I grew up Longview, Washington.  A small town on the banks of the Columbia River, on the Washington-Oregon border, Longview had a few small stores, mostly catering to the logging industry that inundates all small towns in the Pacific Northwest.  For Christmas shopping, or, come to think of it, for any big-ticket purchases, my family would hit the I-5 South to Portland, Oregon.

When I turned sixteen, I got a job and a drivers licence, and it was time to do my own Christmas shopping.  By this time, Longview had a mall – complete with a Bon Marché and a Nordstrom – but I still drove to Portland.  Probably for the same reason my parents did.  Probably for the same reason everyone did.  Oregon does not impose a sales tax.

According to the Washington State Revenue Department, local governments lose an estimated $50 million in tax revenue annually to Oregon-Washington cross-border shopping.

Apparently, We Were Breaking the Law

When Washington residents make an in-state retail purchase, the sales tax is usually added on by the retailer, who in turn pays it to the Department of Revenue.  (Oregonians shopping in Washington may present their Oregon ID to the seller in order to prove an exemption).  When Washington’s sales tax is not paid on purchases – when purchases are made in Oregon, for instance, where Washington’s sales tax is not collected by the seller – a “use tax” is due.  The buyer must report this tax to the Department of Revenue by the 15th of the month after the item is first “stored, used, or consumed” in Washington.  Use tax also applies on items used in Washington that were purchased in other states that have a sales tax rate lower than Washington’s.  Use tax rates are the same as sales tax rates, around 7-9%, depending on where in the State the resident lives.

Yet, growing up, I was not afraid that the FBI or the local sheriff’s department would be kicking in my door to inspect my presents and arrest my family.  And they never did.

That a large percent of Washingtonians flagrantly violate state tax law has been well documented – as has the utter failure of state officials to prosecute.  While the tax liability upon the value of the goods being used within a state’s boundaries is clear, case law has worked to relieve out-of-state sellers of their responsibility to collect and remit the tax – unless they maintain some “physical presence” in the state.  In other words, it’s not the job of Oregon merchants to collect Washington’s taxes.  But given the tough fiscal rut that the State is in, one wonders why other efforts are not being made to recoup the almost $90 million in use tax owed to the State by its own citizens each year.

Tribal Governments as Tax Collectors

Anyone following the news in Indian Country is painfully aware of the most recent stream of headlines like this one from the Syracuse Post-Standard: State Vows to Collect Taxes on Indian Reservation Cigarette Sales.  These articles have evoked comments and op-eds, like this one from the Cayuga County Citizen: Indians Should Pay Their Fair Share of Taxes.

This media brouhaha is the result of a recent court decision out of the U.S. Court of Appeals for the Second Circuit, holding that Indian merchants selling cigarettes to non-Indians in Indian country have to collect sales tax for the State of New York.  Subsequent to the Second Circuit’s opinion, the Seneca Nation applied for a temporary restraining order barring enforcement of the law, arguing that the State violated procedural requirements in adopting its tax regulations.  As it stands, the State is enjoined from requiring tribes to carry the tax burden at least until June 20th, when the parties will make their case in front of a judge.

Contrary to popular belief indicated in media accounts, the State is not doing any tax collecting.  The State is actually completely barred, pursuant to well-established federal law, from collecting anything from tribes or their citizens.  Rather, the statute at issue is meant to “precollect” the New York sales tax from cigarette wholesalers, who pass that cost on to individual merchants, who pass the cost along the distribution chain to the non-Indian consumer.  In essence, the statutory scheme forces tribal retailers – and in those instances where tribes themselves are the retailer, tribal governments – to collect taxes for the State of New York.  If the law stands, tribes will have been reduced to either staying out of the tobacco market or being an administrator and executrix of another sovereign’s laws.  A tax collector.

Not About Money

In its ruling, the Second Circuit purportedly weighed the state/tribal interests, finding that New York’s “valid interest in ensuring compliance with lawful taxes that might easily be evaded” outweighed the tribes’ interest in inherent sovereignty.

Indeed, it is New York citizens, not tribes, who are evading tax liability.  New York State has a similar tax structure as Washington.  If a sales tax has not been collected by the merchant, New York citizens must report and pay a use tax directly to the NY Tax Department.  Sales of most tangible property – including cigarettes and other tobacco products, which have a specific reporting form for consumer ease – are subject to use tax.  It is estimated that New York loses an estimated $1.4 billion a year to uncollected use tax.

But whose fault is it that New York is not enforcing its own laws upon its own citizens?  In weighing the state/tribal interests, what if the state’s laws were not so shifty?  Where would the court stand if the state chose to enforce its law – if the state took steps to ensure that its laws were not “easily evaded”?

At least, the “balancing test” employed by the Second Circuit is inapplicable here – where one side can determine the weight of the other.  However, considering that adjacent states often have “widely divergent taxes on the same product, industry or service” – but the courts have reserved this “balancing test” for tribal governments – at most, the test is a pretense used to eviscerate tribal sovereignty.

The irony is that the alleged $180 million that New York is losing when its own citizens purchase cigarettes on Indian land is a small fraction of the  $1.4 billion that the state would receive if it were to enforce its own laws against those New York citizens.  According to the Court, New York actually considered this option, but ultimately determined that collection of its tax “through efforts directed at individual buyers is impractical, and that, if it is to be collected at all, the tax must be precollected.”  In other words, the State would rather invade the sovereignty of tribal governments, in order to obtain less than one-tenth of the amount due to it, than to make efforts to enforce its own laws against its own citizens.  Not to mention the racking up of exorbitant legal fees.

No, this is not about money – it’s about bossing tribal governments around.  It’s about showing tribes what, exactly, their sovereignty is worth in the eyes of the state.  Apparently, it’s not much.

Ryan D. Dreveskracht is an attorney licensed in Washington State, where he focuses on issues critical to Indian Country.  He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at (360) 430-3783.  All rights reserved.