TULSA, Okla. (AP) – The Oklahoma Tax Commission has launched an investigation into whether the Osage Nation is using a loophole in a new tobacco rule to supply low-tax cigarettes to Muscogee (Creek)-affiliated smoke shops, according to a published report.
Low-tax cigarettes are meant to be sold along the Oklahoma border by smoke shops in competition with lower tax rates in adjoining states. The low-tax stamp, a 6-cent stamp, was created about four years ago as part of a new tobacco compact with many Indian tribes in Oklahoma.
The Creek Nation’s compact with the state expired due to a disagreement over the proper rate that should be levied from smoke shop sales.
Meanwhile, as the state attempts to stop the sale of low-tax cigarettes in Tulsa, the state also is facing a problem involving tax-free cigarettes made in Canada being funneled into Oklahoma through New York, according to records filed in Oklahoma County District Court.
On Aug. 6, a lawsuit filed in late May in Oklahoma County District Court by Attorney General Drew Edmondson was moved to federal court.
The lawsuit against Native Wholesale Supply Co. alleges violations of the Oklahoma Tobacco Master Settlement Agreement Complementary Act, which requires that tobacco manufacturers and their brand families be listed on the Directory of Compliant Tobacco Manufacturers maintained by the attorney general’s office.
Because cigarettes not on the list are illegal for non-tribal retailers and compacted tribes to sell, they are by default not taxed by the state. However, many Creek smoke shops are buying and selling cigarettes not on the attorney general’s list, according to an investigation by the Tulsa World.
According to the state’s lawsuit, the Sac and Fox Nation appears to be brokering the sale of “Seneca” brand cigarettes through Native Wholesale Supply, a corporation chartered by the Sac and Fox Nation and located on the Cattaraugus Indian Reservation in New York, records show.
Seneca brand cigarettes are manufactured by Grand River Enterprises Six Nations Ltd., a Canadian limited liability corporation.
According to documents filed by the U.S. government in a North American Free Trade Agreement dispute with Grand River Enterprises, the sole shareholder of Native Wholesale Supply and a second company, Native Tobacco Direct Co., is Arthur Montour Jr.
Both companies are incorporated by the Stroud-based Sac and Fox Nation, which is listed as the company’s owner in the state lawsuit. Montour did not return a phone message from the Tulsa World left with a secretary at Native Wholesale Supply, and Sac and Fox Nation government officials would not comment on the lawsuit.
From February 2007 through May 2008, Native Wholesale Supply sold or imported around 568,560 cartons of Seneca cigarettes to the Creek-affiliated stores in Oklahoma to be sold without an Oklahoma tax stamp, records show.
The lawsuit also says Native Wholesale Supply had gross receipts of more than $5 million for the sale of Seneca cigarettes to Muskogee Creek Nation Wholesale during that period.
“I am very concerned about these cheap cigarettes (Seneca) being sold in Oklahoma,” said State Treasurer Scott Meacham. “Because of the low price, it can increase smoking and have an adverse effect on the public health. They are not only avoiding Oklahoma tax, they are increasing health problems, too.”
The Creek Nation is one of the few tribes in the state that has not signed a tobacco compact with the state. Without the compact, the tribe should be affixing a 77-cent compact stamp on packs of cigarettes.
For years, however, the tribe and its licensed smoke shops have, for the most part, been able to outmaneuver the state, tobacco companies and non-tribal retailers that have tried to shut off the tribe’s flow of low-tax and cheap cigarettes into the Tulsa area.
The Creek-affiliated stores also appear to have thwarted Rule 12, a Tax Commission rule enacted in 2006 to limit the sale of low-tax cigarettes by smoke shop owners. However, the rule does not apply to low-tax stores owned directly by the tribes, the Tax Commission said.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.