Ninth Circuit Holds that Inter-Tribal Cigarette Sales are Subject to State Tobacco Laws

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California’s cigarette tax and escrow requirements apply to inter-tribal sales of cigarettes, held the U.S. Court of Appeals for the 9th Circuit in Big Sandy Rancheria Enterprises v. Bonta. Big Sandy Rancheria Enterprises (“BSRE”), a federally-chartered corporation wholly-owned by the Big Sandy Rancheria Band of Western Mono Indians, brought the case to challenge California’s application of its tobacco directory, licensing, and tax laws to BSRE’s sales of native-manufactured cigarettes to other Indian tribes.

BSRE claimed that, because the cigarettes in question were purchased exclusively from Indian tribal manufacturers and distributed exclusively to wholesalers and retailers in Indian country, the State’s application of its tobacco licensing and tax requirements violated tribal sovereignty and the Indian Trader Statutes (federal regulations governing trade with Indian tribes).

The 9th Circuit affirmed the dismissal of BSRE’s claims on the ground that tribal sovereignty is only extended to the Tribe in its constitutional form, rather than its corporate form. As a corporation and not a political entity, BSRE could not claim the sovereignty reserved for the tribes themselves. Even if the court treated BSRE as a tribe, however, sales from one tribal territory to another are not exempt from the state’s tobacco taxes, the court held. Tribal sovereignty “does not extend beyond what is necessary to protect tribal self-government or to control internal relations.” The 9th Circuit joined the 10th Circuit and the Oklahoma Supreme Court in holding that tribe-to-tribe sales made outside the tribal enterprise’s territory are “off-reservation” activities and therefore subject to state laws of general application.

The Indian Trader Statutes theories did not hold up because the court found that those statutes regulate only those businesses which sell goods to tribe members, but do not regulate – nor therefore preempt ─ the field of sales by tribe members to nonmembers of the tribe.

Although the plaintiff was a corporation and not a tribe, the 9th Circuit’s holdings apply largely to activity by tribes themselves. On-reservation sales by tribe members to other tribe members remain exempt from taxation, and regulations governing on-reservation sales by tribe members to nonmembers remain subject to the balancing test enumerated in Apache Tribe v. Bracker, 448 U.S. 136 (1980) (balancing tribal interests with a state’s interest in, for instance, ensuring that non-Indians adhere to generally applicable state law). Off-reservation sales by tribes – even to other tribes – however, are fair game for the application of state tobacco tax, licensing, and reporting laws.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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