The Conflicts Between Tribal and State Sovereignty: Will Interference with Tribal Sovereignty be Tolerated?

Alicia Dodge, Senior Editor, Albany Government Law Review Member

I.  Historical Background

The legal doctrine of “tribal sovereignty” is known as “the right of Native American tribal nations to exercise their inherent power to govern their own internal affairs.” [1] Although this doctrine is well recognized by the federal and state governments alike, it has not been interpreted as broadly as the doctrine’s definition would lead one to believe.  Congress is empowered through the Commerce Clause of the United States Constitution to regulate commerce between the states, with foreign nations, and with Indian tribes. [2] Similarly, states also retain the right to regulate the conduct of non-Native Americans on reservations. [3] For example, the United States Supreme Court has held that states may impose sales taxes on goods sold by Native Americans on reservation land to purchasers who are non-Native Americans. [4] In Snyder v. Wetzler, [5] the New York Court of Appeals also determined that New York State has the authority to impose such taxes. [6] Regardless of this authority, currently the more controversial issue is how to properly enforce such collections.

II.  The Implications of New York State Tax Law § 471-e

In 2003, the New York State Legislature “enacted Tax Law § 471-e to require the collection of taxes on cigarettes sold by reservation vendors to non-[Native-Americans].” [7] This law was amended in 2005, and it outlined a tax exemption coupon system. [8] Cigarettes purchased by a tribe member on his or her reservation were to remain tax-free, but any cigarettes purchased by a Native American on another tribe’s reservation or by a non-Native American on a reservation were to be taxed, represented by a tax stamp.[9] The Department of Taxation and Finance (hereinafter “the Department”) was directed to issue coupons to the tribes on a quarterly basis, with the amount determined based upon the “probable demand” of the tribe.[10]

In theory, the cigarette wholesalers were to pay sales taxes on all cigarettes.[11] Then, the tribe could purchase the cigarettes tax-free by providing the tax exemption coupons to the wholesaler, who would, in turn, be refunded by the Department.[12] However, the Department did not meet its March 2006 deadline since it did not issue the tax exemption coupons, resulting in much confusion over the status of Tax Law § 471.[13] In May 2010, the New York Court of Appeals handed down a decision in Cayuga Indian Nation of New York v. Gould, which provided guidance on this issue. [14]

The Cayuga tribe commenced this action on November 26, 2008, the day after law enforcement officials in Cayuga and Seneca Counties obtained warrants and searched two of the tribe’s stores.[15] The law enforcement officials claimed that the tribe violated Tax Law § 471 by selling cigarettes without stamps, while the tribe responded that “regardless of whether Tax Law § 471 ‘impose[d]’ a tax, there [was] currently no mechanism in New York law for determining . . . what process [would] be used for collecting the taxes due from Indian retailers, while simultaneously respecting their federally protected right to make tax-free sales to tribal members.”[16] The New York Court of Appeals determined that the Legislature deemed Tax Law § 471 a general cigarette sales tax statute, and therefore adopted Tax Law § 471-e in 2003 and 2005 to deal specifically with taxing cigarette sales on reservations.[17] The court further held that since no regulatory system was in place to collect the taxes, Tax Law § 471-e was not in effect and could therefore not be enforced.[18]

III.  Subsequent Actions Taken by the Federal Government

Many questions continue to arise regarding tax evasion as the economy falls deeper into debt.  The federal Prevent All Cigarette Trafficking Act (PACT), which was signed into law on March 31, 2010 by President Obama, is part of the effort to reduce tax evasion.[19] The PACT Act renders it illegal for the U.S. Postal Service to deliver cigarettes and smokeless tobacco products purchased over the Internet.[20] According to the New York State Department of Health, state economies continue to suffer as “[i]t is estimated that New York loses at least $419 million annually due to cigarette tax evasion and that eliminating tax evasion that occurs through Internet or phone tobacco sales would generate an additional $106 million to $122 million annually for the State.”[21] Not only does the Department of Health cite raising revenue as a benefit, but it also explains that the protections afforded by this Act may cause a two to three percent reduction of smoking in the State.[22]

IV.  Subsequent Actions Taken by the New York State Government: Where Do We Go From Here?

New York State has taken cues from the federal government, and while facing a $9.2 billion budget deficit in June of 2010, the State’s lawmakers have proposed various options to alleviate the deficit; the means chosen, however, remain highly controversial.[23] As part of the 2010-2011 budget, and effective July 1, 2010, New York became the state with the nation’s highest cigarette taxes, increased from $2.75 per pack to $4.35 per pack.[24] This number is even higher in New York City, estimated at almost $6.00 per pack, because the city “levies its own taxes.”[25]

However, not only did the 2010-2011 budget include the much-debated tax increase, but it also included provisions relating to tax exemption stamps that mandate the Native American tribes to collect sales taxes from non-Native American consumers and require “cigarette wholesalers to prepay the sales taxes before supplying reservation stores.”[26] Wholesalers, in turn, “would pass along the charge to tribal retailers, who . . . . would have to raise their prices and lose their competitive edge over off-reservation convenience stores.”[27] The New York State Department of Taxation and Finance also released a memo in July 2010 detailing the process and amendments to the Tax Law regarding cigarette sales taxes on Native American reservations.[28]

The State planned to commence the collection of the cigarette taxes from Native American tribes on September 1, 2010, and anticipated $200 million in yearly revenue.[29] However, news of this tax caused uproar among the tribes, reigniting images of the chaos that occurred in 1997, the last time the State proposed a similar tax.[30] The Seneca and Cayuga tribes brought a lawsuit in federal court arguing that the state lacks jurisdiction within their territories, and a lawsuit in state court that “opposes the expedited way New York tax officials chose to adopt the regulations to implement the law, not the law itself.”[31] Currently, there are orders in both actions temporarily barring the collections.[32]

Finally, in order for the State to impose sales taxes within a Native American reservation, there are three requirements that the Department must abide by.  These requirements include: (1) “the legal incidence of the tax rests on persons who are not tribal members”; 2) “the balance of Federal, State, and tribal interests favors the State”; and 3) “minimal burdens on collecting the tax are imposed on a tribe or tribal members.”[33] Whether New York’s current attempt to impose sales taxes on cigarettes sold on Native American reservations meets all three requirements remains to be seen.  As a result, it is clear that “tribal sovereignty” is not a term that is easily defined or applied.

[1] N.Y.S. Senate Standing Comm. on Investigations & Gov’t Operations[hereinafter N.Y.S. Senate Standing Comm.], Executive Refusal: Why the State has Failed to Collect Cigarette Taxes on Native American Reservations 4 (2010), available at


[2] U.S. Const. art. I, § 8, cl. 3; N.Y.S. Senate Standing Comm., supra note 1, at 4.

[3] N.Y.S. Senate Standing Comm., supra note 1, at 4.

[4] Dep’t of Taxation & Fin. of N.Y. v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 73–75 (1994); Moe v. The Confederated Salish & Kootenai Tribes of the Flathead Reservation, 425 U.S. 463, 483 (1976); N.Y.S. Senate Standing Comm., supra note 1, at 4.

[5] See generally Snyder v. Wetzler, 84 N.Y.2d 941 (1994).

[6] Id. at 942.

[7] N.Y. Tax Law § 471-e (McKinney 2003) (amended 2005); N.Y.S. Court of Appeals, Background Summaries & Attorney Contacts (March 25, 2010),  available at;  A.A. Hoyt, Smoked Out: State, Federal Legislation Target New York Tobacco Consumers, Gotham Gov’t Rel., Sept. 9, 2010, (last visited Sept. 21, 2010).

[8] N.Y. Tax Law § 471-e (McKinney 2010); N.Y.S. Court of Appeals, supra note 7.

[9] N.Y. Tax Law § 471-e(1)(a) (McKinney 2010).

[10] Id. at § 471-e(2)(b).

[11] Hoyt, supra note 7.

[12] Id.

[13] Id.

[14] Cayuga Indian Nation of N.Y. v. Gould, 14 N.Y.3d 614 (2010).

[15] Id. at 630; N.Y.S. Court of Appeals, supra note 7.

[16] Cayuga Indian Nation of N.Y., 14 N.Y.3d at 647; N.Y.S. Court of Appeals, supra note 7.

[17] Cayuga Indian Nation of N.Y., 14 N.Y.3d at 647, 649.

[18] Id. at 646, 648–49.

[19] Press Release, N.Y.S. Dep’t of Health, New Federal PACT Act Prohibits Trafficking Cigarettes on Internet (July 1, 2010), available at

[20] Id.

[21] Id.

[22] Id.

[23] The Associated Press, N.Y. Cigarette Tax Plans Raise Tensions at Indian Reservation,, Sept. 6, 2010, available at

[24] Tonya Moreno, C.P.A., N.Y. Increases Cigarette Tax-Plans to Collect From Tribes,, July 20, 2010, (last visited Sept. 21, 2010).

[25] Id.

[26] Carolyn Thompson, N.Y. Cigarette Tax Plans Raise Reservation Tensions, Huffington Post, Sept. 6, 2010, (last visited Sept. 21, 2010).

[27] Carolyn Thompson, U.S. Judge Continues to Bar NY Indian Cigarette Tax, Times Union, Sept. 7, 2010, (last visited Sept. 21, 2010).

[28] N.Y.S. Dep’t of Taxation & Fin., Amendments to the Tax Law Related to Sales of Cigarettes on Indian Reservations Beginning Sept. 1, 2010 (July 29, 2010), available at

[29] Moreno, supra note 24; The Associated Press, supra note 23.

[30] The Associated Press, supra note 23.

[31] The Associated Press, N.Y. Appeals Court Halts Indian Cigarette Tax Plan, N.Y. Post, Sept. 1, 2010, available at

[32] Id.

[33] Joint Committee on Taxation, Overview of Federal Tax Provisions Relating to Native American Tribes and Their Members 4–5 (2008), available at

1 thought on “The Conflicts Between Tribal and State Sovereignty: Will Interference with Tribal Sovereignty be Tolerated?”

  1. After I initially commented I clicked the -Notify me when new comments are added- checkbox and now every time a comment is added I get four emails with the same comment. Is there any way you can remove me from that service? Thanks!

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