DEPARTMENT OF TAXATION AND FINANCE OF NEW YORK v. MILHELM ATTEA & BROS., INC.
Legal provision: 15 U.S.C. 261
Argument of G. Oliver Koppell
Chief Justice Rehnquist: We'll hear argument next in Number 93-377, Department of Taxation and Finance of New York v. Milhelm Attea Brothers.
Mr. Koppell: Mr. Chief Justice and may it please the Court:
This case is of enormous importance to the State of New York, indeed, to other States, and also to people in private business.
I urge this Court to reverse our own court of appeals which found our system for taxing cigarette sales by Indian traders to non-Indians preempted by Federal law.
It is indeed somewhat ironic that I must ask this Court to protect our State's fisc by reversing the determination of our court of appeals.
However, this Court's prior decision in Moe, Colville, and Potawatomi, sustained the State system as consistent with Federal law, and that is what the court of appeals said was not so.
Indeed, when this Court remanded this very case to our State courts 2 years ago, I believe that it did so because you recognized that States may require both retail and wholesale Indian traders to assist in collecting taxes due on sales to non-Indians at reservation stores.
Unknown Speaker: General Koppell, may I ask you if this case was litigated below at all on the notion that the New York statute is severable, that there are a variety of provisions in it, and that some of them should survive even if others do not?
Mr. Koppell: Your Honor, the case before us narrowly focuses on the regulation of wholesalers, and not retailers, and what we are looking here is merely those aspects of the regulation that regulate the sale, or sales by wholesalers.
In my opinion, those are very narrow, they are very limited, and the Court should look at the regulatory scheme only as it affects the respondents here, who are cigarette wholesalers.
Unknown Speaker: And is the statute severable, in your view?
Mr. Koppell: Yes, I think it's severable.
I think the Court could indeed uphold even portions of the regulations on wholesalers and not others, and certainly this Court should only deal with wholesalers.
The Solicitor General brings into his brief before this Court the way the regulations affect the retailers.
That's really not before this Court.
It was not briefed below.
There's really no evidence in the record with respect to how the regulations affect retailers.
With respect to wholesalers, again, I think this Court could sever and find some of the regulations applicable, but I do want to emphasize that the regulations on the cigarette wholesalers are quite limited, and really only require a limited amount of record-keeping and in fact are quite consistent with the regulation of Indian traders that has been upheld by this Court in the Moe case and in the Colville.
Unknown Speaker: Does the provision requiring licensing of--
Mr. Koppell: Of the wholesalers?
Unknown Speaker: --the wholesaler, is that before us?
Mr. Koppell: The wholesalers only have to be licensed with respect to sales to non-Indians.
If there were a wholesaler... and in fact Elias Attea, who is one of the respondents here, sells only on Indian reservations.
If he contended that he wanted to sell only to Indians, and not to non-Indians, and that he would only meet Indian demand on the reservation, he would not have to be licensed.
However, we believe that virtually all Indian stores sell both to Indians and to non-Indians.
To the extent that cigarettes go from the wholesalers to non-Indians, they would have to be licensed, as are all wholesalers in the State of New York who sell cigarettes that are not tax-exempt.
Unknown Speaker: And the retailers would have to be licensed as well, so--
Mr. Koppell: No--
Unknown Speaker: --They would not?
Mr. Koppell: --That is not so, Your Honor.
They would have to register under the system that the State established--
Unknown Speaker: I see.
Mr. Koppell: --not license, and specifically in the regulations, Your Honor, it states there is no fee.
Unknown Speaker: I see.
Mr. Koppell: It's basically a re--
Unknown Speaker: Well, fee or not, let me ask the same question--
Mr. Koppell: --It's not like licensing.
When you get licensed you have to pay a fee.
Unknown Speaker: --Mr. Koppell.
Mr. Koppell: Yes.
Unknown Speaker: Let me ask you the same question, I think perhaps, or get to the same point that Justice O'Connor has in mind.
Can we decide this case strictly on the question of whether there is an impermissible limitation on quantities that may be sold, or is it impossible to determine... to resolve that issue without getting into questions of registration, licensing, and so on?
Mr. Koppell: Well, the... as I indicated earlier, the question of registration is really not before this Court, shouldn't be before this Court.
The Solicitor General--
Unknown Speaker: Well, then your answer is no.
Mr. Koppell: --No, my answer is yes.
Unknown Speaker: We can decide it strictly on the issue of quantity.
Mr. Koppell: You can decide... you can decide the... you can decide that issue.
You can decide whether it is in fact permissible to limit the quantity of nontaxable cigarettes.
Unknown Speaker: And that's all we have to decide.
Mr. Koppell: No, I think there is more for you to decide.
Unknown Speaker: What is the more that we have to reach?
Mr. Koppell: I think you also have to reach the issue of whether the record-keeping requirements can be imposed on the wholesalers, the limited record-keeping requirements.
Unknown Speaker: Okay.
Mr. Koppell: As I indicated before, if I may, the court of appeals makes two basic mistakes in its reading of this Court's teachings in the Moe and Colville and Potawatomi cases, two basic flaws which are fundamental to the court of appeals decision which is before Your Honors.
If you look at A12 in the appendix to our petition, I will read from there, and they say the following.
They say... they contend that inasmuch as the Supreme Court approved the imposition of precollection and record-keeping requirements on Indian retailers in those cases, the State can lawfully impose them on wholesalers, who are just one step further back on the distribution chain.
Moe and Colville involved burdens placed on Indian retailers dealing with non-Indians rather than on wholesalers dealing with Indians, a significant difference, and that is the major difference why they hold that in fact the regulations here are impermissible with respect to the respondents, the wholesalers, but there is no distinction.
They make a distinction between retailers and wholesalers for purposes of the Indian Traders Act, but if you go to the Indian Traders Act, you see that that is not a distinction made.
Now, it is clear in Colville, for instance, that in fact the Indian retailers in that case were, in fact, Indian traders under the Federal law.
They were in the same category as the wholesalers here.
This distinction the court of appeals makes that you can, in fact, burden retailers but you cannot burden wholesalers, otherwise you are preempted by the Federal law, that distinction is not found in the Federal law and should not be made.
If you can regulate the retailers and have record-keeping requirements for the retailers, you can have those very same record-keeping requirements on the wholesalers.
The distinction they make is simply not found in Federal law, and it is nowhere found in the precedents of this Court, and again, I would suggest that the reason that this Court sent the case back to New York suggesting that the court look at Potawatomi, is that this Court recognized that that distinction between retailers and wholesalers really makes no sense.
It has no basis in Federal law.
We are talking about--
Unknown Speaker: As you read the decision below--
Mr. Koppell: --Yes.
Unknown Speaker: --If New York told wholesalers that it had to sell... that it could never sell any untaxed cigarettes--
Mr. Koppell: Yes.
Unknown Speaker: --and that there were then some provisions for refunds of taxes paid by Indian consumers, would that statute pass muster under this court's... this lower court's opinion?
Mr. Koppell: I think that a system that required precollection of all taxes and then refund might well not pass muster, but this is not the system here.
What is attempted to be done by the system is very simple: to estimate the number of tax-free cigarettes which are required on the reservation and then allocate those, and then say the remainder of the inventory has to be taxable, so that with respect to the Indian sales, the sales to Indians on the reservation, no tax is precollected, there's no requirement of precollection of the tax and request for refund.
Unknown Speaker: But why isn't the estimation of the quantity in advance... why isn't that in conflict with the Federal statute that says it's the Federal authority and not the State that is to specify the kind and quality of goods?
Mr. Koppell: That... I'm... thank... it is not the same, Your Honor, and I'm glad you asked the question, because that's the second flaw in the court of appeals' argument.
The fact of the matter is that we are not regulating the number of cigarettes.
In no way.
You can send as many cigarettes... the wholesalers can send as many cigarettes as they want onto the reservation.
The Indian retailers can sell as many cigarettes as they want.
All we are saying is that with respect to untaxed cigarettes, that there, no precollection.
We are limiting the number of those to the legitimate demand of the Indians on the reservation, and if that demand changes, the allocation will be increased by the tax department.
It's not a fixed number, and it's not created in a vacuum.
First of all, the regulations specifically talk about an agreement between the tribes and the State with respect to the number of tax-free cigarettes that will be required on the reservation.
Only in absence of such an agreement does the State come in and make an estimate of the number of tax-free cigarettes that are required to meet legitimate Indian demand, so that the system has integrity and is flexible, and if by chance not enough tax-free cigarettes are brought to the reservation and brought to the reservation retailers, they can, under our tax law, specifically apply for a refund.
Unknown Speaker: I was trying to determine how that refund worked, both as a matter of... would there be interest on the prepayment, if there's a refund, and how long is the process to get a refund?
Mr. Koppell: I don't know... I don't know, to tell you the truth, Your Honor, the details of that, but the fact of the matter is that there is a process.
You just show that you made a tax-free sale, and that you prepaid the tax, and then you get the money back.
Unknown Speaker: Yes, but if it's a prolonged process and there's no interest, then you are also making an interest-free loan to the State of New York, are you not?
Mr. Koppell: Well, if it's a prolonged process, which we do not believe it would be... it has not been implemented yet.
We don't see any reason why it would be a prolonged process, and in fact the tax department regulations contemplate a very generous supply of tax-free cigarettes to the reservation.
You see, the problem now is not that there's a little bit of evasion going on, there's a huge amount of evasion going on.
It's costing the State $100 million a year.
The tax department's not looking to make sure that every single package of cigarettes that's untaxed is not... that no package of cigarettes untaxed is sold to a non-Indian, but what we have here is that the reservation sales even 6 years ago... even 6 years ago was over 30 times the estimated demand by Native Americans on the reservation.
We're talking about massive evasion costing the State over $100 million.
So once these estimates are made, it is anticipated that there will be more than enough tax-free cigarettes flowing from the wholesalers like the respondents here onto the reservation, and it will not be necessary to go down and check each sale.
Furthermore, the alternative to this system would be far more intrusive, because if you had an alternative of only collecting the tax from the Indian retailers and leaving the wholesalers alone, think of what that would require.
That would require going in and auditing all of these retailers... and you know how much the Indians resent intrusion by outsiders on the reservation... coming into each of the Indian smoke shops, checking all of their books and sales to see how many tax-free cigarettes they sold--
Unknown Speaker: But didn't we uphold some sort of procedure like that in either Moe or Colville, and wasn't that done at the retail level?
Mr. Koppell: --Yes, it... yes, Your Honor, it was upheld that one could do that.
I myself think that some of the problems that you addressed in the Potawatomi case ensued, and you will recall, Your Honor, that in the Potawatomi decision, you indicated that if there were problems collecting from the retailers, or going after the retailers, you suggested you can well go after the wholesalers, and I think that was a recognition that going after the retailers is a difficult thing to do and is a very intrusive thing to do.
And I am not suggesting here that in fact that if the burden was placed on the retailers it would necessarily violate the Indian Traders Act.
What I am suggesting, however, that this is a much less intrusive way of dealing with this problem... creating a realistic assessment, or allotment of tax-free cigarettes to go into the reservation, then providing for the wholesalers to be able to sell that inventory without tax stamp.
The remainder of the inventory that the wholesalers have would bear the tax stamps, would have the prepayment of taxes attached to them, and by... and then having a system down the line that allows for the wholesalers to distribute the tax-free cigarettes to the retailers based on these coupons that the Department of Taxation would issue to the retailers, who would then present them to the wholesalers.
We are looking now at how much this burdens the wholesalers.
All they have to do is get sufficient inventory to meet the tax-free demand, wait for the retailers to come to them with the coupons, and then record the tax-free transactions and the taxable transactions, and obviously on the taxable transactions remit the advance payment of the tax.
From the point of view of the Attea Brothers, this is not a complicated or burdensome system, and the court of appeals was simply wrong when it suggested that there were significant burdens imposed on respondents by this system, and again, as I mentioned when I answered Justice Ginsburg's questions, the court of appeals was certainly wrong when they said that this somehow limits the number or quantity of goods available on the Indian reservations.
In no way does it do that.
Unknown Speaker: General Koppell, are there Federal taxes imposed on the cigarettes?
Mr. Koppell: I believe there are, Your Honor.
I believe there are, Your Honor.
Unknown Speaker: Is that handled by any kind of a stamp mechanism?
Mr. Koppell: Again, I believe so, but I haven't really studied that.
I've looked only at the State tax system.
In any event--
Unknown Speaker: I assume this could be a problem for any New York sales taxes, couldn't it?
It just so happens that tax is particularly high on cigarettes, and that's why--
Mr. Koppell: --Yes.
Unknown Speaker: --That's why the problem only arises with cigarettes.
Mr. Koppell: Yes, that is correct.
Unknown Speaker: But it could happen for sales of other goods as well.
Mr. Koppell: Yes, and there have been very serious problems when New York has attempted to collect sales taxes on reservation sales, and we're trying to get at it without creating, if you will a... it wouldn't be a civil war, because these are sovereign nations, but without creating a war with the Indian nations, or with individuals on the Indian reservations, and that's why this allocation system, that allocates a certain number of tax-free cigarettes, is the most efficient way and easiest way and least intrusive way of solving the problem and still retaining to the State the ability to tax.
Again, I say that there are tens of thousands if you will, maybe hundreds of thousands of individuals, who are evading their tax obligation.
It should be remembered, and this Court has recognized in the Colville case and in the Moe case particularly, that the tax obligation is not on the wholesaler or the retailer.
The tax obligation is on the ultimate purchaser or consumer of the cigarettes, and the current system which has allowed these tax-free cigarettes to flow on the reservation without control has allowed thousands and tens of thousands, indeed, probably hundreds of thousands of New Yorkers, to violate the law.
Unknown Speaker: I can't resist this question, when you speak of the huge amount of evasion.
Do you accept the figure that was in the... I guess the Tobacco Retailers and Candy Distributors brief that the... at the present time the average number of packs supposedly sold to every man, woman, or consumed by every man, woman and child on the reservations is 12,800 a year?
Is that figure right?
Mr. Koppell: 12,000... I think that the estimate that we were given by the Tax Department was that if the consumption in 1988 was really only by Indians, they would be smoking 15 packs a day, every man, woman, and child, so that the evasion is obviously substantial.
I think this Court can take some judicial notice of the fact that with the introduction now of gaming on the reservations, the number of non-Indians who will be coming on the reservations will increase exponentially, and we will only have a greater problem with respect to the sale of untaxed cigarettes unless we have some kind of system in place to control the flow.
Unknown Speaker: General Koppell, does the same problem exist with regard to other products that are sold on the reservation, for instance, in discount stores on major appliances and so forth?
Mr. Koppell: The same problem can exist with respect to that, but the taxes are much, much lower, obviously.
Cigarette taxes are very high, as was pointed out.
Unknown Speaker: But it's the same situation.
Mr. Koppell: Yes, it would be the same situation, and you--
Unknown Speaker: But there, New York has no scheme for advance payment of taxes, presumably.
There's no stamp required.
Mr. Koppell: --No, there's no... no, there's no system, that's correct.
Unknown Speaker: So there you would have to impose any record-keeping on the retailer.
Mr. Koppell: --That is correct.
That is correct, Your Honor.
However, gasoline is another area where the very same system is involved, and the very same system has been enjoined because of the litigation over this system, so it is really cigarettes and gasoline.
First of all, the taxes are much higher there, and second of all, as you correctly point out, Justice O'Connor, there is this precollection requirement for all of those taxes which doesn't exist with respect to other sales.
Unknown Speaker: You could probably solve the problem by lowering the taxes.
Mr. Koppell: You... well, as you know, Your Honor, the trend, whether fortunately or unfortunately, of taxation on both cigarettes and gasoline is in the other direction.
Unknown Speaker: I don't have a precise hypothetical for you, but if the State were attempting to impose this sort of regulation on some other State, like Baldwin v. Seilig, we would have a metaphysical problem because you would be regulating an interstate transaction, and that's beyond your authority.
In our cases, do we ever make parallels between Indian State relations and the Interstate Commerce jurisprudence that we have?
Mr. Koppell: Well, I don't recall, but I do know that there are severe limitations on our ability to actually impact on the sovereign State itself.
In fact, that was the problem in the Potawatomi case, and therefore, if the sovereign nation gets into this business, that would make it even more difficult to assess the tax on other than the wholesaler.
Unknown Speaker: That is why I had suggested that if the wholesalers just couldn't sell any nontaxed cigarettes at all, that ultimately may be more intrusive, but it seems to me that it confines you to your proper jurisdiction without your running up against the Federal statute, which is its exclusive area.
Mr. Koppell: I don't believe that the Federal statute prevents you from doing what we're doing here.
I don't think that... in fact, it would be in some senses more violative of the Federal statute, because it would require more burden on the wholesaler to precollect the tax on sales to Indians.
That's what we want to get away from.
We want to get away from any tax on the sale that goes down to the Indian, so in my opinion, though I'm not suggesting that it would be impermissible to have total precollection, because I don't want to concede that, but I think this system is less burdensome on the wholesaler--
Unknown Speaker: But my submission is--
Mr. Koppell: --and therefore--
Unknown Speaker: --My submission is it may be less burdensome, but the hypothetical I put still confines you to your appropriate area of regulation.
Mr. Koppell: --I don't quite follow Your Honor.
It seems to me the appropriate... we are permitted to provide for minimal burdens without violating the Indian Trader Act.
The minimal burden here is not dissimilar to the burden placed on retailers which has been approved by this Court on a number of occasions, and it seems to me if we provided for the prepayment of taxes on sales to Indians, and then required them to go for a refund in every case, we would be doing more than we're doing here.
We wouldn't be doing less, we'd be doing more to invade an area that arguably has been preempted by the Indian Traders Act.
I think we're trying to stay away from... after all, the Indian Traders Act does not regulate trade between non-Indians and non-Indians, or even Indians and non-Indians.
It only regulates trade with Indians by both Indians and non-Indians, so that the fact of the matter is to the extent we can stay away from burdening trade between the Indian trader and the Indians, we are consistent in my view with the Federal law and not, therefore, preempted from acting, which is what is suggested... I think incorrectly suggested by our own court of appeals.
In any event, Your Honors, I believe that the system here is consistent with precedent.
As I indicated, I believe that our court of appeals was wrong in concluding that there's any difference with what... regulations that can burden retailers who are indian traders and wholesalers who are Indian traders, and I also believe there are no significant burdens placed on the wholesalers here, and for the reasons that I gave.
I also suggest that the Solicitor General's argument with respect to the burdens placed upon the Indian retailers, and suggesting that the court of appeals be affirmed because those burdens are excessive, although the Solicitor General agrees with our argument with respect to the wholesalers, I suggest that this Court really should not consider that at this time.
That may come before the Court in the future.
I don't believe that we have anything in the record to consider.
In a sense, it's the same situation that we had with respect to this matter in Colville, where the Indians didn't put in the record any evidence with respect to the burden upon them by these regulations, and therefore the Court felt that since it was on the... the burden was on the retailers, if you will, to put evidence in the record with respect to the burden and absent such evidence this Court upheld the--
Unknown Speaker: You don't think the wholesaler can raise the interest of a third party in not having this rationing system.
Mr. Koppell: --I don't think that they can, and frankly I don't think that they did in this case, even if they could, so the fact... but again, even if we look at that system, and I call to your attention, incidentally, with respect to that a particular affidavit which is in the record on appeal, pages 244 to 246, which describes the system as respects the retailers, and I don't believe that that is impermissible or violates preemption, because I think it's a logical system that allocates the tax-free cigarettes among the retailers, and as I indicated earlier, they don't have to be licensed, they merely have to register, and so again, Your Honors, I urge you to reverse the determination of the court of appeals and sustain the system, and I would request that I reserve the remaining time for rebuttal.
Unknown Speaker: Very well, General Koppell.
Argument of Joseph E. Zdarsky
Mr. Zdarsky: Mr. Chief Justice, and may it please the Court:
We believe that this case is controlled by the Court's decisions in Warren Trading Post v. Arizona Tax Commission, and Central Machinery Company v. Arizona Tax Commission.
Both of those cases held that trade with Indians is preempted by the Federal Indian trader laws, and that there is no room whatsoever for any additional or supplementary State burdens on trade with Indians.
One factual matter that is important to stress is that the respondents are wholesale distributors whose only sales on reservations in New York are to Indians... Indian retail vendors that purchase from us pursuant to the Indian trader laws and regulations which we must comply with with respect to all of those transactions.
It is a separate and distinct transaction from the subsequent retail sales of which my learned colleague complains, and it is our view that this Court has sustained in the Moe, Colville, and Potawatomi cases, reasonable, minimal burdens on retail transactions between an Indian vendor and a non-Indian customer who comes on the reservation, but that the Court has made it very clear in Warren Trading Post and Central Machinery that no burdens whatsoever may be imposed on the sale to an Indian, and that's the business we have.
Unknown Speaker: Well, the Indian vendor that you refer to, the retailers, they are Indian traders too, aren't they?
Mr. Zdarsky: They are in the sense that they--
Unknown Speaker: As far as the act is concerned.
Mr. Zdarsky: --Correct.
Unknown Speaker: They qualify under the act.
Mr. Zdarsky: Insofar as they sell to Indians, they are Indian traders.
Unknown Speaker: So why couldn't you regulate them with the same degree of... considering the Indian Trading Act, if both are subject to the Indian Trading Act?
You're suggesting that wholesalers can be less burdened by the State than retailers?
Mr. Zdarsky: No, sir.
Your Honor, what I am suggesting is that regulation of the wholesale Indian trader, his Indian customer who purchases goods from him, both of those parties and that transaction are regulated by Federal law, and that the Federal law does not provide for the addition of State taxes at the time goods are sold by an Indian trader to another Indian.
Unknown Speaker: The Federal law didn't provide for addition of State taxes at the time the Indian retailers sold to nontribal members.
We nonetheless said it could be done.
Mr. Zdarsky: That's true, Your Honor, and the reason that you did was because sales to non-Indians are not within the scope of the Indian trader laws.
Unknown Speaker: Well, that's not why we said... we didn't even mention the Indian trader law in Moe I don't think, did we?
Mr. Zdarsky: I think... well, Your Honor, I would trust your recollection, but my belief is that in Moe or Colville the Court specifically noted that the Indian trader laws and regulations did not preempt the enforcement of the tax at the retail level because it was a sale to a non-Indian, and that there was an important distinction between Congress' intention to comprehensively regulate sales to Indians and sales to non-Indians where there is no such intent.
I think that was set forth in the Colville case which followed Moe, so the Indian trader laws, insofar as Moe was concerned, I can't recall whether they were raised, but I believe that the Court made the observation in both cases that these were sales to non-Indians, and the problem with counsel's argument is that he would have this Court ignore the fact that there is an intervening transaction between the respondents and the Indians and the non-Indians who purchase on the reservation.
That intervening transaction is a sale to an Indian, and the regulation which New York has adopted imposed significant burdensome requirements on both parties to that regulation... to that sale.
The wholesaler must be a licensed New York State tax agent.
Even if he has no sales to anyone in New York except Indians on reservations, he must be a New York State tax agent.
Unknown Speaker: I thought that General Koppell said that no license would be required for a wholesaler who sold only to Indians.
I heard him say that.
Mr. Zdarsky: --He said... he said--
Unknown Speaker: Do you disagree with that?
Mr. Zdarsky: --Your Honor, I believe what he meant was that no license would be required if he sold only to Indians who in turn sold only to Indians.
When he refers to sales only to Indians, as he did in several points in his argument, he was looking past the retail vendor at the ultimate purchaser.
We don't have anything to do with that ultimate purchaser.
Our clients, the respondents, don't make retail sales to non-Indians on reservations.
We don't have places of business on the reservations.
Our only transactions are sales to Indians on the reservations, and that is why the court of appeals of New York found that Warren Trading Post and Central Machinery controlled in this instance.
Unknown Speaker: None of the retailers on the reservations are non-Indians?
All of the retailers are Indians?
Mr. Zdarsky: All of the retailers are Indians, sir.
Unknown Speaker: Is that a requirement, or just--
Mr. Zdarsky: There's not a requirement, although I think in most--
Unknown Speaker: --In practice, it's--
Mr. Zdarsky: --In most cases on reservations in New York the tribal governments would not approval a non-Indian conducting a retail operation on a reservation, so in this case all of the retail vendors, all of our purchasers, are Indians, and the problem with--
Unknown Speaker: --Well now... now, has this Court indicated that a State can even require an Indian retailer to assume minimum burdens of record-keeping and the collection and payment to the State of taxes on sales by the Indian retailer to non-Indians?
Mr. Zdarsky: --Yes, Justice O'Connor.
Unknown Speaker: And the State says that's all their doing here.
Mr. Zdarsky: But that's not all the State is doing here.
The State is imposing the tax one step further back in the distribution chain at the time of the wholesale transaction.
Section 471 of the New York tax law imposes a tax at the time of the sale by the respondents to their Indian purchasers.
Unknown Speaker: But they say they are only taxing based on projected sales to non-Indians.
That's their scheme, anyway.
Mr. Zdarsky: That's true, and that's what their claim is, but frankly, we have no way of determining whether that is a reasonable scheme.
There are no procedures--
Unknown Speaker: Well, if that's true... if that's true, is there a problem under our cases?
Mr. Zdarsky: --I think so, Your Honor.
I think there's a substantial problem.
Unknown Speaker: Why?
Mr. Zdarsky: Because this Court has recognized that regulating trade with Indians is a Federal matter.
It is so because there should be consistency, because the Federal Government has a responsibility to Indians, because the Federal Government has experience in regulating these matters, and therefore there is a uniform scheme that applies to regulating people who sell to Indians.
That scheme, for better at worse, at this point does not include the right of a State to impose a tax and require the Indian trader to include that tax in the price of the goods and require his Indian purchaser to pay it.
Unknown Speaker: Mr. Zdarsky, in Moe we took up the Warren Trading Post argument and there was argued there that it was contrary to Warren Trading Post to allow the exaction of the sales tax on Indian retailer sales to non-Indians, and we said, unlike the sales tax in Moe, the tax in Warren was imposed directly on the seller, and here to extend that principle to the... the way you're talking about, we refused to do it in Moe.
We expressly refused to do it.
Mr. Zdarsky: Your Honor, I would respectfully disagree with that reading of the case.
Our view of that case was that the rationale for excluding the Warren Trading Post holding was that the sales that were being regulated were simply the retail sales, and what the Court held in Moe was that the State could require the retail vendor to simply add the price, add the tax to the price that he charges his retail customer, and collect the tax at the time of the retail sale.
The Court was careful to stop short of endorsing a scheme that required the Indian to pay that tax, or that endorsed any procedure where the Indian would be required to front that tax to the wholesaler, or anything that would require that the Indian otherwise be burdened.
It was a very minimal thing that only applied at the retail level, and it is important to note in this context, Mr. Chief Justice, that while we obtained in injunction in 1989 that enjoined the State from enforcing these regulations as against the respondents and their sales to Indians at wholesale, there was no injunction that prohibited the State from taking any other action that has been suggested by this Court in its prior cases, including requiring retailers--
Unknown Speaker: Oh, but I would think under you theory you would have been entitled to one.
Under your theory, if it's regulated... as I understand it, you don't contend there's any conflict between any Federal regulation under the Indian Traders Act and the State program, do you?
Mr. Zdarsky: --I do contend there is conflict.
Unknown Speaker: Oh.
I just thought you thought there was kind of a field preemption by the statute.
Mr. Zdarsky: Well, that's our principal argument, that the field has been preempted.
Unknown Speaker: But there is also specific implementing Federal regulations that are in conflict with the--
Mr. Zdarsky: Yes, Justice Stevens.
The Federal Indian trader laws provide that the Commissioner of Indian Affairs, now the Department of Interior, has the sole authority to determine price, quantity, and the kind of goods sold on reservations.
Unknown Speaker: --Well, this doesn't determine price, quantity, or kind, does it?
Mr. Zdarsky: It certainly does, sir.
The statute which New York is seeking to enforce and apply here... section 471... specifically requires that the tax be paid by the Indian as part of the price.
Unknown Speaker: You're saying the tax is part of the price, that's--
Mr. Zdarsky: It is part of the price, and that is specifically expressly provided in the New York statute, and as this Court has held in the past, a tax law--
Unknown Speaker: --What if they amended the New York statute to say, although we used to call it part of the price, we just now all it a surcharge, or something like that.
Then would there be a conflict with the Federal trade... Federal--
Mr. Zdarsky: --Yes, I think there would, because in this Court's decision in the Mississippi Tax Commission cases, which dealt with an analogous circumstance... sales to a Federal instrumentality... there was a wholesale markup that was charged on sales by out-of-State distributors to military bases within the State of Mississippi.
This Court held that because the Mississippi law required that that markup be included in the price charged to the military base and paid by the Federal Government at the time of purchase, that it as a matter of law was a tax on the Federal Government, and struck down that requirement, so whether you call it a tax, a markup, a surcharge--
Unknown Speaker: --I don't see that that case supports your position that there's a conflict between this regulation and--
Mr. Zdarsky: --Well--
Unknown Speaker: --I understand your argument about preemption, but the question I really was leading up to is, why isn't your... why wasn't your preemption position totally controlling of the sale by an Indian retailer to either a non-Indian or an Indian, because it's still governed by the statute, the Federal statute, isn't it?
Mr. Zdarsky: --We are not involved in that subsequent transaction.
Unknown Speaker: No, I understand, but your argument, it seems to me, would have required a different result in the portion of the opinion that the Chief Justice read to you.
That's where I don't quite follow your logic.
Mr. Zdarsky: Mr. Justice Stevens, our position is that the sales to the retail customer do not determine the preemptive effect of the Indian trader laws on the wholesale transaction.
Unknown Speaker: Yes, but wouldn't your 100 percent preemption argument require that there be no regulation of the retail sales by the State, no impact on that at all?
Mr. Zdarsky: --No, because as I understand it, insofar as retailers are selling to non-Indians, by electing to sell to both Indians and non-Indians, this Court has found that those sales that to non-Indians, since they are not covered by the Indian trader laws, that permits the State to impose a minimal burden on that retail seller.
Unknown Speaker: Whereas you sell only to Indians.
Mr. Zdarsky: That's... that's--
Unknown Speaker: That's the principal distinction.
Mr. Zdarsky: --That's right, Your Honor.
Unknown Speaker: But in assessing the burdens that are placed on the wholesalers in connection with that sale, it seems to me that we should look only at the burden on the wholesaler, not any subsequent downstream burden imposed on the subsequent Indian retail sale.
Mr. Zdarsky: I agree.
Unknown Speaker: Let me ask another hypothetical about your position.
Supposing there was a State environmental law.
Say you're dealing with a product that got sour in 3 days, or something like that, and there was an environmental law that required that the product be delivered within 3 days of the purchase agreement, something like maybe milk, that would sour, you'd say the State couldn't impose that requirement if the wholesaler is dealing with Indian retailers to sell milk?
Mr. Zdarsky: I think that that's true, Your Honor, because Congress has not authorized the States--
Unknown Speaker: Right.
Mr. Zdarsky: --to enforce those laws.
However, Congress has authorized States to enforce its own liquor laws with respect to liquor sales, certain sanitary codes which may have application on the reservation, and in numerous other cases.
Our view here is that the State has come to the wrong place with its problem.
Unknown Speaker: Are you saying that it's only Congress that can provide the cure, that the Commissioner could not say, well, this is a pretty good scheme that New York has, so I'm going to adopt a regulation that says all States can do this?
Mr. Zdarsky: I think that the Commissioner could adopt a regulation, Justice Ginsburg, that provides for a scheme that would affect trade with Indians.
I don't think the Commissioner could delegate to the States some power that they would have to adopt a scheme on their own, but a scheme that the Commissioner found proper might well be imposed as a regulation, because the Commissioner has sole authority over sales to Indians on reservations, and he can do that.
Unknown Speaker: Mr. Zdarsky, do you think that if you were selling to a retailer who was not an Indian... hypothetically.
You say you don't have any... but if you were, would you be an Indian trader?
Mr. Zdarsky: Who's not an Indian?
Unknown Speaker: Yes.
Mr. Zdarsky: You would not be.
Unknown Speaker: You sell onto the reservation, to a retailer on the reservation, but that retailer is not an Indian.
Mr. Zdarsky: You would not be an Indian trader as to that transaction, because that transaction is not covered by the Indian trader statutes or regulations.
That transaction is the same as if we sold it--
Unknown Speaker: Even though the resale... even though the sale is onto the reservation and it's known that the resale will be made to Indians, among others.
Mr. Zdarsky: --That's correct, Your Honor, because the Indian trader laws and regulations don't provide that the coverage at the wholesale level is determined by something that happens at a subsequent event at the retail level.
How could we ever, as wholesalers, be bound to monitor transactions which take place by people... we have 30 or 40 customers on our reservation.
Some may sell to the non-Indians, some may not.
The State claims they can't monitor it, but they would like, in their reply brief, to impose on us as the... on the respondents as the wholesaler some obligation, some contingent liability to be responsible for what happens to those cigarettes down the chain.
Unknown Speaker: Suppose it were not a contingent obligation.
Suppose you simply had to sell taxed cigarettes in all cases, and then the Indian retailer could use some refund mechanism which is not your concern?
Mr. Zdarsky: I think that would be worse, Justice Kennedy.
Unknown Speaker: Would it be... as a practical matter, would it be a greater burden on you?
Mr. Zdarsky: Yes, because every dollar that our customer must commit to paying tax to us as opposed to purchasing product limits the ability of the wholesaler to sell goods to that customer.
If he has $1,000 to commit to buying cigarettes, and he has to commit $200 of it to paying a State tax to us, he could purchase... he can't purchase as much as he could otherwise.
Our position is that the State cannot impose any burden on our sales to our customers.
Unknown Speaker: How do you answer the problem of the 15 packs a day for every woman, man, and child on the reservation?
I mean, there's obviously grand scale evasion.
Mr. Zdarsky: But that isn't our... that isn't our doing, Justice Ginsburg.
Unknown Speaker: Are you saying that the State is helpless until either the Commissioner or Congress comes to the rescue?
Mr. Zdarsky: No, I do not, Justice Ginsburg.
The State is not helpless, but they have taken no action, as suggested by this Court, since the injunction was granted in 1989, to try to collect these taxes.
They haven't tried to impose a scheme at the retail level that might be possible, although the Indians claim some treaty rights.
They have not attempted to enter into a tax compact with the tribes that might solve the problem, and, even though they've got 13 or 14 States filing amicus briefs, numerous political heavyweights filing amicus briefs, they haven't gone to Congress, which this Court has suggested is the place to go if you've got a problem with the Indian trader laws.
Unknown Speaker: No, but you're also implicitly saying, leaving aside legislation and agreements, you are implicitly saying, or explicitly saying, that some action could be taken directly against the Indians with respect to the non-Indian sales, and since you are in a derivative position, why aren't you just as open to such action as the retailers would be?
Mr. Zdarsky: Because, Your Honor, we do not agree that we are in a derivative position.
We don't have any involvement or participation with the retail transaction.
We are as separate from that as when we sell to the Coast Guard base, or we sell to the Air Force base.
We have no control over those cigarettes which are sold without taxes if they are sold to members of the family at a PX that are not permitted to purchase, we don't have that control, and we don't have any derivative responsibility as it exists now under New York law.
New York law is set up to provide for imposition of the tax at the wholesale level.
That is our complaint.
That is why we brought this lawsuit, because--
Unknown Speaker: Why aren't you in a derivative position simply because ultimately your complaint rests upon the fact that there is a limitation or a tax upon an Indian sale which in fact is prohibited?
Mr. Zdarsky: --Because our position, Your Honor, is based on the fact that we are selling to an Indian, that Indian transaction, that sale transaction cannot be regulated by the State, and that therefore we are not responsible for the taxes from that point on.
Unknown Speaker: Thank you, Mr. Zdarsky.
Ms. Brinkmann, we'll hear from you.
Argument of Beth S. Brinkmann
Mr. Brinkmann: Thank you, Mr. Chief Justice, and may it please the Court:
We submit that the New York tax regulations are invalid for at least three reasons.
First, they're preempted by Federal Indian trader statutes which occupy the field; second, the State regulations are preempted because they conflict with the Indian trader statutes in the implementing regulations; and third, the State regulations are invalid under the Court's reasoning in Moe and Colville.
Although we believe that pursuant to those cases the State can require wholesalers to collect and remit State taxes on valid sales to Indians and maintain sales records, we believe that the New York regulations go far beyond the requirements that were upheld in those cases.
Unknown Speaker: Well, you then take on the Attorney General in his view of the narrowness of this case.
Mr. Brinkmann: Yes, Your Honor.
Unknown Speaker: You say we cannot decide it as narrowly as he said.
Will you explain why that's--
Mr. Brinkmann: Yes, Your Honor.
Unknown Speaker: --Would you just... did I hear you right, you can require the wholesaler with respect to sales to Indians, did you say, or did you mean non-Indians?
Mr. Brinkmann: We believe under the reasoning of Moe and Colville the State can impose on the wholesaler simple collection and remittance requirements and record-keeping requirement on their sales that are going through Indian retailers to non-Indian.
Unknown Speaker: Collection, remittance, and what else?
Mr. Brinkmann: Of the tax and record-keeping, which this Court upheld in Colville.
Unknown Speaker: Ms. Brinkmann, a fair amount of your brief here was devoted to the effect of the New York regulations on Indian retailers, and yet as I read the New York Court of Appeals opinion, there weren't any Indian retailers involved.
They weren't plaintiffs in this case.
The New York Court of Appeals didn't base any of its reasoning on the fact that there were retailers involved.
Mr. Brinkmann: Your Honor, I think that's similar to the question that was just asked of me also about the question of what's before the Court.
We believe that, as this Court in earlier cases... for example, Potawatomi and elsewhere... has recognized that the Indian trader statutes go to regulating trade, commerce... there are two ends to those transactions, and in assessing the burdens on that commerce or trade, it's necessary to look at both ends.
Also, the New York Court of Appeals did look to some of the burdens on retailers.
Unknown Speaker: But in fact there were no retailers who were parties to this case.
Mr. Brinkmann: That's correct, Your Honor.
Unknown Speaker: So one has to decide it only in terms of the wholesalers' claims, and perhaps wholesalers can claim that they are protected by the Indian trader statutes in their dealing with retailers, but you agree there are no retailers parties here.
Mr. Brinkmann: There are no retailers parties, Your Honor, but I think the New York Court of Appeals recognized the inherent connection between the two ends of commerce and trade.
Unknown Speaker: Well, in effect you're saying that the wholesalers have standing to raise the burdens that are imposed on the retailer.
Mr. Brinkmann: Your Honor, for example, the burden that retailers register with the State, that necessarily is a burden on the wholesalers.
It eliminates their customers if the retailers don't register, so that's the most blatant burden there can be on wholesalers.
They'll have no one to trade with.
Unknown Speaker: What do you say to the respondents' position that there's nothing derivative about his rights?
Mr. Brinkmann: We disagree, Your Honor.
We believe that under the reasoning of the Court in Moe and Colville, that because there is a validly taxed transaction on non-Indians, that there can be a minimal burden of collection on the retailer, that that same minimal burden can be passed through to the wholesaler under the Court's reasoning, they determined that that wasn't a transaction protected by the Indian trader statutes, and absent some showing that it wasn't necessary, that that was permitted so that the State could recoup a valid tax.
Unknown Speaker: Well, do you think the tax can be collected in advance of the sale by the State, if it's a sale to a non-Indian?
Mr. Brinkmann: Yes, Your Honor.
I think under the Court's reasoning in Moe and Colville it could be, unless, of course, the Indian traders could show that it's more than a minimum burden, it's unduly burdensome, or that it's not necessary to avoid--
Unknown Speaker: But the mere fact that it's collected in advance and is in turn transmitted by an Indian retailer does not invalidate the State scheme?
Mr. Brinkmann: --We believe that the Court's analysis in its early opinions in which it permitted the retailers to be required to collect the tax, from that it flows that that can be passed on to the wholesaler.
In Moe, in fact, that was the underlying factual situation.
The retailer would--
Unknown Speaker: The argument being made by Mr. Zdarsky is that the difference is it can only be collected at the time of sale, and no advance payment of the tax can be levied, but I don't understand you to be supporting that argument.
Mr. Brinkmann: --That's correct, Your Honor.
Under Colville, in fact, the factual situation was that the retailers had to prepurchase tax stamps from the State, and then they put it on the pack at the time of the retail sale.
Unknown Speaker: Then do you take issue with New York's effort to estimate the amount of tax that will be required--
Mr. Brinkmann: Yes, Your Honor.
Unknown Speaker: --based on estimated sales to non-Indians?
Mr. Brinkmann: Yes, Your Honor.
We believe that the statutory... the regulatory scheme set up here imposing a system of coupons and quotas and trade territories is a comprehensive regulation scheme that's clearly preempted by the plain language of the Indian trader statutes and also conflicts with those statutes and the regulations, and we should--
Unknown Speaker: I could see how you can say that if you also took the position that you can't make them prepay taxes, but it seems to me rather strange to say that it's not an impermissible burden to make them prepay taxes that are really owed by somebody else, but that they cannot be forced to comply with relatively minimal record-keeping requirements.
Mr. Brinkmann: --Your Honor, I think it's the difference between a mere collection of a tax that as the Court in its earlier cases found was necessary because of a validly imposed tax and a regulatory scheme that in truth--
Unknown Speaker: But how are you going to determine what the prepayment should be?
You said prepayment is valid.
What are they going to pay, on what quantity?
Mr. Brinkmann: --Your Honor, we believe there are several avenues which the State can pursue, and I think one of the issues that we differ is the premise of the wholesale evasion.
Unknown Speaker: Well, what--
Mr. Brinkmann: The--
Unknown Speaker: --First explain to me what... you say prepayment by the wholesaler is all right.
What does the--
Mr. Brinkmann: --As well as the retailer.
Unknown Speaker: --wholesaler tie that prepayment to?
How does it know how many stamps it has to buy per period?
Mr. Brinkmann: For example, in Colville, the Court upheld the record-keeping requirement on the retailers for both sales to Indians and non-Indians.
That simple requirement can also be imposed on the retailer and wholesaler to have a knowledge of where the cigarettes that are being sold are ultimately being sold to.
That record-keeping would inform the wholesaler which of the retailer's cigarettes are being... the quantity which is being sold to non-Indians or Indians.
That's already a requirement that this Court has upheld, and imposing that type of system which... New York has just jumped over that, and has gone to this wholesale regulatory scheme.
Stepping back, if the State--
Unknown Speaker: Can you be a little clearer on exactly what New York could legitimately do in the way of saying, wholesaler, you prepay.
Now, you prepay, how is it determined how much you prepay?
Mr. Brinkmann: --Once the Court makes clear that these taxes are applicable in the State of New York to the retailers and wholesalers, there's no reason to expect that there would be this type of wholesale evasion that's alleged here.
Right now, it's based on good faith belief that these are invalid taxes.
As happened after the Court's declaration of the law in Potawatomi, the State and the tribe went back and entered into a compact.
Here, the State could enter into a compact with the tribes--
Unknown Speaker: Yes, but if it doesn't want to, it seems to me it can stonewall the whole thing by saying yes, you can precollect, but we're simply not going to give you the figures upon which you can base a precollection, and because the other aspects of the scheme have been held to be unduly onerous, that's the end of the precollection scheme.
Mr. Brinkmann: --Your Honor, under Colville we believe that they would be required to provide that record-keeping.
The Court has clearly said that the tribe has to provide the record-keeping to the State for their sales of both Indians and non-Indians under that analysis.
Also, we believe that the State certainly, as Mr. Zdarsky pointed out, the Court has numerous times suggested that they can go to Congress if there is evidence of a real tax collection problem after the law has been made clear.
Also, I think as Justice Ginsburg mentioned, there certainly are avenues--
Unknown Speaker: Well--
Mr. Brinkmann: --through the Department of the Interior if there are regulations--
Unknown Speaker: --that's fine, except that I think, if I understand what you're saying, you're saying the State would simply go to a different collection scheme.
It wouldn't base its collection scheme upon a burden placed upon the wholesaler.
It would place the burden directly on the retailer.
Mr. Brinkmann: --No, Your Honor, we believe that that record-keeping obligation can be also imposed on the wholesaler.
That's where we differ from Mr. Zdarsky.
Unknown Speaker: As an incident of this taxation scheme.
Mr. Brinkmann: Yes.
What we don't agree with is--
Unknown Speaker: I think your time has expired--
Mr. Brinkmann: --Thank you, Your Honor.
Unknown Speaker: --Ms. Brinkmann.
General Koppell, you have 4 minutes remaining.
Rebuttal of G. Oliver Koppell
Mr. Koppell: To be very brief, Mr. Chief Justice, the Central Machinery and Warren Trading Post cases relied on by respondents specifically related to taxes on sellers, in the case of Central Machinery of farm machinery, to Indian tribes and Indians on the reservation.
The Warren case dealt with tax, State tax on gross income of a corporation selling goods at retail to Indians on an Indian reservation.
That's completely different, and not related to what's happening here, and what illustrates that best, Mr. Chief Justice is... and I quote from the Moe decision...
"The State's requirement that an Indian tribal seller collect a tax validly imposed on non-Indians is a minimal burden designed to avoid the likelihood that in its absence non-Indians purchasing from the tribal seller will avoid payment of a concededly lawful tax, since this burden is not, strictly speaking, a tax at all. "
The argument that we are here taxing the Indian trader is simply not so, and it's... the Warren case and the Central Michigan case are completely different.
The tax also is not... it's not part of the price.
If you look in the appendix at page A46 you'll see that the tax has to be added to the price, but it's not part of the price and we're therefore not affecting the price of goods, which is the province of the Federal Government.
We are simply having the tax added to the price on the non-Indian purchaser, which is concededly valid under the Moe decision and the Colville decisions.
Furthermore, if the non-Indian... if there was a non-Indian who was in fact on the reservation and sold to Indians, I believe that that transaction would not be any different from a transaction between the Indian trader wholesaler and the Indian retailers, in answer, I believe it was to your question, Judge... Justice Scalia.
So as I indicated before, the issue here is very narrow.
Unknown Speaker: Excuse me, I'm not sure what you just said.
You would regard a person to be an Indian trader--
Mr. Koppell: --Yes.
Unknown Speaker: --if he wholesales to a non-Indian who retails--
Mr. Koppell: Who is doing business on the reservation, that's correct.
He would be covered by the Indian trader law.
There is no distinction... this is the key.
There's no distinction in Federal law between a retail Indian trader and a wholesale Indian trader, and the very same burdens as have been approved in Colville and Moe and by indirection in Potawatomi are placed upon the wholesalers here and should be upheld.
Unknown Speaker: --Do you have a case for that, that wholesaling to a non-Indian retailer makes you a--
Mr. Koppell: No.
I derive that from a reading of the Indian trader statutes, and what in fact constitutes an Indian trader.
Those are also in the appendix.
But the fact of the matter is that what we are doing here is not at all dissimilar from what was done and approved in Colville and Moe.
Thank you, Your Honor.
Chief Justice Rehnquist: Thank you, General Koppell.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until Monday next at ten o'clock.
Argument of Justice Stevens
Mr. Stevens: The second case, Department of Taxation and Finance of New York against Milhelm Attea & Brothers Et. Al. comes to us form the Court of Appeals of the State of New York.
It involves the validity of a regulatory scheme adapted by New York for the purpose of preventing the evasion of taxes imposed on the sale of cigarets.
Members of Indian tribes who purchase cigarets on Indian reservations are exempt from the tax but non-Indians making purchases on the reservations are required to pay it.
The New York scheme imposes recordkeeping requirements and quotas on the wholesalers who sell untaxed cigarets to reservation Indians.
The legal question is whether that program is in conflict with federal statutes that govern trade with the Indians.
The Court of Appeals held the program invalid but for reasons there stated in the opinion filed with the Clerk, we come to a contrary conclusion and therefore, reverse the judgment of the Court of Appeals.