Amicus Curiae Brief — Department of Taxation and Finance of NY v. Milhelm Attea & Bros.

MOTION FILED

OCT —5-1033-—

No. 93-377

IN THE

Supreme Court of the United States

OctToBer TERM, 1993

DEPARTMENT OF TAXATION AND FINANCE OF THE STATE

OF NEW YORK: JAMES W. WETZLER, COMMISSIONER OF

TAXATION AND FINANCE OF THE STATE OF NEW YORK and

TAX APPEALS TRIBUNAL OF THE STATE OF NEW YORK.

Petitioners.

VS.

MILHELM ATTEA & BROS., INC., a/k/a

MILHELM ATTEA & BROTHERS, INC..,

Respondent.

JAMES W. WETZLER, as Commissioner of Taxation and Finance

of the State of New York: THE DEPARTMENT OF TAXATION AND

FINANCE OF THE STATE OF NEW YORK and the TAX APPEALS

TRIBUNAL OF THE STATE OF NEW YORK.

Petitioners,

VS.

ELIAS H. ATTEA, JR..,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

COURT OF APPEALS OF THE STATE OF NEW YORK

MOTION FOR LEAVE TO FILE AND BRIEF AMICUS CURIAE OF NEW

YORK STATE ASSOCIATION OF TOBACCO AND CANDY DISTRIBUTORS,

INC. IN SUPPORT OF PETITION FOR A WRIT OF CERTIORARI

THOMAS G. JACKSON

(Counsel of Record)

Nancy M. Hirscu

Guy E. Owen

Puitups, Nizer, BENJAMIN,

KRIM & BALLON

31 West 52nd Street

New York, New York 10019-6167

(212) 977-9700

Counsel for Amicus Curiae New York State

Association of Tobacco and Candy

Distributors, Inc.

No. 93-377

IN THE

Supreme Court of the United States

Octroser TERM, 1993

DEPARTMENT OF TAXATION AND FINANCE OF THE

STATE OF NEW YORK; JAMES W. WETZLER, COMMIS-

SIONER OF TAXATION AND FINANCE OF THE STATE OF

NEW YORK and TAX APPEALS TRIBUNAL OF THE STATE

OF NEW YORK,

Petitioners,

VS.

MILHELM ATTEA & BROS., INC., a/k/a

MILHELM ATTEA & BROTHERS, INC.,

Respondent.

JAMES W. WETZLER, as Commissioner of Taxation and Fin-

ance of the State of New York; THE DEPARTMENT OF TAXA-

TION AND FINANCE OF THE STATE OF NEW YORK and the

TAX APPEALS TRIBUNAL OF THE STATE OF NEW YORK,

Petitioners,

VS.

ELIAS H. ATTEA, JR.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

COURT OF APPEALS OF THE STATE OF NEW YORK

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE OF

NEW YORK STATE ASSOCIATION OF TOBACCO AND CANDY

DISTRIBUTORS, INC. IN SUPPORT OF PETITION FOR

A WRIT OF CERTIORARI

The New York State Association of Tobacco and Candy

Distributors (“Association” or “Amicus”) hereby respectfully

moves this Court for leave to file a brief amicus curiae in sup-

port of the petition for a writ of certiorari of the Department

of Taxation and Finance of the State of New York and James

W. Wetzler, Commissioner of Taxation and Finance of the State

of New York.

The Petitioners have consented to the filing of a brief amicus

curiae in these cases. Respondents’ counsel have not consented.

The Association is a New York not-for-profit corporation

representing approximately 70 distributors of cigarettes in New

York State. Its members sell to chain stores, other wholesalers,

and retailers, and distribute approximately 80% of all cigarettes

sold in New York State.

The Association has a direct and vital interest in the continued

viability and enforcement of the regulations at issue in these

cases. Many of the Association’s members compete directly with

licensed cigarette agents and other wholesalers that do not col-

lect cigarette taxes on cigarettes sold to retail outlets on Indian

reservations in New York State for resale to non-Indian pur-

chasers. Agents and other wholesalers that do not purchase and

affix the required tax stamps on packages of cigarettes sold for

resale to non-Indians evade the collection of $5.60 in cigarette

taxes on every carton of cigarettes sold to Indian retailers for

resale to non-Indian purchasers in New York State. Those agents

and wholesalers thereby enjoy an unlawful competitive advan-

tage over Association members that pay and collect the required

tax on all of their cigarette sales within the State, resulting in

an annual loss of revenue to Association members and other

legitimate agents from the sale of untaxed cigarettes to non-

Indians by retailers on Indian reservations which the Associa-

tion estimates is well in excess of $205 million.

While Amicus seeks the same result in these cases as do the

Petitioners, it believes that based upon its knowledge of the func-

tioning and economics of the cigarette distribution industry in

New York, arguments presented by Amicus would be of par-

ticular assistance to the Court in facilitating an understanding

of the industry and of the purpose and effect of the regulations

at issue. Amicus therefore believes that its participation would

assist the Court in the disposition of these cases.

If the writ is granted, the Association intends to file a brief

amicus curiae on the merits.

Dated: New York, New York

October 6, 1993

Respectfully submitted,

THomas G. JACKSON

(Counsel of Record)

Nancy M. Hirscu

Guy E. Owen

Puituips, Nizer, BENJAMIN,

KRIM & BALLON

31 West 52nd Street

New York, New York 10019-6167

(212) 977-9700

Counsel for Amicus Curiae

New York State Association of

Tobacco and Candy Distributors, Inc.

2A en 2. ona

ee te ee ee ee a

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES................... iii

INTEREST OF AMICUS CURIAE ............. 2

oc cC eee eueuLe coe vee adhe anKs 6

PE (ie be eee ee Aes bp basnd an senae 6

THE REGULATIONS AT ISSUE AS APPLIED

TO INDIAN TRADERS ARE VALID AND

| |) re a 7

A. Under Federal Law, States May Require

Wholesalers Who Sell to Reservation

Outlets to Comply with State Tax

Regulations Whose Purpose Is to Prevent

the Avoidance of Tax by Non-Indian

Purchasers of Goods.................... 8

B. The Regulations at Issue Providing for the

Collection of Taxes on Sales of Cigarettes

to Non-Indians Impose Minimal Burdens

on Non-Indian Suppliers Permissible Under

Se A Se ap ligase Pie Gey ed oD ome Bier 12

oe eel ee bea dese saab i 16

ee etd Sook Pe ets bead Oe A-l

TABLE OF AUTHORITIES

Cases:

Central Mach. Co. v. Arizona State Tax Comm'n,

ee yg “Bae

Confederated Tribes of Colville v. Washington,

446 F. Supp. 1339 (E.D. Wash. 1978) ........

Herzog Bros. Trucking, Inc. v. State Tax

Comm'n, 69 N.Y.2d 536, 516 N.Y.S.2d 179

(1987), vacated and remanded, 487 U.S. 1112,

aff'd on remand, 72 N.Y.2d 720, 536 N.Y.S.2d

ERE I Heat yah AM SE oi Crane sey Soe

Herzog Bros. Trucking, Inc. v. State Tax

Comm'n, 72 N.Y.2d 720, 536 N.Y.S.2d 416

| ERR PS Ee tls ee aa po oy

Herzog Bros. Trucking, Inc. v. State Tax

Comm'n, 69 N.Y.2d 536, 516 N.Y.S.2d 179

RISER EN PIE Page he ere oe Pen ene

In re Comac Co., 402 F. Supp. 43 (E.D. Mich.

EE Rv ire Femi, Sree oer ae ee Se

RA ner ye 6 rit tre ep eee

Moe v. Confederated Salish & Kootenai Tribes,

425 U.S. 463 (1976) .............ccceeeceees

Oklahoma Tax Comm'n v. Citizen Band

Potawatomi Indian Tribe of Oklahoma, 498

ESTE Et ee

Page

10

14

15

14

iv

Cases:

Town Sound & Custom Tops, Inc. v. Chrysler

Motors Corp., 959 F.2d 468 (3d Cir.), cert.

dented, 113 S$. Ce. 166 (1008)... .............

United States v. Bell, 524 F.2d 202 (2d Cir. 1975)

Washington v. Confederated Tribes of Colville

Reservation, 447 U.S. 134 (1980) .............

White Mountain Apache Tribe v. Bracker, 448

Fe FR AE Pesos ony err

Statutes and Other Authorities:

20 N.Y. Comp. Codes R. & Regs. §§ 336.6 (f)

and (g) and 336.7 (b), (c) and (d) (1992) ..

SiMe FF Ff Beer rere

N.Y. Tax Law § 471(1) (McKinney Supp. 1993),

as amended by 1993 N.Y. Laws ch. 57, § 53

ED on ci doe eN6 054 GONE ECAR K RRR RESO

Native Americans’ State Tax Breaks Provoke

Disputes, Wall St. J., July 20, 1992 ..........

Testimony of Robert W. Reid, Executive

Director, Independent Petroleum Marketers of

New York, at the Joint Legislative Hearing

Before the New York State Senate Standing

Committee on Corporations, Authorities and

Commissions and the New York State Assembly

Subcommittee on Corporate Law (May 27,

Ss das ooh ck ees ekdadechusedeencnscaeas

Page

No. 93-377

IN THE

Supreme Court of the United States

Octroser TerM, 1993

DEPARTMENT OF TAXATION AND FINANCE OF THE

STATE OF NEW YORK; JAMES W. WETZLER, COMMIS-

SIONER OF TAXATION AND FINANCE OF THE STATE OF

NEW YORK and TAX APPEALS TRIBUNAL OF THE STATE

OF NEW YORK,

Petitioners,

VS.

MILHELM ATTEA & BROS., INC., a/k/a

MILHELM ATTEA & BROTHERS, INC.,

Respondent.

JAMES W. WETZLER, as Commissioner of Taxation and Fin-

ance of the State of New York; THE DEPARTMENT OF TAXA-

TION AND FINANCE OF THE STATE OF NEW YORK and the

TAX APPEALS TRIBUNAL OF THE STATE OF NEW YORK,

Petitioners,

VS.

ELIAS H. ATTEA, JR.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

COURT OF APPEALS OF THE STATE OF NEW YORK

BRIEF AMICUS CURIAE OF NEW YORK STATE ASSOCIATION OF

TOBACCO AND CANDY DISTRIBUTORS, INC. IN SUPPORT OF

PETITION FOR A WRIT OF CERTIORARI

The New York State Association of Tobacco and Candy

Distributors, Inc. (“Association” or “Amicus”) submits this brief

as Amicus Curiae in support of the petition for a writ of cer-

tiorari of the Department of Taxation and Finance of the State

of New York and James W. Wetzler, Commissioner of Taxation

and Finance of the State of New York.

INTEREST OF AMICUS CURIAE

Amicus is a New York not-for-profit corporation representing

approximately 70 distributors of cigarettes in New York State.

A list of the Association’s members is set forth in the Appendix

to this brief! Its members sell to chain stores, other wholesalers,

and retailers and distribute approximately 80 % of all cigarettes

sold in New York State.

The members of the Association generally sell only cigarettes,

candy and related products. The Association’s members purchase

cigarettes directly from cigarette manufacturers and affix the

required New York State and City excise tax stamps, purchas-

ing the tax stamps at face value and recovering their cost when

the cigarettes are sold, and are licensed tax agents of the State

and City of New York for the collection of taxes on the sale of

cigarettes within the State.

These cases represent an attempt to enjoin the enforcement

of regulations, adopted by the Commissioner of Taxation and

Finance in August, 1988, that were designed to prevent the sale

of untaxed cigarettes to non-Indians at retail outlets on Indian

reservations in New York State. In essence, the regulations per-

mit retail dealers of cigarettes on qualified Indian reservations

to purchase sufficient quantities of untaxed cigarettes to satisfy

the needs of their Indian customers, while at the same time at-

tempt to ensure that if they wish to make sales of cigarettes to

non-Indians, they have a sufficient supply of taxed and stamped

packages of cigarettes for that purpose. The regulations limit

the sale of unstamped cigarettes to retailers at reservation outlets

that have registered with the Department of Taxation and

Finance. In addition, they limit the quantities of unstamped

cigarettes that a reservation retailer may purchase or sell to an

' Two of the Association's members, Day Wholesale, Inc. and Milhelm Attea

& Bros., Inc., the respondent in one of the cases, do not join in the motion

and brief Amicus Curiae of the Association.

amount which is no greater than the maximum legitimate In-

dian consumption of the reservation on which the retailer is

located. 20 N.Y. Comp. Codes R. & Regs. §§ 336.6 (f) and (g)

and 336.7 (b), (c) and (d) (1992).

The Association has a direct and vital interest in the continued

viability and enforcement of these regulations and, therefore,

in the outcome of these cases. Many of the Association’s members

compete directly with licensed cigarette agents and other

wholesalers that do not collect cigarette taxes on cigarettes sold

to retail outlets on Indian reservations in New York State for

resale to non-Indian purchasers. The tax on cigarettes in New

York State is currently 56 cents on every package of 20 cigarettes

sold. N.Y. Tax Law § 471(1) (McKinney Supp. 1993), as

amended by 1993 N.Y. Laws ch. 57, § 53 (McKinney) (effec-

tive June 1, 1993). Agents and other wholesalers that do not

purchase and affix the required tax stamps on packages of

cigarettes sold to retailers at reservation outlets for resale to non-

Indians evade the collection of $5.60 in cigarette taxes on every

carton of cigarettes sold to Indian retailers for resale to

non-Indian purchasers in New York State and thereby enjoy an

unlawful competitive advantage over competing Association

members and other legitimate agents that pay and collect

the required tax on all of their cigarette sales within the

State.

Indian retailers, in turn, aggressively market their exemp-

tion from State taxation to non-Indians who do not enjoy such

an exemption, thereby achieving an unfair and inequitable price

advantage over non-reservation businesses. As a result of an in-

crease in State taxes on cigarettes of nearly 167% over the past

five years, cigarette taxes have become an increasingly large

percentage of the average wholesale price of a carton of cigaret-

tes sold in New York, resulting in an increasingly unfair com-

petitive burden on legitimate agents and other wholesalers. At

the current average wholesale price of approximately $16.00

a carton, the cigarette tax imposed represents 35 % of the average

wholesale price of cigarettes sold within the State.

At the same time, violations of the State’s regulations with

respect to the possession, transportation and sale of cigarettes

by reservation retailers within the State and by their off-

reservation suppliers, have grown at an ever-increasing rate. Con-

sequently, the State's ability to monitor the movement and

distribution of cigarettes throughout the State has been severe-

ly hampered and the corresponding opportunity for evasion by

reservation retailers and their suppliers of the sales and cigarette

taxes imposed on non-Indian consumers within the State has

become increasingly difficult to detect and prevent. The eva-

sion of State taxes on reservation sales of cigarettes to non-Indian

purchasers upon whom the State has the indisputable right to

impose taxes assumes two distinct forms. The first involves sup-

plying untaxed cigarettes to reservation outlets for direct sale

to purchasers who either consume or resell the product within

the State without paying the applicable taxes. The second en-

tails using locations on Indian reservations as delivery and

storage points for large volumes of untaxed Canadian and

American brands of cigarettes, a portion of which is believed

to be ultimately smuggled back into Canada, with the remain-

ing portion being diverted to distribution and consumption in

New York State.

Based upon a study undertaken in early 1993 by the Office

of Tax Policy and Analysis of the Department of Taxation and

Finance, the State estimates that the sale of unstamped cigarettes

to non-Indians by retailers at reservation outlets has resulted

in the loss to the State of an estimated $50 million in excise tax

on cigarettes and $15 million in sales and use taxes annually.

These figures include only a portion of the losses attributable

to bootlegging and unlawful exports of cigarettes from Canada

through Indian reservations into New York. They also do not

take into account sales by out-of-state suppliers not licensed by

the Department, nor do they reflect the recent increase in the

tax on cigarettes in New York State from $3.90 to $5.60 a car-

ton. The Association believes that the actual loss in taxes an-

nually to the State because of reservation sales of cigarettes to

non-Indians is substantially higher. The industry estimate for

lost State and local taxes on cigarettes sold on Indian

reservations is more than twice this amount. See Testimony of

Robert W. Reid, Executive Director, Independent Petroleum

Marketers of New York, at the Joint Legislative Hearing before

the New York State Senate Standing Committee on Cor-

porations, Authorities and Commissions and the New York State

Assembly Subcommittee on Corporate Law, at 2 (May 27, 1992)

(estimating lost State and local taxes on gasoline, diesel fuel and

cigarettes sold on Indian reservations of in excess of $200

million).

According to the State’s figures for the fiscal year ended March

31, 1993, the State collected approximately $543.9 million in

excise tax on cigarettes alone. Thus, the $50 million in un-

collected cigarette excise tax on the sale of unstamped cigarettes

by reservation retailers represents approximately 8% of the

taxable market.

In calendar year 1991, cigarette tax agents reported 10.6

million cartons of cigarettes sold on Indian reservations. Dur-

ing the fiscal year ended March 31, 1993, the Department of

Taxation and Finance estimates that this figure increased to ap-

proximately 12.8 million cartons of cigarettes sold by licensed

agents and wholesalers on Indian reservations — almost 100

times the amount estimated to have been consumed (on average)

by every enrolled Indian man, woman and child during that

period. If all 12.8 million cartons estimated to have been sold

on reservations during this period were consumed by enrolled

Indians on reservations, every man, woman and child would

have had to have consumed on average 12,800 packs of cigarettes

(approximately 35 packs per day) — as compared to the New

York average of 130 packs of cigarettes a year — an amount

almost 100 times the New York average. These figures represent

estimates of only those cigarettes that licensed agents and

wholesalers sold on Indian reservations over the past year. The

actual amounts of unstamped cigarettes entering Indian reserva-

tions are undoubtedly far greater because unlicensed wholesalers

do not file monthly reports or returns with the Department and

the estimated figures do not fully take into account illegal

bootlegging.

The unfair and inequitable competitive disadvantage to the

Association's members that compete directly with licensed agents

and other wholesalers who do not collect cigarette taxes on

cigarettes sold to retail outlets and Indian reservations for resale

to non-Indian purchasers has forced numerous legitimate agents

and wholesalers to merge with other companies or go out of

business altogether, with a resultin7 loss of business and jobs

throughout large areas of the State. Based upon the State's con-

servative estimate of a $65 million loss to the State in cigarette,

sales and use taxes annually — a loss that the Association believes

to be significantly greater — the annual loss in revenue to

Association members and other legitimate agents from the sale

of untaxed cigarettes to non-Indians by retailers on Indian reser-

vations is in excess of $205 million. Unless these regulations are

upheld and enforced, legitimate wholesalers will continue to

face unfair competition by agents and other wholesalers who

evade their tax obligations.

While Amicus seeks the same result in these cases as does the

State, it believes that its knowledge of the functioning and

economics of the cigarette distribution industry in New York

would be of particular assistance to the Court in facilitating

an understanding of the industry and the purpose and effect

of the regulations at issue.

ARGUMENT

Summary

The petition for a writ of certiorari should be granted because

the decision of the New York Court of Appeals is in direct con-

flict with the decisions of this Court in Moe v. Confederated

Salish & Kootenai Tribes, 425 U.S. 463 (1976), Washington v.

Confederated Tribes of Colville Reservation, 447 U.S. 134 (1980),

and Oklahoma Tax Comm'n v. Citizen Band Potawatomi In-

dian Tribe of Oklahoma, 498 U.S. 505 (1991), and this Court's

order in this case (112 S$. Ct. 926), granting petitioners’ initial

petition for a writ of certiorari, vacating the Appellate Divi-

sion’s prior order and remanding the case to the Appellate

Division for further consideration in light of Potawatomi.

Amicus respectfully submits that, consistent with the prior deci-

sions of this Court, the State of New York, in order to prevent

the avoidance of tax by non-Indian purchasers of cigarettes, may

require tax agents and other wholesalers that sell cigarettes to

retail outlets on Indian reservations to comply with regulations

which limit the quantity of untaxed cigarettes that can be pur-

chased for resale by reservation retailers to an amount no greater

than the maximum legitimate Indian consumption of the

reservation on which the retailer is located and which impose

upon the non-Indian suppliers only minimal burdens relating

to recordkeeping and reporting.

THE REGULATIONS AT ISSUE

AS APPLIED TO INDIAN TRADERS ARE VALID

AND SHOULD BE UPHELD

This Court has been asked to determine whether New York

State may enforce a regulatory scheme designed to aid in the

collection of validly imposed State taxes on the sale of cigarettes

on Indian reservations to non-Indian purchasers. The Court has

made plain in its decisions in Moe, Colville and Potawatomi

that States may impose minimal burdens on Indian trade to pre-

vent the avoidance of tax by non-Indian purchasers of goods

from retail outlets on Indian reservations. However, the court

below decided that the regulations at issue could not be validly

applied to the respondents’ businesses, relying on its own deci-

sion in Herzog Bros. Trucking, Inc. v. State Tax Comm'n, 69

N.Y.2d 536, 516 N.Y.S.2d 179 (1987), vacated and remanded, 487

U.S. 1112, affd o.. remand, 72 N.Y.2d 720, 536 N.Y.S.2d 416

(1988), where the court held that the presumptive effect of the

Indian trader statutes, 25 U.S.C. § 261 et seg. (1988), preclud-

ed the State from imposing any burden on Indian traders,

however minimal.

Amicus believes that these cases were wrongly decided, that

the decision below directly contravenes the prior decisions of

this Court and that the issues presented raise important ques-

tions of federal law to those States in which Indian reservations

are located. The consequence of the decision below will be that

legitimate wholesalers will continue to face unfair competition

by other wholesalers who evade their tax obligation and be sub-

jected to significant losses in revenue from the sale of untaxed

cigarettes to non-Indians on Indian reservations in New York

State.

A. Under Federal Law, States “2y Require Wholesalers

Who Sell to Reservation Ow lets to Comply with

State Tax Regulations Whose Purpose Is to Prevent

the Avoidance of Tax by Non-Indian Purchasers of

Goods

The Court of Appeals held that the regulations at issue were

invalid per se simply because Indian traders were regulated, no

matter how minimal the burden imposed. However, as this Court

plainly decided in Moe, Colville and Potawatomi, States may

enforce regulations aimed at the collection of valid taxes on sales

by Indians on Indian reservations which impose minimal

burdens on Indian businesses, in order to prevent the avoidance

of taxes by non-Indian purchasers of goods. If this holding is

permitted to stand, New York will be left with no effective means

to enforce the collection of its valid taxes on sales to non-Indians

on Indian reservations and legitimate agents and wholesalers

will be unable to compete with other wholesalers who evade

their tax obligations.

In Moe, this Court explicitly ruled that states may regulate

Indian retailers in order to ensure their compliance with valid

state taxes. In that case, the Court found that Montana could

require tribal sellers of cigarettes to collect a valid state sales

tax imposed upon non-Indian purchasers of cigarettes, finding

that a scheme whose purpose was identical to that of New York

— the collection of valid state taxes — imposed a constitutionally

permissible minimal burden on Indian businesses.

State regulations that require Indian retailers and their sup-

pliers to assist in the collection of valid state taxes do not violate

the letter of the Indian trader statutes so long as the regulations

are not unreasonably burdensome, and do not violate the

purpose of those statutes which were enacted to protect Indians

from unfair advantage. See, e.g., Central Mach. Co. v. Arizona

State Tax Comm'n, 448 U.S. 160 (1980).

As this Court found in Moe:

[T]he competitive advantage which the Indian seller

doing business on tribal land enjoys over all other

cigarette retailers, within and without the reservation,

is dependent on the extent to which the non-Indian

purchaser is willing to flout his legal obligation to pay

the tax. Without the simple expedient of having the

retailer collect the sales tax from non-Indian pur-

chasers, it is clear that wholesale violations of the law

by the latter class will go virtually unchecked. (em-

phasis omitted)

425 U.S. at 482. In New York, the loss of tax revenue from sales

to non-Indians on Indian reservations is the “largest single form

of evasion . . . .” Native Americans’ State Tax Breaks Provoke

Disputes, Wall St. J., July 20, 1992, at B2 (quoting Commis-

sioner James W. Wetzler).

In Colville, this Court cited Moe for the principle that “if

a State’s tax is valid, the State may impose at least minimal

burdens on Indian businesses to aid in collecting and enforcing

that tax.” 447 U.S. at 159. Significantly, the Court referred to

Indian “businesses” and did not draw arbitrary distinctions based

upon a business's place in the chain of distribution, as did the

court below.

At issue in Colville was a Washington State tax on the sale

of cigarettes within the State. As with the New York regulations

at issue here, reservation Indians could purchase unstamped

cigarettes sold by tribal members, but non-Indians were required

to pay the tax. The Colville Court reaffirmed Moe in holding

that a state could impose minimal burdens upon tribal smoke

shop operators in order to eliminate the evasion of taxes by non-

Indian cigarette purchasers at those shops, despite the fact that

10

the smoke shop operators were federally licensed Indian traders

who came fully within the scope of the Indian trader laws.’ See

Confederated Tribes of Colville v. Washington, 446 F. Supp.

1339, 1347 (E.D. Wash. 1978).

The decision of the court below directly conflicts with Col-

ville, where this Court extended the holding in Moe by holding

that a state may enforce its regulations by seizing shipments of

unstamped cigarettes sent to the reservation from wholesalers

outside the state even though their sales to the Indian retailers

were exempt from State taxation and no State tax was due while

the cigarettes were in transit. 447 U.S. at 161-62. Although the

goods at issue in Colville were seized from out-of-state

wholesalers off the reservation, the wholesalers clearly were “In-

dian traders” within the Indian trading laws. Unquestionably,

the burden imposed on those wholesalers was no less significant

than that rejected by the New York Court of Appeals in this case.

This Court in Colville unequivocally held that federal Indian

law did not preempt the Washington regulations, stating:

We do not believe that principles of federal Indian

law, whether stated in terms of pre-emption, tribal

self-government, or otherwise, authorize Indian tribes

thus to market an exemption from state taxation to

persons who would normally do their business

elsewhere.

447 U.S. at 155.

In Potawatomi, this Court further solidified the principle that

such regulations are permissible. In that case, the Potawatomi

tribe sued to enjoin an assessment by the Oklahoma Tax Com-

mission seeking back taxes for cigarette sales over a four-year

period at a convenience store owned and operated by the tribe

on land held in trust for it by the Federal Government. While

*? This Court has interpreted the term “Indian trader” to apply to any person

introducing goods or trading on an Indian reservation. Central Machinery,

448 US. at 164-65.

the Court found that the tribe's sovereign immunity prevented

the collection of back taxes from a reservation retailer, as it did

in Moe and Colville, it nonetheless concluded that sovereign im-

munity did not shield the tribe from prospective tax collection

burdens. The Court held: “Although the doctrine of tribal

sovereign immunity applies to the Potawatomis, that doctrine

does not excuse a tribe from all obligations to assist in the col-

lection of validly imposed state sales taxes.” 498 U.S. at 512.

Significantly, this Court explicitly included Indian wholesalers

among those to whom the State could look to collect taxes due:

In view of our conclusion with respect to sovereign

immunity of the Tribe from suit by the State,

Oklahoma complains that, in effect, decisions such

as Moe and Colville give them a right without any

remedy. There is no doubt that sovereign immunity

bars the State from pursuing the most efficient

remedy, but we are not persuaded that it lacks any

adequate alternatives. We have never held that in-

dividual agents or officers of a tribe are not liable for

damages in actions brought by the State. And under

today’s decision, States may of course collect the sales

tax from cigarette wholesalers, either by seizing

unstamped cigarettes off the reservation, or by assess-

ing wholesalers who supplied unstamped cigarettes

to the tribal stores. (emphasis added, citations

omitted)

498 U.S. at 514.

However, in the decision below, the New York Court of Ap-

peals erroneously concluded that this Court's statement in

Potawatomi meant that the “remedies” referred to may be

employed only retroactively to collect unpaid taxes on past sales,

and that the State could not require Indian traders to assist in

tax collection prospectively. 81 N.Y.2d at 426; 599 N.Y.S.2d at

514. In light of the principal holding of the Court of Appeals,

there is no meaningful basis for the distinction made in the deci-

sion below. If, as the Court of Appeals concluded, the Indian

12

trader laws preclude the states from any regulation of trade with

indian traders whatsoever, any form of regulation would be pro-

hibited, regardless of its retroactive or prospective nature.

Thus, it is clear that the holding of the court below in these

cases that the Indian trader laws, by their very existence, place

every transaction between an Indian retailer and its supplier

beyond the regulatory authority of the states, is in direct con-

flict with federal law as interpreted by this Court. The conse-

quence of the holding is that the State cannot effectively col-

lect its valid taxes, and competitors of reservation suppliers are

left with no remedy for the loss of business due to the unlawful

sale of untaxed cigarettes to reservation outlets for resale to non-

Indian consumers.

B. The Regulations at Issue Providing for the Collec-

tion of Taxes on Sales of Cigarettes to Non-Indians

Impose Minimal Burdens on Non-Indian Suppliers

Permissible Under Federal Law

The principal holding in the court below that, to the extent

that this Court's decisions in Moe, Colville and Potawatomi “may

be read as validating the imposition of minimal burdens on In-

dian retailers and traders,” the regulations at issue are barred

by federal preemption because, in the court’s view, they impose

“significant” burdens on wholesalers (81 N.Y.2d 417, 427, 599

N.Y.S.2d 510, 514), is also plainly erroneous. This Court has never

held that state laws which merely impose recordkeeping and

reporting requirements on wholesalers selling goods to retail

outlets on Indian reservations in order to assist a state in collect-

ing valid taxes place an unacceptable burden on Indian com-

merce. To the contrary, in Moe, Colville and Potawatomi, this

Court upheld the principle that regulations no less “burdensome”

than the regulations at issue here may be enforced to assist in

the collection of validly imposed taxes.

In its decision below, the New York Court of Appeals relied

on its prior ruling in Herzog Bros. Trucking, Inc. v. State Tax

Comm'n, 69 N.Y.2d 536, 544, 516 N.Y.S.2d 179, 184 (1987), (Her-

zog 1), where the court correctly expressed the standard to be

applied in evaluating such state regulations:

13

[WJhen a State tax is imposed upon, or otherwise

burdens, a transaction between a non-Indian customer

and an Indian individual or tribe, and the legal in-

cidence of the tax is determined to properly fall on

the non-Indian party, the Supreme Court has

nonetheless “examined the language of the relevant

federal treaties and statutes in terms of both the broad

policies that underlie them and the notions of

sovereignty that have developed from historical tradi-

tions of tribal independence” to determine whether

the method of collecting the State tax is constitutional

(Cohen, Federal Indian Law, at 413, quoting White

Mountain Apache Tribe v. Bracker, 448 U.S. 136,

144-45).

This Court in White Mountain, however, went on to state that

the “inquiry is not dependent on mechanical or absolute con-

ceptions of state or tribal sovereignty, but [calls] for a par-

ticularized inquiry into the nature of the state, federal, and tribal

interests at stake... .” 448 U.S. at 145. The New York Court

of Appeals has erroneously applied a rigidly mechanical ap-

proach to the concept of tribal sovereignty in holding, without

significant discussion, that the burden placed upon the

wholesaler under the regulations at issue is excessive.

In the cases cited by the Court of Appeals where courts have

struck down impermissible burdens on Indian trade, there has

always been a direct state imposition on Indian commerce in

the form of taxes, licenses, or other similar requirements aimed

at or directly affecting Indians themselves. For example, in White

Mountain, Arizona sought to enforce its motor carrier license

tax and use fuel tax on a logging company that operated solely

on an Indian reservation. The Supreme Court held that the taxes

could not be enforced on “operations that are conducted solely

on Bureau [of Indian Affairs] and tribal roads within the reser-

vation.” 448 U.S. at 148. The taxes would have taken value away

from the reservation since the costs would be passed on to the

Indian tribe, which was the beneficiary of the logging contracts.

This Court found that the taxes would frustrate the general

14

federal policy of encouraging tribes ‘to revitalize their self-

government’ and to assume control over their ‘business and

economic affairs. Id. at 149 (quoting Mescalero Apache Tribe

v. Jones, 411 U.S. 145, 151 (1973)).

In the cases primarily relied upon in the decision below, Her-

zog I and Herzog Bros. Trucking, Inc. v. State Tax Comm'n,

72 N.Y.2d 720, 536 N.Y.S.2d 416 (1988) (Herzog II), the Court

of Appeals struck down New York regulations aimed at the col-

lection of valid state taxes on motor fuel. In those cases, however,

Indians actually paid taxes and were required to assume the

burden of applying for refunds or credits. Thus, the regulatory

scheme at issue in the Herzog cases arguably violated federal

policy by taking value from Indians either for the short term,

until the tax was credited, or permanently from those Indians

who were unwilling or unable to apply for refunds or credits.

In contrast, however, the plan at issue here never imposes a tax

upon Indian sales to Indian purchasers. For the Court of Ap-

peals to apply the same mechanical approach in rejecting both

a plan that taxes sales to Indian consumers and a plan that does

not, simply because both plans, to whatever degree, affect In-

dians, plainly goes against the intent of the prior decisions of

this Court, impairs the State’s ability to collect legitimate taxes,

and deprives members of the Association of substantial revenues

in the face of unlawful competition.

Finally, this Court should grant the petition for certiorari for

two further reasons. First, in the decision below, the Court of

Appeals rnisinterpreted the clear intent of this Court in remand-

ing this case. Twice now, in the instant case and in Herzog I,

this Court has vacated judgments and remanded decisions for

reconsideration in light of regulations that allow the State to

collect its valid taxes while not taxing sales by Indians to In-

dian purchasers. Despite these remands, the Court of Appeals

has not altered its view that any burden, however minimal and

for whatever valid purpose, is improper. The Court of Appeals

clearly has misread the intent of this Court in remanding these

cases, and the petition for a writ of certiorari should be granted

in order to rectify the error.

15

Second, the petition should be granted in order to establish

the Court’s position on this important issue beyond possible

dispute. Respondents urged in the court below that this Court's

observations in Potawatomi that states could ensure the collec-

tion of cigarette taxes “by assessing wholesalers who supplied

unstamped cigarettes to the tribal stores,” 498 U.S. at 514, is mere

obiter dictum and therefore has no precedential value. Even if

this Court’s observation in Potawatomi is dictum, it is well-

settled that dicta of this Court must be accorded significant

weight by lower courts. Town Sound & Custom Tops, Inc. v.

Chrysler Motors Corp., 959 F.2d 468, 496 (3d Cir.), cert. denied,

113 S. Ct. 196 (1992); United States v. Bell, 524 F.2d 202, 206

(2d Cir. 1975); In re Comac Co., 402 F. Supp. 43, 45 (E.D. Mich.

1975). However, it is imperative that this vital issue be resolved

in an unambiguous holding, in order to enable states to stem

the increasing loss of revenues through misinterpretation of

federal law, and to enable legitimate suppliers of reservation

retailers to compete on a lawful and equal basis.

Congress never intended for Indians or their off-reservation

suppliers to benefit from the windfalls that arise from the pro-

tections afforded by the Indian Trader laws. If those statutes

are construed to confer inequitable competitive advantages upon

the Indian traders to the detriment of competing distributors,

including members of the Association, and to facilitate the

avoidance of legitimately imposed tax obligations, member

distributors located in close proximity to reservations will con-

tinue to suffer substantial economic losses and the State will con-

tinue to be deprived of much-needed tax revenues.

16

CONCLUSION

The petition for a writ of certiorari should be granted and

the decision below reversed.

Dated: New York, New York

October 6, 1993

Respectfully submitted,

THomas G. JACKSON

(Counsel of Record)

Nancy M. Hirscu

Guy E. Owen

Puiurps, NizER, BENJAMIN, APPENDIX

KRIM & BALLON

31 West 52nd Street

New York, New York 10019-6167

(212) 977-9700

Counsel for Amicus Curiae

New York State Association of

Tobacco and Candy

Distributors, Inc.

A-l

APPENDIX

MEMBER LIST

NEW YORK STATE ASSOCIATION OF

TOBACCO AND CANDY DISTRIBUTORS, INC.

Amsterdam Tobacco Co.

Amy-Lynne Corp. d/b/a Bellerose Tobacco

Andy’s Tobacco & Candy Wholesale

Auer & Co., Inc.

Bonanza Trading Associates

Boro Park Tobacco Company

Borough Hall-Oxford Tobacco Corp.

Brighton Tobacco & Candy Co.

Bronx Beer

Buffalo Tobacco Products

C.G. Marousis Company, Inc.

Center Candy Corp.

City Line Candy

Day Wholesale, Inc.

Derigo Sales, Inc.

Donohue and Higgins Candy & Tobacco Company

Duane Reade Corp.

E.P. Kirst & Sons, Inc.

Elmira Tobacco Company, Inc.

Empire Candy & Tobacco Co.

F & T Distributing Co, Inc.

Finkle Distributors, Inc.

Frank Colucci Inc.

Globe Wholesale Co.

Gray’s Wholesale, Inc.

Gutlove and Shirvint, Inc.

A-2

H.P. Brewster Company d/b/a Button Bros., Inc.

Harold Levinson Associates

Harry J. Fourtunis, Inc.

Herkimer Wholesale Co., Inc.

I. Rothschild, Inc.

Irving Ness Co.

J.A. Calderon & Company, Inc.

J.J. Maloney Company, Inc.

Jack Gordon Tobacco Co., Inc.

Jacob Kern & Sons, Inc.

Jones-McIntosh Tobacco Co.

Joslen Wholesale Co., Inc.

Keystone Candy & Tobacco Co.

Kingston Candy & Tobacco Co.

The Kroger Company, Inc.

Lavin Candy Co., Inc.

Mandel Tobacco Company, Inc.

Mauro Pennisi Inc.

Milhelm Attea & Bros., Inc.

Miller Automatic, Inc.

Morris Brown, Inc.

Mountain Candy & Cigar Co., Inc.

d/b/a Mountain/Service Distributors

Mutual Candy Company

Mutual Wholesale Services Inc.

NCC

Newcastle Tobacco & Candy, Inc.

North Country Candy and Tobacco Inc.

Queens Tobacco and Candy Company, Inc.

Richmond Wholesale Co., Inc.

The Rowe Corporation

A-3

S & L East

Sanders Langsam Tobacco Co., Inc.

Scheidelman, Inc.

Sheal Inc.

Sho-Sho Bros., Inc.

South Beach Novelties & Confectionery Co., Inc.

Stan-Lou Tobacco Inc.

Standard-Rosenbaum, Inc.

Sunrise Candy & Tobacco Co.

T & R Tobacco Sales Company

Tzetzo Bros., Inc.

United Candy & Tobacco Co., Inc.

W.E. Brown & Company, Inc.

Westchester Candy Supply