Banned Cigarettes: Cabinet secretary's store questioned

SANTA FE, N.M. (AP) – Attorney General Gary King's office said Wednesday it plans to take enforcement action over what it views as the illegal sale of some cigarettes at a store owned by state Indian Affairs Secretary Arthur Allison.

Assistant Attorney General Nan Erdman told a legislative committee the office was investigating the sale of certain cigarettes that are prohibited in New Mexico and the sale of untaxed cigarettes to non-Indians by the Star Ranch Store, which is near Farmington on the Navajo Nation.

She said the office will try to collect taxes that may be owed to the state and fees from some manufacturers. There are other steps that can be taken, including seizing prohibited cigarettes, but Erdman declined to say specifically what the attorney general might do or who will be subject to enforcement actions. Manufacturers and distributors of cigarettes as well as Allison's store could be targeted.

She said letters had been sent to certain manufacturers, whom she declined to identify, asking for their cooperation in the agency's investigation.

Allison has said he turned over operation of the store to his son more than a year ago and hasn't received any compensation from the business since Gov. Susana Martinez appointed him in March to run the Indian Affairs Department. He is the first Navajo appointed to the cabinet-level job.

Allison also has said he intends to relinquish ownership of the family business to his son.

No legislators on the Tobacco Settlement Revenue Oversight Committee have criticized Allison or called for him to step down in light of the investigation.

At issue in the cigarette sales at Allison's store are politically thorny legal questions over tribal sovereignty and the state's legal authority to regulate and tax tobacco sold on tribal land to non-Indians. There's also a financial issue at stake for the state.

Unregulated sales of certain cigarettes by tribal vendors may put New Mexico at risk of losing part of the more than $35 million it receives yearly under a 1998 nationwide settlement with large tobacco companies, according to the attorney general.

Erdman said the attorney general's office had found that Allison's store was selling cigarettes, including Seneca brand, which is not certified to sell its products in New Mexico. Cigarettes also were sold to non-Indians without state tax stamps, which are to be affixed by distributors so New Mexico can track tobacco sales. No problems were found at other vendors on Navajo lands, she said.

In New Mexico, vendors are supposed to buy cigarettes from state-licensed distributors. However, it appears that at least some of the cigarettes sold at Allison's store came from a distributor affiliated with the Winnebago tribe in Nebraska. That distributor is not licensed by the state, according to Erdman.

The Seneca cigarettes are manufactured by Canadian-based Grand River Enterprises, which has sued New Mexico and the attorney general.

The company contends the state can't enforce its cigarette regulations on tribal lands, including a requirement for the manufacturer to pay fees based on its sales. The lawsuit also says the state has no authority to prohibit the sales of Seneca and other cigarettes on tribal lands. The company describes itself as the largest manufacturer of Native American made tobacco products in North America.

Under the 1998 tobacco settlement, companies make payments to states to help cover health costs related to smoking. New Mexico and other states have enacted laws that require other manufacturers such as Grand River Enterprises, which never agreed to be part of the settlement, to set aside similar payments into special funds.

Erdman told lawmakers the state can't collect taxes on cigarette sales on tribal land to tribal members. However, she said retailers on Navajo lands, such as Allison's store, are supposed to charge the full amount of state tax on cigarettes – $1.66 a package – sold to non-Indians.

Under a 2010 law, she said, tribal vendors do not have to charge the New Mexico tax on sales to non-Indian if the tribe imposes its own tax of at least 75-cents-a-pack. Tribes keep revenues from that tax. The Navajo Nation charges a $1 tax but has never certified it with the state Taxation and Revenue Department.