OKLAHOMA CITY -- A Cherokee Nation official told an Oklahoma House committee that some smoke shops licensed by the tribe are engaging in retail-to-retail sales, a practice state officials contend violates tribal tobacco compacts, according to a KOCO 5 news report.
Diane Hammons, director of the Cherokee Nation's Justice Department, told the House Revenue and Taxation Committee this past week that retail-to-retail tobacco sales are taking place. "We have allowed that to continue," Hammons said. "We do not believe that is prohibited by the compact."[image-nocss]
State officials said the end result is several smoke shops are violating compacts by selling cigarettes with the lowest tax stamp, contributing to a decline in projected state revenue and undercutting nontribal stores.
Tribal smoke shops will buy cigarettes with a border stamp, or lower tax rate, and sell them in areas where a higher rate is required. The lower rate was allowed so shops on the Oklahoma border can compete with stores in neighboring states which may have a lower rate.
Retail-to-retail sales occur when nonborder smoke shops buy cigarettes stamped at a lower rate from a border shop where the lower tax rate is allowed. In the past, the nonborder shop got cigarettes from a wholesaler, Hammons said.
The Cherokee Nation licenses 49 smoke shops, including four or five owned by the tribe, she said. The tribe is allowing it to happen because it didn't get the "benefit of what it bargained for" in a compact signed with the state, Hammons said. The compact was signed Feb. 9, 2004, said State Treasurer Scott Meacham.
When the tribe signed the compact, it believed there would be no waiver of sale taxes. But a cigarette tax increase January 1, which was approved by a statewide vote, wiped out state sales tax on tobacco and increased the excise tax.
Under the old compact and before the tax increase, the tribe's historic tax margin was $3.72 on a carton of cigarettes, a profit margin the tribe expected to continue, Hammons said. But the change dropped the margin by $2.50, bringing it to $1.22 a carton, she said. "All we want is what we had -- a historic fair margin," Hammons said.
Rep. Kevin Calvey (R) said the hearings and interim study are not an attempt to repeal the tax. Calvey is chairman of the House Revenue and Taxation Committee, which is looking at disparities in taxes collected on cigarettes.
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