united states district court western district of …...plaintiff, ) civil action no: 10-cv-711(a) v....

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NEW YORK

)

UNKECHAUGE INDIAN NATION, )

)

Plaintiff, ) Civil Action No: 10-CV-711(A)

v. )

)

DAVID A. PATERSON, Governor of the State of )

New York; JAMIE WOODWARD, Acting )

Commissioner, New York State Department of )

Taxation and Finance; WILLIAM COMISKEY, )

Deputy Commissioner, Office of Tax Enforcement, )

New York State Department of Taxation and )

Finance; JOHN MELVILLE, Acting )

Superintendent, New York State Police, )

each in his or her official capacity. )

)

Defendants. )

)

)

ST. REGIS MOHAWK TRIBE )

)

Plaintiff, ) Civil Action No: 10-CV-811(A)

v. )

)

DAVID A. PATERSON, Governor, State of New )

York, in his official capacity; JAMIE )

WOODWARD, Acting Commissioner, New York )

Department of Taxation and Finance, in her )

official capacity; WILLIAM COMISKEY, Deputy )

Commissioner, Office of Tax Enforcement, New )

York Department of Taxation and Finance, )

in his official capacity. )

)

Defendants. )

ST. REGIS MOHAWK TRIBE’S MEMORANDUM OF LAW IN OPPOSITION TO

DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT, AND IN SUPPORT OF

CROSS MOTION FOR SUMMARY JUDGMENT AND PERMANENT INJUNCTION

Case 1:10-cv-00711-RJA Document 70-1 Filed 08/22/11 of 28

i

TABLE OF CONTENTS

Page

TABLE OF CONTENTS .............................................................................................................. i

INTRODUCTION ........................................................................................................................1

STATEMENT OF THE CASE ....................................................................................................3

A. Tribal Regulation and Sale of Cigarettes. .............................................................3

B. 2010 Tax Amendments .........................................................................................4

C. Procedural History of the Case. ............................................................................6

D. Tribe‘s Post-Enforcement Claims .........................................................................7

E. State Case Brought by Akwesasne Convenience Store Association ....................8

ARGUMENT ................................................................................................................................8

I. REQUIRING ―PREPAYMENT‖ OF STATE TAXES ON THE SALE OF

CIGARETTES APPROVED FOR TAX-EXEMPT SALES TO TRIBAL

MEMBERS INFRINGES ON TRIBAL SOVEREIGNTY AND VIOLATES

THE EQUAL PROTECTION CLAUSE. .........................................................................8

A. States May Impose On Wholesalers and Retailers Only Minimal Burdens

Reasonably Related to the Collection of Valid Taxes on Sales to

Non-Indians...........................................................................................................8

B. Requiring ―Prepayment‖ of the Tax on the Sales of Limited Quantities

of Cigarettes Approved for Tax-Exempt Sales to Tribal Members Is

Impermissible as a Matter of Law ......................................................................11

1. Precollection Cannot Be Justified as Being Reasonably

Tailored to the Collection of the Taxes Due on Sales of

Cigarettes to Non-Indians .........................................................................8

2. Precollection Places More Than a Minimal Burden on Indian

Traders and It Will Not Lead to the Collection of Taxes from

Non-Indians.............................................................................................12

C. The Prepayment Obligation is Impermissible As Applied to the Tribe..............16


ii

D. Requiring ―Prepayment‖ of the Tax on the Sales of Limited Quantities

of Cigarettes Approved for Tax-Exempt Sales to Tribal Members Is

Discriminatory in that No Such Prepayment is Required for the Sale

of Other Untaxed Cigarettes ...............................................................................18

II. THE TRIBE IS ENTITLED TO A PERMANENT INJUNCTION ...............................21

A. Absent Injunctive Relief, The Tribe Would Suffer Irreparable Injury ...............22

B. Legal Remedies, Such as Monetary Damages, are Inadequate ..........................23

C. The Public Interest Would Not be Disserved by a Permanent Injunction,

and the Balance of Hardships Between the Tribe and Defendants Tips

in Favor of the Tribe ...........................................................................................23

CONCLUSION ...........................................................................................................................24


1

INTRODUCTION

Now that 2010 tax amendments have been enforced by the Department of Taxation and

Finance (―Department‖), it has become clear that those laws are fatally flawed, and that Plaintiff

St. Regis Mohawk Tribe (―Tribe‖) is entitled to summary judgment on its claim that the tax

amendments infringe on the federally-protected sales of tax-exempt cigarettes by tribal retailers

to tribal members.

Although Defendants concede that they do not have the power to tax on-reservation sales

of cigarettes to tribal members, the 2010 tax amendments require state-licensed wholesalers to

―prepay‖—in Defendants‘ words (Defs. Mem. of Law in Support of Motion for Summary

Judgment at 7) (―Defs. MOL‖)—the state cigarette excise tax and sales tax on the quantities of

cigarettes that have been approved for tax-exempt sales to tribal members. Because reservation

cigarette sellers do not pay taxes on these sales, the wholesalers must then apply for a refund to

recoup the taxes they have prepaid, a complicated and costly transfer of money back and forth

between the Department and the wholesalers for the sole purpose of having a tax stamp affixed

to packs of tax-exempt cigarettes. Thus, in order to purchase tax stamps to be affixed to the

quarterly allocation of tax-exempt cigarettes allowed by the Department for the Mohawk

reservation, the wholesalers would have to prepay over $1.4 million, and then apply for refunds.

This scheme fails to meet any controlling tests set out by the Supreme Court. A scheme

requiring the precollection of a tax has never been upheld by the Supreme Court. In fact, in

sharp contrast to the tax scheme at issue in this case, the New York tax scheme at issue in

Department of Taxation and Finance v. Milhelm Attea & Bros., 512 U.S. 61 (1994) (―Attea‖)

did not require precollection of a tax not actually owed on the limited quantities of tax-exempt


2

cigarettes sold to tribal members. Id. at 76. This fact was critical to the Court‘s decision

upholding the scheme in a limited facial challenge by federally-licensed wholesalers. Id.

(―[A]ssuming that the ‗probable demand‘ calculations leave ample room for legitimately tax-

exempt sales, the precollection regime will not require prepayment of any tax to which New

York is not entitled.‖).

The requirement for precollection of millions of dollars of taxes that are not owed cannot

be justified as a mere ―minimal burden[] reasonably tailored to the collection of valid taxes from

non-Indians.‖ Attea, 512 U.S. at 72. The probable demand allocation itself limits the availability

of tax-exempt cigarettes to the number deemed necessary by Defendants to meet tribal member

demand. The cigarettes at issue here are not intended for sale to non-Indians and this

prepayment requirement will not lead to the collection of one cent of taxes from a non-Indian.

All it will do is lead to transfers of money from the wholesaler to the State and back in a circular

process to assure tax stamps are affixed to products that will not be taxed.

Finally, prepayment of a tax that is not due on cigarettes to be sold to tax-exempt tribal

members cannot be justified as a minimal burden on collection of the taxes due on other

cigarettes sold to non-tribal members. The prepaid tax on one pack of cigarettes is $4.96, about

fifty times the profit on a pack of cigarettes, and a prepayment requirement of $1.4 million per

quarter for the probable demand allocation for Mohawk alone is anything but minimal. Due to

this prepayment requirement, the state-licensed wholesalers who have sold cigarettes to Mohawk

tribal retailers in the past and who are registered with the Tribe to make such sales have made

business decisions to discontinue making such sales, and Mohawk tribal retailers cannot obtain

any cigarettes from state wholesalers. Because the wholesalers are unwilling to assist the State

in carrying out its scheme, the tribal retailers are without any suppliers. The practical result is


3

that the prepayment requirement violates ―the [State‘s] obligation to make available to tribal

members a tax-free quantity of cigarettes sufficient to ‗satisfy the legitimate demands of those

reservation Indians who smoke.‘‖ Oneida v. Cuomo, 645 F.3d 154, 170 (2d Cir. May 9, 2011)

(quoting Attea, 512 U.S. at 69).

Because this scheme amounts to the precollection of a tax that is not owed and will not

lead to the collection of a valid tax from non-Indians, and because of the substantial burden

imposed on tax-exempt Indian commerce by the scheme, as well as other reasons discussed

below, the Tribe is entitled to summary judgment on its claims, and the Court should deny

Defendants‘ motion for summary judgment. The Court should therefore grant the Tribe the

declaratory and injunctive relief it seeks. Absent an injunction, the Tribe will suffer irreparable

injury to its sovereignty, to its revenues on cigarettes, and to its licensed tribal retailers‘ revenues

on cigarettes and associated sales. The State has no legitimate interest in burdening the tax-

exempt sales to tribal members.

STATEMENT OF THE CASE

A. Tribal Regulation and Sale of Cigarettes

The St. Regis Mohawk Tribe is a federally-recognized Indian tribe with a reservation in

northern New York, along the St. Lawrence River and the Canadian border. Unkechauge Indian

Nation v. Paterson, No. 10-cv-711, Decision and Order, Dkt # 49 at 2, 752 F.Supp. 2d 320, 322-

23 (W.D.N.Y. 2010). The Tribe has adopted a regulatory system to encourage tribal member

owned businesses, and to generate tribal revenue. Declaration of Elliot Lazore ¶¶ 8, 9. There are

144 registered Mohawk businesses, including 35 tribally-licensed tobacco retailers who employ

hundreds of local residents. Id. ¶ 8. The Tribe, through its business arm, owns three of the

licensed retailers (the IGA, the Mohawk Bingo Palace, and the Akwesasne Mohawk Casino). Id.


4

¶ 9. The remaining 32 licensed retailers are owned by tribal members, as required under tribal

law. Id.

Under tribal law, cigarette wholesalers must pay a Tribal Tobacco Fee, which is assessed

at varying levels, and affix a tribal stamp on all tobacco products. Lazore Decl., Exh. A (St.

Regis Mohawk Tobacco Ordinance, §5.j); Exh. B at 1-2 (current fee structure). The tobacco fees

collected by the Tribe—which totaled $2.8 million in 2010—support tribal programs and

services, including law enforcement, sanitation, the fire department, education, health and

environmental services. Lazore Decl. ¶ 10, Mitchell Decl. ¶¶ 2-4.

B. 2010 Tax Amendments

New York imposes an excise tax on cigarettes. N.Y. Tax Law § 471. The legal incidence

of the tax is on the retail purchaser, but the tax is collected through tax stamps which are affixed

by a state-licensed stamping agent, and the tax is then added to and collected as part of the sales

price of the cigarettes, ultimately being paid by the retail purchaser. N.Y. Tax Law §§ 471(2), (3).

Since it first imposed the tax in 1939 until recently, however, the State did not require the

pre-collection of the tax on cigarettes sold on-reservation to non-tribal members. See Cayuga

Indian Nation v. Gould, 14 N.Y.3d 614, 622-29 (2010); Oneida, 645 F.3d at 166. On June 21,

2010, the New York Legislature enacted amendments to Tax Law §§ 471 and 471-e, regarding

the distribution and sale of cigarettes to Indian reservations in New York. See 2010 N.Y. Laws

134, Part D; N.Y. Laws 136, § 1. Regulations to carry out the amendments were adopted as

emergency regulations on June 22, 2010, XXXII N.Y. Reg. 38 (July 7, 2010), and were later

adopted as final. 20 N.Y.C.R.R. § 74.6. On July 29, 2010, the Department also issued a

guidance document to explain further how the system is intended to work. Affirmation of

Michael Roy, Exh. A.


5

The amendments and regulations (together the ―Tax Amendments‖) ―create a system to

collect the excise tax on cigarette sales to non-members while exempting sales to tribal members

for personal use.‖ Oneida, 645 F.3d at 160. The Tax Amendments limit the quantities of tax-

exempt cigarettes that can be sold to reservation cigarette sellers to a tribe‘s ―probable demand‖

calculation, determined by the Department. N.Y. Tax Law § 471-e(2)(b); 20 N.Y.C.R.R. §

74.6(e). The Tax Amendments offer two mechanisms for tribes and reservation cigarette sellers

to obtain these limited quantities of tax-free cigarettes: the Indian tax exempt coupon system, and

the prior approval system. N.Y. Tax Law § 471(1); 20 N.Y.C.R.R. §74.6(a)(4). The Tribe has

not elected the coupon system, and so the prior approval system is in effect as to it. Lazore Decl.

¶ 13. The detailed workings of these two systems—which have been described by the Second

Circuit and in this Court‘s earlier opinions, see Oneida, 645 F.3d at 161-162; Seneca Nation of

Indians v. Paterson, No. 10-cv-687A, Dkt # 87, 2010 WL 4027796 at *4-*6 (W.D.N.Y. Oct. 14,

2010) (decision denying preliminary injunction)—are not material to the Tribe‘s motion, for the

most part.

What is material is that the Tax Amendments ―require[] state-licensed stamping agents

(i.e., wholesalers) to prepay the tax and affix tax stamps on all cigarette packs, including those

intended for resale to tax-exempt Indians,‖ Oneida, 645 F.3d at 160, notwithstanding that the

cigarettes are to be sold at retail in tax-exempt sales to Indians, in quantities determined by the

Department. N.Y. Tax Law §§ 471(5)(b), 471-e(3)(c)(iii); 20 N.Y.C.R.R. § 74.6(a)(3);

Defendants‘ Statement of Facts ¶ 4. Thus, when a wholesaler sells permitted quantities of tax-

exempt cigarettes to a reservation cigarette seller, using either the coupon system or the prior

approval system, the wholesaler cannot recover the cost of the tax stamps from the reservation

cigarette seller. Instead, the wholesaler will have to ―prepay‖ taxes not due on the cigarettes, at


6

substantial expense, and then have to apply for a refund from the Department. N.Y. Tax Law

§§ 471(5)(b), 471-e(4); 20 N.Y.C.R.R. §§ 74.6(c)(6), (d)(4).

C. Procedural History of the Case

On November 9, 2010, the Court denied the Tribe‘s motion for a preliminary injunction

on the grounds that the Tribe had not demonstrated likelihood of success on the merits, but

stayed implementation and enforcement of the Tax Amendments pending appeal, finding that

―[a]bsent a stay, . . . plaintiffs will suffer irreparable injury,‖ and that ―a stay pending appeal is in

the public interest.‖ Unkechauge, Decision and Order, Dkt # 49 at 12, 752 F.Supp. 2d at 328. On

appeal, the Second Circuit affirmed the denial of the preliminary injunction and vacated the stay

pending appeal. Oneida, 645 F. 3d 154.

The Defendants would have this Court believe that the claims of the Tribe fail as a matter

of law because they were rejected by the Second Circuit. That is not correct. The denial of a

motion for a preliminary injunction does not constitute a determination on the merits of the

Tribe‘s action. Pugh v. Goord, 345 F.3d 121, 125 (2003) (2d Cir. 2003) (―[l]oss of a motion for

preliminary injunction means only temporary lethality‖) (internal quotation omitted). In its

ruling, the Second Circuit addressed only the legal theories advanced in the motion for

preliminary injunction and the evidence submitted in support. Importantly, the Second Circuit

did not consider or render any decision on the requirement that taxes be prepaid on tax-exempt

sales. The Oneida and Cayuga Nations argued that the State could not require prepayment as to

sales of taxable cigarettes destined for retail sales to non-tribal members. The Court rejected this

argument, but in doing so did not address the precollection of taxes on tax-exempt sales. Oneida,

645 F.3d at 168-170. See Tribe‘s Amended Complaint, St. Regis Mohawk Tribe v. Paterson, No.


7

10-cv-811, Dkt #7 (Count VI - challenging precollection of taxes on cigarettes sold to tribal

members).

Moreover, the Second Circuit specifically left open whether enforcement of the Tax

Amendments would infringe on tribal sovereignty or unduly burden tribal retailers. ―Actual

problems of implementation can be addressed if and when they arise.‖ Oneida, 645 F.3d at 175

(internal quotation omitted). Thus the Court left open possible post-enforcement claims.

D. Tribe’s Post-Enforcement Claims

Starting on June 21, 2011, Defendants have required wholesalers to affix tax stamps on

all cigarettes sold to reservation cigarette sellers—including cigarettes that are approved for tax-

exempt sales to tribal members under the prior approval system. Affidavit of Peter Day ¶¶ 10-

12, 23, & Exh. A (―All packs of cigarettes sold by wholesale dealers to Indian nations and tribes

and reservation cigarette sellers are required to have New York tax stamps affixed to them.‖);

Defs. MOL at 7. A tax stamp costs $4.96, which includes the excise tax of $4.35 plus the

prepaid sales tax of $0.61. Day Aff. ¶ 23. To sell the quarterly allocation of 291,600 packs of

cigarettes on the Mohawk reservation, 20 N.Y.C.R.R. §74.6(e), wholesalers would have to

advance to the Department more than $1.4 million. Day Aff. ¶ 25. Annually, wholesalers

would have to advance more than $5.6 million to the Department for sales to Mohawk retailers

alone. Id. After a wholesaler completes a sale to a reservation cigarette seller, he must apply for

a refund. Id. ¶¶ 20-22; N.Y. Tax Law §§ 471(5)(b), 471-e(4).

As a direct result of the burden of the requirement to ―prepay‖ the tax on approved sales

of tax-exempt cigarettes to reservation cigarette sellers, all of the stamping agents who sold

cigarettes to Mohawk retailers or wholesalers before the Tax Amendments were enforced and

who are registered with the Tribe to make such sales have made a business decision not to sell


8

cigarettes to Mohawk retailers and wholesalers. Day Aff. ¶ 38; Affidavit of George W. Burnes,

¶ 22; Affidavit of Stephen M. Valvo, ¶ 30. Consequently, Mohawk retailers have been unable to

purchase cigarettes under the prior approval system. Affidavit of Julie Back Skidders ¶ 5.

E. State Case Brought by Akwesasne Convenience Store Association

On or about July 15, 2011, the Akwesasne Convenience Store Association (―ACSA‖), an

unincorporated association of retailers licensed by the Tribe, brought suit in the Supreme Court,

County of Erie, New York, challenging the Tax Amendments on the ground that the

precollection requirement resulted in the wholesalers being unwilling to sell cigarettes to tribal

retailers. Roy Aff. ¶ 3 & Exh. B. ACSA asserted that the inability of the retailers to obtain

products created an unconstitutional burden on tribal commerce. On August 18, 2011, the Court

denied the ACSA‘s request for preliminary injunction on the ground that the retailers‘ allegations

of harm were speculative since the wholesalers had not actually attempted to use the

precollection/refund system, and that wholesalers could possibly obtain bonds sufficient to

enable them to purchase on credit tax stamps to be affixed to tax-exempt cigarettes for sale to

tribal members. Id. Exh. B.

ARGUMENT

I. REQUIRING “PREPAYMENT” OF STATE TAXES ON THE SALE OF

CIGARETTES APPROVED FOR TAX-EXEMPT SALES TO TRIBAL

MEMBERS INFRINGES ON TRIBAL SOVEREIGNTY AND VIOLATES THE

EQUAL PROTECTION CLAUSE

A. States May Impose on Wholesalers and Retailers Only Minimal Burdens

Reasonably Related to the Collection of Valid Taxes on Sales to Non-Indians

―Indian tribes possess ‗attributes of sovereignty over both their members and their

territory.‘‖ Oneida, 654 F.3d at 164 (quoting White Mountain Apache Tribe v. Bracker, 448 U.S.

136, 142 (1980)). Tribal sovereignty ―vests tribes and their enrolled members with the federally-

protected right ‗to make their own laws and be ruled by them,‘‖ id. (quoting Williams v. Lee, 358


9

U.S. 217, 220 (1959)), including, ―[a]mong other things, . . . authority to . . . create economic

policies, and tax economic activities within their territories . . . .‖ Id. citing, inter alia, Merrion

v. Jicarilla Apache Tribe, 455 U.S. 130, 137 (1982).

Because ―‗[t]he Constitution vests the Federal Government with exclusive authority over

relations with Indian Tribes,‘‖ and ―in recognition of the sovereignty retained by Indian tribes . .

., Indian tribes and individuals generally are exempt from state taxation within their territory.‖ Id.

at 165 (quoting Montana v. Blackfeet Tribe of Indians, 471 U.S. 759, 764 (1985) (citing U.S.

Const. art. I, §8, cl. 3)). Thus, ―absent Congressional authorization, ‗states are categorically

barred from placing the legal incidence of an excise tax on a tribe or on tribal members for sales

made inside Indian country.‘‖ Oneida, 654 F.3d at 165 (quoting Wagnon v. Prairie Band

Potawatomi Nation, 546 U.S. 95, 101-02 (2005)) (emphasis added by Oneida court). In the area

of state taxation of non-members who engage in commerce on Indian reservations, however,

―courts must subject a state tax scheme over on-reservation, non-member activities to ‗a

particularized inquiry into the nature of the state, federal, and tribal interests at stake.‘‖ Id.

(quoting Bracker, 448 U.S. at 145).

The Supreme Court has applied these legal principals to state cigarette excise taxation on-

reservation. In Moe v. Confederated Salish and Kootenai Tribes of Flathead Reservation, the

Court held that the state sales tax could not be imposed on sales to Indians, 425 U.S. 463, 475-

80, but upheld the application of the tax to the non-Indian purchasers, and upheld a requirement

that the tribal member retailer collect and remit the tax on sales to non-Indians. The Court held:

―The State‘s requirement that the Indian tribal seller collect a tax validly imposed on non-Indians

is a minimal burden designed to avoid the likelihood that in its absence non-Indians purchasing

from the tribal seller will avoid payment of a concededly lawful tax.‖ Id. at 483.


10

In Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134

(1980) (―Colville‖), the Court upheld a Washington statute requiring wholesalers ―to sell only

cigarettes to which . . . stamps have been affixed,‖ but permitting tribal retailers ―to possess

unstamped cigarettes for purposes of resale to members of the tribe.‖ 447 U.S. at 141. The

Court stated: ―[w]e recognized in Moe that if a State‘s tax is valid, the State may impose at least

minimal burdens on Indian businesses to aid in collecting and enforcing the tax.‖ Id. at 159

(upholding requirements that the tribal retailer affix tax stamps on cigarettes sold to non-tribal

members, keep records of tax-exempt and taxable sales, and require that Indian purchasers not

known to the retailer present a tribal identification card). Id. The Court held that such burdens

must also be ―reasonably necessary‖ to collect the tax. Id. at 160. 1

Moe and Colville together stand for the proposition that ―States may impose on

reservation retailers minimal burdens reasonably tailored to the collection of valid taxes from

non-Indians.‖ Attea, 512 U.S. at 73. In Attea, the Court held that burdens that could be imposed

on tribal retailers under Moe and Colville could also be imposed on wholesalers, because it

would be ―anomalous‖ to hold otherwise. Attea, 512 U.S. at 74.2

1 The decisions in Moe and Colville were based in large part on the fact that the cigarettes were not

manufactured on the reservation. Colville, 447 U.S. at 155 (―the value marketed by the [reservation

cigarette seller] to persons coming from the outside is not generated on the reservation[]‖) (citing Moe,

425 U.S. at 475-81). Neither the Supreme Court nor any court has addressed the application of state taxes

to cigarettes manufactured by Indians. Compare California v. Cabazon Band of Mission Indians, 480

U.S. 202, 220 (1987) (holding that state could not regulate tribal casino, notwithstanding that patrons

were non-tribal members coming onto the reservation; Colville was distinguished because the tribes were

―generating value on the reservations through activities in which they have a substantial interest.‖). 2 After the Supreme Court held that the regulations were not facially invalid under the Indian trader

statutes, Attea , 512 U.S. 61, the Department nonetheless repealed the regulations and adopted a policy of

forbearance under which it chose not to collect taxes from reservation retailers. See Cayuga, 14 N.Y.3d

at 625-27. Due to the forbearance policy, and the failure of the Department to issue coupons to allow

sufficient quantities of tax-exempt cigarettes to be sold to tribal members, state courts agreed that the

statute was not in effect, and that the general directive in Tax Law § 471 prohibiting the possession or sale

of untaxed cigarettes could not be enforced against tribal retailers or their wholesalers. Day Wholesale v.

New York, 856 N.Y.S.2d 808, 812 (N.Y. App. Div., 4th Dept. 2008); Cayuga, 14 N.Y.3d at 647-48.


11

B. Requiring “Prepayment” of the Tax on the Sales of Limited Quantities of

Cigarettes Approved for Tax-Exempt Sales to Tribal Members Is Impermissible

as a Matter of Law

1. Precollection Cannot Be Justified as Being Reasonably Tailored to the

Collection of the Taxes Due on Sales of Cigarettes to Non-Indians

The prepayment obligation is not ―reasonably tailored to the collection of valid taxes

from non-Indians.‖ Attea, 512 U.S. at 62. See Colville, 447 U.S. at 160 (burdens must be

―reasonably necessary‖ to collect the tax on sales to non-Indians). First, it is a ―prepayment‖ of a

tax that is not even due on the sale of a product to a tribal member. The cigarettes at issue here

are intended to be sold to tax-exempt Indians. The State law simply requires affixation of a tax

stamp on which the tax is prepaid to a pack of cigarettes, which is actually a meaningless gesture

because no tax is due. The result is that the State collects funds from wholesalers which are not

owed under federal law and with no real effect on collecting taxes from non-Indians.

Like the Tax Amendments, the New York regulations at issue in Attea were designed to

limit the quantities of cigarettes that could be sold by state stamping agents to reservation

cigarette sellers to an amount sufficient to meet the demand for cigarettes by tribal members.

But the Attea regulations did not require prepayment of taxes on the limited quantities of

cigarettes approved for sale to reservation cigarette sellers for tax-exempt sales to tribal

members. Attea, 512 U.S. at 69. This feature of the Attea regulations was of critical importance

to the Supreme Court in its decision. In Attea, the Supreme Court stated: ―If the Department‘s

‗probable demand‘ calculations are adequate, tax-immune Indians will not have to pay New

York cigarette taxes and neither wholesalers nor retailers will have to precollect taxes on

cigarettes destined for their consumption.‖ Attea, 512 U.S. at 75 (emphasis added). The Attea

Court further stated: ―Again assuming that the ‗probable demand‘ calculations leave ample room

for legitimately tax-exempt sales, the precollection regime [on sales to non-tribal members] will


12

not require prepayment of any tax to which New York is not entitled.‖ Id. at 76 (emphasis

added). The lack of the requirement for precollection of the state tax on the cigarettes approved

for sales to tribal members ―appears to have been an important consideration in the Court‘s

decision to sustain the regulations . . . .‖ Cayuga Indian Nation v. Gould, 14 N.Y.3d at 624 n.2;

see also id. at 650 (the Supreme Court in Attea ―specifically approved one feature of the 1988

regulations—that the state was not permitted to precollect taxes on cigarettes that were

ultimately the subject of tax-exempt sales.‖). At oral argument in the Attea case, the State

acknowledged that a requirement that the tax be prepaid by the wholesalers on cigarettes

approved for sale to tribal members with a subsequent refund of the prepaid tax ―might well not

pass muster‖ because ―it would require more burden on the wholesaler.‖ Attea, Transcript of oral

argument, 1994 WL 663356 at *9-*10, *20.

2. Precollection Places More Than a Minimal Burden on Indian Traders

and It Will Not Lead to the Collection of Taxes from Non-Indians.

Requiring ―prepayment‖ of taxes on the sales of cigarettes that have been approved for

tax-exempt sales to tribal members is no mere ―minimal burden‖ on the wholesaler. Attea, 512

U.S. at 73. In fact, the law at issue here imposes burdens on federally-licensed Indian traders

and tribal retailers that go far beyond any minimal burden approved by the Supreme Court. The

prepaid tax amount is very large, especially in when viewed in light of the margin on the sale of

cigarettes. The Tax Amendments would require wholesalers to ―prepay‖ taxes of $4.96 per pack

(excise and prepaid sales tax) totaling more than $1.4 million on the allocation of 291,600

packs of cigarettes per quarter on the Mohawk reservation (more than $5.6 million per year).

Day Aff. ¶ 23-25; 20 N.Y.C.R.R. §74.6(e). By comparison, wholesalers‘ profit on the sales is

much smaller—about $0.10-0.12 per pack average.3

3 See Day Aff. ¶ 24 (profit of $0.05-0.24/pack; average of $0.12/pack); Burnes Aff. ¶ 18 (profit of $0.12-


13

The burden of prepaying an invalid tax was recognized by the Solicitor General of the

United States. In Herzog Bros. Trucking v. State Tax Commission, 69 N.Y.2d 536 (1987), the

New York Court of Appeals held that New York could not precollect a motor fuels excise tax on

sales by a wholesaler to on-reservation retailers. The Department petitioned for a writ of

certiorari to the United States Supreme Court. In an amicus brief to the Supreme Court at the

certiorari stage, the U.S. Solicitor General disagreed with the Court of Appeals decision insofar

as it applied to motor fuel to be sold for resale to non-tribal members, taking the position that a

state cannot require precollection of excise taxes on a product to be sold in a tax-exempt sale to

tribal members. The Solicitor General stated:

[W]e doubt that the Indian trader statutes permit a State to require a distributor that

delivers products to an Indian trader (or to require the Indian trader itself) to prepay

sales taxes or similar taxes on products that will ultimately be sold to Indian retail

customers on the reservation -- if, as we must assume is true here . . ., the Indian

trader statutes bar the impostion [sic] of the taxes on the retail sales. . . . A

requirement that an Indian trader routinely prepay an invalid tax and then recover

his prepayment only by seeking a refund under state law would seem to be such an

impermissible additional burden under the comprehensive regulatory scheme

imposed by the Indian trader statutes -- at least where it is reasonably

practicable for the State to fashion an exemption from its prepayment requirement

for that portion of a wholesale sale of goods that will ultimately be sold to Indian

consumers.

Brief for the United States as Amicus Curiae, State Tax Commn. v Herzog Bros. Trucking, 487

U.S. 1212 (1988), Roy Aff. Exh. C at 7-8 (emphasis added).4

The prepayment requirement runs afoul not only of Attea, and the views of the Solicitor

General expressed in Herzog, but also of decisions providing that persons trading with the

Indians cannot be taxed for the privilege of trading with the Indians. Congress has enacted

0.15); Valvo Aff. ¶ 27 (profit of $0.32-1.00/carton, or $0.03-0.10/pack). 4 The Supreme Court granted certiorari, and vacated and remanded the case for reconsideration in light of

new regulations by the Department. State Tax Commn. v Herzog Bros. Trucking, 487 U.S. 1212 (1988).

On remand, the Court adhered to its earlier decision. Herzog Bros. Trucking v. State Tax Commission, 72

N.Y. 2d 720 (1988).


14

―sweeping‖ and ―comprehensive‖ regulation over persons wishing to trade with Indians, in order

to protect the Indians. Attea, 512 U.S. at 70; see Warren Trading Post Co. v. Arizona Tax

Comm’n, 380 U.S. 685, 687 (1965). The Indian Traders Statutes, 25 U.S.C. § 261 et seq., and

their implementing regulations, 25 C.F.R. § 140, require persons trading with the Indians to be

licensed by the Bureau of Indian Affairs, and regulate sales by Indian traders. See 25 U.S.C.

§262 (―[a]ny person desiring to trade with the Indians on any Indian reservation‖ is subject to the

regulatory authority of Commissioner of Indian Affairs). The State cannot tax an Indian trader

for the privilege of doing business with the Indians. In Warren Trading Post, the Court struck

down a state gross proceeds tax on a licensed Indian trader, reasoning that the tax ―would put

financial burdens on [the trader] or the Indians with whom it deals….‖ 380 U.S. at 691

(emphasis added). The Court followed this decision in a later case involving an unlicensed

Indian trader. Central Machinery Co. v. Arizona State Tax Comm., 448 U.S. 160 (1980) (tax

imposed on seller on sale to Indian tribe was preempted by Indian trader statutes though seller

was not federally-licensed trader). Because the Indian Trader Statutes are intended to protect the

tribe and its members, Attea, 512 U.S. at 70, it ―would be anomalous,‖ Attea, 512 U.S. at 74, not

to extend the protections of those statutes to ―the Indians with whom [the Indian trader] deals.‖

Warren Trading Post, 380 U.S. at 691. As the Second Circuit noted, ―Attea‘s reasoning is

applicable in this case‖ involving tribal sovereignty ―because federal preemption over the

regulation of Indian tribes is closely related to federal recognition and protection of tribal

sovereignty.‖ Oneida, 645 F.3d at 170.

Significantly, this burden could be avoided. First, the probable demand limitation on

sales of tax-exempt product adequately protects the State‘s interest in collecting taxes from the

sale of cigarettes to non-Indians. This is the whole purpose of the probable demand calculation.


15

See Attea, 512 U.S. at 75; Oneida, 645 F.3d at 170. To the extent that the State has an interest in

tracking cigarettes through the use of stamps, it could adopt the scheme used by other states of

requiring a special ―tax-exempt‖ stamp to be affixed to cigarettes to be sold on reservation to

tribal members. For instance, pursuant to Arizona‘s Indian Reservation Tobacco Tax (Ariz. Rev.

Stat. §§ 42-3301 – 42-3307), Arizona established a stamping scheme whereby green tax-exempt

stamps are affixed to cigarettes to be sold tax-free to tribal members. See Roy Aff., Exh. D at 2.5

The State of Washington provides untaxed (but stamped) cigarettes to uncompacted tribes in an

amount sufficient for the personal use of each tribal member. See Wash. Rev. Code

§ 82.24.02(4) and Roy Aff., Exh. E.

Finally, it bears mentioning that there has been nothing said by this Court or the Second

Circuit on appeal that addresses prepayment as of taxes not due. The Second Circuit upheld the

prepayment requirement on sales to non-tribal members, holding that the incidence of the tax

was on the non-tribal member purchasers, and that the tribal retailers were simply required to

precollect a valid tax on non-tribal members. Oneida, 645 F.3d at 168-170. This reasoning, of

course, cannot be applied to the ―prepayment‖ by state wholesalers of taxes on tax-exempt

cigarettes to be sold to tribal members. Because the tax cannot be passed on to the tribal

members, they do not bear the legal incidence of the tax. The legal burden of the prepayment

requirement is on the wholesaler who sells to the reservation cigarette seller—i.e., the ―person

desiring to trade with the Indians,‖ 25 U.S.C. §262—who must prepay and then apply for a

refund to recoup the tax.6 The prepayment obligation is, in effect, an interest-free loan to the

5 Available online at http://www.azdor.gov/Portals/0/Brochure/541.pdf. (Last accessed August 21, 2011.)

6 The law recognizes that there is a detriment to a party of losing the use of money, and a corresponding

benefit to the other party of having use of another‘s money interest-free. See Love v. State, 78 N.Y. 2d

540, 544 (1991) (defendant required to pay interest from date of decision of liability, not as a penalty, but

as ―simply the cost of having the use of another person‘s money‖); Doolin v. United States, 918 F.2d 15,

15 (2d Cir. 1990) (government‘s failure to pay interest on estate tax overpayment constituted ―windfall‖


16

State for the right to sell tax-exempt cigarettes to reservation cigarette sellers, with no impact on

the collection of taxes from non-Indians.

C. The Prepayment Obligation is Impermissible As Applied to the Tribe

As discussed above, the prepayment requirement is impermissible as a matter of law, and

the Tribe is entitled to summary judgment on Count VI of its complaint. Tribe‘s Amended

Complaint, St. Regis Mohawk Tribe v. Paterson, No. 10-cv-811, Dkt #7. In addition, as applied

to the Tribe, the prepayment obligation violates ―the [State‘s] obligation to make available to

tribal members a tax-free quantity of cigarettes sufficient to ‗satisfy the legitimate demands of

those reservation Indians who smoke.‘‖ Oneida, 645 F.3d at 170 (quoting Attea, 512 U.S. at 69).

As a direct result of the requirement to ―prepay‖ the tax on approved sales of tax-exempt

cigarettes to reservation cigarette sellers, Mohawk retailers are unable to obtain tax-exempt

cigarettes from state-licensed wholesalers. Before the Tax Amendments went into effect, two

state-licensed wholesalers—Day Wholesale, Inc. (―Day‖) and Capital Candy Company, Inc.

(―Capital‖)—sold to Mohawk tribal retailers, pursuant to licenses they have from the Tribe under

tribal law. Day Aff. ¶ 4; Burnes Aff. ¶ 3; Lazore Decl. ¶ 6. A third state-licensed wholesaler—

Valvo Candies, Inc. (―Valvo‖)—sold to Mohawk wholesalers for resale to tribal retailers. Valvo

Aff. ¶ 6. Given the burden imposed by the Tax Amendments, these state wholesalers have made

a business decision to discontinue sales of tax-exempt cigarettes to tribal retailers so long as the

wholesalers must prepay the taxes that are not even owed on the cigarettes. Day Aff. ¶ 38;

Burnes Aff. ¶ 22; Valvo Aff. ¶ 30.

Day, Capital, and Valvo are the only state wholesalers who are licensed by the Tribe

under tribal law or registered with the Tribe under the Jenkins Act, 15 U.S.C. § 376(a)(3), see

Day Aff. ¶¶ 6-7; Lazore Decl. ¶ 6, and these were the only licensed agents selling to the Mohawk

to the United States).


17

reservation from 2006 through August 2009 according to the Department‘s own records. Roy

Aff., Exh. F. In any event, the State‘s prepayment requirement would impose a substantial

burden on any wholesaler who could legally sell to tribal wholesalers and retailers. Why would

a wholesaler who had not previously sold to Mohawk tribal retailers, when no prepayment was

required, enter that market now that a ―prepayment‖ of a substantial ―tax‖ is required, especially

given that the wholesaler‘s profit is just a fraction of the prepaid tax?

In the state case challenging the Tax Amendments brought by ACSA, Justice Siwek ruled

that the plaintiffs were unlikely to succeed on the merits because ―the wholesalers‘ claims and

the plaintiffs‘ reliance on them are speculative and untested, particularly when considering the

agents‘ bonding abilities . . ..‖ Roy Aff. Exh. B at 11. The Tribe‘s claims, however, are not

speculative. The only three wholesalers who have sold cigarettes to Mohawk reservation

cigarette sellers will not do so due to the substantial burdens imposed by the Tax Amendments.

While the Defendants in the ACSA case argued, as they likely will here, that no wholesaler had

purchased cigarettes using the probable demand allocation and applied for a refund, and so it was

not proven that refunds would be delayed, id. at 6-7, the Tribe‘s concern is not how long it will

take a wholesaler to obtain a refund; rather, it is that wholesalers have made business decisions

not to prepay substantial taxes not due and then have to apply for and wait for refunds, and that

tribal retailers therefore cannot obtain cigarettes from them.

Moreover, the possibility that some wholesalers could obtain a bond and buy tax stamps

on credit is simply irrelevant to the Tribe‘s claim. For those wholesalers who might qualify to

purchase stamps on credit, the requirements and limitations of the credit also impose more than

minimal burdens that are not reasonably related to the collection of taxes on sales to non-tribal

members. Only state stamping agents—and not all wholesalers—can avail themselves of this


18

option; to do so, they must post a bond, at their expense, to cover the price of the stamps; and

they must agree to pay the cost of the stamps within thirty days (regardless of whether they have

received refunds of their tax-exempt sales to reservation cigarette sellers in that time). 20

N.Y.C.R.R. § 71.2(b)(1) (―the Department . . . may, in its discretion, permit a licensed cigarette

agent to purchase stamps and to pay for such stamps within 30 days after the date of purchase,

provided the agent has filed a credit bond (or has deposited other acceptable security) with the

department in the required amount conditioned upon such payment.‖) (emphasis added); N.Y.

Tax § 472(1). To avail themselves of this mechanism, state stamping agents would have to meet

bond requirements, including the expense and other requirements of obtaining the bond, and

would have to pay for the tax stamps purchased on credit within thirty days, even if the

Department had not refunded the agent for the cost of prepaid tax stamps on tax-exempt

cigarettes for the tribal members in the meantime, presenting serious burdens on the agents. See

Day Aff. ¶ 32; Burnes Aff. ¶¶ 19-20; Valvo Aff. ¶¶ 18-20.

In any event, the Department can no more require that wholesalers post a bond equivalent

to the cost of tax stamps than it can require the wholesaler to prepay the cost of the tax stamps

for a tax that is not due.

D. Requiring “Prepayment” of the Tax on the Sales of Limited Quantities of

Cigarettes Approved for Tax-Exempt Sales to Tribal Members Is Discrimin-

atory in that No Such Prepayment is Required for the Sale of Other Untaxed

Cigarettes

Generally, an agent sells tax-exempt cigarettes through the sale of unstamped cigarettes.

20 N.Y.C.R.R. § 76.1(b)(1)(―In general, exemptions from the cigarette tax shall be effectuated

by means of a licensed cigarette agent‘s sale of cigarettes upon which such tax has not been

prepaid by the seller on behalf of the ultimate consumer nor precollected as part of the selling

price of such cigarettes.‖). ―Agents may . . . sell unstamped cigarettes in New York when those


19

cigarettes are sold tax-exempt to the United States, the State of New York, out-of-state

purchasers, diplomatic missions, diplomatic personnel and the United Nations (20 NYCRR, Part

76).‖ Roy Aff., Exh. A. The only exception to this rule is the requirement that tax stamps be

affixed to approved quantities of tax-exempt cigarettes to be sold to Indians on-reservation. Day

Aff. ¶ 37.

In requiring prepayment of taxes not due on tax-exempt cigarettes to be sold to tribal

members, the State is discriminating against lawful sales to tribal members. The Supreme Court

has made clear, in its Indian cigarette tax jurisprudence, that to be upheld, the tax scheme cannot

discriminate against Indian commerce. See Colville, 447 U.S. at 151 (―The State may sometimes

impose a nondiscriminatory tax on non-Indian customers of Indian retailers . . . .‖); id. at 156.

Second, it contravenes the Equal Protection Clause of the Constitution. U.S. Const.

amend. XIV, § 15 (―no State shall ... deny to any person within its jurisdiction the equal

protection of the laws.‖).7 The clause ―is essentially a direction that all persons similarly situated

should be treated alike.‖ City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 439 (1985).

Legislation that does not restrict a fundamental right or employ a suspect classification must be

rationally related to a legitimate government interest. Id. at 440. Under the rational relationship

test, the State‘s objective in the legislation must be rationally related to the distinction between

groups made by the legislation. Zobel v. Williams, 457 U.S. 55, 60 (1982). ―By requiring that

7 Defendants do not address the Tribe‘s Equal Protection Claim (Count VII of the Tribe‘s Amended

Complaint, St. Regis Mohawk Tribe v. Paterson, No. 10-cv-811, Dkt #7) in their motion for summary

judgment. The Tribe‘s failure to pursue this claim as the basis of its preliminary injunction motion on

appeal, see Oneida, 645 F.3d at 163, n. 14, does not foreclose the Tribe from pursuing this claim. Cf.

Pugh, 345 F.3d at 125 (denial of a motion for a preliminary injunction does not constitute a determination

on the merits). Nor does it address the Tribe‘s pendant law claim for violation of the New York

Constitution (Amended Complaint Count III). The Tribe does not object to dismissal of Court III for lack

of jurisdiction, as argued by Defendants in their opposition to the preliminary injunction motion,

Unkechauge, No. 10-cv-711, Dkt. #36, at 19, but the dismissal should not constitute an adjudication on

the merits of that claim.


20

the classification bear a rational relationship to an independent and legitimate legislative end, we

ensure that classifications are not drawn for the purpose of disadvantaging the group burdened by

the law.‖ Romer v. Evans, 517 U.S. 620, 633 (1996); see also Consolidated Edison Co. v. Pataki,

117 F.Supp.2d 257, 262-263 (N.D.N.Y. 2000) (―[I]f this Court determines that the legislature

acted arbitrarily or classified Plaintiff upon some ground not having a fair and substantial

relation to the object of the act, such that similarly situated persons are treated differently, it must

strike down the statute.‖).

The purpose of the Tax Amendments is to ―create a system to collect the excise tax on

cigarettes to non-members while exempting sales to tribal members for personal use.‖ Oneida,

645 F.3d at 160. Even assuming, as this Court held in its earlier ruling on the motion for

preliminary injunction, that the probable demand calculations are rationally related to a

legitimate legislative purpose, see Unkechauge, Decision and Order, No. 10-711, Dkt. # 49 at 10-

12, 752 F.Supp.2d at 326-27, the prepayment requirement is not. Defendants have not and

cannot articulate a rational basis for requiring prepayment by wholesalers of taxes on tax-exempt

sales to reservation cigarette sellers, while not requiring prepayment as to other tax-exempt sales.

The dual legislative purposes of ―creat[ing] a system to collect the excise tax on cigarettes to

non-members while exempting sales to tribal members for personal use,‖ Oneida, 645 F.3d at

160, are not furthered by requiring prepayment of the tax not due. The prepayment requirement

on tax-exempt cigarettes in no way furthers the legislative goal of collecting taxes on sales to

non-Indians, especially given that the quantities of tax-exempt cigarettes are limited by the

probable demand allocation even without the prepayment requirement. Moreover, the

prepayment requirement does not further the goal of providing tax-exempt cigarettes to tribal

members—in fact, it undermines that goal, as noted above. Because the legislative goals ―[are]


21

not in any way served by‖ requiring prepayment of tax-exempt sales to non-Indians but not as to

other tax-exempt sales, Zobel, 457 U.S. at 61, the classification violates the Equal Protection

Clause, and impermissibly discriminates against Indian commerce. Colville, 447 U.S. at 151.

II. THE TRIBE IS ENTITLED TO A PERMANENT INJUNCTION

The Tribe is entitled to an injunction enjoining the Defendants from enforcing the Tax

Amendments. The standard for a permanent injunction is essentially the same as the standard for

a preliminary injunction, except that for a permanent injunction the plaintiff must actually

succeed on the merits of the case, rather than merely demonstrate a likelihood of success in a

future proceeding. See, e.g., Lusk v. Village of Cold Spring, 475 F.3d 480, 485 (2d Cir. 2007).

In eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), the Supreme Court held that to grant

a permanent injunction in a copyright case, ―[a] plaintiff must demonstrate: (1) that it has

suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are

inadequate to compensate for that injury; (3) that, considering the balance of hardships between

the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest

would not be disserved by a permanent injunction.‖ eBay, 547 U.S. at 391. The Second Circuit

recently stated that ―we see no reason that eBay would not apply with equal force to an

injunction in any type of case.‖ Salinger v. Colting, 607 F.3d 68, 77-78, n. 7 (2d Cir. 2010).

In its ruling on the Tribe‘s motion for a preliminary injunction, this Court denied the

preliminary injunction based solely on the Tribe‘s inability to show likelihood of success on the

merits. Unkechauge, No. 10-cv-711, Decision and Order, Dkt # 49 at 12, 752 F.Supp. 2d at 328.

But the Court granted the Tribe a stay of enforcement of the Tax Amendments, following its

earlier decision in Seneca Nation, and explicitly holding that absent a stay, the Tribe would

suffer irreparable injury and that a stay was in the public interest. Id. So the Court has already

ruled on the factors for the grant of a permanent injunction. Because the Tribe is entitled to


22

summary judgment on the merits of its case, and because the criteria for an injunction are met, a

permanent injunction should be entered.

A. Absent Injunctive Relief, The Tribe Would Suffer Irreparable Injury

First, as this Court has previously held, ―Where, as here, enforcement of a statute or

regulation threatens to infringe upon a tribe‘s right of sovereignty, federal courts have found the

irreparable harm requirement satisfied.‖ Seneca Nation of Indians v. Paterson, No. 10-cv-687A,

Dkt # 87, 2010 WL 4027795 at *2 (W.D.N.Y. Oct. 14, 2010) (decision on stay pending appeal)

(citing Prairie Band of Potawatomi Indians v. Pierce, 253 F.3d 1234, 1250 (10th Cir. 2001);

Seneca-Cayuga Tribe of Oklahoma v. State of Oklahoma, 874 F.2d 709, 716 (10th Cir. 1989)).

The infringement on tribal sovereignty is clear—the State is requiring prepayment of a tax of

products that are intended to be sold to tax exempt tribal consumers, placing a burden on the

wholesaler, the retailer and the consumer, and in a way that has no relationship to the State's

stated goal, to collect taxes from non-Indians. This is especially true when the State has an

option of creating a stamp that indicates a product is tax exempt.

This Court also found previously that the Tax Amendments would have an adverse

impact upon the tribes‘ existing tobacco economies and lead to layoffs and business closures.

Seneca Nation, No. 10-cv-687A, Dkt # 87, 2010 WL 4027795 at *2; Unkechauge, Decision and

Order, No. 10-711, Dkt. # 49 at 12, 752 F.Supp. 2d at 328. A significant disruption of a business

can constitute irreparable injury. See Nemer Jeep-Eagle v. Jeep-Eagle Sales Corp., 992 F.2d

430, 435 (2d Cir.1993); Automotive Elec. Serv. Corp. v. Association of Automotive Aftermarket

Distribs.,747 F.Supp. 1483, 1513-14 (E.D.N.Y.1990).

The Tax Amendments will allow Mohawk retailers to purchase from state stamping

agents only about 1.2 million packs of cigarettes per year, compared to the 7.2 million packs that


23

were sold by tribal retailers with Tribal stamps in 2010. Lazore Decl. ¶ 12; 20 N.Y.C.R.R.

§74.6(e)(1)[table]. Moreover, due to wholesalers‘ decisions not to prepay over a million dollars

in taxes on cigarettes allowable under the Mohawk probable demand calculation, tribal retailers

are now unable to obtain from state wholesalers any of the 1.2 million packs of cigarettes to

which they are entitled. Without the ability to purchase tax-exempt cigarettes from state-licensed

wholesalers, Mohawk retailers will lose sales of cigarettes to tribal member customers, who will

go elsewhere to purchase their cigarettes, as well as collateral sales (such as milk and bread).

Skidders Aff. ¶ 8. Lost sales by retailers will lead to a reduction in tobacco fees received by the

Tribe, which are used to support essential tribal programs. Mitchell Decl. ¶ 2-4. This reduction

of tribal revenues is also irreparable. See Seneca-Cayuga Tribe of Oklahoma v. State of Okl. ex

rel. Thompson, 874 F.2d 709, 716 (10th Cir. 1989); Winnebago Tribe of Nebraska v. Stovall, 216

F. Supp. 2d 1226, 1233 (D. Kan. 2002).

B. Legal Remedies, Such as Monetary Damages, are Inadequate

The Tribe and tribal retailers have no remedy at law whatsoever. The State of New York

cannot be sued except insofar as it consents to suit. See Idaho v. Coeur d’Alene Tribe of Idaho,

521 U.S. 261, 289 (1997). The State has not consented to suit for damages for cutting off the

supply of cigarettes to tribal retailers and tribal members.

C. The Public Interest Would Not be Disserved by a Permanent Injunction, and the

Balance of Hardships Between the Tribe and Defendants Tips in Favor of the

Tribe

An injunction will ―promote[] the paramount federal policy that Indians develop

independent sources of income and strong self-government.‖ Seneca-Cayuga Tribe, 874 F.2d at

716. Although the State may have an interest in collecting a tax on cigarettes brought onto the

reservation and sold to non-Indians, the State does not have a valid interest in taxing Indian


24

traders, or imposing more than minimal burdens on the sales of tax-exempt cigarettes to tribal

members. Moreover, the State‘s financial plan for 2012 does not anticipate receiving increased

taxes through enforcement of the Tax Amendments until after December 31, 2011. Roy Aff., ¶ 8

and Exh. G at 41. If this Court declares the Tax Amendments invalid insofar as they require

prepayment of the tax on tax-exempt sales to tribal members, the legislature could take action

prior to December 31, 2012 to address such infirmity. Further, to the extent that New York

claims it will lose tax revenue until the legislature acts to amend the Tax Amendments, the

amount of revenue loss is uncertain.8

The balance of hardships between the Tribe and Defendant clearly ―tips in plaintiff‘s

favor.‖ Salinger, 607 F.3d at 80. The Tribe will suffer irreparable harm from the amendments.

Infringement on tribal sovereignty, impact on the tribal economy, disruption and termination of

tribal businesses, and the inability of tribal members to purchase tax-exempt cigarettes on the

reservation represent significant hardships. Meanwhile, the State would face no hardship with

respect to taxes on cigarette sales on reservation to tribal members as the State has neither the

right nor the intent to tax those sales. Rather, the prepayment and refund scheme is nothing more

than collateral damage caused by its clumsy mechanism for the collection of taxes on sales to

non-Indians.

8 William Comiskey, then the Department‘s Deputy Commissioner, testified before a New York Senate

committee in October 2009 that the Department‘s estimate as to the quantity of cigarettes sold by tribal

retailers ―is really a guess,‖ and that it included voluminous out-of-state internet sales by tribal retailers

(which are not subject to the state tax). Roy Aff., Exh. H at 64: 15-17. The State‘s revenue estimate also

does not make any offset for the substantial costs of enforcing the tax collection scheme. Id. at 117:1-

118:1 (testimony of Peter J. Kiernan, Counsel to the Governor). Enforcement of the tax law will not lead

to collection of the tax on all sales of cigarettes to non-Indians, as cigarette purchasers can turn to other

sources of untaxed cigarettes, such as internet sellers, hundreds of whom sell cigarettes over the internet.

See Prevent All Cigarette Trafficking Act of 2009 (PACT Act), P.L. 111-154 §1(b)(9), 124 Stat. 1087

(2010).


25

CONCLUSION

For the foregoing reasons, Defendants‘ Motion for Summary Judgment should be

DENIED, and Plaintiff St. Regis Mohawk Tribe‘s Cross Motion for Summary Judgment and for

Permanent Injunction should be GRANTED.

Respectfully submitted,

/s/ Michael L. Roy

Michael L. Roy

Hobbs, Straus Dean & Walker, LLP

2120 L Street, N.W. Suite 700

Washington, D.C. 20037

(202) 822-8282

([email protected])

Counsel for Plaintiff St. Regis Mohawk Tribe

Marsha K. Schmidt

Hobbs Straus, Dean & Walker, LLP

2120 L Street, NW, Suite 700

Washington, D.C. 20037

(202) 822-8282

([email protected])

Counsel of Record for Plaintiff St. Regis Mohawk Tribe

Local Counsel:

MARGARET A. MURPHY, ESQ.

5354 Briercliff Drive

Hamburg, New York 14075

(716) 649-1004

([email protected])

Dated: August 22, 2011


united states district court western district of …...plaintiff, ) civil action no: 10-cv-711(a) v....

Documents