Cigarette wars

Northwest Indians want no taxation in their sovereign nations

News - From the August 17, 2009 issue of High Country News by Krista Kapralos

Alison Gottfriedson was no stranger to breaking state and federal laws. She was arrested repeatedly as a teenager in the 1960s and '70s for fishing in areas that were off-limits to Indians. She and her family ultimately won a victory for Indians throughout the Northwest — the right to half of the fish harvest in their traditional fishing areas.

When Gottfriedson died last month at age 57, she was embroiled in yet another battle for Native sovereignty: the right to sell tax-free cigarettes in her smoke shop at Franks Landing, south of Seattle.

In its heyday, cars looped around the garish smoke shop awaiting their turn at the drive-through window, while lines of smokers stretched through the front door, emerging with stacks of cartons of Marlboros, Newports and Camels. Signs boasting rock-bottom prices were posted near tribal paraphernalia, making the message clear: These deals are possible only on Indian land. Federal law states that only Indians can buy tax-free cigarettes, and smoke-shop clerks are required to check IDs. But Gottfriedson — and countless other smoke-shop owners — sold tax-free tobacco to anyone.

It was a lucrative business. Gottfriedson and her husband, Hank, members of the Squaxin Island Tribe, made more than $20 million between 2001 and 2007, selling cigarettes to their customers for about half the price they would have cost anywhere else.

But in May 2007, Gottfriedson emerged from her home to find a row of guns pointed at her. A team of federal agents ransacked her smoke shop. Children at the nearby Wa He Lut School, which was largely funded by smoke-shop proceeds, watched the whole thing.

"I've always been controversial, ever since I was a girl," Gottfriedson said just weeks before her death.

Gottfriedson was one of dozens of Pacific Northwest Indians in recent years to face federal charges over the sale of untaxed cigarettes. She was ordered to repay $9.2 million in back taxes, but because she used the proceeds to benefit the tribe, the judge — impressed by the respect she enjoyed among Northwestern tribes — sentenced her to only five years' probation. State and federal officials say members of other tribes became cogs in the wheels of international cigarette smuggling operations and spent their profits on lavish homes and luxury cars, all in the name of tribal sovereignty.

According to 2003 estimates by Washington's Liquor Control Board, the state has lost up to $223 million each year from the sale of untaxed cigarettes, with 60 percent of that loss due to Indian-owned smoke shops. The battle has been simmering since at least 1980, when a federal court judge ruled that Washington has the right to tax tobacco sold to non-Indians and members of other tribes on the Colville Indian Reservation. Many tribes consider the decision a blow to sovereignty, says Melody McCoy of the Native American Rights Fund in Colorado.

"The court allowed the state taxing jurisdiction to leap over reservation boundaries," she says.

Washington state lawmakers decided in 2001 to negotiate compacts that require tribes to tax cigarettes sold to non-Indians but allow the tribes to keep the tax revenue. Lawmakers hoped the solution would appease the tribes without undercutting non-Indian sellers.

Since then, Washington has increased its tobacco tax to $2.025 per pack, the fifth-highest in the country. Even as many tribes sign compacts with the state, prosecutors are cracking down on Indians who sell untaxed smokes.

"If you have a retailer that's not collecting the tax and trumping their own economic interests over the community, I don't see that as sovereignty, I see that as greed," says Tate London, a Tlingit Indian and federal prosecutor.

Washington is a hotbed for counterfeit, smuggled and tax-free cigarettes because of its high tax, and because it shares a long border with Idaho, where sales laws are less stringent. That means smoke-shop owners in Washington can easily transport cheaper cigarettes from Idaho.

The state is also home to 29 federally recognized tribes who have a long history of fighting for rights originally guaranteed by treaties signed in the 1800s. Tribes here don't hold the same reverence for tobacco as do Indians in other regions, but they consider their rights sacred — especially the right to hunt, fish and conduct business in their own way.

There's no difference between the fight for fishing rights and the fight for the right to sell goods and services tax-free on Indian land, says Billy Frank, Gottfriedson's uncle and a respected Indian leader.

"They say Alison owed $9 million, but she didn't owe a dime," Frank says. "The federal government violated our sovereign rights."

Frank longs for the day when Indians will be able to sell products on their own land without regard to outside tax laws. That might seem impossible now, but Frank is widely regarded as the driving force behind tribal fishing rights in the Pacific Northwest. He's seen the impossible happen before.

"The way things are now, there's nothing to say that our kids won't go to jail, just like Alison did," he says. "There's fishing, and there's taxation, but it's the same issue."

Krista Kapralos is a journalist based in the Pacific Northwest, where she writes about American Indian tribes and religion.

http://www.hcn.org/issues/41.14/cigarette-wars