Judge Tells Tribe to Begin Collecting State Tobacco Taxes

Throws out Keweenaw Band suit

MARQUETTE, Mich. -- A federal judge said last week that the Keweenaw Bay Indian Community must collect cigarette taxes on behalf of the state of Michigan, reported the Associated Press.

U.S. District Judge Robert Holmes Bell threw out a lawsuit filed by the tribe in December 2003.

The suit contended Michigan officials had no authority to seize tobacco products being shipped to the tribe's reservation. It also said the state could not tax, even with a refund, tribal business owners selling tobacco products on the reservation.[image-nocss] p>

The Keweenaw Band began selling tax-free tobacco products at its casinos and convenience store after the state terminated a tax agreement with Michigan tribes in 1997. In 2000, the state told the tribes they could file for refunds of taxes paid for cigarette sales to their members.

State treasury officials said in court that since then, competitors have accused tribal businesses of selling large quantities of cigarettes for below the tax-prepaid wholesale cost.

After police seized a number of untaxed cigarette shipments headed for the reservation, the tribe began purchasing taxed tobacco products from the state and seeking refunds. But the tribe said its sales plummeted from $556,789 in 2001 to $125,963 in 2002.

In 2003 and 2004, the state rejected some of the refund claims, saying the tribe was claiming more sales to members than the members could have been expected to consume.

The state said at least one member was selling tobacco over the Internet.

Tribal attorney John Baker argued the state lacked jurisdiction.

In his written opinion, Bell appeared to invite a review of the matter by higher courts. The Supreme Court has never approved a tax refund system for Indian cigarette sales. Neither, however, has it ever rejected one, Bell wrote. In fact, there is not evidence that it has ever considered a refund system such as that used by Michigan.