Oklahoma pushes to boost taxes on tribal tobacco sales

Oklahoma Gov. Mary Fallin's staff is negotiating with tribes over new tobacco compacts in an effort to make tobacco taxes more consistent in the state.
BY CLIFTON ADCOCK - Oklahoma Watch Published: July 5, 2013

Oklahoma officials are pushing to raise taxes on tribal tobacco sales to a level that would reduce or wipe out the competitive price advantage tribal smoke shops have enjoyed for decades.

The effort, if successful, also could make smoking less attractive for American Indians, who have high rates of smoking and smoking-related illnesses.

Gov. Mary Fallin’s general council, however, said the main goal of negotiations with tribes over new tobacco compacts is not to improve health outcomes, but to make tobacco taxes more consistent in the state.

In recent months, Fallin’s staff has been negotiating the compacts with nearly all of Oklahoma’s federally recognized American Indian tribes. So far, five tribes have agreed to new deals: the Kaw, Cheyenne and Arapaho, Otoe Missouria, Apache and Fort Sill Apache tribes. The Muscogee (Creek) Nation’s compact is not expiring.

Agreements with the other tribes were to expire June 30, but the state has granted a three-month extension to 22 tribes with which it is negotiating, General Counsel Steve Mullins said. A few tribes are not in negotiations.

Because tribes are sovereign entities and cannot be taxed, they remit a payment in lieu of taxes to the state via wholesalers.

There are five different tax rates among tribal retailers. Smoke shops within 20 miles of the border with Kansas or Missouri charge either 6 or 26 cents per pack; those outside the 20 miles charge 43 cents, 51.5 cents or $1.03 per pack. Nontribal retailers charge $1.03 per pack.

The state wants to set all tribal taxes at $1.03. That would mean no retail store in Oklahoma has a tax advantage. In return, the state would rebate to the tribes half of the taxes charged at retail outlets on their lands.

“Basically, at the end of five years, in Oklahoma almost every tribe will be at that rate,” Mullins said. “They will buy a (tobacco) stamp for $1.03, but we will refund one half that amount of money. All cigarettes sold in Oklahoma will be sold at $1.03.”

The Kaw’s compact, for example, phases out its lower “border rates,” of about 26 cents per pack, raising the rate to $1.03. In return, the Kaw tribe will be refunded 51.5 cents per-pack by the state.

A tribe could provide some of that refund to a licensed smoke shop as a subsidy to help the outlet undercut nontribal retail prices, but it’s unclear at this point if tribes are willing to give up some or all of the revenue, Mullins said. Customers could see changes in price in about a month, he said.

Tribal leaders supported extending the compacts rather than renegotiating them, but the Fallin administration pressed for new compacts.

“What the governor said was we’re not going to just rubber-stamp and renew the tobacco compacts up for expiration,” said Alex Weintz, Fallin’s spokesman. “But absolutely we want to sit down with every tribe interested in doing so to negotiate new compacts.”

Mullins said he expected the state to reach an agreement with most of the 22 tribes in negotiations by the end of the three-month extension period.

Tribal officials say they hope to allow smoke shops to keep up with tobacco retailers across the state line.

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