Investigation: Creek smoke shops skirting state rules
By CLIFTON ADCOCK & OMER GILLHAM World Staff Writers
8/31/2008
Last Modified: 8/31/2008 3:09 AM
Four years after the state of Oklahoma entered into a new tobacco compact with the tribes, the state is continuing its efforts to stop the methods used by the Muscogee (Creek) Nation to sell low-tax and cheap cigarettes in the Tulsa area.
The Oklahoma Tax Commission has launched an investigation into whether the Osage Nation is using a loophole in a new tobacco rule to supply low-tax cigarettes to Creek-affiliated smoke shops, a Tulsa World investigation shows.
Low-tax cigarettes are meant to be sold along the Oklahoma border by smoke shops in competition with lower tax rates in adjoining states. The low-tax stamp, a 6-cent stamp, was created about four years ago as part of a new tobacco compact with many Indian tribes in Oklahoma. The Creek Nation's compact with the state expired due to a disagreement over the proper rate that should be levied from smoke shop sales.
Meanwhile, as the state attempts to stop the sale of low-tax cigarettes in Tulsa, the state also is facing a problem involving tax-free cigarettes made in Canada being funneled into Oklahoma through New York, according to records filed in Oklahoma County District Court.
On Aug. 6, a relevant lawsuit - which was filed in late May in Oklahoma County District Court by Attorney General Drew Edmondson - was moved to federal court.
The suit is against Native Wholesale Supply Co. for allegedly violating the Oklahoma Tobacco Master Settlement Agreement Complementary Act, which requires that tobacco manufacturers and their brand families be listed on the Directory of Compliant Tobacco Manufacturers maintained by the attorney general's office.
Because cigarettes not on the list are illegal for non-tribal retailers and compacted tribes to sell, they are by default not taxed by the state.
However, many Creek smoke shops are buying and selling cigarettes not on the attorney general's list, the Tulsa World investigation shows.
According to the state's lawsuit, the Sac and Fox Nation appears to be brokering the sale of "Seneca" brand cigarettes through Native Wholesale Supply, a corporation chartered by the Sac and Fox Nation and located on the Cattaraugus Indian Reservation in New York, records show. Seneca brand cigarettes are manufactured by Grand River Enterprises
Six Nations Ltd., a Canadian limited liability corporation.
According to documents filed by the U.S. government in a North American Free Trade Agreement dispute with Grand River Enterprises, the sole shareholder of Native Wholesale Supply and a second company, Native Tobacco Direct Co., is Arthur Montour Jr. Both companies are incorporated by the Stroud-based Sac and Fox Nation, which is listed as the
company's owner in the state lawsuit.
Montour did not return a phone message from the Tulsa World left with a secretary at Native Wholesale Supply, and Sac and Fox Nation government officials would not comment on the lawsuit last week.
From February 2007 through May 2008, Native Wholesale Supply sold or imported around 568,560 cartons of Seneca cigarettes to the Creek-affiliated stores in Oklahoma to be sold without an Oklahoma tax stamp, records show.
The lawsuit also says Native Wholesale Supply had gross receipts of more than $5 million for the sale of Seneca cigarettes to Muskogee Creek Nation Wholesale during that period.
"I am very concerned about these cheap cigarettes (Seneca) being sold in Oklahoma,'' said State Treasurer Scott Meacham. "Because of the low price, it can increase smoking and have an adverse effect on the public health. They are not only avoiding Oklahoma tax, they are increasing health problems, too.''
The Creek Nation is one of the few tribes in the state that has not signed a tobacco compact with the state. Without the compact, the tribe should be affixing a 77-cent compact stamp on packs of cigarettes.
For years, however, the tribe and its licensed smoke shops have, for the most part, been able to outmaneuver the state, tobacco companies and non-tribal retailers that have tried to shut off the tribe's flow of low-tax and cheap cigarettes into the Tulsa area.
Previously, Creek stores have gotten many of their low-tax cigarettes from the Cherokee Nation, but that pipeline was shut down earlier this year when an arbitration panel ruled that the Cherokee Nation retailers' sales to other retailers in order to funnel large numbers of the low-tax cigarettes out of the border zones violated the state's compact with the tribe.
When that occurred, the Creek store owners began to rely more heavily upon Osage Nation stores for low-tax cigarettes.
The Creek-affiliated stores also appear to have thwarted Rule 12, a Tax Commission rule enacted in 2006 to limit the sale of low-tax cigarettes by smoke shop owners. However, the rule does not apply to low-tax stores owned directly by the tribes, the Tax Commission said.
Many smoke shops are owned by individuals licensed by a given tribe, while other smoke shops are owned by a tribe.
According to a letter from Meacham to Osage Nation Principal Chief Jim Gray, the state is now asking the Osage Nation to shut the pipeline of low-tax cigarettes flowing into the Creek Nation. The Creek Nation has identified the Osage Nation as one of the sources for its low-tax cigarettes.
In the July 17 letter, Meacham asked Gray to start an investigation of four Osage Nation smoke shops that the state Tax Commission had investigated and believed to be funneling low-tax cigarettes to the Creeks.
"We would appreciate it very much if you would look into this matter and, if the Tax Commission's belief is correct, put an end to these violations," Meacham's letter stated.
But in his reply, Gray stated that none of the listed smoke shops transfer cigarettes to other tribes. Instead, they sell to individuals whose business of what they do with the cigarettes is their own.
The Osage smoke shops sell to customers who come into their place of business "and in some cases those customers are from other Tribes who are not under Compact with the state of Oklahoma," Gray wrote. "What these customers do with the cigarettes after they leave Osage jurisdiction is of no concern to the Osage Nation. It remains the Osage Nation's
position that the smoke shops are required only to purchase and sell cigarettes that bear the correct stamp under the Compact. As long as the cigarettes bear the correct stamp, Osage retailers can sell to any willing customer who comes to their smoke shop, as long as they are not another Osage retailer."
Meanwhile, the state's lawsuit against the Sac and Fox was moved to federal court earlier this month. The state's Master Settlement Agreement Complementary Act requires that a tobacco product manufacturer and its brand families be listed on the Directory of Compliant Tobacco Manufacturers maintained by the state attorney general's office before cigarettes can be lawfully sold in the state.
Neither the Seneca brand nor its manufacturer, Grand River Enterprises Six Nations, is on the list of approved cigarettes.
The suit asks for a permanent injunction against Native Wholesale and a judgment of more than $5 million, the amount the company billed the Creeks for the cigarettes.
The cigarettes are widely available at Tulsa-area Creek Nation smoke shops, the Tulsa World found, and the Seneca cigarettes do not bear an Oklahoma tax stamp. Rather, they have a yellow stamp similar to the 6-cent border exception rate stamps and have the words "Creek Nation Tax Paid" on them.
Muscogee (Creek) Nation Chief A.D. Ellis did not respond to a phone message left Tuesday by the Tulsa World seeking comment.
Clifton Adcock 581-8462
clifton.adcock@tulsaworld.com
Omer Gillham 581-8301
omer.gillham@tulsaworld.com
By CLIFTON ADCOCK & OMER GILLHAM World Staff Writers
(and none of the money will go for any type of medical research - it will go for salary increases probably for Bloomberg and his staff - what a rip off - New York is one heavily taxed state anyway - just another money grab here!) |
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charlie
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