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Smoke Shop Sales Targeted

Posted on: Friday, 16 December 2005, 12:00 CST

By MARIE PRICE AND MICK HINTON World Capitol Bureau

The governor wants changes in wholesale and tribal smoke shop sales.

OKLAHOMA CITY -- Gov. Brad Henry said Monday he will ask lawmakers to approve several statutory and rule changes aimed at tobacco wholesalers and tribal smoke shops selling cigarettes with lower tax stamps than outlined in state law and tribal compacts.

"One thing we learned in recent months is that our enforcement tools are outdated and insufficient to absolutely regulate today's tobacco industry in Oklahoma," Henry said.

"These changes will help ensure that all wholesalers and retailers are complying with the law, particularly tribal smoke shop operators."

However, tribal leaders said Monday some of the governor's proposals could run counter to Indian sovereignty.

Cherokee Chief Chad Smith said, "It would be better to take this discussion outside of the political arena and restore the focus to what makes the best public policy for all involved."

Most of the changes, which state Treasurer Scott Meacham said move responsibility for payment of taxes from the consumer to the wholesale level, will require legislative action.

Some will require changes in Oklahoma Tax Commission rules.

Key among Henry's recommendations are:

Increasing penalties for violation of state tobacco tax laws from $1,000 to $10,000 for a first offense, and from $5,000 to $25,000 for second and subsequent offenses.

Allowing inspection of tax stamp records by law enforcement, the press and public.

Prohibiting wholesalers from selling tobacco products to tribes or tribal retailers for resale unless the sellers are licensed as wholesalers.

Limiting the number of 6-cent border-rate stamps to prevent sales of lower-taxed cigarettes in nonborder markets.

Banning Internet and mail order tobacco sales.

Meacham said the recommendations were worked out with the Tax Commission.

The treasurer said he does not believe the changes would run afoul of tribal sovereignty or taxpayer privacy concerns.

"You get the tribal information on the wholesale side," he said. "The wholesaler can tell us how much each tribe is buying, of what stamp, and how much each store is buying."

The Tulsa World has conducted three surveys of 21 smoke shops in the Tulsa area and found all of the stores selling cigarettes with a 6-cent stamp, when compacts call for an 86-cent stamp for the Cherokee and Osage nations.

One tribe, the Creeks, has no compact but should be selling cigarettes with a 77-cent stamp, officials said.

Meacham has estimated that the state is losing $2 million a month because the tribes are not selling cigarettes with appropriate stamps.

One wholesaler, Sunflower Supply Co., of Galena, Kan., had its tobacco license temporarily revoked by the Tax Commission in October. The commission alleged that Sunflower was selling cigarettes with the wrong tax stamps to Tulsa-area smoke shops.

Meacham said he thinks a recent U.S. Supreme Court decision would authorize the taxing scheme Henry is proposing.

In that case, the court said imposition of the Kansas fuel tax does not infringe on tribal sovereignty because it falls on nontribal wholesale distributors.

That case involved a fuel facility on reservation land. There are no reservations in Oklahoma.

"It's a valid state tax and there's a valid state purpose in collecting its tax," Meacham said. "So there's really not a tribal sovereignty issue involved when you're looking on the state side of the equation of what's going on."

Meacham said retailers who resell tobacco products are acting as unlicensed wholesalers.

"We can't require a tribal store, obviously, to get a license," he said. "But we can require that any entity that buys from a wholesaler for resale has to have a wholesale license. We can make it a condition for nontribal entities before they can sell to the tribes."

Cherokee Nation spokesman Mike Miller said the stance of his tribe is that it is not illegal for a tribal smoke shop to sell cigarettes to another retailer.

Meacham said limiting the number of border-rate stamps would require the Tax Commission to issue a finite number of these low- rate, 6-cent stamps to wholesalers.

He said requests for stamps above that allotment would require proof that the stamps are actually going where they are supposed to go.

Meacham said another issue is whether Oklahoma could issue one $1.03 tobacco stamp to all retailers, with tribal rebates according to the terms of a particular tribe's compact with the state.

The treasurer also said he sees no problem of harming taxpayer privacy by making stamp records public.

"The Tax Commission is construing the privacy laws to say that stamp-sales records to wholesalers, and what stores they are sending them to, are covered by taxpayer privacy rules," Meacham said.

However, he said other state attorneys disagree.

He said only the limited information of the stamp sales, no other financial information of the wholesaler, would be an open record for enforcement officials.

"I think we're trying to send a message to these tribal retailers that their days of ignoring the requirements of the compacts and state law are numbered," Meacham said.

Marie Price (405) 528-2465

marie.price@tulsaworld.com

Mick Hinton (405) 528-2465

mick.hinton@tulsaworld.com

Source: Tulsa World

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