Tribal Cigarette Brands Take Shelf Space; Avoid State Excise Taxes

AKWESASNE, N.Y. -- Less than two months after New York State lawmakers won a court battle to collect excise tax on cigarettes sold on Indian reservations to non-tribe members, some Native American tribes are taking to manufacturing their own cigarettes to avoid the levy.

In mid-June, the Appellate Division of the State Supreme Court lifted a temporary injunction against the collection of the $4.35-per-pack tax. Immediately following that decision, Robert Odawi Porter, president of the Seneca Nation of Indians, said the tribes would turn to making their own cigarettes, therefore exempting them from the fee.

"While the state may be able to embargo through taxation premium brands from entering our territory, it cannot tax the brands made in our territory or any of the Six Nations," he said, as CSNews Online previously reported.

Now, that declaration is becoming a reality. Justin Tarbell, whose family has been operating convenience stores on the St. Regis Mohawk Reservation in upstate New York, manufactures his own cigarettes and sells them at lower prices than found at c-stores outside the reservation. The prices even come in below those in Florida, Texas and Washington, according to a report in the Wall Street Journal.

"We want to be in control of our destiny," Tarbell told the newspaper.

Tarbell family's company, Tarbell Management Group, has sold mainstream cigarettes at its Bear's Den trading post and other stores for more than 50 years. Five years ago, Justin Tarbell's father, Eli Tarbell, began manufacturing cigarettes for sale only on the reservation. He did this without a federal license, claiming tribal sovereignty. In 2010, the manufacturing operation, called Ohserase Manufacturing LLC, got a permit and paid $1.75 million to settle claims of illegal manufacturing by U.S. regulators, according to the news outlet.

In June, the Tarbell family's convenience stores stopped taking shipments of Marlboro and other major brands as the state began enforcing the tax collection. Now, Native American brands dominate the shelves at the Bear's Den. A carton of Signal sells for $23.50, compared with prices ranging from $50 to $80 for the remaining stock of mainstream brands.

And the Tarbell family is not alone. This summer, tribal retailers have pulled back on the sale of premium, mainstream brands in favor of brands such as Seneca, Buffalo and Signal, which Tarbell manufactures. In response, state officials have yet to indicate if they will try to collect the excise tax on tribal brands and are still reviewing some aspects of the law, according to the report.

New York's dilemma is spreading. For example, Six Nations Manufacturing, based in Irving, N.Y., has expanded the distribution reach of its brands to several other states including California and Texas. In addition, packs of Native American brands such as Seneca and Skydancer sell for about $4 a pack in Texas c-stores, below the $5.50-per-pack cost for Marlboro, according to Phil Metzinger, vice president with Brookshire Brothers Ltd., operator of c-stores, grocery stores and tobacco outlets.

Tobacco companies are fighting back, however. The issue is an important part of negotiations between mainstream cigarette companies, such as The Altria Group Inc.'s Philip Morris USA, and states to settle a $7.1-billion payments dispute under the 1998 Master Settlement Agreement. In that deal, companies agreed to help 46 states recoup the healthcare costs associated with smoking, the newspaper said.

Furthermore, PM USA has been lobbying some states to tighten their rules. "We want the federal and state governments to even-handedly enforce the laws across all cigarette brands," said David Sutton, a spokesman of the Richmond, Va. -based company.