A cigarette manufacturer on the Yakama Nation reservation remains on the hook for $58 million in unpaid federal excise taxes, penalties and interest, the U.S. Ninth Circuit Court of Appeals recently ruled.
Situated deep within the reservation in White Swan, King Mountain Tobacco is owned by the Wheeler family and is licensed by the tribe. The Wheelers argue that the Treaty of 1855 and other tribal land laws, including the General Allotment Act of 1887, exempt the business from federal excise taxes.
But on Monday, the appeals court reaffirmed the district court's ruling, saying the treaty and the Allotment Act lack any language that shields the business from federal excise taxes.
"We affirm our longstanding rule that Indians -- like all citizens -- are subject to federal taxation unless expressly exempted by a treaty or congressional statute. In this case, neither the General Allotment Act nor the Treaty with the Yakamas expressly exempts King Mountain from the federal excise tax on manufactured tobacco products," the appellate panel wrote in its opinion.
Dolph Barnhouse, attorney for King Mountain, said he's seeking a review by the court's full 11 judges; only three judges were involved in Monday's decision.
"It's not like these issues didn't have any merit, they just didn't agree with us," he said.
King Mountain's board of directors chair Trina Wheeler said in a prepared statement the decision disregards the treaty.
"This is just the latest in a trend by the United States government to violate the agreements it made in tribal treaties," she said. "Our people gave up millions of acres of land to allow settlement of this country in return for the promises of the United States Constitution that Indians would not be taxed and the Treaty statements confirming our right to travel to sell our goods and keep our people trained and employed."
The late Delbert Wheeler filed the appeal after a U.S. District Court judge ruled that King Mountain was responsible for the unpaid federal taxes. Wheeler argued that the Allotment Act, which provided a certain amount of acreage on the reservation to each tribal member, prevents state and federal taxation of goods derived from those lands that are held in federal trust.
A District Court judge rejected those arguments, ruling that the products King Mountain manufactured were not fully derived from the land.
In 2006, Wheeler began his business on 80 acres of tribal land held in federal trust. The business manufactures an assortment of tobacco products in addition to cigarettes, and grows some of its own tobacco.
For decades taxation of businesses owned by tribal members on the reservation has been a point of contention. A sovereign government, the Yakama Nation and its members are exempt from state tobacco, gas and retail taxes on the 1.3-million-acre reservation.
But state authorities have long complained that non-tribal members flock to reservation shops to buy cigarettes and gas to avoid paying state taxes. There have been controversy and lawsuits over whether tribal business owners should pass the state taxes onto customers who are not tribal members.
This isn't the first time the Ninth Circuit ruled against King Mountain. In a separate case in 2015, the appellate court ruled King Mountain had to pay state cigarette taxes when selling off the reservation.
A year earlier, a federal judge in U.S. District Court ruled against King Mountain when it protested assessments on cigarette manufacturers imposed by a 2004 Fair and Equitable Tobacco Reform Act, which created a free market for tobacco farmers and eliminated federal price supports and quota programs.
Barnhouse said King Mountain has been paying the federal excise tax the past five years and that the most recent decision won't place the business or its workers in peril.
"Because King Mountain has been paying the tax, I don't think the United States want to put them out of business," Barnhouse said. "I think the United States will want to work something out."
