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Tribal Smoke Shop's Sales on Fire

Posted on: Wednesday, 7 December 2005, 12:00 CST

By OMER GILLHAM World Staff Writer

Thanks to store-to-store sales, a Vinita shop has seen business soar.

A smoke shop owner who reports mammoth cigarette sales at a tiny store in Vinita said he is shipping low-tax cigarettes to Tulsa to help fellow smoke shop owners.

Jeremy Hooker, manager of Pipestone Tobacco Smoke Shop, said his store has sold an estimated 1.2 million cartons of cigarettes this year. Located in a portable building in Craig County, the shop sold about 35,000 cartons last year, he said.

That's a 3,300 percent increase in carton sales verified by the Cherokee Nation, said Mike Miller, spokesman for the tribe.

Hooker said he is not reaping huge profits by funnelling low-tax cigarettes into Tulsa, but tribal officials seem to disagree.

"I am not doing this for financial reasons only, but I would not do it for free, either," Hooker said. "I am helping the other smoke shops to help them from getting their doors closed."

Hooker lives in Pryor with Valerie Powell, who is licensed by the Cherokee Nation to operate Pipestone, Miller said.

Hooker said Tulsa-area smoke shops need help to counteract the effects of a new tobacco compact between the tribes and the state of Oklahoma. The compact involves a new cigarette tax aimed at decreasing smoking by Oklahomans while raising funds for health initiatives.

Pipestone's phenomenal sales increase has occurred during the first 11 months of the new tobacco tax, which appears to have had the unintended consequence of shifting the tobacco market toward tribal stores in Tulsa and other areas of the state, according to a Tulsa World investigation.

Since the new tobacco tax took effect in January, tribal smoke shops across the state have recorded an average of 50 percent of all monthly cigarette sales in the state, according to tobacco-stamp data from the Oklahoma Tax Commission. That is a 10 percent increase in most months compared to the previous year.

Pipestone is one of two Cherokee stores feeding cigarettes with 6- cent tax stamps to Tulsa-area smoke shops, which require 86-cent or 77-cent stamps, according to a designation by the Oklahoma Tax Commission. Nontribal stores must sell cigarettes with $1.03 stamps.

The Two Turtles smoke shop in Adair is supplying cigarettes with 6-cent stamps to area Creek Nation stores, according to an investigation by the World.

Two Turtles, owned by Wayne Stull of Sperry, has sold 500,000 cartons of cigarettes so far in 2005, compared to 29,000 cartons last year, Miller said.

Pipestone and Two Turtles are designated as "exception rate" stores. The designation allows the smoke shops to sell cigarettes with 6-cent compact stamps because of their locations near the Oklahoma border or proximity to other tribal stores.

The Oklahoma Tax Commission says it is powerless to stop store- to-store sales on tribal land because of sovereignty issues.

Cherokee Chief Chad Smith said Pipestone and other Cherokee smoke shops are making huge profits from the nation's decision not to enforce a tribal statute that prohibits store-to-store sales.

In a recent meeting with the Cherokee Nation Council's Rules Committee, Smith urged members to consider a measure to capture taxes that are due the Cherokee Nation.

Minutes of the meeting state that Smith told the committee: "We can do nothing and some smoke shops would continue to make phenomenal windfall profits and we will continue to give away millions of dollars in tax revenues that lawfully belong to the Cherokee Nation.

"Then we can suffer the repercussions when the state finally figures out how to enforce their faulty compact. . . . It is not a question of if; it is a question of when," records state Smith said.

Smith declined to be interviewed by the Tulsa World.

In Rules Committee minutes, Smith stated that Pipestone is receiving 50 cents per carton of cigarettes sold to Tulsa-area smoke shops. The possible revenue for Pipestone is $600,000 based on a 50- cent fee on 1.2 million cartons of cigarettes.

"Generally, what we understand happens is that the border smoke shop would collect a fee, perhaps 50 cents, and send (the product) to a smoke shop in Tulsa, who would resale it in competition with a larger retailer such as QuikTrip," Smith told the councilors, explaining how cigarettes are moved from a lower tax zone for resale in a higher tax zone.

Hooker said: "The chief does not know how much the fee is. I submit my records each month to the (Cherokee Nation) Tax Commission. I am only trying to help out the other stores."

Miller said the 50-cent fee cited by Smith is believed to be an industry standard for store-to-store sales.

In committee minutes, Smith is recorded as saying Cherokee Nation law prohibits store-to-store sales of tobacco products.

That means the loophole that smoke shop owners allegedly have found in the new compact -- moving low-tax cigarettes into Tulsa to get around the new tobacco compact with the state -- appears to be prohibited by Cherokee Nation law.

Miller said state officials breached the new compact by decreasing the tribe's historical pricing margin when the new tax was finalized.

"The state lied about not removing the sales tax," Miller said. "That is the root cause for the Cherokee Nation position with the state."

Records provided to the Tulsa World by the Cherokee Nation show that the tribe raised concerns with state officials over removing the sales tax before the new cigarette tax began.

The new law replaced the sales tax with an excise tax, which decreased the margin between smoke shops and nontribal stores in Tulsa and nonborder areas. If the compact were enforced, the tribe's pricing advantage would be about $1.70 a carton, compared to $3.72 before.

Pipestone receives its tobacco products from Sunflower Supply Co. of Galena, Kan., and Campbell Wholesale Co. of Tulsa, Hooker said.

Two Turtles receives tobacco products from Sunflower Supply and Discount Tobacco Warehouse Inc., also of Galena.

Sunflower is battling the state to avoid a long-term revocation of its tobacco license. The state claims that the wholesaler violated Oklahoma's tobacco tax law.

Campbell, which serves 500 retailers in northeast Oklahoma, has been recently audited by the Oklahoma Tax Commission, said owner M.R. Campbell. The Tax Commission found only minor irregularities in the company's records, he said.

Twenty-one smoke shops in the Tulsa area are selling low-tax cigarettes in violation of their compacts or state requirements, according to the Oklahoma Tax Commission. The smoke shops are licensed by Cherokee Nation, the Muscogee (Creek) Nation and the Osage Nation.

Nontribal retailers appear to be losing cigarette business to the smoke shops.

QuikTrip stores report a 23 percent decline in carton sales in Tulsa. Loves Travel Stops report a 40 percent decline in Shawnee and an 80 percent decline in border locations. A LeFlore County retailer has laid off 12 people and reports a 25 percent decline in cigarette sales in southeast Oklahoma.

The three tribes have begun talks with Gov. Brad Henry's office to work out the compact dispute, but little progress appears to have been made.

Smith described the variables that could occur if the Cherokees enter arbitration or are faced with a federal action. He cautioned the Tribal Council about inaction on the tax measure.

"When they come to shut the smoke shops down remember what I said," Smith is quoted in council records as saying. "You took responsibility to do nothing and that industry is gone."

The chief outlined a plan to increase the tribal tax from 50 cents a carton to an additional $1.50 a carton on cigarettes sold between Indian smoke shops. The Cherokee Nation Council tabled the discussion on the proposal last week.

Omer Gillham 581-8301

omer.gillham@tulsaworld.com

Source: Tulsa World

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