The decision by the Pataki administration to stop trucks carrying tobacco
and motor fuel products destined for the Indian reservations after April 1
was long predicted and expected in legal circles. What was unusual and
unexpected was the negotiations with several traditional governments which
led to an interim agreement wherein NYS agreed to respect indigenous
governments' rights to jurisdiction within their own territories and to
forego the taxes on tobacco products. The Indian nations agreed to raise
prices to be more competitive with off-territory vendors and to share
information with the State to ensure the agreement was working.
Reaction to what was described as an "embargo" resulted in several
demonstrations during which roads were blocked and Indians confronted NYS
police in face-to-face demonstrations. People were injured on both sides,
tires burned, a number were arrested and face charges, and Indians made
claims about the unfairness of the State's actions which ranged from
accusations of genocide and termination to price fixing. Everyone agrees
on one thing: the Indian nations in New York have built an economy around
sales of tax-free motor fuel products and tobacco to non-Indians and the
blockade of these products was hurting this economy.
Requirement to collect taxes is driven by the courts
The blockade was not unexpected and while the rhetoric was directed at the
governor of New York, the underlying cause of what was indeed a crisis is
found in a string of court decisions culminating in a decision by the U.S.
Supreme Court. The fact pattern around how things came to be the way they
are is centered on court decisions. A faction of Iroquois Indians which
includes elements of the Iroquois Warrior Society and the Iroquois
businessmen adopted a strategy to use direct action against the state,
shutting down highways, to force the governor to cease trying to collect
taxes and thereby to stop seizing trucks bringing these products to the
Indian country. It is extremely unlikely that the State can or will accede
to Indian demands that New York officials simply stop enforcing their tax
laws.
The first in a string U.S. Supreme Court cases, _Moe v. Confederated
Salish and Kootenai Tribes of the Flathead Reservation,_ was decided in
1976. A private "smokeshop" owner and an employee were arrested for
selling to non-Indians without a license and not paying the state tax.
They and the Tribe sued, challenging Montana's right to collect the tax.
They lost. The Supreme Court reasoned that Montana was not taxing Indians
but rather taxing non-Indians making purchases on Indian country and the
tax was permissible.
The second case, _Washington v. Confederated Tribes of the Colville Indian
Reservation,_ was decided in 1980 and was even more definitive. Here the
tribes enacted ordinances approved by the Department of the Interior
authorizing tobacco outlets. These tribes imposed a tribal tax on
cigarettes and in general regulated the Indian trade. The tribes were
heavily dependent on tobacco revenues but the Court, in upholding the
state's right to tax non-Indians in Indian country, went to some length
to hold that the State's tax collection power was not pre-empted by any
federal statute including the Indian Reorganization Act, the Indian
Financing Act, the Indian Self-Determination and Education Act, the
Federal Indian Traders Act, the Washington Enabling Act, or the Indian
Commerce Clause. The decision was explicit:
"What the smokeshops offer these customers, and what is not available
elsewhere, is solely an exemption from state taxation... We do not
believe that principles of federal Indian law, whether stated in terms
of pre-emption, self-government, or otherwise, authorize Indian tribes
thus to market an exemption from state taxation to persons who would
normally do their business elsewhere."
The decision also permitted the State to seize unstamped cigarettes
on-route to Indian smokeshops.
An even heavier burden was placed on the Indian tobacco trade in the 1985
U.S. Supreme Court decision _California State Board of Equalization v.
Chemehuevi Indian Tribe._ The Tribe had imposed a tax equivalent to that
of the State and the argument that the Indian trade existed because of the
tax exempt status was not valid. The Supreme Court did not address this
fact but instead simply upheld the right of the State to require the
Indian tribe to collect the tax for the State because the tax was imposed
on the non-Indian customer. Presumably, that customer was required to pay
both the state and tribal taxes combined.
In 1991, in _Oklahoma Tax Commission v. Citizen Band Potawatomi Indian
Tribe of Oklahoma,_ the U.S. Supreme Court again upheld the State's right
to collect taxes. This time, however, the Court stated that the Indian
tribe's right of immunity from lawsuit did not protect individual members
of the tribe who could be held liable for the taxes. Said the Court: "We
have never held that individual agents or officers of a tribe are not
liable for damages in actions brought by the State.... although the
doctrine of sovereign immunity applies to the Potowatomis, that doctrine
does not excuse a tribe from all obligations to assist in the collection
of validly imposed state sales taxes."
This string of U.S. Supreme Court decisions illustrates that the Court
intends to preserve the rights of states to collect taxes from non-Indians
in transactions on Indian country, even when the owner of the business is
an Indian tribe, and even when the tribe collects taxes equal to those of
the State.
The New York Courts
Indians fared a bit better in New York courts in the early days. Herzog
was a Pennsylvania motor fuels wholesaler doing business with Senecas on
the Allegany and Cattaraugus territories. In 1985 the State amended its
taxation laws to collect taxes on on-reservation sales to non-Indians and
to assess and collect these taxes from non-Indian distributors like
Herzog. Herzog sued and the State's highest Court ruled in _Herzog I_ that
the Federal Indian traders laws preempted the tax. The State appealed to
the U.S. Supreme Court which, in effect, found in favor of State taxation
of sales of motor fuel products to nonIndians on Indian territories. In
_Herzog II,_ the State court did not address the validity of the State's
subsequent regulations to collect such taxes because no sales under the
new regulations had been made, but it was clear the federal courts were in
favor of State powers in such cases.
New York State courts refused to allow the State to collect taxes from
non-Indian vendors on the theory that such taxes were a violation of the
Federal Indian Traders Act. In 1990 in _Milhelm Atea & Brothers Inc. v.
Dept. of Taxation and Finance of the State of New York_ the court at first
(_Atea I_) invoked the Federal Indian Traders Act to deny the State the
power to collect taxes from wholesalers. The State appealed and the
Supreme Court instructed the State court to reconsider in light of the
Potowatomi decision. The State Court then reversed itself in _Atea II,_
holding that the State is permitted to collect such taxes.
The Treaty of 1794
The Canandaigua Treaty of 1794 has almost legendary significance to the
people of the Six Nations. It was negotiated with Timothy Pickering in the
summer and fall while the United States was at war in the Indian country
in what is now Ohio and it is one of the few treaties which actually
recognizes Indian sovereignty and was not negotiated as the result of U.S.
military victory. Moe John of the Allegany Seneca invoked the treaty in
_John V. City of Salamanca_ when he argued the treaty exempted himself and
his building from a municipal building code. The Second Circuit Court,
however, found that since the Senecas had already leased the land to the
city, an ordinance would not violate the treaty's guarantee of "free use
and enjoyment" since they had already voluntarily surrendered some of
their rights by signing a lease. They didn't address the history of the
lease (it was coerced) or the broad intent of the treaty, but rather
confined themselves to a narrow reading of its guarantees. John lost, and
behind the wording of the courts we find little which would protect sales
of gasoline or cigarettes to non-Indians, and nothing which would protect
non-Indian wholesalers from this tax.
The 1842 Treaty
The Treaty of 1842 has been called the Compromise Treaty because it
followed and partly corrected fraud and other abuses suffered by the Six
Nations in the Fraudulent Treaty of 1838. In 1838 a treaty was signed
which ceded four Seneca territories: Tonawanda Creek, Buffalo Creek,
Cattaraugus, and Allegany, and planned a removal of the Seneca people to
Indian territory in what is now Oklahoma and Kansas. The Quakers, among
others, mounted a campaign to reverse this treaty because people were
bribed, some signatures forged, and the treaty legally invalid. The treaty
was so fraudulent that even the U.S. Congress, engaged at that moment in a
murderous land thieving assault against Indian nations from Florida to
Texas, agreed an injustice was being done and sent negotiators to arrange
for a new treaty. Usually when someone swindles someone else and is
caught, they go to jail and the victim gets their property back, unless
they are Indians in the United States in the 1840s. In the end the Seneca
had two of their four territories returned. Congress failed to return the
Tonawanda territory to the Seneca Nation, the Tonawanda Senecas refused to
leave their homes, and the Seneca Nation turned their backs on them,
leaving them to struggle by themselves until they could gain title to
their territory following the Civil War.
During the years between 1838 and 1842, Cattaraugus County moved
aggressively to collect taxes for roads and bridges on properties on the
Allegany reservation. When Indians failed to pay these taxes, the State
initiated forfeiture proceedings, and the Allegany territory was almost
lost. When negotiators convened the discussions around the Compromise
Treaty of 1842, Senecas immediately insisted something be done to deny
the State the power to condemn their lands for non-payment of taxes.
Provisions were included in the treaty:
"The parties to this compact mutually agree to solicit the influence
of the Government of the United States to protect such of the lands of
the Seneca Indians, within the State of New York, as may from time to
time remain in their possession from all taxes, and assessments for
roads, highways, or any other purposes until such lands shall be sold
and conveyed by the said Indians, and their possession thereof shall
have been relinquished by them."
Many Seneca rely on this wording to argue that this is a guarantee against
any form of taxation on Seneca country. The issue is, of course, moot in
light of the strategy of the State. The State is not trying to collect
taxes on Seneca country. It states it is collecting taxes from non-Indian
wholesalers. Were the Seneca Nation to sue the State, the State will
invoke the argument that it has a right to collect taxes on retail
transactions involving motor fuels and tobacco products sold to non-
Indians and, if the history of these court decisions is any guide, the
courts will agree. There are no treaty rights which protect the non-Indian
customer from State taxation, and no viable strategies to invoke such a
right as an Indian right.
The proposed tax agreement
The U.S. Supreme Court left one route open to Indian nations on the issue
of taxation of non-Indian transactions. In the Oklahoma case, the Court
ruled that a state and an Indian nation may enter into an agreement on the
issue of taxes. The other route, presumably, is that a state legislature
might create a statute exempting such transactions within their
jurisdiction, but it is not clear the courts would find this acceptable -
and such a statute would surely be subjected to the equal protection
clause in the U.S. Constitution. In light of the history of the struggles
in the federal courts between states and Indian nations over the issue of
taxation of non-Indians on sales in the Indian country, a tax agreement
appears the only practical way for an Indian nation to avoid collection of
state taxes on sales to non-Indians.
New York State almost negotiated a tax agreement with Indian nations
The proposed tax agreement negotiated between Governor Pataki's
representatives and the traditional governments of the Haudenosaunee, or
Six Nations Iroquois Confederacy, would have been the best deal for Indian
nations thus far negotiated anywhere in the United States. Unlike other
compacts between Indians and states regarding tobacco products sales to
non-Indians, the proposed agreement provided no taxes collected by the
State for such sales.
This agreement would have acknowledged that Indian governments would have
been the primary agents of interest in Indian country. It would have
provided that the state would recognize the Indian nation's power (and
not the State's) to license businesses and people who do business in the
Indian territory, and it acknowledged the sovereign power of the Indian
nations to bear the stamps of those nations. The draft of the agreement
held that all unstamped cigarettes would be considered by both parties to
be contraband and the State clearly intended to seize cigarettes and
gasoline determined to be contraband en route to the Indian territories.
The Haudenosaunee governments, under this agreement, would have been in
charge of the tobacco products and would have been, in effect, the
wholesalers. This means that one of the primary beneficiaries of the
tobacco trade, the non-u Indian wholesaler, would have made no money in
this environment. The other major non-Indians impacted by the agreement
were the cadre of lawyers who have previously collected millions of
dollars constructing a delaying action in a losing cause which produced
nothing for the average Indian. The Haudenosaunee governments would have
reaped significant profits for the benefit of its members. The non-n
Indian wholesalers and lawyers would have lost out.
The Haudenosaunee agreed to share information with the State concerning
the licensing of people in their territories who are in this business.
This provision has been compared to giving the State power to regulate,
but there was no provision here for the State to control licensing or to
enter the territories and enforce regulations. Without the power of
enforcement there was no meaningful State regulation. It was simply an
agreement that the Indian nations will provide information which will be
enable the State to view how the agreement is working. On the issue of
enforcement, this section was silent.
The State would not collect any taxes. The Indian nations agreed they
would not sell motor fuel products, a provision included because the
Haudenosaunee did not seek to sell such products. The Indians agreed they
would not engage in mail-order or other off-territory sales. The
Haudenosaunee would have designed their own stamps. The Haudenosaunee and
the State had agreed that any cigarettes found on the Haudenosaunee
territories which do not have their stamp can be considered by both
parties to be contraband.
Contraband or "bootleg" cigarettes would have been subject to seizure or
forfeiture, but seizure by whom and under what circumstances? The answer
is in the text of the proposed agreement: "The Haudenosaunee shall agree
to make reasonable good faith efforts to ensure the enforcement..." What
goes on within the Indian country is the responsibility of the
Haudenosaunee governments. In Section V-E of the proposed agreement we
find the State was to inform the Haudenosaunee governments of unlicensed
operations they learn about on Indian country and will give this
information to the Haudenosaunee. No armed invasion by State police was
mentioned or contemplated.
The spirit of this agreement by the state to recognize Haudenosaunee
jurisdiction continued in section IV - Compliance Team. The State had
agreed to recognize broad powers of Indian self-determination and to
provide cooperation to keep the Indian tobacco trade alive and under
control of Indian governments. In exchange, the Indian governments had
agreed to raise their prices closer to but not equal to prices charged
by off-territory vendors who do pay State taxes. If someone broke the
agreement and sells cigarettes for less than agreed upon, the Indian
government is informed and it is they who would have taken action. A
possible action is that they might have revoked a license.
The only viable path to avoid taxation on New York Indian country is with
a tax agreement.
Comparing these provisions (and omissions) with Supreme Court decisions,
we can see that the Interim Agreement acknowledged Haudenosaunee
jurisdiction and sovereignty to a degree far greater than that envisioned
by the Supreme Court and much greater than that arrived at by other states
and Indian nations. The history of these court battles, it will be
remembered, is that individual entrepreneurs and non-Indian wholesalers
banded together, hired lawyers, and fought for Indian rights outside the
purvue of the nations. They lost, and they were not parties to the Interim
Agreement, nor are they beneficiaries. Individual Indian entrepreneurs,
under the Agreement, were to be subject to the Indian governments, and
profits from the tobacco trade would have passed through the hands of
these governments. Under the Supreme Court decisions, the Indian
governments would get nothing, the Indian entrepreneurs would get nothing,
the cigarette retailers would pay full state sales taxes, the average
Indian would receive no benefits of any kind from the trade.
The Supreme Court left a single path to avoid taxation of these sales in
the Indian country. The states are allowed to make agreements with the
Indian nations concerning taxes. To date, this has proven the only
practical route to avoid such taxation.
Pataki announces he will not try to collect taxes on Indian country.
Following the April 1 deadline, state police seized fuel trucks destined
for the Indian country and Indians and non-Indian supporters mounted a
series of highly publicized demonstrations which involved blocking major
highways. It was, in the public's eye, a tax war between the Indians and
the Pataki administration. Non-Indians, not informed about how the courts
have limited the options on this issue and not aware of the internal
divisions among the Indians themselves, supported Indian rights against
state taxation.
On May 22, Governor Pataki made a surprise announcement that he would no
longer try to collect these taxes and that he would order the state tax
department to dismantle regulations requiring collection. The headlines in
the Buffalo News -- Indians Win Tax War -- were seriously flawed. Governor
Pataki later stated that even if the courts order him to collect the
taxes, he would refuse. This is not, however, likely. The courts are
poised to order that, in the absence of an agreement, the state must
collect the taxes. If the governor refuses to do so, the courts will issue
orders directing that the taxes be collected. Pataki will, in the end,
obey the courts. The state troopers could be seizing trucks and
demonstrations could be mounted on the reservations in the future.
Under the terms of this now-defunct Agreement, Indian governments would
have enforced their own regulations on their territories. Governor Pataki,
in abandoning the proposed agreement, has sought to turn the problem over
to the N.Y. Legislature, but early reports from members of that body
indicate they are unlikely to pass a bill exempting Indians from paying
these taxes. The courts have been issuing statements which strongly
suggest they would find such a law unconstitutional and would strike it
down. No such law will ever be passed, however, because the Legislature
would first hold hearings.
In 1990 the same Legislature held hearings into the deaths of two Mohawk
men in gunfire which erupted over the issue of individually-owned
commercial gambling casinos there. The testimony taken at that time
uncovered a heavily armed Mohawk Warrior Society which had terrorized the
community. This story is immortalized in Bruce Johannsen's _Life and Death
in Mohawk Country._ The Warrior Society was publicly reviled by a
committee of the state Assembly which heard testimony of dozens of
Akwesasne residents who had been subjected to assaults, attempted murders
and other crimes intended to promote warrior gambling interests. A number
of the people who were associated with the Warrior Society in 1990 were
arrested and have served as spokespersons for the recent Indian tax
protests at Onondaga. In addition, three houses owned by chiefs or their
supporters were burned. Further hearings will uncover a pattern of death
threats and serious coercion directed at the Confederacy chiefs who were
trying to reach a tax agreement to avoid collection of state taxes on
Iroquois country.
There are people in the state Assembly who will remember the Warriors of
1990 and the burned houses of the spring of 1997. They are unlikely to
pass a bill exempting the warriors or their allies from state taxes. This
will mean the courts will decide, and the history of court decisions
strongly suggests that more efforts to collect these taxes on Iroquois
country lie on the horizon. The confrontations with state police and the
blocked highways which were ostensibly designed to protect Indian rights
against state taxation are now responsible for destroying the only viable
route to that end.
John C. Mohawk
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Comments from NativeNet listowner, Gary Trujillo (gst@gnosys.svle.ma.us):
Prof. John Mohawk teaches in the American Studies Department at the State
University of New York (SUNY) at Buffalo. He spoke at the Tribal Lands
conference held at Smith College in Northampton, Massachusetts, which
provided me the inspiration to launch NativeNet. A transcript of his
talk can be found at "http://www.fdl.cc.mn.us/natnet/a2a-mohawk.html"
See "http://www.fdl.cc.mn.us/natnet/mohawk-pubs.html" for a list of his
publications. John Mohawk is also editor in chief of _Daybreak_, which
is published quarterly by American Studies at SUNY/Buffalo ("DAYBREAK
is written by contemporary Indians to reflect tribal values in new ways,
to transfer knowledge to the future generations"). For subscription
information, please write to Daybreak at P.O. Box 315, Williamsville,
NY 14231-0315, or contact John Mohawk (mohawk@buffnet.net).