In June, the Bureau of Alcohol, Tobacco and Firearms (ATF) argued in federal court that the federal Prevent All Cigarette Trafficking (PACT) Act requires tribal retailers to obtain state licenses to sell cigarettes on their own reservations. If accepted, ATF’s position would greatly expand the scope of state authority over tribal tobacco sales.
Background of the Case
In 2023, ATF decided to place the Twenty-Nine Palms Band of Mission Indians on the PACT Act noncompliant list. The agency’s decision relied on its finding that Twenty-Nine Palms’ cigarette sales are subject to the PACT Act as “delivery sales” because its customers were “consumers” under the PACT Act. Specifically, the act’s definition of “consumer” includes businesses that are not “lawfully operating,” and ATF asserted that the tribe’s retailer customers were not “lawfully operating” because they lack California cigarette licenses. Twenty-Nine Palms disagreed and sued ATF, asking the court to set aside ATF’s decision to place the tribe on the noncompliant list.
Key Arguments
The tribe argues that ATF’s interpretation of “consumer” under the PACT Act was improper and “would affect a sea change in federal Indian law” by upending decades of Supreme Court jurisprudence. In support, Twenty-Nine Palms relies heavily on the Supreme Court’s longstanding decision in Moe v. Confederated Salish and Kootenai Tribes, 425 U.S. 463 (1976), which held that a state could require a tribe to collect a state tax imposed on non-Indians but rejected the more burdensome requirement that on-reservation retailers obtain a state vendor license absent an express decision from Congress giving states such authority. The Court upheld the tax collection requirement because it was “a minimal burden designed to avoid the likelihood that in its absence non-Indians purchasing from the tribal seller will avoid payment of a concededly lawful tax.” Although the Supreme Court has also upheld a variety of less burdensome tax collection requirements, such as requirements to pre-collect state taxes at the wholesale level, maintain records documenting tax-exempt sales, and complete and maintain tax-exempt certificates, Twenty-Nine Palms argues that the imposition of California’s licensing requirement with all its associated regulatory burdens to its on-reservation tribal retailer customers runs afoul of the Court’s central holding in Moe.
For its part, ATF seeks to expand on subsequent case law recognizing that a state can require federally recognized tribes to collect state excise tax from non-Indian consumers of cigarettes purchased on their reservations, Cal. State Bd. of Equalization v. Chemehuevi, Indiana Tribe, 474 U.S. 9 (1985), and that a state could require tribes to obtain a cigarette license even if they purport to engage in only tax-exempt transactions, Big Sandy Rancheria Enters. v. Bonta, 1 F.4th 710 (9th Cir. 2021). Indeed, it does not appear that ATF has made formal findings that Twenty-Nine Palms’ customers have made sales to nontribal members, but the agency relies on Big Sandy to argue that the state can still require the retailers to obtain a license. Importantly, however, Big Sandy dealt with a wholesaler tribal corporation’s off-reservation sales. It remains to be seen whether California could require tribal retailers making sales solely to tribal members on reservations to obtain licenses and subject themselves to all related regulatory burdens.
Takeaways
This case is important for three main reasons:
First, if ATF prevails, it is possible that states could exercise greater control over tribal tobacco operations even if the tribal retailers sell exclusively to tribal consumers on reservations.
Second, ATF confirmed its position that the term “consumer” under the PACT Act captures businesses that are not “lawfully operating.” This is an important reminder that all tobacco wholesalers should conduct due diligence on their business customers to ensure that they are not unwittingly found in violation of the PACT Act’s requirements for remote sales to “consumers.”
Third, our team has seen an uptick in ATF’s PACT Act enforcement efforts over the past year, and this case underscores that trend. If you are involved in interstate sale and/or shipping of tobacco products, now is the time to ensure your business practices align with the requirements of the PACT Act.
