The U.S. Court of Appeals for the Second Circuit yesterday left in place an order exempting Seneca Indian Nation mail-order businesses from complying with the taxing laws of states where they sell cigarettes. The circuit rejected government arguments that Western District Judge Richard Arcara’s July 2010 order granting a preliminary injunction was an abuse of his judicial discretion. Judge Arcara stayed enforcement of certain provisions of last year’s Prevent All Cigarettes Trafficking Act, concluding a group of about 140 Seneca businesses was likely to win its legal challenge against them. He refused to block other key provisions, including one barring retailers from shipping cigarettes through the mail, which forced numerous Seneca businesses to close. In staying the taxing provision, Judge Arcara said the law’s unprecedented requirement that sellers follow the taxing schemes of the cities and states into which they ship cigarettes could have far-reaching effects and deserved a closer look.
A three-judge circuit panel said yesterday in Red Earth LLC v. United States, 10-3165-cv, an unsigned opinion, that Judge Arcara reached “a reasonable conclusion” at this preliminary stage of what is “a close question of law.” Relying on tribal sovereignty, Indian retailers do not collect state sales taxes, allowing them to sell cigarettes at prices far lower than nonnative competitors.
