Oneida Nation of New York, et al. v. Cuomo, et al.

In various actions before US District Courts, the Seneca Nation of Indians and others sued the Governor of New York and others on the basis that amendments to New York's tax law, which were designed to tax on-reservation cigarette sales to nonmember purchasers, are invalid.  Plaintiffs argued that the amended tax law interfered with their tribal sovereignty and failed to ensure their access to tax-free cigarettes for personal use.  Certain District Courts denied plaintiffs’ motions for a preliminary injunction while another Court granted a preliminary injunction motion. 

The Second Circuit ruled that plaintiffs failed to demonstrate a likelihood of success on the merits of their claims noting that (1) the pre-collection scheme impermissibly imposes a direct tax on tribal retailers, or alternatively, imposes an undue and unnecessary economic burden on tribal retailers; and (2) the coupon and prior approval systems interfere with their rights of self-government and rights to purchase cigarettes free from state taxation.  The Court vacated the District Court’s order granting the preliminary injunction and affirmed other Courts’ denial of a preliminary injunction.  The Court remanded all the cases for further proceedings.

Oneida Nation of N.Y. v. Cuomo, 645 F.3d 154 (2d Cir. 2011).

  • United States
  • May 9, 2011
  • U.S. Court of Appeals, Second Circuit
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Parties

Plaintiff

  • Oneida Nation of New York
  • Seneca Nation of Indians
  • St. Regis Mohawk Tribe
  • Unkechauge Indian Nation

Defendant

  • Andrew M. Cuomo
  • Cayuga Indian Nation of New York
  • John Melville
  • Richard Ernst
  • Thomas H. Mattox

Legislation Cited

N.Y. Tax Law § 471

Related Documents

Type of Litigation

Tobacco Control Topics

Substantive Issues

Type of Tobacco Product

None

"First, Plaintiffs' predictions ignore the broader legal framework within which wholesalers and tribal retailers operate. That legal framework discourages wholesalers from abusing the prior approval system. To sell cigarettes to tribes or their retailers, a wholesaler must be a state-licensed distributor, see N.Y. Tax Law § 480, and a federally-licensed Indian Trader, see 25 U.S.C. § 262. Under New York law, the Tax Commissioner may cancel or suspend a wholesaler's state license for, among other things, “commit[ing] fraud or deceit in his ... operations as a wholesale dealer.” N.Y. Tax Law § 480(3)(b)(i); see also N.Y. Comp. Codes R. & Regs. tit. 20, §§ 71.6(b)(2), 72.3(b)(2). Under federal law, the Superintendent of the Bureau of Indian Affairs must “see that the prices charged by licensed [Indian] traders are fair and reasonable.” 25 C.F.R. § 140.22. Wholesalers, like Peter Day, who intend to abuse the prior approval system risk losing their New York and federal licenses. A rational wholesaler must weigh the potential short-term financial benefits of gaming the prior approval system against the potential long-term financial loss caused by the suspension or revocation of necessary licenses. Second, if wholesalers disregard the legal risks of monopolistic behavior, the Department has the flexibility to modify the prior approval system to deter such behavior. The Department enjoys discretion to set and amend the conditions for prior approval. N.Y. Tax Law § 471(5)(b) (“The department shall grant agents and wholesalers prior approval in a manner and form to be determined by the department and as may be prescribed by regulation.”) (emphasis added); N.Y. Comp. Codes R. & Regs. tit. 20, § 74.6(d)(3) (“The manner and form of prior approval will be determined by the department, and may include the use of an interactive Web application.”). Thus, modification of the prior approval system's mechanics does not require amending the statute or promulgating new regulations. Presently, however, the record of the Department's effectiveness in adapting the prior approval system is nonexistent because, as a result of the injunctions or stays that were granted, wholesalers have not been required to use the prior approval system."
"The Seneca Nation, Unkechauge Nation, and Mohawk Tribe, which have regulated, market-based tobacco economies, argue that under the coupon system, tribal governments must distribute a limited number of coupons among their member-owned and -operated reservation retailers. They argue that creation of a tribal allocation system would involve political decisions and require the enactment and enforcement of new tribal regulations. They contend that because the coupon system would require these governmental actions, it interferes with their right of self-rule. Because the coupon system is optional, we disagree. Consistent with the right to “make their own laws and be ruled by them,” Williams, 358 U.S. at 220, 79 S.Ct. 269, the Seneca, Unkechauge, and Mohawk governments are free to decide whether involvement in the allocation of their respective cigarette allotments is in the members' best interests. If a tribal government chooses the coupon system, then it likewise accepts the correlated responsibility to design an effective allocation system, if necessary. New York has not foisted that requirement upon the tribal government."
"Under the amended tax law's precollection scheme, the wholesale price of taxable cigarettes includes the cost of the tax. Tribal retailers, like other New York retailers, pay the tax to wholesalers when purchasing inventory and recoup the tax by adding it to the retail price. The Oneida and Cayuga Nations argue that this prepayment obligation is, in effect, a categorically impermissible direct tax on tribal retailers. We disagree. As we have already explained, it is only the legal burden of a tax—as opposed to its practical economic burden—that a state is categorically barred by federal law from imposing on tribes or tribal members. See Chickasaw Nation, 515 U.S. at 460, 115 S.Ct. 2214 (rejecting “economic reality” as an unworkable measure of the scope of state taxation authority). Focusing on the economic impact of precollection, the Northern District concluded that the amended tax law “in effect [impermissibly] requires the Oneida Nation to pay the tax.” Oneida Nation, 2010 WL 4053080, at *8. This finding is not relevant, however, because the express language of New York's tax law places the legal incidence on the consumer, not the wholesaler or retailer. N.Y. Tax Law § 471(2) (“It is intended that the ultimate incidence of and liability for the tax shall be upon the consumer.”). In fact, the statute contains mandatory “pass-through provisions” that require wholesalers and retailers to pass on the tax to the consumer. Id. (“[A]ny agent or dealer who shall pay the tax to the commissioner shall collect the tax from the purchaser or consumer.”); id. § 471(3) (“The amount of taxes advanced and paid by the agent ... shall be added to and collected as part of the sales price of the cigarettes.”). The Supreme Court has “suggested that such ‘dispositive language’ from the state legislature is determinative of who bears the legal incidence of a state excise tax.” Wagnon, 546 U.S. at 102, 126 S.Ct. 676 (citing Chickasaw Nation, 515 U.S. at 461, 115 S.Ct. 2214).16 The statement of legislative intent and the mandatory pass-through provisions establish that the legal incidence of New York's tax falls on non-Indian consumers. Accordingly, whatever its economic impact, the tax is not categorically barred."