Fight over new fuel tax crackdown
HOGANSBURG, N.Y. - Warning of a "devastating" impact on the reservation
economy and tribal services, the St. Regis Mohawk Tribal Council and Native
businessmen are bracing for a major fight against a new Internal Revenue
Service campaign to collect federal motor fuel excise taxes.
Mohawk businessmen say they are taking on not only the federal taxmen but
also the federal highway lobby and the trade groups for non-Indian
convenience stores and gas stations. Although the new regulations,
announced July 29, are national, they would have potentially their most
severe impact on the St. Regis reservation, also called Akwesasne, which
runs along the Canadian border and imports most of its gasoline from the
Randy Jock, president of the Akwesasne Petroleum Co-op, said the proposed
rules "would have a devastating impact on our economy as we know it." He
said the withering effect on the territory's 18 gas stations could
eliminate up to 300 jobs and deprive the tribal government of $1 million a
year in revenues, now used to support up to 180 different programs.
IRS Commissioner Mark W. Everson presented the regulations as an attempt
fairly to collect taxes on imported fuel.
"When Americans pay their taxes, they need to know their neighbors and
competitors are doing the same," he said in the announcement. The proposed
new rules require fuel importers to sell to registered dealers. If not, the
importers, or "enterers" would share liability for uncollected motor fuel
taxes. The IRS could deduct the bill from the bond importers are required
to post with the U.S. Customs Service.
"We have found that abusive situations exist with regard to fuel imports,"
said Acting Assistant Secretary for Tax Policy Greg Jenner. "Some of the
fuel dealers liable for the tax on imported gasoline, diesel fuel, and
kerosene are not registered as required under IRS regulations and are not
paying the tax on imported fuel. This not only gives noncompliant dealers a
competitive advantage over their compliant competitors, but it also
deprives the United States Treasury of revenue intended for the Highway
The "noncompliant dealers" include many entrepreneurs on Indian
reservations, who habitually resist any form of taxation as an infringement
on tribal sovereignty. According to press reports, the IRS has already
placed tax liens on several of the larger retailers on the St. Regis
Although state attempts to levy motor fuel taxes have been struck down by
federal courts, a federal tax is a different matter. According to U.S.
constitutional law the federal government is the institution empowered to
deal with tribal governments and commerce among the states.
But the St. Regis Mohawks are fighting the rules on several grounds, in
addition to the expected severe impact on a local economy that depends in
large part on lower-priced sales of gasoline and cigarettes. The tribal
council complained that "as a sovereign tribal government [it] was never
consulted to participate in meaningful discussion with the IRS on the
effect of the regulation." One branch of the IRS, the Indian Tribal
Government Office, is in the middle of drafting a "Consultation Policy" for
dealing with sovereign tribes, but it appears to have been completely
Christie Jacobs, director of the IRS Office of Indian Tribal Governments,
said the import regulation had been issued without prior consultation with
tribes because they were "a broad application regulation targeted at a
broad problem." Responding to a previous article on the indiancountry.com
Web site, she said they were not meant to affect tribal governments, but
applied to individuals who might or might not be Native. "If tribes feel
these regs have caused any problem, we'd be happy to sit down with them,"
In the meantime, she said, her office was on the verge of sending out a
draft Consultation Policy to all federally recognized tribes for comment
and revision. She said the IRS hoped to publish the policy early next year.
In addition, tribal members are complaining that the federal motor vehicle
tax goes directly to the Highway Trust Fund, which severely short-changes
reservation road building. According to P.J. Herne, attorney for the
Akwesasne Petroleum Co-op, Indian reservations nationally received only
$260 million from the fund last year, even though they have an $11 billion
backlog of urgent road repair projects.
Herne said that tribal governments in a number of other states had
negotiated federal fuel tax compacts, which gave them a much higher share
of highway funds. But, he said, the lack of consultation over the new
regulations had precluded any chance to work out a deal with the St. Regis
The federal excise tax amounts to 18.4 cents a gallon. In New York state, a
variety of state taxes add another 31.75 cents a gallon, for a total
potential differential of more than half a dollar between the price on the
reservation and at a non-Indian gas station. The price cut is usually less,
however, because of the higher profit margin for tribal entrepreneurs and
tribal taxation. The St. Regis tribal government receives a fee of about
five cents a gallon, which it uses to provide matching funds for federal
One of the functions of the Akwesasne Petroleum Co-op, said Jock, was to
prevent price wars among reservation gas stations. As on the Seneca
territories, but not on many others, the retail businesses at St. Regis are
privately owned. Jock said they import about 12 million gallons a year.
The St. Regis government promised an energetic response to the IRS. "The
Tribal Council is seeking an exemption from the regulation and is
continuing to meet with its Business Task Force and tribal staff to discuss
viable actions that address the IRS regulation," it said in a statement.
"The Tribe's Legal Department is working with Washington attorneys in
studying the IRS action to determine what legal challenges can be made, a
special community meeting will be held on the issue of taxes and Tribal
Council will advocate concerns at the federal level on the devastating
effect it will have on community programs and services."
Tax attorneys with Indian clients see differing prospects for a legal
challenge, however. Unlike state sales taxes, the burden of the federal
excise tax is imposed on the refiner or importer of fuel, not on the
retailer or the customer.
In reality, the federal excise taxes on fuel and cigarettes are not tax
liabilities of the Mohawk businessmen; rather, those tax obligations are
imposed on the manufacturers and importers of those products.
Brad Waterman, a Washington attorney who represented the previous St. Regis
Tribal council, suggested there might be an issue in the way the new tax
burden had been promulgated by an IRS regulation rather than a
congressional statute. Waterman now represents a Mohawk entrepreneur who
has been hit with an IRS tax lien.
Herne said however that the big fight was also with the lobby for
non-Indian convenience stores, who Mohawk businessmen suspect lies behind
their troubles, and with the Highway Trust Fund "pork barrel."
"When you upset their apple cart, you're upsetting a really big apple
cart," he said.