Native tribes, states at odds over sales tax

CHARLESTOWN, R.I. — CHARLESTOWN, R.I. - The sign on the tan box of a building on the Indian reservation here still says Narragansett Smoke Shop, and lashed to a tree out front is a sales pitch for Salem cigarettes at $31.99 a carton.

But inside, the place has been transformed into the Narragansett Sovereignty Protection Headquarters. The only items for sale are two kinds of T-shirts: one proclaiming "Sovereignty" and the other with the slogan "Homeland Security. Fighting terrorism since 1492. In support of the Narragansett Tribe, July 14, 2003."


That was the date the Rhode Island State Police raided the smoke shop in a dispute over the Indians' insistence on selling tax-free cigarettes. The raid erupted into a scuffle between state troopers and tribal members, leaving eight people with minor injuries. Eight Indians were arrested, including the tribe's leader.

The raid was an unusually pointed way to handle an issue that many states are facing: the refusal by Indian tribes to collect sales taxes on cigarettes and gasoline. Now Rhode Island and the Narragansetts are battling in court over whether the state has the right to collect those taxes or to send in police officers to enforce state law on Indian land.


State governments say tribal tax-free sales, in stores and on the Internet, deprive them of millions of dollars. State legislators and governors are increasingly trying to collect taxes from Indian businesses.

New York state won a victory in 1994 when the Supreme Court backed its right to collect taxes on sales to non-Indian consumers. But New York has never collected the taxes, and in 1997, the state stopped trying after several tribes protested vehemently and blocked the New York State Thruway.

Now New York is poised to try to collect the tax, which officials say would bring in at least $64 million a year. Indians say they will resist and have threatened to sue.

In Maine, Gov. John Baldacci wants to prevent the Aroostook Band of Micmacs from opening tax-free tobacco shops. The Idaho legislature has been trying since January to collect tribal cigarette taxes.

The Supreme Court has ruled that states can collect taxes on tribal cigarette sales to non-Indians and to members of other tribes, said Robert N. Clinton, a law professor at Arizona State University. But because tribes are also sovereign entities, states cannot sue them if they fail to pay taxes, effectively neutering states' ability to enforce the tax law.

"The tax in the abstract may be lawful, but all the accouterments, including the ability to sue the taxpayer, are not in place," Clinton said. "The tribes are immune from state enforcement."