The U.S. Court of Appeals for the Second Circuit today issued a decision in a case concerning claims made by the State of New York that a manufacturer of cigarettes, owned by an Indian nation, had violated the state laws on cigarette sales by not paying tax on the cigarettes.
The company shipped untaxed (unstamped) cigarettes from an Indian reservation in Washington State to Indian reservations in New York State. The State of New York brought this action to enjoin the manufacturer from making future shipments, among other claims for relief.
The federal district court granted partial summary judgment for the State of New York on the claims that the manufacturer had violated the state laws on cigarette sales and enjoined future violations. The federal district court also granted partial summary judgment for the manufacturer on the basis that the sales did not violate two federal statutes—the Prevent All Cigarette Trafficking Act (PACT) and the Contraband Cigarette Trafficking Act (CCTA).
On appeal, the manufacturer asserted that the state’s enforcement practices violated the dormant Commerce Clause and that the injunction effectively amounted to state regulation of commerce between Indian nations in violation of federal Indian protections, among other claims. The State of New York filed a cross-appeal from the district court’s summary judgment of the state’s claims under two federal statutes that aim to address cigarette trafficking.
The Second Circuit today reversed the district court’s grant of summary judgment for the manufacturer, finding that the manufacturer had failed to establish a violation of the dormant Commerce Clause. Previously, in other cases, the Second Circuit had concluded that the New York statute did not place an undue burden on tribal retailers. Because the same law applied to the case at hand, the appeals court concluded that there was no violation of the Commerce Clause restrictions on Indian Commerce.
The Second Circuit also concluded that the Yakama Nation Treat of 1855 does not apply because the treaty does not protect any right to trade. The Second Circuit finally reversed the denial of summary judgment for the state on the PACT claim, but upheld the summary judgment on the CCTA claim.
The case is: State of New York v. Mountain Tobacco Co., Nos. 17-3198(L), 17-3222 (XAP) (2d Cir. November 7, 2019). Read the Second Circuit’s decision [PDF 217 KB]
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.