Confiscating contraband or seizing sovereignty?

CASS LAKE -- When the state of Minnesota confiscated a shipment of tribal tobacco enroute to the Leech Lake Band of Ojibwe reservation it was viewed by the band as an attack on American Indian rights.

Since the seizure of 2,800 packs of Seneca cigarettes in St. Cloud on April 18, Leech Lake Tribal Chairwoman Carri Jones has been awaiting a proposed resolution from the Minnesota Department of Revenue. Jones said she wants to protect the band's tribal sovereignty and be reimbursed for taxes paid to the state. However, Department of Revenue Commissioner Myron Frans said the state wants to regulate cigarette contraband coming into Minnesota.

"We have now received agreements by 10 of 11 tribes who have agreed to sell only cigarettes that have the state stamp on it where the taxes have been paid by the distributor," Frans said. "Leech Lake is the last tribe."

In 2013, the Red Lake and White Earth bands signed an agreement with the state, leaving Leech Lake as the only tribal government that did not come to a resolution to stop selling un-state stamped cigarettes.

"I was actually really surprised that Gov. Dayton did this," Jones said referring to the seizure of the cigarettes. "We have been communicating. We have been tossing around proposals between the band and the state."

Native American brand

Seneca cigarettes, an American Indian brand, have been shipped to the Leech Lake reservation from the Winnebago Tribe of Nebraska since 2009. Winnebago is also referred to as Ho-Chunk similar to Ojibwe bands in the Bemidji area are also being identified as Chippewa or Anishinabe.

Jones explained that when a shipment of tobacco products leaves Ho-Chunk it must be reported under the PACT act. The PACT act is a Bureau of Alcohol, Tobacco, Firearms and Explosives initiative to reduce contraband cigarette trafficking activity. President Barack Obama signed the Prevent All Cigarette Trafficking Act of 2009 (PACT) into law in March 2010. The law went into effect in June 2010 and tribes started selling tribally stamped cigarettes.

"Ultimately, (Leech Lake) just refused to agree to purchase and sell only state stamped cigarettes," Frans said. "Finally, on April 18, we decided they cannot continue this so we seized those cigarettes in transit."

The truck with Leech Lake's most recent shipment was stopped and seized in St. Cloud -- off the reservation. Jones said there is a misconception that the seizure happened on the Leech Lake reservation, where the state does not have jurisdiction.

The cigarettes are being held at the Minnesota Department of Revenue. Frans said the entire truck could have been seized, but only the tobacco was this time.

"When we get our shipment in from Ho-Chunk, we have our own tribal stamp," Jones said. "The state is not recognizing our tribal stamp. Also, they're not recognizing the government-to-government relationship between tribes or our tribal sovereignty."

Jones said the band has its own established tax commission and codes to regulate tribally stamped cigarettes.

"We know what taxes are being collected on the major brands with the state stamp, but we don't know the amount of cigarettes they are selling that are un-stamped," Frans said.

Taxing situation

Reimbursement for taxes collected on cigarettes is central to the inability for the band and state to reach an agreement. If a state stamp is not on the pack of cigarettes, the state excise tax is not collected.

"The distributor pays the tax to the department and based upon usage and population figures, we then turn around and share those taxes with the different tribes based on different agreements we have in place," Frans explained.

Jones said the band sends tax collected on the cigarettes to the state. The state then reimburses the band 50 percent. After the April 18 seizure, the state notified Jones it will be withholding all taxes. Jones said withholding the taxes will negatively impact economic development, jobs and services on the reservation.

"The band has been sending back all our taxes. We have been complying with the agreement," Jones said. "Since 2009, the state has been withholding all of our cigarette taxes."

Beginning in 2005, a health impact fee was collected on cigarettes sold in Minnesota. Jones said tribes confronted the state of Minnesota on the fee, because it is actually a tax. In 2013, the health impact fee was removed and replaced with an increased excise tax. While the health impact fee (HIF) was in place, it was not viewed by the Department of Revenue as a tax, which exempt it from being shared with tribes.

"The state did the tribes wrong with the health impact fee," Jones said. She added that the state recognized the fee as a tax and acknowledged that it owed money to the tribes on the portion of the tax that was collected under the term "fee."

"It was a positive sign that we eliminated this old fee and replaced it with an actual excise tax that everybody agreed should be shared pursuant to these tax agreements," Frans said. "One of the things we've negotiated with all the tribes is we have reimbursed them for their share of the HIF payments that should have been made throughout 2005 going forward to July 1, 2013. That's something we're also offering to Leech Lake."

A compromise?

As of Friday, Frans was still working on a proposed agreement between the state and Leech Lake. Jones said one proposed compromise is to allow only band members to purchase the American Indian stamped cigarettes for $3.50 a pack and tax non-band members at the state tax rate. Currently, any person purchasing Seneca cigarettes pays $3.50. Frans said that arrangement wouldn't work because of the way cigarettes are taxed.

Frans said the Ho-Chunk tribe has been marketing Native American brand cigarettes, such as Senecas and Smokin Joes, to tribes outside Nebraska. One company selling the cigarettes is Ho-Chunk Inc.

"HCI has a distributor arm that sells state stamped cigarettes to other states including Minnesota, that's part of their business," Frans said. "But, another part of their business is selling un-state stamped cigarettes to Leech Lake and some other tribes."

Palace, Northern Lights and White Oak casinos and the Che-We and Northern Lights Express gas stations are the only establishments that sell tribally stamped Seneca cigarettes on the Leech Lake reservation. All other cigarette brands are stamped with a state stamp.

"That's where there was some confusion," Jones said. "That stamp is only on the Senecas."

Seneca cigarettes are popular on the Leech Lake reservation, but the band hadn't advertised the price. Jones said since the state issued a release revealing the price of Seneca's, the brand has gotten more attention.

Frans said a lot of the tribes sell Native American brand cigarettes with a state stamp. He confirmed that any cigarettes without a state stamp are being sold illegally.

Jones said Ho-Chunk was sent a notice of seizure and may claim the cigarettes. Ho-Chunk distributes to Wisconsin, Michigan and Minnesota.

"This is happening to tribes in those three states," Jones said. "It's not just Leech Lake alone, there are other tribes that this is affecting."

Jones said at this point, the band's legal representation, Lenny Fineday, is looking into the situation before future orders for Seneca cigarettes are placed. The band is also communicating with Ho-Chunk on the tribal governments' legal options.

"I'm a non-smoker, I'm not for promoting tobacco," Jones said. "But, one of the things during our public meeting that was brought to light is, the tobacco is actually part of our culture as a spiritual part."

When an Ojibwe person dies, it is customary to have tobacco at wakes and funerals. It is also offered to spiritual leaders, Jones explained.

"There are provisions for personal use of tribes that we recognize," Frans said.

He added that if Leech Lake wants to sell cigarettes at low cost to the public, it is a huge health risk for the state of Minnesota and for the tribe.

"The governor was very clear when he signed this legislation the reason he was doing it was primarily for the health reasons, not for the revenue," Frans said.

Frans said he recognizes the band's concern for sovereignty and noted that 10 other tribes were able to reach an agreement without compromising their sovereignty.

"We respect the fact that there's a dual authority. The tribe has the right to regulate member activity on the reservation without state control, they're a sovereign nation, that's certainly their right," Frans said. "But the state has the right to regulate non-member activity on the reservation."