Indian reserves in North America are special territories that enjoy tax breaks on tobacco products. These loosely regulated privileges are frequently abused. Very cheap (tax-free) cigarettes are sold to non-Indians, quotas are exceeded, and illegal factories are flourishing. Eurobsit has previously reported on this phenomenon on the Canadian side of the border, where the austhorities have thus far failed to stamp out the problem. This is an extremely sensitive subject politically, because it affects a minority population which has often been discriminated against and abused by the State. A zone of lawlessness has become virtually established in these Indian reserves. The police do not dare enter these territories or to punish the illegal trade at the root of the problem.
The issue also affects the United States. Some reserves, such as Akwesasne, span the United States/Canada border, and are an excellent opportunity for smugglers. The native peoples there benefit from freedom of movement despite the fact that the reserve spans two national territories.
As such on 11 February 2019, Western New York district court ruled that anti-smuggling federal laws should apply to Amerindian territories, on the basis that these territories are not separate political entities. On the contrary, they must be considered part of the State of New York and subject to its laws.
Grand River Enterprises – which Eurobsit has already reported on in the context of the GRE case, investigating its links to Germany – is an Amerindian company that manufactures cigarettes in Canada. It has emerged that some of its output was being transferred to an Amerindian territory, Native Wholesale, which then transported it onto its territory in the United States in the State of New York, selling them on without paying taxes to the State. The two companies claimed that the cigarettes being sold had transited directly from Canada to the reserve, and needn’t be taxed by the State of New York. But Judge Telesca ruled to the contrary on the basis that these movements had taken place within the State. The American Amerindian territories were indeed part of a reserve, but were first and foremost located within a State.
While Amerindian tribes have always insisted on the special status of taxation in their reserves, and that this system takes priority over the national one, the district tribunal seems to has set a new precedent. This will involve tax harmonization measures on all the transactions carried out between these two territories.