State sues smoke shops, officials

Drew Edmondson: The attorney general's lawsuit, filed on behalf of the Oklahoma Tax Commission, alleges a conspiracy by several smoke shop owners and Creek Nation officials to violate federal and state laws on Oklahoma cigarette sales.
By OMER GILLHAM World Staff Writer
Published: 2/5/2009 2:35 AM

The Oklahoma Tax Commission is suing more than a dozen Creek Nation smoke shop owners and several Creek Nation officials, alleging that they conspired to violate federal and state laws governing cigarette sales in Oklahoma.

Attorney General Drew Edmondson filed the lawsuit Wednesday in Tulsa County District Court.

The defendants include 15 individuals who own or operate Creek Nation- affiliated smoke shops, including Creek Nation Council member Steve Bruner. Additional defendants are Toney Lee, manager of Muscogee (Creek) Nation Tobacco Wholesale, and Garry Berryhill Sr., manager of Creek Nation Travel Plaza Enterprises.

Creek Nation Tobacco Wholesale is not licensed with the Oklahoma Tax Commission to sell tobacco products in Oklahoma, the lawsuit states.

The filing claims that "the object of the conspiracy was to produce unlawful profits and gain from the sale of cigarettes in violation of the Federal Contraband Cigarette Trafficking Act, the State Complementary Act and State Cigarette Tax Act."

The lawsuit highlights the bitter battle between the Tax Commission and smoke shop owners who have alleged that the state has not negotiated fairly with the tribe for a new tobacco compact.

For the past four years, the Creek Nation has refused to sign a new compact because it allegedly does not protect the historic tax advantage the tribe has had over nontribal retailers.

Without a tobacco compact, Creek-affiliated stores have created various methods of obtaining low-tax cigarettes and cigarettes without state tax stamps to compete in the Tulsa area, a high-tax zone, a Tulsa World investigation has shown.

From the state's point of view, these methods are a conspiracy. In essence, the Tax Commission is alleging that Creek Nation Tobacco Warehouse is coordinating the sale and delivery of millions of packs of cigarettes without Oklahoma tax stamps and which are not listed on the state's master cigarette directory.

The list is derived from the Master Settlement Agreement, reached with cigarette manufacturers in 1998. Seneca, King Mountain and Skydancer brand cigarettes are being sold by the smoke shops but are not on the list, the World investigation showed.

Smoke shop owners from Muskogee, Broken Arrow, Holdenville, Okemah, Tulsa, Okmulgee and elsewhere are alleged to be buying and selling cigarettes without an Oklahoma tax stamp, court records state. Additionally, many of the smoke shops are selling low-tax cigarettes that should be reserved for smoke shops along the Oklahoma border in competition with the tax rates of bordering states.

The lawsuit alleges that between February 2007 and May 2008, Creek Nation Tobacco Wholesale purchased or had delivered 5,330,100 packs of unstamped cigarettes to its headquarters in Okmulgee. The cigarettes allegedly were purchased from Native Wholesale Supply Co. by way of Nevada International Trade Corp., the operator of a foreign trade zone in Las Vegas. The cigarettes were manufactured by Grand River Enterprises Six Nations Ltd.

An investigation by the Tulsa World in August revealed that Native Wholesale Supply was being sued by the state on allegations that it violated the Master Settlement Agreement. The lawsuit was filed in May in Oklahoma County District Court and moved to federal court Aug. 6.

The Tax Commission says the conspiracy is costing the state millions of dollars in tax revenues that are designated to be spent on health initiatives and to reduce the number of smokers in Oklahoma.

The state is seeking damages for the loss of tax revenues caused by the alleged conspiracy and the sale of low-tax cigarettes in high-tax zones, court records show.