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Analysis: GOP comes together on taxation of tribes

WASHINGTON - The national Republican Party may be a house divided when it comes to raising or lowering taxes, but the GOP has generally closed ranks in support of taxing Indians.

That is the message emanating from an emergent statehouse rebellion against the GOP line on taxation, coupled with continuing efforts by party notables to enrich state treasuries by taxing Indian gaming and cigarette sales.

The late-February votes of the Republican-controlled Virginia legislature to raise taxes in defiance of the national GOP's hardline anti-tax dogma exposed a growing rift within the party. Virginia's governor, Mark Warner, demanded the tax hike as the state's bond rating sank in consideration of its deficit. The state's senior Republican senator, John Warner, sided with the Democratic governor in an urgent appeal to the legislature. The legislature complied, though wrangling over the exact size of the tax increase continues.

The Virginia GOP's defiance served to highlight divisions within a national party that has strived mightily to get its local members on-message in a united front again higher taxes. Across the nation, state budget-makers have found themselves up against shortfalls in the treasury. These are due in many cases to fiscal mismanagement during the boom years of the late 1990s, but also for reasons as various as the California energy crisis, the Northwest's slumping high-tech sector and the Southwest drought.

In any case, GOP-controlled state capitals, unable to run deep deficits as the federal treasury does, have begun to oppose the no-more-taxes mantra of the national party.

But in finding new sources of tax revenue, Republicans have shown few such divisions in targeting tribes. GOP governors and state legislatures from New York to California have tried to exact tribute money from casino tribes; and now the GOP-controlled Senate and House of Representatives are forging ahead with bills that would tax Internet-based cigarette sales. Like their gubernatorial counterparts, the bills' sponsors must have support from the other side of the aisle in order to succeed. In the case of Internet cigarette taxation, the sponsors are Republican - Utah's Orrin Hatch in the Senate and Wisconsin's Mark Green in the House. Hatch originated S. 1177, the Prevent All Cigarette Trafficking Act, and Green H.R. 2824, the Internet Tobacco Sales Enforcement Act.

The tax would fall on all remote-from-point-of-sale cigarette vendors, but with such an effect on Indian "smoke shops" that national Native organizations have taken up the cudgels against it. The National Congress of American Indians, the National Indian Gaming Association, and United South and Eastern Tribes have all spoken out against the tax.

In the debates around the bills (both have passed their respective chambers), Native advocates insisted that in foisting a system of authorizing seals and associated levies on Internet tobacco entrepreneur, the law would authorize prior-to-sale state tax collections on reservations. That in turn could confer de facto state jurisdictional power over tribes within tribal territories, an unprecedented usurpation.

Sen. Ben Nighthorse Campbell, R-Colo., chairman of the Senate Committee on Indian Affairs, crafted a series of amendments to the Senate bill that answered some of these concerns. The words "local, or Tribal," "locality, or Tribe," were inserted into references that had been state-only in an earlier version of the bill.

Above all, the amended Section 9 includes a slate of Indian-specific considerations, the chief law enforcement officers of tribes are authorized to bring enforcement actions, tribal sovereign immunity from lawsuits is reiterated, and tribe-state tax compacts are shielded from any unintended effects of the law.

(The amendments to S. 1177, as well as the full text of both bills, can be found on the Internet at http://capwiz.com/c-span/issues/bills/. For the amendment to S. 1177: under the bolded Bill Number subheading, choose S.AMDT from the drop-down menu, then type 2231 into the bill number cell. Activate the Search command and at bottom of the next Web page under About This Legislation, select the word Detailed. Under Summary at bottom of the next Web page, select the words latest amendments. On the next Web page, select the numbers in the sentence TEXT OF AMENDMENT AS SUBMITTED: CR S16147-16150. Reference to tribes can be found throughout Senate amendment 2231, but concentrated mention begins at Page S16147 ff. of the next Web page.)

But despite the amendment, concern remains widespread in Indian country. "Indian country should not tolerate the taxation of cigarettes," said Jackie Johnson, executive director of NCAI, in a speech at the National Congress's Winter Session meetings in Washington at the end of February.

She added that it will be difficult to peel away the bill's packaging as a children's health initiative - the idea here being that higher taxes will force higher pricing, which in turn will discourage underage smoking. Many of the states that have sued tobacco corporations support such thinking, and here too their first concern may be state revenues. In an agreement that grew out of the lawsuits, state revenues are linked to the sales figures of major tobacco companies, which do better as small independent discount cigarette producers do worse.

In addition, merchant groups, traditionally strong in statehouse politics, back both of the bills. The National Association of Convenience Stores has lobbied for them both. Convenience store and gas station owners have long opposed tribal cigarette sales, which go untaxed as a rule because tribal organizations cannot be taxed based on the status of tribes as governments. This gives tribally affiliated and reservation-based cigarette vendors a competitive pricing advantage over other cigarette vendors, whose prices must reflect state excise, sales or use taxes.

This pricing advantage in tax-free cigarettes is doubly significant in that cigarettes are often used as a "teaser" item, one that draws customers who will then spend on other items, such as gasoline and foodstuffs.

In many cases, tribes have used their sovereignty to press the advantage, and individual Indian entrepreneurs have seized some of the opportunities thus presented.

All this is in keeping with standard prescriptions for growing an economy. But so far on S. 1177 and H.R. 2824, the Republican prescription of opportunity through local economic stimulation and growth in a low-tax business environment has gone up in smoke.