Department of Taxation and Finance of NY v. Milhelm Attea & Bros.
1994 U.S. LEXIS 4447, 512 U.S. 61, 114 S. Ct. 2028 (1994)
Rule of Law:
State regulations imposing reasonable burdens on Indian traders to prevent non-Indians from evading lawful state taxes are not pre-empted by the federal Indian Trader Statutes, provided such regulations are reasonably necessary and do not unduly interfere with federal Indian trade.
Facts:
- New York state imposes a tax of 56 cents per pack on cigarettes, with the ultimate incidence and liability falling upon the consumer.
- Enrolled tribal members who purchase cigarettes on Indian reservations are exempt from this state tax, meaning unstamped cigarettes can be sold to them for their own consumption.
- Non-Indians purchasing cigarettes on reservations are legally required to pay the state cigarette tax.
- New York's Department of Taxation and Finance determined that a large volume of untaxed cigarettes was being purchased by non-Indians from reservation retailers, resulting in substantial lost tax revenues, estimated at over $65 million per year.
- To combat this tax evasion, New York adopted regulations that limit the quantity of untaxed cigarettes wholesalers may sell to tribes and tribal retailers based on the 'probable demand' of tax-exempt Indian consumers.
- The regulations require wholesalers to obtain Department approval for each delivery of untaxed cigarettes to a reservation retailer to ensure compliance with quotas.
- Wholesalers must sell untaxed cigarettes only to buyers holding valid state tax exemption certificates and must maintain detailed records of all tax-exempt transactions.
- Reservation retailers are permitted to sell unstamped cigarettes only to 'qualified Indian consumers' who present individual Indian exemption certificates and provide identity verification.
Procedural Posture:
- Milhelm Attea & Bros., Inc. and other wholesalers, licensed by the Bureau of Indian Affairs (BIA), filed separate lawsuits in the New York Supreme Court, Albany County (trial court), alleging New York's cigarette tax regulations were pre-empted by the federal Indian Trader Statutes.
- The trial court agreed with the wholesalers, finding the regulations pre-empted, and issued an injunction.
- The New York Supreme Court, Appellate Division, affirmed the trial court's decision.
- The New York Court of Appeals denied review.
- The U.S. Supreme Court granted certiorari, vacated the Appellate Division's judgment, and remanded the case for reconsideration in light of Oklahoma Tax Comm’n v. Citizen Band of Potawatomi Tribe of Okla.
- On remand, the Appellate Division upheld the regulations.
- The New York Court of Appeals reversed the Appellate Division, concluding that the Indian Trader Statutes pre-empted New York's regulations because they imposed significant burdens on licensed Indian traders.
- The U.S. Supreme Court granted certiorari.
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Issue:
Does the federal Indian Trader Statutes pre-empt a New York regulatory scheme that imposes record-keeping requirements and quantity limitations on cigarette wholesalers selling untaxed cigarettes to reservation Indians, when the scheme is designed to prevent non-Indians from evading state cigarette taxes?
Opinions:
Majority - Justice Stevens
No, the federal Indian Trader Statutes do not pre-empt New York's regulatory scheme that imposes record-keeping requirements and quantity limitations on cigarette wholesalers selling untaxed cigarettes to reservation Indians, because these regulations are reasonably necessary to prevent non-Indians from evading lawful state cigarette taxes. The Court acknowledged that Warren Trading Post Co. v. Arizona Tax Comm'n contained broad language suggesting state laws imposing additional burdens on Indian traders are pre-empted. However, subsequent decisions like Moe v. Confederated Salish and Kootenai Tribes and Washington v. Confederated Tribes of Colville Reservation have refined this, indicating that states may impose minimal burdens reasonably tailored to collect valid taxes from non-Indians. The Court emphasized that resolving such conflicts requires a "particularized inquiry into the nature of the state, federal, and tribal interests at stake," rather than "rigid rules." New York has a valid interest in ensuring compliance with lawful taxes that might otherwise be easily evaded, and this interest outweighs the tribes' modest interest in offering a tax exemption to non-Indians who would ordinarily shop elsewhere. The Court found it would be anomalous to allow states to impose tax collection and bookkeeping burdens on tribal retailers but not on wholesalers (who are often non-Indian). New York's regulations — including the "probable demand" quotas, pre-approval for deliveries, record-keeping requirements, and pre-collection of taxes on non-exempt sales by wholesalers — are considered "reasonably necessary" methods to prevent tax evasion by non-Indians. These regulations do not dictate the kind or quantity of goods sold to Indians, but rather target the illicit flow of untaxed cigarettes to non-exempt consumers. The Court also held that the burden of demonstrating that such a scheme imposes excessive regulatory burdens rests with the challenger, and here, no such showing was made on the face of the regulations.
Analysis:
This case significantly narrows the broad pre-emption doctrine articulated in Warren Trading Post Co. by clarifying that the Indian Trader Statutes do not grant Indian traders absolute immunity from all state regulation. It reinforces the "particularized inquiry" balancing test from White Mountain Apache Tribe v. Bracker, requiring courts to weigh state, federal, and tribal interests in specific contexts. The decision empowers states to implement reasonable, narrowly tailored measures to enforce lawful taxes on non-Indians, even if those measures impose some administrative burdens on federally licensed Indian traders. This ruling helps states protect their tax revenues from evasion while attempting to navigate the complex landscape of federal Indian law and tribal sovereignty.
