After losing a battle with the state over its tobacco compact, the Cherokee Nation is fighting back.
In a letter sent last week to Gov. Brad Henry, Principal Chief Chad Smith invoked the "Most Favored Nations" clause from the tribe's 2004 tobacco compact, which could lower taxes on some packs of cigarettes by 60 cents and send the matter back to arbitration.
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Smith wrote that the tribe is entitled to a 25 percent flat tax rate on tobacco products under the clause, the same rate the Kaw Nation is paying under its compact, which is in dispute in court.
State Treasurer Scott Meacham said the state will not view the Cherokees' attempt to invoke the clause as valid, and the matter likely will be sent back to arbitration.
If the Cherokees are able to get the same deal as the Kaw Nation, Cherokee Nation-licensed smoke shops would pay 25 percent of the tax rate on cigarettes, the same percentage the tribe paid to the state before a Jan. 1, 2005, tax increase on tobacco products.
If the invocation of the clause stands, Cherokee Nation smoke shops would pay 25 percent of the $1.03 tax on a pack of cigarettes, or 26 cents, said Mike Miller, the tribe's communications officer.
"The Cherokee Nation sees this as an opportunity to find a solution that is beneficial for all parties," Miller said. "We want to find a solution that will generate more revenue for the state and the Cherokee Nation for health care and reduce demand for cigarettes long term."
The 25 percent tax rate would eliminate the exception rate that Cherokee Nation-licensed smoke shops in areas near the state line have, meaning their tax stamp on a pack of cigarettes would rise from 6 cents to 26 cents, Miller said.
However, it would lower taxes on a pack of cigarettes in nonborder areas, such as the Tulsa area, from 86 cents per pack to 26 cents, he said.
Under the tribe's 2004 compact, it must pay 25 percent of all applicable excise taxes plus 100 percent of the amount of a 2005 tax increase on tobacco.
Under the Most Favored Nations clause, if another tribe and the state enter into a compact that has more favorable terms than those of the Cherokee Nation's, the Cherokees can invoke the clause to receive the same terms.
According to a March arbitration ruling on the compact, the Cherokee Nation cannot invoke the Most Favored Nation clause on compacts signed before Feb. 9, 2004, when the tribe's compact was signed.
However, a lawsuit filed in March by the Otoe-Missouria Tribe, which has smoke shops in Noble County, and the Kaw Nation, which has smoke shops in Kay County, claims that the state did not give sufficient notice that the tribes' compacts were being terminated because the tribes received the notice a few days later than required.
Under the Kaw Nation's 10-year deal with the state, signed Feb. 26, 1998, either side must give at least six months' notice of termination.
The letter from Smith states that under the Kaw Nation's compact with the state, if neither party gives written notice of termination six months before the compact's Feb. 26, 2008, expiration date, a new 10-year compact under the same terms begins.
"Therefore, the Cherokee Nation believes that it is entitled, under the 'Favored Nations' clause in its compact, to the terms above in the extension of the Kaw Compact," Smith wrote.
Meacham said the fact that the Otoe-Missouria and Kaw tribes are under the old tax rate while litigation is ongoing does not mean that the tribes are operating under a new compact.
The lawsuit "is a pretty weak argument to start with, and to say that it is a new compact is stretching it," he said. "I think a new compact would take some affirmative action by the state; we have not renewed or extended any compacts."
The state and the tribe have been at odds for years over the amount of taxes and what kind of taxes tribally licensed stores must add to a pack of cigarettes, but last month an arbitration panel sided with the state on several points.
A Tulsa World investiga tion uncovered, and the arbitration ruling confirmed, that low-tax packs of cigarettes were being funneled to smoke shops in higher tax zones, depriving the state of millions in tax revenue.
The arbitration ruling stated that the smoke shops that engaged in retail-to-retail sales to transfer the low-tax cigarettes into higher tax zones did so unjustly and that the Cherokee Nation, which collected a $1.50 surcharge for each retail-to-retail sale, is liable for damages.
A hearing on the amount of damages has not taken place.
The compact allows either the state or the tribe to call upon an arbitration panel to work out disagreements, a move the state might make in lieu of Smith's letter, Meacham said.
"I guess we go back to arbitration," he said.
After either side invokes its right to arbitration, the two sides have a 30-day negotiation period before arbitration begins. Enditem
