police
across the border."
That finding could leave Rhode Island in the position of so many other
states: legally entitled to tax tribal cigarette sales, but legally unable
to compel those taxes to be paid.
