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Second Circuit Rules on the Legal Framework
for Cigarette Sales Between Indian
Reservations
January 21, 2020
A November 8, 2019 federal appellate decision likely will have a significant financial effect on how
Indian tribal cigarette companies sell cigarettes manufactured on their home reservation to retailers on
out-of-state Indian reservations. Prior to this decision, it was unclear if such companies had to comply
with the registration and filing requirements of the Prevent All Cigarette Trafficking Act (PACT Act) or
pay applicable state cigarette taxes for reservation-to-reservation cigarette sales. According to the Lf.S.
Department of Justice, such reservation-to-reservation sales are commonplace,... represent[ing] a
substantial proportion of interstate cigarette sales throughout the United States.
In the case, New York v. Mountain Tobacco Co., the U.S. Court of Appeals for the Second Circuit held that
King Mountain Tobacco Company's (King Mountain) cigarette shipments from the Yakima Reservation
in Washington State to Indian reservations in New York State are interstate commerce and must comply
with the PACT Act's registration and reporting requirements. In addition, the court ruled that King
Mountain must also comply with certain New York laws that, among other things, tax cigarette sales to
persons who were not tribal members.
This Sidebar first outlines two federal laws that combat cigarette smuggling-the PACT Act and the
Contraband Cigarette Trafficking Act (CCTA)-and the New York State cigarette tax regime governing
cigarette sales on Indian reservations at issue in the case. Then, the Sidebar describes King Mountain's
operations, analyzes the issues in the case, and presents some considerations for Congress.
Legal Framework of State Taxing Authority on Cigarettes Sold on Indian
Reservations
Because the federal Constitution gives Congress plenary authority over Indian affairs, states have
limited authority over Indians in Indian country, a term that includes Indian reservations, absent
congressional authorization. Several Supreme Court decisions have interpreted the limits of state taxing
authority over tribal Indians and their activities and property in Indian courity. Although the Supreme
Court has noted that Indian tribes and individuals generally are exempt from state taxation within their
Congressional Research Service
https://crsreports.congress.gov
LSB10395
CRS Lega Sidebar
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