State to terminate cigarette-tax deal with Yakamas

OLYMPIA — State officials say they intend to terminate a cigarette-tax agreement with the Yakama Indian Nation because the tribe has failed to adhere to the compact.

The state Department of Revenue is taking the action after finding that cigarettes continued to be sold on the reservation without valid tribal-tax stamps, in violation of the agreement, Director Cindi Holmstrom said in a news release Thursday.

Under terms of the agreement in effect since November 2004, the tribe was to impose its own cigarette tax in lieu of state tax on cigarettes sold to non-Indians. The tribal tax was to begin at 80 percent of the state tax and increase to 100 percent over three years.

Under federal law, cigarettes sold to Indians on tribal land are not subject to the tax, but cigarettes sold to non-Indians are supposed to be taxed fully.

Once the Yakama compact is terminated, sales of cigarettes without state stamps to non-Indians will again be considered contraband sales subject to state and federal enforcement.

"We regret that we have no other choice than to initiate termination proceedings," Holmstrom said. "It's clear to us that the tribe has struggled with working within the regulatory framework established by the agreement."

Executive members of the Yakama tribe were in meetings Thursday and did not immediately return calls for comment.

Under the agreement, the tribe was allowed to keep all the revenues generated from the tax, and the state considered purchases of tribally stamped cigarettes by non-Indians to be legitimate.

Similar agreements have been signed with 17 other tribes, while the Puyallup tribe signed a separate agreement that permitted a lower tax rate in return for sharing some of its profits with the state. Similar agreements are pending with several other tribes.

Under the agreement, the tribe can request a mediator to review the basis of the termination.

The department will notify the federal Bureau of Alcohol, Tobacco, Firearms and Explosives and the state Liquor Control Board, which enforce federal and state cigarette tax laws.

Holmstrom said the Yakamas may need a compact similar to one negotiated with the Puyallup tribe, as both tribes have smoke shops owned by tribal members, not the tribe.

Revenue sharing and a lower tax rate were trade-offs that protected the state's interest while meeting the Puyallup tribe's needs, she said.

"We stand ready to work with the tribe to develop a workable agreement," Holmstrom said.

"Our goal is to resolve this issue on a government-to-government basis rather than through enforcement and confrontation," she said. "We hope we can achieve that."