New Rule Hits Indian Smoke Shops

By OMER GILLHAM World Staff Writer

A state emergency rule limits the sale of low-tax cigarettes.

The Oklahoma Tax Commission implemented an emergency rule Monday that limits the sale of low-tax cigarettes to Indian smoke shops and received word of a second legal challenge to the rule.

Under the new rule, tobacco wholesalers must get approval from the Tax Commission to sell more than the quota for a given smoke shop.

Wholesalers purchase the tax stamps from the Tax Commission and affix them to packs of cigarettes.

The Tax Commission granted eight out of an estimated 10 requests received Monday from wholesalers seeking permission to sell more cigarettes than allowed by the new rule.

Any wholesaler violating the emergency rule could face a stiff fine or license revocation.

A group of tribal smoke shop owners asked a Mayes County district judge for a temporary restraining order to stop the rules.

Last week, two tobacco wholesalers lost a similar attempt for a restraining order in Tulsa County District Court.

The smoke shop owners’ case is expected to be heard Wednesday, said Lee Levinson, a Tulsa attorney representing the smoke shops.

The smoke shops filing for the restraining order are licensed by the Cherokee Nation.

They include: Pipestone Smoke Shop, Two Turtles Inc., Grand Lake Smoke Shop, Loyal Shawnee Smoke Shop, Tallchief LLC, and A-Wa-Gin Inc. doing business as Little Deer Smoke Shop.

The smoke shops are low-tax stores primarily along the Oklahoma border in competition with low-tax states or other tribal stores.

The Tax Commission’s rule restricts the sale of low-tax cigarettes to tribal stores to 2004 levels plus 10 percent.

Many of the smoke shops are at a standoff with the state over their right to move cigarettes from a low-tax zone along the Oklahoma border to a higher-tax zone in Tulsa and the surrounding area for resale.

Low-tax cigarettes bear a 6-cent tax stamp compared with a $1.03 stamp for nontribal stores.

The tobacco agreement between the Cherokee Nation and the state allows the resale of cigarettes on Indian land, Levinson said.

“The Tax Commission’s rule violates the provisions of a tobacco compact signed between the Cherokee Nation and the state, and it violates due process,” Levinson said. “It has no basis in statutory law.”

The Tax Commission has said the emergency rule will allow the state to collect the proper amount of tax based on tobacco compacts signed between the state and the various tribes.

The state says it is losing about $4 million a month in tax revenues because smoke shops are seizing markets where higher-tax cigarettes should be sold.

Six compact rates range from 6 cents to 86 cents.

In Tulsa, Indian smoke shops are selling cigarettes with a 6- cent compact stamp when the stores should be using an 86-cent or 77- cent stamp.

In his legal brief, Levinson said the emergency rule essentially would kill the livelihood of the smoke shops.

Under the emergency rule, Pipestone Smoke Shop, for example, would see a drastic reduction in the number of low-tax cigarettes the business could sell.

Located in Vinita, Pipestone sold an estimated 1.2 million cartons of cigarettes in 2005 compared with 35,000 cartons in 2004. That’s about 100,000 carton of cigarettes a month in 2005.

The new rule would limit Pipestone to selling about 3,200 cartons of cigarettes a month, Levinson said.

Two Turtles, owned by Wayne Stull of Sperry, sold an estimated 500,000 cartons of cigarettes in 2005, compared with 29,000 cartons the previous year.

Under the new rule, Two Turtles would be limited to 2004 levels plus 10 percent, as well.

In addition to asking the court to stop the rule from going into effect, Levinson said the smoke shops would call the state into arbitration proceedings as outlined by the Cherokee tribal compact.

Tulsa World Capitol Bureau reporter Mick Hinton contributed to this story.

Omer Gillham 581-8301

omer.gillham@tulsaworld.com