Morgan: The evolution of a fraud By
Lance Morgan
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| The tobacco compacts no longer make economic sense and have instead evolved into a tool for economic exploitation. |
The major tobacco companies were also worried about losing market share, so the MSA required states to make tobacco manufacturers who weren’t part of the MSA pay into an escrow fund, which is now about $5 per carton.
By increasing the wholesale price of tobacco, the MSA in effect acted as a giant, hidden tobacco tax increase for states. Now there are three sources of revenue for states related to tobacco sales: the tobacco tax itself, the MSA payments, and the MSA escrow payments. Unfortunately, the pre-MSA tax compacts only anticipated one form of revenue – the tax. Tribes receive nothing from the highly lucrative MSA payments or escrow funds.
Most tax compacts also require that the tribe put some form of state tax stamp on the cigarette packs sold by the tribe. These state stamps are used to calculate the amount of payments due to the state under the MSA. So the state is using tribal sales to determine the payments due to them from the tobacco companies, but isn’t sharing any of it with the tribes.
A side effect of the dramatic MSA price increase was that the embryonic tribal tobacco manufacturing industry exploded with growth. Tribal tobacco became significantly less expensive and a large number of customers started going to the reservation to buy their Native tobacco.
States have since become dependent upon these MSA and escrow payments. Some states even issued billion dollar-plus bonds based on projected MSA payments and now need to keep the money flowing. The MSA allows the tobacco companies to drop their payments to the state if the tobacco company’s market share drops. So, now the states have direct financial incentives to protect the tobacco company’s market share.
In order to protect the market share, nearly all the states adopted an identical law that requires tobacco companies to be on an “approved list” of manufacturers before that state tax stamp can be placed on the cigarette. Surprise, surprise. In order to be on the list, you had to be a part of the MSA or pay into the escrow fund.
This “approved list law” immediately resulted in most tribal manufactured tobacco becoming illegal in almost every state because tobacco products must have a state stamp. In order to get a state stamp, the product must be on the approved list. To get on the list, the manufacturer has to be a part of the MSA or pay into the escrow fund. Tribal manufacturers rarely participate in this system, so tribal products are now largely confined to just reservations in non-compacted states.
States generally have no power to tell the tribes what they can or cannot sell on the reservation. But the states are now cleverly using the pre-MSA tax compacts as a method of enforcing the MSA by telling the tribes what tobacco products are legal on the reservation. The tax compacts’ stamp requirement was fairly benign when the compacts were entered into, but the “approved list law” has now morphed that stamp requirement into a tool for economic exploitation.
There is no way that tribes would have anticipated the tax compacts and their stamp requirement would be used to limit the tribe in such a way. Now states are in complete control of what can be sold and they are using that power to maximize their revenue and limit the tribes financially. This is the case for more than 50 tribes in Minnesota, Wisconsin, Arizona, North Dakota, Washington, Oregon and Montana.
| In the 1980s and early 1990s tribes all across the country ended long-running disputes by entering into various forms of tax compacts. |
This is not just an old compact problem. There is also a recent push by states to enter into new tobacco tax compacts. Even the notorious state of South Dakota has recently entered into a series of tobacco deals that give a percentage of the tax revenue to the tribes. But South Dakota most likely has ulterior motives. South Dakota issued a bond of $278 million in 2003 and their projected MSA payments have been dropping over the last few years, so they need to protect and promote the MSA tobacco companies.
A few days after a South Dakota tribe signed a recent tax compact, the state showed their hand and demanded that tribal tobacco products be removed from the tribal store because they are now illegal. So in one stroke, South Dakota got its extra MSA payments, made a competitor to its tobacco company “partners” illegal, and reduced the incentive for customers to come to the reservation to buy cigarettes. This tribe recently cancelled the tax agreement.
The tobacco compacts no longer make economic sense and have instead evolved into a tool for economic exploitation. Even worse, they are now used to dictate what a tribe can sell on its own land. I seriously doubt the states will share the MSA payments, especially since they are now so dependent on the money. I believe it is time to wake up to what is happening and to sell our own products under tribal taxes again. To be honest, I can’t believe I ever thought that outsourcing our tax system to the state was a good idea.
Lance Morgan is the CEO of Ho-Chunk, Inc., the development corporation of the Winnebago Tribe of Nebraska, and is a partner in the Indian law firm of Fredericks Peebles & Morgan LLP. Contact him at hochunk@aol.com.
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Astiniki said on Thursday, Mar 18 at 6:59 PM
What a shame the obvious is not pointed out; that both the states and tribes are dependent on the commercial tobacco industry for revenue and assumedly for their community’s well-being! Commercial chemical tobacco products for sale/abuse when used correctly cause nicotine addiction, illness and death in our communities. Self-determination and wise cultural decisions are not best left up to the lawyers or states, and never up to the commercial tobacco industry.
39559959Brainwashed said on Thursday, Apr 2 at 10:05 AM
Thank goodness there is some original thought or shall I say, Tribal thought that will ultimately provide a solution to this form of discrimination and racism.
18983937Little White Sambo said on Monday, Mar 30 at 2:55 PM
Ha, Ha, Ha! We tricked the Indians again in signing away their rights! Suckers! We are here to protect white owned businesses only! Haven't you seen who the government is bailing out these days? It certainly isn't the minority owned companies! Economic racism, what are you talking about? You foolish people!
18777171Wanbli said on Monday, Mar 30 at 11:25 AM
What the IRA should do is support their communities that like to start businesses on the Rez, help them. They should use the fed money to supply buildings and start up monies and resources to help them get started. But, most IRA tribal leadership and family members are the “in group” and are bias, jealous or envious on who is help because of personal or political pettiness. But the IRA are agents, “gatekeepers” of the US Empire to oppress and keep our communities poor and dependent and unfree.
18763952Wanbli said on Friday, Mar 20 at 9:10 AM
Big brother is not your brother and Uncle Sam is not your Uncle, they have made themselves your enemy if you are a Red Nationalist. They are the enemy of all indigenous nations around this planet.
18304362bialover said on Saturday, Mar 14 at 8:49 AM
Tribal Lawyers need to wake up! You are alseep at the wheel.
18025162Heyata said on Friday, Mar 13 at 11:05 PM
Every time a nation does somthing that will help them become self sustaining Big Brother sticks his nose into it and starts this and that. There must come a time when the PEOPLE should be left alone to fulfill their own paths. Our Granfathers,Grandmothers,Fathers,Mothers, Sisters,and Brothers have lived under oppression for generations. We can care for ourselves, North Korea is given more respect than those of us from whom our country was stolen,and our land raped,which continues today.
18018072Tammy Leads Many said on Friday, Mar 13 at 3:37 PM
After reading this article, I would say, the states and their new partners have just been caught holding a "smoking" gun. Pun intended. (;
17999012John Statesman said on Friday, Mar 13 at 3:09 PM
Would this be considered, the states caught in their birthday suits? Oops.
17997137Maria Thunder said on Wednesday, Mar 11 at 12:51 PM
It is sad to think the tobacco companies will withhold payment to the states if the states do not do what is aked of them by the large tobacco companies. I do not think the average citizen understands this is going on. Tribal Attorney's should be extremely careful when advising Tribes on the decision to enter into such agreements.
17852512Poncho Hernandez said on Tuesday, Mar 10 at 11:19 AM
Very intereting. So, let me get this straight. The states sue tobacco and now are protecting their market share because if they don't then tobacco does pay them, is that right? Wow! To boot, they use tribal sales to compute the payment and don't share with the tribes; and go as far as trying to put the tribes out of business! Talking about sleeping with the enemy. How embarassing for state governments?
17783466Thorn, AZ said on Sunday, Mar 8 at 10:51 AM
This just the beginning, an increase in exploitation of Indian business by the States is in effect. In Arizona, we have what we call two-faced legislation, where here to help but it is going to cost you. Arizona is facing a 100 billion short fall this fiscal year and where do you think they plan to extort the revenue? Arizona ranks last in nearly every social category. The mindset of legislators is to hold-on to a way of life. The bottom line for Arizona is to force Tribes into bogus agreements
17695817Wanbli said on Saturday, Mar 7 at 2:19 AM
Whose sins and transgressions and innocent shed indigenous blood is greater on their hands-the U.S. government or those of the BIA and IRA governmental offical that conspired with the U.S. against there people and nationhoods and sold out the future of our Red Nationalist children for a morsel of bread- when they knew it was wrong and they would go to hell? Whose has the greatest of ignorance and sin? Where shall the eagles gather? And what does evil have to do with good and darkness with light?
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