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Sales Link Eyed in Tax-Stamp Survey

Posted on: Wednesday, 24 August 2005, 12:00 CDT

Of 89 packs of cigarettes from 21 stores, seven packs had the correct stamp. Fifteen stamps were unreadable.

A Kansas wholesaler is a major supplier of Tulsa-area smoke shops selling cigarettes with improper tax stamps, a practice state officials say is costing millions in lost tax revenues.

The Kansas connection might explain why so many area stores are selling the improperly stamped cigarettes despite claims that smoke shops are getting stock at border stores at a lower tax rate.

Gary L. Hall, owner of Sunflower Supply Co. in Galena, Kan., said his company delivers properly stamped cigarettes to about 20 tribal smoke shops in the Tulsa area.

But an investigation by the Tulsa World found that 21 area smoke shops are selling cigarettes with the wrong tobacco stamps. The stores are buying cigarettes with 6 cent "exception rate" stamps as opposed to a tax of 77 or 85 cents, depending on the tribe.

Since May, the World has conducted three surveys, buying a total of 89 packs of cigarettes from the 21 area stores. Only seven packs of cigarettes had the correct stamp assigned to that store by the Oklahoma Tax Commission. Fifteen stamps were not readable because they were damaged or scratched off.

Hall said his company is responsible for buying the tobacco stamps from the Oklahoma Tax Commission and affixing the proper stamp to cigarettes headed for Tulsa stores. Hall said he could not explain how Tulsa-area smoke shops supplied by his warehouse are selling cheaper cigarettes.

"All I can tell you is that we place the proper stamps on the cigarettes when they leave our warehouse and we are not the source of the cheap stamps," Hall said. "We are not doing anything wrong. We are not breaking any law."

Tribal leaders have maintained that smoke shop owners are driving to tribal stores with cheaper stamps and bringing them back to Tulsa for resale.

An industry source, who asked to remain anonymous, said tobacco wholesalers and tribal retailers are using various methods to get around Oklahoma's new tobacco tax, which took effect Jan. 1.

"I have seen the double invoices they are using to bill a border store but deliver the cigarettes right into Tulsa," the source said.

Last year, voters approved the measure increasing the excise tax on tobacco from 23 cents to $1.03 per pack of cigarettes. The revenue is supposed to fund various health programs, including insurance for some 600,000 Oklahomans, a cancer research center and improvements to the state's trauma care system.

There are now seven types of cigarette tax stamps in Oklahoma, depending on the retailer's location and whether it compacts with the state. Nontribal retailers pay the full $1.03 rate with tribal smokeshops paying between 6 cents and 86 cents per pack.

The yellow exception rate stamp imprinted with "compact" on it is the sought-after stamp.

State officials say expected revenue from the tax has fallen $12.8 million short since January, mainly because of tribal smoke shops in eastern Oklahoma.

Tribal stores in Owasso, Sapulpa, Bixby, Broken Arrow, Sand Springs and Tulsa are obtaining exception rate stamps, which are supposed to be reserved for border stores competing with out-of- state retailers. The tribal stores are paying 6 cents in taxes per pack and drastically undercutting nontribal stores, which must collect $1.03. Consumers are paying 40 cents to 70 cents less per pack at the tribal stores, the World's survey found.

Tobacco wholesalers licensed by Oklahoma are required to report monthly tax data that tracks where tobacco stamps are being sold, said Paula Ross, spokeswoman for the Oklahoma Tax Commission.

"We consider these allegations to be very serious," Ross said. "We must continuously examine any such allegations brought to our attention concerning matters of compliance with the tax laws of this state. We will do everything in our authority to enforce the law."

Sunflower has not been accused of wrongdoing by the Oklahoma Tax Commission.

Hall said he supplies cigarettes to Tulsa-area smoke shops through Rebel Industries, an independent trucking company owned by James Coble of Galena, Kan.

The company lists the same Galena address as Sunflower Supply Co., according to Kansas corporation data. Hall said he knew Coble's mother and allows him to park his trucks at Sunflower.

Records show that Rebel has 10 trucks and hauls tobacco products in Oklahoma, Missouri and Kansas.

Hall offered to show Sunflower company records to the Tulsa World then withdrew the offer when asked for specific records filed with the Oklahoma Tax Commission. He said Oklahoma voters and state officials were "creating a mess" for tobacco wholesalers and retailers.

"You can go after us and try to get us but getting us won't make the problem go away because Oklahoma has the stupidest tax law in the United States," Hall said.

The Tulsa World purchased cigarettes last week at 13 Creek stores, five Cherokee stores and three Osage stores in the area. Tribes that have not signed compacts with the state, such as the Creeks, should be purchasing cigarettes with a 77-cent stamp, according to the Tax Commission. Tribes with compacts, such as the Cherokees, should be purchasing cigarettes with the 86-cent tax stamp.

Tribal smoke shops are licensed and governed by various Indian tribes.

Store owners claim the new agreements do not prohibit store-to- store sales of cigarettes with the lower tax stamps.

Dana Johnson, tax commissioner for the Creek Nation, said Sunflower Supply Co. is the main supplier to Creek smoke shops. She said the stores also have received cigarettes from other wholesalers that include Campbell Wholesale Co. of Tulsa, Standard Tobacco Co. Inc. of Sapulpa and Discount Tobacco of Galena, Kan.

Johnson said wholesalers affix the proper stamp to tobacco products brought to the Creek stores.

"The smoke shops get their cigarettes from a variety of wholesalers but they also watch out for chances to buy cigarettes cheaper and buy them for resale," Johnson said, explaining how a Tulsa-area store would have an exception rate stamp on their product.

Tribal stores licensed by the Cherokee Nation are free to buy and trade cigarettes among various stores but the tribe would not tolerate border stores serving as a cover for Tulsa-area stores, said Cherokee Nation spokesman Mike Miller.

"If a wholesaler is billing a smoke shop in one zone and delivering to another, that is against tribal law and that is not something we endorse," Miller said.

U.S. Rep. John Sullivan, R-Okla., said if the state and tribes cannot work out differences over tobacco taxes, he would favor a federal investigation or audit.

"Because of their sovereign status, it is difficult," he said. "We almost have to take them for their word . . . That's not working."

Sullivan said he has discussed the issue with QuikTrip executives, who are concerned about a drop in cigarette sales.

"We entered into this in good faith and it just seems like that's not being abided by," Sullivan said.

World projects editor Ziva Branstetter and reporters Curtis Killman and Jeff Postelwait contributed to this story.

Omer Gillham 581-8301

omer.gillham@tulsaworld.com

Source: Tulsa World

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