Oneida Nation of New York v. Andrew Cuomo; Seneca Nation of Indians, et al v. Andrew Cuomo, No. 10-4265 (2d Cir. 2011)
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The Seneca Nation of Indians ("Seneca Nation"), Unkechauge Indian Nation ("Unkechauge Nation"), St. Regis Mohawk Tribe ("Mohawk Tribe"), Cayuga Indian Nation of New York ("Cayuga Nation"), and Oneida Nation of New York ("Oneida Nation") (collectively, "plaintiffs") sought to enjoin amendments to New York's tax law which were designed to tax on-reservation cigarette sales to non-member purchasers. At issue was whether New York's amended tax law interfered with plaintiffs' tribal sovereignty and violated their immunity from state taxation. The court held that plaintiffs failed to demonstrate a likelihood of success on the merits of their claims that the precollection scheme impermissibly imposed a direct tax on tribal retailers, or alternatively, imposed an undue and unnecessary economic burden on tribal retailers; and that the coupon and prior approval systems interfered with their rights of self-government and rights to purchase cigarettes free from state taxation. Accordingly, the district court abused its discretion in granting the Oneida Nation's motion for preliminary injunction and correctly rejected the Seneca Nation's, Cayuga Nation's, Unkechauge Nation's, and Mohawk Tribe's motions for preliminary injunctions.
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10-4265(L) Oneida Nation of New York v. Cuomo 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2010 (Argued: March 15, 2011 Decided: May 9, 2011) Docket Nos. 10-4265(L); 10-4272(con); 10-4598(con); 10-4758(con); 10-4477(XAP); 10-4976(XAP); 10-4981(XAP) ONEIDA NATION OF NEW YORK, Plaintiff-Appellee, SENECA NATION OF INDIANS, ST. REGIS MOHAWK TRIBE, UNKECHAUGE INDIAN NATION, Plaintiffs-Appellees-Cross-Appellants, v. ANDREW M. CUOMO, in his official capacity as Governor of New York, THOMAS H. MATTOX, in his official capacity as Acting Commissioner of the N.Y. Department of Taxation & Finance, RICHARD ERNST, in his official capacity as Deputy Commissioner for the Office of Tax Enforcement for the N.Y. Department of Taxation & Finance, Defendants-Appellants, JOHN MELVILLE, in his official capacity as Acting Superintendent, New York State Police, Defendant-Appellant-Cross-Appellee, CAYUGA INDIAN NATION OF NEW YORK, Intervenor-Appellant. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 Before: WESLEY, CHIN, and LOHIER, Circuit Judges. Consolidated and expedited appeals from three district court proceedings in which Plaintiffs sought to enjoin enforcement of 2010 amendments to New York s tax law: (1) Plaintiff Seneca Nation of Indians and Intervenor Cayuga Indian Nation of New York appeal from an order of the United States District Court for the Western District of New York (Arcara, J.), which denied their motion for a preliminary injunction; (2) Plaintiffs St. Regis Mohawk Tribe and Unkechauge Indian Nation appeal from an order of the United States District Court for the Western District of New York (Arcara, J.), which denied their motion for a preliminary injunction; and (3) New York State Defendants appeal from an order of the United States District Court for the Northern District of New York (Hurd, J.), which granted plaintiff Oneida Nation of New York s motion for a preliminary injunction. Plaintiffs all argue that New York s amended tax law interferes with their tribal sovereignty and violates their immunity from state taxation. We conclude that none of the Plaintiffs has demonstrated a likelihood of success on the merits. Thus, we hold that the Northern District abused its discretion in granting the Oneida Nation an injunction and the Western District properly denied injunctions to the Seneca Nation, Cayuga Nation, Unkechauge Nation, and Mohawk Tribe. The order of the Northern District is VACATED. The two orders of the Western District are AFFIRMED. All stays pending appeal are VACATED and the cases are REMANDED. RIYAZ A. KANJI (Cory J. Albright, Zach Welcker, Kanji & Katzen, PLLC; Christopher Karns, Owen Herne, Seneca Nation of Indians Department of Justice, Salamanca, NY; Carol E. Heckman, Jeffrey A. Wadsworth, David T. Archer, Harter Secrest & Emery LLP, Buffalo, NY, on the brief), Kanji & Katzen, PLLC, Ann Arbor, MI, for Plaintiff-Appellee-Cross-Appellant Seneca Nation of Indians. 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 DAVID W. DEBRUIN (Scott B. Wilkens, Joshua M. Segal, Jenner & Block, LLP; Daniel French, Lee Alcott, French-Alcott, PLLC, Syracuse, NY, on the brief), Jenner & Block, LLP, Washington, D.C., for Intervenor-Appellant Cayuga Indian Nation of New York. JAMES M. WICKS (George C. Pratt, Hillary A. Frommer, Farrell Fritz, P.C.; James F. Simermeyer, New York, NY, on the brief), Farrell Fritz, P.C., Uniondale, NY, for Plaintiff-Appellee-Cross-Appellant Unkechauge Indian Nation. MICHAEL L. ROY (Marsha K. Schmidt, on the brief), Hobbs, Straus, Dean & Walker, LLP, Washington, D.C., for Plaintiff-Appellee-Cross-Appellant St. Regis Mohawk Tribe. MICHAEL R. SMITH (R. Miles Clark, Zuckerman Spaeder, LLP; Peter D. Carmen, Meghan Murphy Beakman, Oneida Nation Legal Department, Verona, NY; Daniel F. Katz, Dennis M. Black, Williams & Connolly, LLP, Washington D.C., on the brief), Zuckerman Spaeder LLP, Washington, D.C., for Plaintiff-Appellee Oneida Nation of New York. ANDREW D. BING (Eric T. Schneiderman, Attorney General of the State of New York, Barbara D. Underwood, Solicitor General, Alison J. Nathan, Special Counsel to the Solicitor General, Steven C. Wu, Assistant Solicitor General, on the brief), Deputy Solicitor General, for Defendants-Appellants Andrew M. Cuomo, Thomas H. Mattox, Richard Ernst, and Defendant-Appellant-Cross-Appellee John Melville. MICHAEL T. FEELEY (Lisa A. Coppola, on the brief), Rupp, Baase, Pfalzgraf, Cunningham & Coppola LLC, Buffalo, NY, for Amicus Curiae Akwesasne Convenience Store Association. 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 MICHAEL A. CARDOZO (Eric Proshansky, Aaron M. Bloom, William H. Miller, on the brief), Corporation Counsel of the City of New York, New York, NY, for Amicus Curiae the City of New York. RICHARD T. SULLIVAN, Harris Beach PLLC, Buffalo, NY, for Amicus Curiae New York Association of Convenience Stores. THOMAS G. JACKSON (Meagan A. Zapotocky, on the brief), Phillips Nizer, LLP, New York, NY, for Amicus Curiae New York State Association of Tobacco and Candy Distributors, Inc.* WESLEY, Circuit Judge: 20 The Seneca Nation of Indians ( Seneca Nation ), 21 Unkechauge Indian Nation ( Unkechauge Nation ), St. Regis 22 Mohawk Tribe ( Mohawk Tribe ), Cayuga Indian Nation of New 23 York ( Cayuga Nation ), and Oneida Nation of New York 24 ( Oneida Nation ) (collectively Plaintiffs ) seek to enjoin 25 amendments to New York s tax law, which are designed to tax 26 on-reservation cigarette sales to non-member purchasers. 27 Plaintiffs argue that the amended tax law interferes with 28 their tribal sovereignty and fails to ensure their access to 29 tax-free cigarettes for personal use. * In three separate We grant the outstanding motion of New York State Association of Tobacco and Candy Distributors, Inc. for leave to file an amicus brief. We have received and considered the brief in the disposition of this appeal. 4 1 district court proceedings, Plaintiffs moved to enjoin New 2 York officials ( State Defendants ) from implementing the 3 amended tax law. 4 preliminary injunction motions of the Seneca and Cayuga 5 Nations (Arcara, J.) as well as the Unkechauge Nation and 6 Mohawk Tribe (Arcara, J.) but stayed implementation of the 7 amended tax law pending appeal. 8 (Hurd, J.) granted the Oneida Nation s motion for a 9 preliminary injunction. The Western District denied the The Northern District We conclude that none of the 10 Plaintiffs has demonstrated a likelihood of success on the 11 merits. 12 discretion in granting the Oneida Nation a preliminary 13 injunction. 14 denied injunctions to the Seneca Nation, Cayuga Nation, 15 Unkechauge Nation, and Mohawk Tribe. 16 the order of the Northern District and affirm the two orders 17 of the Western District. 18 cases. Thus, we hold that the Northern District abused its We also hold that the Western District properly 19 20 21 We therefore vacate We vacate all stays and remand the BACKGROUND I. New York Tax Law New York currently imposes a $4.35 per pack excise tax 22 on all non-exempt cigarettes sold in the State. 23 Law § 471(1) (McKinney 2010). N.Y. Tax The consumer bears the 5 1 ultimate incidence of and liability for the tax, id. § 2 471(2), and willful evasion of the tax is a misdemeanor, id. 3 § 1814(f).1 4 ( Department ) precollects the tax from a limited number 5 of state-licensed stamping agents, see id. § 471(2), and 6 mandates that these agents be the only entry point for 7 cigarettes into New York s stream of commerce, N.Y. Comp. 8 Codes R. & Regs. tit. 20, § 74.3(a)(1)(iii) (2010). 9 Stamping agents, often wholesalers themselves,2 purchase tax New York s Department of Taxation and Finance 10 stamps from the State and cigarettes from manufacturers. 11 Before selling the cigarettes to other wholesalers or 12 retailers, agents must affix a stamp to each pack of 13 cigarettes to demonstrate payment of the tax. 14 § 74.3(a)(2). 15 the pack s price and pass the cost along the distribution 16 chain to the consumer. Id. Agents incorporate the cost of the stamp into N.Y. Tax Law §§ 471(2),(3). 1 Within twenty-four hours after liability for the tax accrues, each such person shall file with the commissioner a return in such form as the commissioner may prescribe together with a remittance of the tax shown to be due thereon. N.Y. Tax Law § 471-a. 2 Not all cigarette wholesalers are stamping agents. describing the amended tax law, however, we use the terms interchangeably. 6 In 1 II. Cigarette Sales on Indian Reservations 2 Federal law prohibits New York from taxing cigarette 3 sales to enrolled tribal members on their own reservations 4 for personal use. 5 Tribes of Flathead Reservation, 425 U.S. 463, 475 81 (1976). 6 New York may, however, tax [o]n-reservation cigarette sales 7 to persons other than reservation Indians. 8 Taxation & Fin. of N.Y. v. Milhelm Attea & Bros., Inc., 512 9 U.S. 61, 64 (1994) (citing Washington v. Confederated Tribes See Moe v. Confederated Salish & Kootenai Dep t of 10 of Colville Reservation, 447 U.S. 134, 160 61 (1980)). 11 on-reservation sale of both taxable and tax-free cigarettes 12 and New York s limited on-reservation taxing authority 13 complicate collection and enforcement. 14 The In the late 1980s, the Department determined that the 15 volume of untaxed cigarettes that reservation retailers sold 16 would, if consumed exclusively by tax-immune Indians, 17 correspond to a consumption rate 20 times higher than that 18 of the average New York resident. 19 substantial number of non-Indian New Yorkers clearly 20 purchased their cigarettes from reservation retailers 21 without paying the tax to either the retailer or the 22 Department. 23 cost New York $65 million annually. Id. at 65. A The Department estimated the tax evasion to 7 Id. 1 The Department first attempted to collect these taxes 2 in 1988 by promulgating regulations similar to those 3 Plaintiffs now challenge.3 4 1988 regulations, and the scheme appeared ready for 5 implementation. 6 implemented the regulations, however, due to additional 7 litigation, civil unrest, and failed negotiations between 8 the State and individual nations and tribes.4 9 the Department repealed the regulations in 1998. The Supreme Court upheld the See id. at 78. The Department never Consequently, Despite 10 the New York Legislature s repeated efforts to the contrary, 11 the Department adopted a forbearance policy and allowed 12 wholesalers to sell untaxed cigarettes to recognized tribes 13 and reservation retailers without restriction. 14 Under the forbearance policy, non-member evasion of the 15 cigarette tax proliferated. For example, the Unkechauge 16 Nation has an estimated 376 enrolled members and yearly 3 Cayuga Indian Nation of N.Y. v. Gould, 14 N.Y.3d 614, 622 29, cert. denied, 131 S. Ct. 353 (2010), contains a political and regulatory history of New York s prior attempts to tax on-reservation cigarette sales to non-member purchasers. See also Note, A Tale of Three Sovereigns: The Nebulous Boundaries of the Federal Government, New York State, and the Seneca Nation of Indians Concerning State Taxation of Indian Reservation Cigarette Sales to Non-Indians, 79 Fordham L. Rev. 2301, 2338-40 (2011). 4 The issues in this appeal do not turn on the distinction between the title of nation or tribe. For ease of exposition, when describing the amended tax law we use tribe to mean nation and/or tribe. When referring to Plaintiffs, we adhere to their titles of Nation or Tribe. 8 1 probable demand5 of 3,240 cigarette cartons (10 packs per 2 carton). 3 million untaxed cigarette cartons from state-licensed 4 stamping agents in 2009 and 3.5 million untaxed cartons from 5 January through June 2010. 6 consumed these cigarettes, every man, woman, and child would 7 have smoked 364 packs per day in 2009. 8 present similar figures for the other Plaintiffs.6 9 Unkechauge retailers purchased approximately 5 If only Unkechauge members had State Defendants The Department estimates that curbing tax evasion on 10 reservations will generate approximately $110 million in 11 annual tax revenue. 12 to collect taxes on non-member, on-reservation cigarette 13 sales. 14 February 2010. 15 amended New York Tax Law §§ 471 and 471-e, and the Accordingly, New York once again seeks The Department revoked its forbearance policy in In June 2010, the New York Legislature 5 As discussed in more detail below, the Department calculates each tribe s yearly probable demand based upon population statistics for each tribe and per-capita smoking statistics released by the federal government, along with consideration of evidence of past consumption. See N.Y. Comp. Codes R. & Regs. tit. 20, § 74.6(e). 6 The Seneca Nation has an estimated 7,967 members and yearly probable demand of 67,440 cartons. It purchased 10 million untaxed cartons in 2009 from state-licensed distributors. It sold approximately half of those cigarettes tax-free to out-of-state purchasers. The Mohawk Tribe has an estimated 13,784 members and yearly probable demand of 116,640 cartons. It purchased over 1 million untaxed cartons in 2009. The Oneida Nation has an estimated 1,473 members and a yearly probable demand of 12,480 cartons. It purchased 1.5 million untaxed cartons in 2009. The Department did not present these figures for the Cayuga Nation. 9 1 Department adopted regulations to implement the tax on 2 reservation sales.7 3 Memorandum explaining certain aspects of the tax scheme. 4 See Amendments to the Tax Law Related to Sales of Cigarettes 5 on Indian Reservations Beginning September 1, 2010, TSB-M- 6 10(6)M, (8)S (July 29, 2010) [hereinafter Technical 7 Memorandum ]. 8 regulations, and Technical Memorandum (collectively amended 9 tax law or amendments ) create a system to collect the The Department also issued a Technical Together, the 2010 amendments, new 10 excise tax on cigarette sales to non-members while exempting 11 sales to tribal members for personal use. 12 were scheduled to take effect September 1, 2010, but 13 enforcement has been stayed due to the Northern District s 14 preliminary injunction and the Western District s stays 15 pending appeal. 16 III. Amended Tax Law The amendments 17 The amended tax law requires state-licensed stamping 18 agents (i.e. wholesalers) to prepay the tax and affix tax 19 stamps on all cigarette packs, including those intended for 20 resale to tax-exempt Indians. See N.Y. Tax Law § 471(2); 7 The Seneca Nation challenged the validity of the Department s regulations under New York s Administrative Procedure Act ( SAPA ). See Seneca Nation of Indians v. New York, No. 2011-000714 (N.Y. Sup. Ct. Erie Cnty.). As of this time, the Seneca Nation intends to seek an injunction against implementation of the regulations based on the Department s purported failure to comply with SAPA. 10 1 N.Y. Comp. Codes R. & Regs. tit. 20, §§ 74.6(a)(2),(3). To 2 account for tribal tax immunity, the amendments distinguish 3 between taxable and tax-free cigarettes sold to tribes or 4 reservation retailers. 5 sold on an Indian reservation to non-members of the Indian 6 nation or tribe. 7 purchasing inventory of taxable cigarettes, tribes or 8 reservation retailers must prepay the tax to wholesalers. 9 Because the tax does not apply to cigarettes sold to The tax applies to all cigarettes N.Y. Tax Law § 471(1). Thus, when 10 qualified Indians for their own use and consumption on their 11 nations or tribes qualified reservation, id. § 471(1),8 12 tribes or reservation retailers may purchase a limited 13 quantity of cigarettes without prepaying the tax to 14 wholesalers. 15 of taxes prepaid on cigarettes eventually sold tax-free. 16 See id. §§ 471(5)(b), 471-e(4). 17 Wholesalers, in turn, are entitled to refunds To prevent non-exempt purchasers from evading the tax, 18 the amendments limit the quantity of untaxed cigarettes 19 wholesalers may sell to tribes or tribal retailers. 20 limitation mirrors each tribe s probable demand. 21 id. § 471-e(2)(b); N.Y. Comp. Codes R. & Regs. tit. 20, § 8 This See Whether taxable or tax-free, all cigarettes must bear a tax stamp. Thus, tribal members will purchase stamped, albeit tax-free, cigarettes for personal use. N.Y. Tax Law § 471(2). 11 1 74.6(e). To calculate probable demand, the Department 2 analyzes a tribe s population and per-capita smoking 3 statistics. 4 74.6.9 5 consumption for the Department s consideration. 6 this appeal, Plaintiffs do not challenge the Department s 7 probable demand figures. See N.Y. Comp. Codes R. & Regs. tit. 20, § Additionally, tribes may submit evidence of prior Id. In 8 The amendments offer two mechanisms by which tribes and 9 reservation retailers may obtain tax-free cigarettes: (1) an 10 Indian tax exemption coupon system and (2) a prior 11 approval system. 12 Codes R. & Regs. tit. 20, § 74.6(a)(4).10 See N.Y. Tax Law § 471(1); N.Y. Comp. 9 The annual amount of stamped untaxed packages of cigarettes will be determined using a probable demand methodology as follows: (A) the most recent U.S. Census data available on tribal populations in New York State is obtained and then increased by ten percent for each Indian nation or tribe to allow for potential undercounting in Census enumeration and for nation or tribal use and (B) each Indian nation s or tribe s adjusted population is then multiplied by average annual per capita consumption amounts, as produced annually by the federal government, for cigarettes. The estimated annual consumption amounts for each Indian nation or tribe are then prorated to quarterly periods for each of the four quarters . . . . [T]hese amounts are subject to adjustment based on evidence provided by the Indian nations or tribes as to their actual consumption amounts for these periods. N.Y. Comp. Codes R. & Regs. tit. 20, § 74.6(e)(1). 10 The amendments also provide a third option private agreement between an individual tribe and New York State: If an Indian nation or tribe enters into an agreement with the state and the legislature approves such agreement or if an Indian nation or tribe enters into an agreement with the state that is part of a stipulation and order approved by a federal court of competent jurisdiction regarding the sale and distribution of 12 1 A. Coupon System 2 The recognized governing body of an Indian . . . tribe 3 may annually elect to participate in the Indian tax 4 exemption coupon system for that year. 5 e(1)(b). 6 a tribal governing body elects the coupon system, the 7 Department provides the tribal government a quantity of tax 8 exemption coupons each quarter that corresponds to the 9 tribe s probable demand. N.Y. Tax Law § 471- No Plaintiff has elected the coupon system.11 See id. § 471-e(2)(a). If The tribal 10 government may use all or part of the coupons itself or 11 distribute them to its reservation retailers. 12 neither the statute nor the regulations require tribal 13 governments to distribute coupons among private retailers, 14 the State expressly intend[s] that the Indian . . . tribes 15 will retain the amount of Indian tax exemption coupons they Although cigarettes on the nation s or tribe s qualified reservation, the terms of such agreement shall take precedence over the provisions of this article and exempt sales to non-members of the tribe or nation and non-Indians by such nation from such taxes to the extent that such taxes are specifically referred to in the agreement, and the sale or distribution, including transportation, of any cigarettes to the nation s or tribe s qualified reservation shall be in accordance with the provisions of such agreement. N.Y. Tax Law § 471(6). No agreements have been reached. 11 Typically, a tribal government must elect to participate in the coupon system by August 15. N.Y. Comp. Codes R. & Regs. tit. 20, § 74.6(b)(1). The Department, however, may allow late election, which it has done here due to the litigation delays. See id. § 74.6(b)(1)(ii). 13 1 need each quarter . . . , and will distribute the remaining 2 Indian tax exemption coupons to reservation cigarette 3 sellers on such . . . tribe s qualified reservations. 4 Tribes or reservation retailers then exchange the coupons 5 with wholesalers to purchase cigarettes without paying the 6 cost of the excise tax. 7 these cigarettes tax-free. 8 coupons to the Department for a refund of prepaid taxes. 9 Id. § 471-e(4). Id. Id. Tribal members may purchase Wholesalers, in turn, submit the 10 B. Prior Approval System 11 Where a tribal government does not elect to participate 12 in the coupon system, the prior approval system governs by 13 default. 14 must obtain the Department s approval before selling 15 cigarettes tax-free to a tribal government or retailer. 16 § 471(5)(b). 17 reservation retailer tax-free without the Department s prior 18 approval violate the terms of Article 20 of the Tax Law, 19 N.Y. Comp. Codes R. & Regs. tit. 20, § 74.6(d)(3), and face 20 sanctions, see N.Y. Tax Law § 484(5). 21 prior approval and proof of a legitimate tax-free sale, 22 wholesalers cannot recoup prepaid taxes. 23 Id. § 471(5)(a). Under this system, wholesalers Id. Wholesalers who sell cigarettes to a tribe or Moreover, without Both the statute and regulations authorize the 14 1 Department to determine the manner and form by which it 2 grants prior approval. 3 Comp. Codes R. & Regs. tit. 20, § 74.6(d)(3). 4 Department has provided a general description of the prior 5 approval system s intended operation. 6 Memorandum 5.12 7 display each tribe s quarterly tax-exempt allotment. 8 Department contemplates that [u]pon receipt of a purchase 9 request from a . . . tribe or reservation cigarette seller, See N.Y. Tax Law § 471(5)(b); N.Y. The See Technical According to the Department, a website will The 10 a wholesaler will sign into the website, check the tribe s 11 available allotment, and request approval to sell all or 12 part of that allotment. 13 submitted, the remaining quantity available [on the 14 website] will be reduced. 15 has forty-eight hours from the time of prior approval to 16 sell the tax-exempt quantity to the applicable tribe or 17 retailer and confirm the sale with the Department. 18 Department expedites refunds for confirmed tax-exempt sales. 19 N.Y. Tax Law § 471(5)(b). Id. at 5 6. Id. at 6. Once the request is The wholesaler then Id. The If the wholesaler does not 12 The Technical Memorandum contains the following statement: A [Technical Memorandum] is an informational statement of changes to the law, regulations, or Department policies. It is accurate on the date issued. Subsequent changes in the law or regulations, judicial decisions, Tax Appeals Tribunal decisions, or changes in Department policies could affect the validity of the information presented in a [Technical Memorandum]. Technical Memorandum 8. 15 1 confirm the sale within forty-eight hours, then the balance 2 of the quantity not reported as sold will be added back to 3 the quantity available for Indian tax-exempt sales. 4 Technical Memorandum 6. 5 Department in response to evidence that the prior approval 6 system operates to prevent tribal members from receiving an 7 adequate supply of tax-free cigarettes for personal and 8 tribal use. 9 IV. Plaintiffs Tobacco Economies 10 The website may be modified by the The Seneca Nation has licensed approximately 172 11 tobacco retailers and twenty-eight wholesalers. 12 members own and operate the wholesale and retail entities. 13 The Seneca Nation s government regulates its private tobacco 14 economy under the tribal Import-Export Law and accompanying 15 regulations. 16 cigarettes imported onto Seneca property. 17 Seneca It assesses a $0.75 per carton tax on all The Unkechauge Nation has licensed approximately 18 twenty-five cigarette retailers. Unkechauge members own and 19 operate the retail entities. 20 governing Tribal Council regulates its tobacco economy 21 through a strict licensing regime and tribal resolutions. 22 Unkechauge Br. 8. 23 approves which wholesalers may sell cigarettes to Unkechauge The Unkechauge Nation s The Council licenses member retailers and 16 1 retailers. 2 purchases cigarettes from only two State licensed 3 wholesalers, who are themselves licensed by the Tribal 4 Council. 5 Tribal Council limits the number of cartons each retailer 6 may purchase from wholesalers, fixes the price of tobacco 7 products, and levies a $1 per carton fee on retail sales. 8 Id. at 9. 9 Under this regime, the [Unkechauge] Nation Id. Additionally, under tribal resolutions, the The Mohawk Tribe has licensed approximately thirty 10 cigarette retailers. Mohawk members own and operate the 11 retail entities. 12 floor and licenses tribal wholesalers and retailers. 13 tribal entities seeking to do business with Mohawk entities 14 must obtain a Tribal Vendors Permit from the Tribal 15 Council. 16 on all tobacco products. The Mohawk Tribe imposes a tobacco price Non- The Council also assesses a Tribal Tobacco Fee 17 Unlike the Seneca Nation, Unkechauge Nation, and Mohawk 18 Tribe, the governing bodies of the Cayuga and Oneida Nations 19 centralize tobacco retail within their respective 20 territories. 21 independent stores, and the tribal governments do not tax or 22 regulate their tobacco economies. 23 and operates two retail stores that sell cigarettes to both Cayuga and Oneida members do not own 17 The Cayuga Nation owns 1 members and non-members. The record does not reflect the 2 number of retail stores the Oneida Nation operates. 3 Oneida Nation indicates, however, that it keeps 80,000 4 cigarette cartons in inventory at nearly all times for sale 5 to non-member purchasers from Oneida-owned stores. 6 V. The Procedural Posture 7 This consolidated appeal arises from three separate 8 district court proceedings: (1) Seneca Nation and Cayuga 9 Nation in the Western District, see Seneca Nation of Indians 10 v. Paterson, No. 10-CV-687A, 2010 WL 4027796 (W.D.N.Y. Oct. 11 14, 2010) (Arcara, J.); (2) Unkechauge Nation and Mohawk 12 Tribe in the Western District, see Unkechauge Indian Nation 13 v. Paterson, Nos. 10-CV-711A, 10-CV-811A, 2010 WL 4486565 14 (W.D.N.Y. Nov. 9, 2010) (Arcara, J.); and (3) Oneida Nation 15 in the Northern District, see Oneida Nation of N.Y. v. 16 Paterson, No. 6:10-CV-1071, 2010 WL 4053080 (N.D.N.Y Oct. 17 14, 2010) (Hurd, J.). 18 In their respective suits, all Plaintiffs moved for 19 preliminary injunctions and raised similar arguments. 20 Western District denied preliminary injunctions in both 21 proceedings, concluding that the Seneca Nation, Cayuga 22 Nation, Unkechauge Nation, and Mohawk Tribe each failed to 23 demonstrate a likelihood of success on the merits. 18 The See 1 Seneca Nation, 2010 WL 4027796, at *9; Unkechauge Indian 2 Nation, 2010 WL 4486565, at *6. 3 stays in both proceedings pending this interlocutory appeal. 4 State Defendants appealed both stays, and the Nations and 5 Tribe cross-appealed the denial of the injunctions. 6 contrast, the Northern District granted the Oneida Nation s 7 motion for a preliminary injunction. 8 4053080, at *8 9. 9 However, the court granted By Oneida Nation, 2010 WL State Defendants appealed.13 On appeal, the Oneida, Cayuga, and Unkechauge Nations 10 argue that the precollection mechanism either imposes an 11 impermissible direct tax on tribal retailers, or 12 alternatively, imposes an undue and unnecessary economic 13 burden on tribal retailers. 14 argue that the amended tax law s dual allocation mechanisms 15 the coupon and prior approval systems interfere with 16 their right of self-government, unduly burden tribal 17 retailers, and fail to adequately ensure members access to 18 tax-free cigarettes. 19 Plaintiffs have not demonstrated that they are likely to Additionally, all Plaintiffs At this stage in the litigation, 13 A motions panel of this Court consolidated and expedited the appeals. It also denied State Defendants motion to stay the Northern District s preliminary injunction and to vacate the Western District s stays pending appeal. 19 1 prevail on any of these arguments.14 2 DISCUSSION 3 4 I. Standard of Review The fundamental question presented in these cases is 5 whether Plaintiffs presented evidence that would justify a 6 preliminary injunction prohibiting enforcement of the 7 amended tax law. 8 grant or deny a preliminary injunction for abuse of 9 discretion. We review a district court s decision to SEC v. Dorozhko, 574 F.3d 42, 45 (2d Cir. 10 2009). An abuse of discretion occurs if the district court 11 (1) based its ruling on an erroneous view of the law, (2) 12 made a clearly erroneous assessment of the evidence, or (3) 13 rendered a decision that cannot be located within the range 14 of permissible decisions. 15 F.3d 94, 99 (2d Cir. 2009) (internal quotation marks 16 omitted). Lynch v. City of New York, 589 Under abuse of discretion review, the factual 14 The Mohawk Tribe abandoned the argument raised below that the amended tax law violates Equal Protection. Likewise, the Seneca Nation has abandoned its argument that the amended tax law is unduly burdensome because it fails to account for reservation sales to outof-state purchasers. The Unkechauge Nation raises five arguments not made by the other Plaintiffs: (1) the prior approval system violates the Indian Trader Statutes; (2) the precollection mechanism violates the Takings Clause of the Fifth and Fourteenth Amendments, and the New York State Constitution; (3) the Western District abused its discretion by denying a preliminary injunction without holding an evidentiary hearing; (4) the Western District abused its discretion in denying a motion for mediation; and (5) this Court should certify certain questions to the New York Court of Appeals. We have considered each of these arguments and find them to be without merit. 20 1 findings and legal conclusions underlying the district 2 court s decision are evaluated under the clearly erroneous 3 and de novo standards, respectively. 4 Sch. Dist., 561 F.3d 97, 103 (2d Cir. 2009) (citation and 5 brackets omitted). 6 Garcia v. Yonkers Generally, a party seeking a preliminary injunction 7 must establish (1) irreparable harm and (2) either (a) a 8 likelihood of success on the merits, or (b) sufficiently 9 serious questions going to the merits of its claims to make 10 them fair ground for litigation, plus a balance of the 11 hardships tipping decidedly in favor of the moving party. 12 Monserrate v. N.Y. State Senate, 599 F.3d 148, 154 (2d Cir. 13 2010) (quoting Lynch, 589 F.3d at 98). 14 moving party must show that a preliminary injunction is in 15 the public interest. 16 Inc., 555 U.S. 7, __, 129 S. Ct. 365, 374 (2008). 17 Additionally, the Winter v. Natural Res. Def. Council, A party seeking to enjoin governmental action taken in 18 the public interest pursuant to a statutory or regulatory 19 scheme cannot rely on the fair ground for litigation 20 alternative even if that party seeks to vindicate a 21 sovereign or public interest. 22 (internal quotation marks omitted). 23 present appeal, Plaintiffs must establish a likelihood of Monserrate, 599 F.3d at 154 21 Thus, to succeed in the 1 success on the merits. Because we conclude that Plaintiffs 2 have failed to satisfy this burden, there is no need to 3 address the other prongs of the analysis. 4 n.3. 5 II. Likelihood of Success on the Merits See id. at 154 & 6 A. Applicable Law 7 The Supreme Court has long recognized that Indian 8 tribes possess attributes of sovereignty over both their 9 members and their territory. White Mountain Apache Tribe 10 v. Bracker, 448 U.S. 136, 142 (1980) (internal quotation 11 marks omitted). 12 living on tribal reservations, McClanahan v. State Tax 13 Comm n of Ariz., 411 U.S. 164, 165 (1973), vests tribes and 14 their enrolled members with the federally protected right 15 to make their own laws and be ruled by them, Williams v. 16 Lee, 358 U.S. 217, 220 (1959). 17 have authority to prescribe the conduct of their members, 18 New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 332 19 (1983), create economic policies, and tax economic 20 activities within their territories, see, e.g., Merrion v. 21 Jicarilla Apache Tribe, 455 U.S. 130, 137 39 (1982). 22 23 The semi-autonomous status of Indians Among other things, tribes The Constitution vests the Federal Government with exclusive authority over relations with Indian Tribes. 22 1 Montana v. Blackfeet Tribe of Indians, 471 U.S. 759, 764 2 (1985) (citing U.S. Const. art. I, § 8, cl. 3). 3 corollary of this authority, and in recognition of the 4 sovereignty retained by Indian tribes . . . , Indian tribes 5 and individuals generally are exempt from state taxation 6 within their own territory. 7 Congressional authorization, [s]tates are categorically 8 barred from placing the legal incidence of an excise tax on 9 a tribe or on tribal members for sales made inside Indian Id. As a Consequently, absent 10 country. 11 U.S. 95, 101-02 (2005) (internal quotation marks and 12 citation omitted). 13 Wagnon v. Prairie Band Potawatomi Nation, 546 The situation is different, however, when a state seeks 14 to tax non-members who engage in economic transactions on 15 Indian reservations. 16 Nation, 515 U.S. 450, 459 (1995). 17 a state tax scheme over on-reservation, non-member 18 activities to a particularized inquiry into the nature of 19 the state, federal, and tribal interests at stake. 20 Bracker, 448 U.S. at 145. 21 conceptions of state or tribal sovereignty, this interests- 22 balancing analysis instead determine[s] whether, in the 23 specific context, the exercise of state authority would See Okla. Tax Comm n v. Chickasaw Here, courts must subject Eschewing mechanical or absolute 23 1 violate federal law. Id. 2 In the context of cigarette sales, the balancing of 3 state and tribal interests is informed by two judgments that 4 are well-established in the caselaw. 5 purchasers are consistently willing and able to evade state 6 cigarette taxes by purchasing their cigarettes from 7 reservation retailers. 8 Second, the revenue tribes and retailers gain from cigarette 9 sales to non-members derives from the marketing of a tax First, non-Indian Cf. Colville, 447 U.S. at 145. 10 exemption, not from value generated on the reservations by 11 activities in which the [t]ribes have a significant 12 interest. 13 Id. at 155. In recognition of the foregoing, the Supreme Court has 14 stated that principles of federal Indian law, whether 15 stated in terms of pre-emption, tribal self-government, or 16 otherwise, [do not] authorize Indian tribes . . . to market 17 an exemption from state taxation to persons who would 18 normally do their business elsewhere. 19 so because [s]tates have a valid interest in ensuring 20 compliance with lawful taxes that might easily be evaded 21 through purchases of tax-exempt cigarettes on reservations; 22 that interest outweighs tribes modest interest in offering 23 a tax exemption to customers who would ordinarily shop 24 Id. at 155. That is 1 elsewhere. Milhelm Attea, 512 U.S. at 73. A state s 2 interest in ensuring the collection of taxes on cigarette 3 sales to non-Indians continues to outweigh a tribe s 4 countervailing interests even when collection of an excise 5 tax seriously disadvantages or eliminates the Indian 6 retailer s [cigarette] business with non-Indians. 7 Colville, 447 U.S. at 151. 8 Furthermore, tribes do not oust a state s taxing 9 authority merely by collecting tribal taxes on reservation 10 cigarette sales and regulating their cigarette economies. 11 See id. at 158 59. 12 [t]ribes power to regulate tribal enterprises simply by 13 imposing its tax on sales to non-members. 14 fact, the balance of interests favors state taxation of 15 cigarette sales to non-members even where collection of the 16 state tax deprives tribes of their own tax revenues. 17 156. A state does not interfere with the Id. at 159. In Id. at 18 In light of this balance of interests, the Supreme 19 Court has determined that to enforce valid state taxation of 20 on-reservation cigarette sales, states may impose on 21 reservation retailers minimal burdens reasonably tailored to 22 the collection of valid taxes from non-Indians. 23 Attea, 512 U.S. at 73. Milhelm As a result, a party challenging a 25 1 state cigarette tax must establish that a state s collection 2 mechanism is unduly burdensome and not reasonably tailored 3 to collection of the taxes. 4 On several occasions, the Supreme Court has found collection 5 mechanisms similar to those at issue in this appeal to be 6 consistent with principles of federal Indian law. See Colville, 447 U.S. at 160. 7 1. 8 In Moe v. Confederated Salish & Kootenai Tribes of 9 Law Regarding Precollection of the Tax Flathead Reservation, the Court upheld a Montana tax law 10 that required the cigarette seller to prepay the tax and add 11 the tax to the cigarette s retail price. 12 (1976); see also Moe v. Confederated Salish & Kootenai 13 Tribes of Flathead Reservation, 392 F. Supp. 1297, 1308 (D. 14 Mont. 1974) (describing the tax as an advance payment 15 [which] shall be added to the price of the cigarettes and 16 recovered from the ultimate consumer or user. ) (internal 17 quotation marks omitted). 18 argued that precollection of the tax infringed tribal 19 sovereignty because the tribal retailer has been taxed, and 20 . . . has suffered a measurable out-of-pocket loss. 21 425 U.S. at 481. 22 the legal incidence of the tax fell upon non-member 23 purchasers. 425 U.S. 463, 483 There, like here, the tribe Moe, The Court rejected this argument because Id. at 481 82. The Court reasoned that 26 1 prepayment was not, strictly speaking, a tax at all, but 2 rather constituted the simpl[e] requirement that the 3 Indian proprietor . . . add the tax to the sales price and 4 thereby aid the State s collection effort. 5 Consequently, the Court held that Montana s requirement 6 that the Indian tribal seller collect a tax validly imposed 7 on non-Indians is a minimal burden designed to avoid the 8 likelihood that in its absence non-Indians purchasing from 9 the tribal seller will avoid payment of a concededly lawful 10 11 tax. Id. at 483. Id. Similarly, in Colville, the Court upheld a Washington 12 precollection scheme that required retailers to either 13 purchase prestamped cigarettes from wholesalers or purchase 14 tax stamps directly from the state and affix them to 15 cigarette packs before sale. 16 see also Confederated Tribes of Colville Indian Reservation 17 v. Washington, 446 F. Supp. 1339, 1346 (E.D. Wash. 1978) 18 (describing the precollection mechanism). 19 Court characterized precollection as a simple collection 20 burden imposed . . . on tribal smokeshops and held that 21 Washington may validly require the tribal smokeshops to 22 affix tax stamps purchased from the State to individual 23 packages of cigarettes prior to the time of sale to Colville, 447 U.S. at 141 42; 27 As in Moe, the 1 nonmembers of the Tribe. Colville, 447 U.S. at 159.15 2 2. Law Regarding Allocation of Tax-Free Cigarettes 3 In Milhelm Attea, the Supreme Court analyzed the 1988 4 version of New York s tax law. Milhelm Attea, 512 U.S. at 5 78. 6 features of the 1988 version precollection, probable 7 demand limitations, allocation through the use of coupons 8 and prior approval were similar to the main features of 9 the amended tax law. As the Western District correctly noted, the general See Seneca Nation, 2010 WL 4027796, at 10 *9 10 & *14 (comparing the amended tax law and 1988 11 version). 12 licensed to sell cigarettes to reservation Indians 13 challenged the 1988 regulations as being preempted by the 14 Indian Trader Statutes. 15 the Commissioner of Indian Affairs has sole authority to 16 make such rules and regulations . . . specifying the kind 17 and quantity of goods and the prices at which such goods 18 shall be sold to the Indians. 19 wholesalers argued that the federal government s authority 20 to regulate Indian Traders precluded New York from both In Milhelm Attea, wholesalers that were federally Under the Indian Trader Statutes, 15 25 U.S.C. § 261. The Though less relevant to the present case, Colville also upheld Washington s requirement that tribal retailers keep extensive records concerning both taxable and nontaxable transactions. Colville, 447 U.S. at 159 60. 28 1 limiting the quantity of tax-free cigarettes wholesalers 2 could sell to reservation retailers and requiring 3 wholesalers to obtain approval before making tax-free sales. 4 The Court disagreed. 5 Relying on Moe and Colville, the Court recognized New 6 York s valid interest in ensuring compliance with lawful 7 taxes that might easily be evaded through purchases of tax- 8 exempt cigarettes on reservations, and concluded that the 9 balance of state, federal, and tribal interests left 10 appreciable room for state regulation of on-reservation 11 cigarettes sales to non-member purchasers. 12 512 U.S. at 73. 13 to protect reservation Indians who do business with non- 14 Indians. 15 to forbid states from imposing on non-Indian wholesalers the 16 same tax collection and bookkeeping burdens that, under Moe 17 and Colville, states could validly impose on reservation 18 retailers. 19 completely preclude States from enlisting tribal retailers 20 to assist enforcement of valid state taxes, the Indian 21 Trader Statutes do not bar the States from imposing 22 reasonable regulatory burdens upon Indian traders for the 23 same purpose. Milhelm Attea, Congress enacted the Indian Trader Statutes Thus, the Court reasoned, it would be anomalous Id. at 74. Just as tribal sovereignty does not Id. 29 1 The Court also rejected the argument that the tax-free 2 allotments and prior approval requirement imposed excessive 3 regulatory burdens on wholesalers or Indian trading. 4 Specifically, the Court held that the probable demand 5 mechanism validly related to New York s decision to stanch 6 the illicit flow of tax-free cigarettes early in the 7 distribution stream and constituted a reasonably necessary 8 method of preventing fraudulent transactions, . . . without 9 unnecessarily intruding on core tribal interests. Id. at 10 75 (internal quotation marks omitted). 11 that [i]f the Department s probable demand calculations 12 are adequate, tax-immune Indians will not have to pay New 13 York cigarette taxes . . . . 14 [t]he associated requirement that the Department preapprove 15 deliveries of tax-exempt cigarettes in order to ensure 16 compliance with the quotas does not render the scheme 17 facially invalid. Id. The Court observed Finally, it held that Id. at 76. 18 Importantly, in analyzing the 1988 regulations, the 19 Court construed the wholesalers preemption challenge as 20 essentially a facial one. 21 Court declined to rest [its] decision on consequences that, 22 while possible, are by no means predictable, and limited 23 its analysis to those alleged defects that inhere in the Id. at 69. 30 Accordingly, the 1 regulations as written. Id. Regarding the probable demand 2 mechanism, for example, the Court noted that [w]hile the 3 possibility of an inadequate quota may provide the basis for 4 a future challenge to the application of the regulations, 5 [it was] unwilling to assume in the absence of any such 6 showing by respondents, that New York will underestimate the 7 legitimate demand for tax-free cigarettes. 8 The prior approval requirement, the Court observed, should 9 not prove unduly burdensome absent wrongful withholding or 10 delay of approval problems that can be addressed if and 11 when they arise. 12 [a]greements between the Department and individual tribes 13 might avoid or resolve problems that are now purely 14 hypothetical. Id. at 76. Id. at 75 76. The Court added that Id. at 77. 15 B. Analysis 16 In the present case, Plaintiffs challenge the amended 17 tax law s precollection requirement as well as the amended 18 tax law s dual mechanisms for allocating each tribe s 19 limited quantity of tax-free cigarettes. 20 1. Precollection of the Tax 21 Under the amended tax law s precollection scheme, the 22 wholesale price of taxable cigarettes includes the cost of 23 the tax. Tribal retailers, like other New York retailers, 31 1 pay the tax to wholesalers when purchasing inventory and 2 recoup the tax by adding it to the retail price. 3 and Cayuga Nations argue that this prepayment obligation is, 4 in effect, a categorically impermissible direct tax on 5 tribal retailers. 6 The Oneida We disagree. As we have already explained, it is only the legal 7 burden of a tax as opposed to its practical economic 8 burden that a state is categorically barred by federal law 9 from imposing on tribes or tribal members. See Chickasaw 10 Nation, 515 U.S. at 460 (rejecting economic reality as an 11 unworkable measure of the scope of state taxation 12 authority). 13 precollection, the Northern District concluded that the 14 amended tax law in effect [impermissibly] requires the 15 Oneida Nation to pay the tax. 16 4053080, at *8. 17 because the express language of New York s tax law places 18 the legal incidence on the consumer, not the wholesaler or 19 retailer. 20 ultimate incidence of and liability for the tax shall be 21 upon the consumer. ). 22 mandatory pass-through provisions that require wholesalers 23 and retailers to pass on the tax to the consumer. Focusing on the economic impact of Oneida Nation, 2010 WL This finding is not relevant, however, N.Y. Tax Law § 471(2) ( It is intended that the In fact, the statute contains 32 Id. 1 ( [A]ny agent or dealer who shall pay the tax to the 2 commissioner shall collect the tax from the purchaser or 3 consumer. ); id. § 471(3) ( The amount of taxes advanced and 4 paid by the agent . . . shall be added to and collected as 5 part of the sales price of the cigarettes. ). 6 Court has suggested that such dispositive language from 7 the state legislature is determinative of who bears the 8 legal incidence of a state excise tax. 9 102 (citing Chickasaw Nation, 515 U.S. at 461).16 The Supreme Wagnon, 546 U.S. at The 10 statement of legislative intent and the mandatory pass- 11 through provisions establish that the legal incidence of New 12 York s tax falls on non-Indian consumers. 13 whatever its economic impact, the tax is not categorically 14 barred. 15 Accordingly, The Oneida, Cayuga, and Unkechauge Nations argue that 16 precollection, if not categorically barred, nonetheless 17 places an undue and unnecessary economic burden on tribal 18 retailers. 19 upon implementation of the precollection mechanism, it will For example, the Oneida Nation estimates that 16 In the absence of such dispositive language, the [legal incidence] question is one of fair interpretation of the taxing statute as written and applied. Chickasaw Nation, 515 U.S. at 461 (quoting Cal. Bd. of Equalization v. Chemehuevi Tribe, 474 U.S. 9, 11 (1985) (per curiam)). Here, the fair interpretation analysis is unnecessary. 33 1 need to front an additional $3.5 million per year to prepay 2 the tax and spend over $200,000 per year to finance that 3 increased cost in order to maintain its current cigarette 4 inventory levels (approximately 80,000 cartons per year at 5 all times). 6 financing costs imposed an impermissible burden on tribal 7 sovereignty. 8 9 The Northern District concluded that these We disagree for two reasons. First, the precollection mechanism will undoubtedly impose an increased economic cost on tribal retailers who 10 continue to market taxable cigarettes to non-member 11 purchasers. 12 decision to participate in the taxable cigarette market, a 13 market in which Plaintiffs and their members have no vested 14 right to a certain volume of sales to non-Indians, or indeed 15 to any such sales at all. 16 But those costs result from the retailer s Colville, 447 U.S. at 151 n.27. Second, New York s precollection scheme is materially 17 indistinguishable from those upheld in Moe and Colville. 18 Here, State Defendants have presented evidence of non-member 19 tax evasion occurring through on-reservation cigarette 20 purchases. 21 law s precollection mechanism constitutes a minimal tax 22 collection burden that is reasonably necessary to prevent Thus, as in Moe and Colville, the amended tax 34 1 wholesale evasion of [New York s] own valid taxes without 2 unnecessarily intruding on core tribal interests. 3 Attea, 512 U.S. at 75 (brackets in original) (quoting 4 Colville, 447 U.S. at 160, 162). Milhelm 5 The Cayuga, Oneida, and Unkechauge Nations seek to 6 distinguish Moe and Colville by pointing out that when those 7 cases were decided Washington imposed a $1.60 per carton 8 tax, see Colville, 447 U.S. at 141, and Montana a $1.20 per 9 carton tax, see Moe, 392 F. Supp. at 1313, whereas New York 10 currently imposes a $43.50 per carton tax. The three 11 Nations argue, and the Northern District agreed, that the 12 significantly greater economic burden imposed by New York s 13 tax distinguishes the precollection schemes upheld in Moe 14 and Colville, and renders New York s unduly burdensome. 15 Contrary to the Nations arguments, it was the demonstrated 16 need to prevent tax evasion by non-Indian purchasers, not 17 the low cost of the state tax, that justified precollection 18 in Moe and Colville. 19 where the excise tax is high; the higher the tax rate, the 20 greater the economic incentive to avoid it. That justification remains valid even 21 The Nations also contend that precollection is not 22 reasonably tailored to New York s tax collection interest 35 1 because there are other less burdensome alternatives. The 2 Northern District agreed with the Oneida Nation s argument 3 that precollection is unnecessary to enforce payment of the 4 cigarette tax because New York Tax Law § 471-a already 5 requires each individual cigarette purchaser to remit the 6 tax to the State within twenty-four hours of when liability 7 for the tax accrued. 8 *9 (citing N.Y. Tax Law § 471-a). 9 legislature has reasonably determined that collection of the 10 cigarette excise tax through efforts directed at individual 11 buyers is impractical, and that, if it is to be collected at 12 all, the tax must be precollected when cigarettes enter the 13 stream of commerce. 14 purchased 1.5 million untaxed cartons of cigarettes in 2009, 15 despite having only 1,473 members. 16 entitled to conclude on the basis of this and other evidence 17 that collection of the tax through efforts directed at 18 individual purchasers is ineffective and unworkable. 19 Milhelm Attea, 512 U.S. at 75 (upholding New York s 20 decision to stanch the illicit flow of tax-free cigarettes 21 early in the distribution stream as a reasonably necessary 22 method of preventing fraudulent transactions. ) (internal See Oneida Nation, 2010 WL 4053080, at However, the New York The Oneida Nation, for example, 36 The legislature was Cf. 1 2 quotation marks omitted).17 Therefore, the Oneida, Cayuga, and Unkechauge Nations 3 have failed to demonstrate a likelihood of success on the 4 merits of their arguments against precollection of the tax. 5 2. 6 Plaintiffs argue that the amended tax law s dual 7 allocation mechanisms the coupon and prior approval 8 systems fail to adequately ensure members access to tax- 9 free cigarettes, unduly burden tribal retailers, and 10 Allocation of Tax-Free Cigarettes threaten tribal self-government. 11 a. Applicability of Milhelm Attea 12 Initially, we reiterate that the main features of the 13 amended tax law s probable demand and allocation mechanisms 14 are substantially similar to those of the 1988 version 15 upheld against a preemption challenge in Milhelm Attea. 16 Like the 1988 version, the amended tax law limits the tax- 17 free cigarettes that wholesalers may sell according to each 17 The three Nations cite other examples of plausibly less burdensome collection mechanisms. For example, they contend that tribal retailers could obtain sufficient cash flow to meet future prior approval payments if the State waived precollection for the first year. Whatever the practical merit of their suggestions, states are not required to adopt the least burdensome collection mechanism imaginable. Provided the State s mechanism is reasonably tailored to its collection effort and here the Nations have not demonstrated the contrary the State s chosen mechanism does not infringe tribal sovereignty merely because there are conceivably less burdensome alternatives. 37 1 tribe s probable demand. New York s legitimate interest in 2 avoiding tax evasion by non-Indian consumers justifies these 3 probable demand limitations. 4 75. 5 alternative coupon and prior approval systems, the State 6 meets its obligation to make available to tribal members a 7 tax-free quantity of cigarettes sufficient to satisfy the 8 legitimate demands of those reservation Indians who 9 smoke[.] See Milhelm Attea, 512 U.S. at Further, like in the 1988 version, through the Id. at 69. Thus, under the reasoning of Milhelm 10 Attea, the main features of the amended tax law s quota and 11 allocation mechanisms, as written, do not unduly burden 12 tribal retailers or infringe tribal self-government. 13 In an effort to distinguish Milhelm Attea, Plaintiffs 14 argue that its rationale applies only to preemption 15 challenges, whereas the present dispute concerns tribal 16 sovereignty. 17 declined to assess for all purposes each feature of New 18 York s tax enforcement scheme that might affect tribal self- 19 government or federal authority over Indian affairs. 20 at 69. 21 22 They note that Milhelm Attea expressly Id. Contrary to Plaintiffs argument, Milhelm Attea s reasoning is applicable here because federal preemption over 38 1 the regulation of Indian tribes is closely related to 2 federal recognition and protection of tribal sovereignty. 3 Preemption and tribal sovereignty are two independent but 4 related barriers to the assertion of state regulatory 5 authority over tribal reservations and members. 6 448 U.S. at 142. 7 whether stated in terms of preemption, tribal self- 8 government, or otherwise, Colville, 447 U.S. at 155, 9 ultimately measure the scope of a state s regulatory Bracker, [P]rinciples of federal Indian law, 10 authority through a particularized inquiry into the nature 11 of the state, federal, and tribal interests at stake, 12 Bracker, 448 U.S. at 145. 13 Indeed, Milhelm Attea s reasoning demonstrates the 14 relationship between the preemption and tribal sovereignty 15 analyses within federal Indian law. 16 [a]lthough Moe and Colville dealt most directly with claims 17 of interference with tribal sovereignty, the reasoning of 18 those decisions requires rejection of the submission that 25 19 U.S.C. § 261 bars any and all state-imposed burdens on 20 Indian traders. 21 Accordingly, Milhelm Attea s analysis is relevant to the 22 issues in this appeal, and to the extent the general The Court stated that Milhelm Attea, 512 U.S. at 74. 39 1 features of the amended tax law s quota and allocation 2 schemes mirror those in the 1988 version, Milhelm Attea 3 undermines the likelihood of Plaintiffs success on this 4 pre-enforcement challenge to the amended tax law s validity. 5 b. Coupon System 6 The Cayuga Nation, Seneca Nation, Unkechauge Nation, 7 and Mohawk Tribe argue that the coupon system interferes 8 with their tribal self-rule because it would require tribal 9 governments to either retain coupons for distribution by the 10 government or allocate coupons among reservation 11 retailers.18 12 coupon system does not impose allocation burdens on the 13 Cayuga Nation because its government owns and operates the 14 Nation s two cigarette retailers. 15 coupon system, use the coupons to purchase tax-free 16 inventory, and sell that inventory to members from its We agree with the Western District that the 18 The Nation may elect the Milhelm Attea does not specifically bear on our analysis of the amended tax law s coupon system because the present coupon system functions differently than it did in the 1988 version. Under the 1988 version, the tax-exempt coupons and prior approval requirement were not alternative systems, but rather, functioned together. The Department would approve every tax-exempt sale and distribute coupons directly to reservation retailers, entitling them to their monthly allotment of tax-exempt cigarettes. Milhelm Attea, 512 U.S. at 66. Under the amended tax law, by contrast, the coupon system and prior approval system operate independently. Moreover, if a tribe elects the coupon system, the Department distributes tax-exempt coupons to tribal governments, not reservation retailers. 40 1 stores. 2 on the merits of its argument that the coupon system 3 infringes its right of self-government. 4 Therefore, the Cayuga Nation is unlikely to prevail The Seneca Nation, Unkechauge Nation, and Mohawk Tribe, 5 which have regulated, market-based tobacco economies, argue 6 that under the coupon system, tribal governments must 7 distribute a limited number of coupons among their member- 8 owned and -operated reservation retailers. 9 creation of a tribal allocation system would involve They argue that 10 political decisions and require the enactment and 11 enforcement of new tribal regulations. 12 because the coupon system would require these governmental 13 actions, it interferes with their right of self-rule. 14 Because the coupon system is optional, we disagree. 15 They contend that Consistent with the right to make their own laws and 16 be ruled by them, Williams, 358 U.S. at 220, the Seneca, 17 Unkechauge, and Mohawk governments are free to decide 18 whether involvement in the allocation of their respective 19 cigarette allotments is in the members best interests. 20 a tribal government chooses the coupon system, then it 21 likewise accepts the correlated responsibility to design an 22 effective allocation system, if necessary. 41 If New York has not 1 foisted that requirement upon the tribal government. 2 c. Prior Approval System 3 As written, the prior approval system imposes no 4 regulatory burdens on Plaintiffs or their retailers. It 5 operates entirely off-reservation and involves only 6 wholesalers and the Department. 7 unduly burden federally licensed Indian traders by requiring 8 them to obtain the Department s approval before making tax- 9 free sales, see Milhelm Attea, 512 U.S. at 75 76, this same If prior approval does not 10 mechanism certainly does not burden tribes or tribal 11 retailers that play no role in the prior approval system 12 whatsoever, see United States v. Baker, 63 F.3d 1478, 1489 13 (9th Cir. 1995) (holding that Washington s prior approval 14 scheme did not impermissibly burden tribal sovereignty 15 because the entire regulatory program [was] accomplished 16 off-reservation ). 17 Plaintiffs vigorously argue, however, that the prior 18 approval system might have the effect of denying tribal 19 members access to tax-free cigarettes and disrupting the 20 current functioning of Plaintiffs tobacco economies. 21 Specifically, Plaintiffs point out that under the 1988 22 regulations, prior approval was based upon evidence of 42 1 valid purchase orders received by the wholesaler and 2 presented to the Department. 3 66 (quoting N.Y. Comp. Codes R. & Regs. tit. 20, §§ 4 336.7(d)(1), (d)(2)(ii) (1992) (repealed)). 5 law does not contain this purchase order requirement. 6 See Milhelm Attea, 512 U.S. at The amended tax Plaintiffs contend that without this requirement, any 7 state-licensed wholesaler might preemptively lock up a 8 tribe s entire quarterly allotment. 9 automatically expires after forty-eight hours without Although approval 10 confirmation of the sale, Plaintiffs predict that the same 11 wholesaler might immediately re-request prior approval and 12 do so indefinitely. 13 forty-eight hour long monopoly position to charge premium 14 prices, force tribal retailers to purchase exclusively from 15 that wholesaler, or sell exclusively to favored tribal 16 retailers. 17 wholesaler could ultimately deprive tribal members of access 18 to tax-free cigarettes and disrupt their tobacco economies. 19 In response, tribal governments would either have to enact 20 new tribal laws to police against monopolistic wholesalers 21 or elect the coupon system. 22 as interfering with their rights of self-government. Thus, a wholesaler could leverage this Plaintiffs contend that a market-dominant Plaintiffs view both situations 43 1 To support its view, the Seneca Nation submitted an 2 affidavit from Peter Day, a state-licensed wholesaler and 3 federally-licensed Indian Trader.19 4 implementation of the tax law he intends to purchase the 5 entire tax-exempt allocation for each qualified Indian 6 reservation unless it has already been acquired by another 7 agent and that quantity will be made available only to my 8 customers. 9 quantity and high demand for tax-exempt cigarettes, tribal Day stated that upon He further stated that given the limited 10 members can expect to pay higher prices for those 11 cigarettes. 12 The tax law does not explicitly prohibit a single 13 wholesaler from obtaining approval over a tribe s entire 14 allotment, and the regulations do not explicitly prohibit a 15 wholesaler from selling that entire allotment to only one 16 retailer. The Western District concluded that there is a 19 Prior to enactment of the amended tax law, Peter Day, along with an individual member of the Seneca Nation, sought to enjoin the State from collecting cigarette taxes on Indian reservations under the tax law regime currently in effect at that time. See Day Wholesale, Inc. v. New York, No. 2006/7668 (N.Y. Sup. Ct. Erie Cnty.). Erie County Supreme Court granted two preliminary injunctions, the first of which was affirmed by the Appellate Division. See Day Wholesale, Inc. v. New York, 51 A.D.3d 383 (4th Dep t 2008). Following enactment of the amended tax law, the State successfully moved to vacate the two Day Wholesale preliminary injunctions. See Day Wholesale, Inc., No. 2006/7668 (N.Y. Sup. Ct. Erie Cnty., Aug. 31, 2010). On August 31, 2010, plaintiffs, joined by intervenor Seneca Nation, appealed to the Appellate Division, Fourth Department. That appeal remains pending. 44 1 very realistic possibility that the scenario presaged by Day 2 will occur. 3 Though without the benefit of Day s affidavit, the Northern 4 District likewise concluded that the prior approval system 5 is ripe for manipulation by wholesalers, and actually 6 incentivizes wholesalers to monopolize the Oneida Nation s 7 quota. 8 9 Seneca Nation, 2010 WL 4027796, at *16. Oneida Nation, 2010 WL 4053080, at *9. Plaintiffs, particularly the Seneca Nation, argue that they have demonstrated significant implementation problems 10 that will plague the prior approval system. They claim that 11 because the problems are specific to each tribe s distinct 12 tobacco economy, they have established that they are likely 13 to prevail on the as-applied challenges that the Court in 14 Milhelm Attea left for some future proceeding. 15 Attea, 512 U.S. at 77. Milhelm Again we disagree. 16 Even if we accept, which we do not, that Plaintiffs 17 have properly classified their challenges as as-applied, 20 20 Plaintiffs and State Defendants hotly dispute whether the present challenge is properly classified as facial or as-applied. This classification, they assume, determines whether we consider Plaintiffs hypothetical scenarios. Though the Constitution vests the federal government with the exclusive power to regulate Indian tribes (and therefore direct state taxation of Indian tribes, absent Congressional approval, is constitutionally barred), tribal sovereignty challenges are not, strictly speaking, constitutional challenges. Cf. Colville, 447 U.S. at 167 68 (Brennan, J., concurring in part and dissenting in part). Thus, the familiar facial/as-applied distinction only relates to this case by rough analogy. Regardless of 45 1 nothing requires us to assume that a monopoly in tax-free 2 cigarettes will occur and to evaluate the prior approval 3 system under that assumption. 4 Milhelm Attea, Plaintiffs seek to enjoin the amended tax law 5 before it is implemented; like the Court in Milhelm Attea, 6 we decline to base our decision on consequences that, while 7 possible, are by no means predictable. 8 9 Like the wholesalers in Id. at 69. The Department anticipates that [u]pon receipt of a purchase request from a [tribe or reservation retailer] a 10 wholesaler will request approval from the Department to sell 11 that quantity of cigarettes. 12 the Department s general understanding of the prior 13 approval system, wholesalers will only seek prior approval 14 if the wholesaler has a legitimate tribal buyer. 15 contend that the prior approval system will not function as 16 the Department intends.21 Technical Memorandum 5. Under Plaintiffs For at least two reasons, on this how the challenge is classified, the fact remains that no version of New York s collection scheme has ever been implemented. Lacking evidence of its actual operation, Plaintiffs argue that the amended tax law fails to foreclose one scenario that might arise upon implementation. But under the statute, regulations, and the Technical Memorandum, that scenario is by no means certain to occur. The system s actual operation remains largely uncertain. At this preenforcement stage, and on this record, such speculation cannot support a preliminary injunction of a state taxation scheme that is valid as written. 21 As the Technical Memorandum indicates, the Department intends that wholesalers will only seek prior approval after obtaining a purchase order. The Technical Memorandum is an informational 46 1 record we cannot say which understanding will prove correct. 2 First, Plaintiffs predictions ignore the broader legal 3 framework within which wholesalers and tribal retailers 4 operate. 5 abusing the prior approval system. 6 tribes or their retailers, a wholesaler must be a 7 state-licensed distributor, see N.Y. Tax Law § 480, and a 8 federally-licensed Indian Trader, see 25 U.S.C. § 262. 9 Under New York law, the Tax Commissioner may cancel or 10 suspend a wholesaler s state license for, among other 11 things, commit[ing] fraud or deceit in his . . . operations 12 as a wholesale dealer. 13 also N.Y. Comp. Codes R. & Regs. tit. 20, §§ 71.6(b)(2), 14 72.3(b)(2). 15 Bureau of Indian Affairs must see that the prices charged 16 by licensed [Indian] traders are fair and reasonable. 17 C.F.R. § 140.22. 18 abuse the prior approval system risk losing their New York 19 and federal licenses. That legal framework discourages wholesalers from To sell cigarettes to N.Y. Tax Law § 480(3)(b)(i); see Under federal law, the Superintendent of the 25 Wholesalers, like Peter Day, who intend to A rational wholesaler must weigh the statement that provides the Department s general understanding of the prior approval system. Notwithstanding the Department s intent, two State witnesses admitted that the monopoly scenario is possible under the prior approval system. These concessions do not render the system invalid. They merely confirm that both fair dealing and opportunism are possible under the prior approval system. The system s actual operation, however, is speculative. 47 1 potential short-term financial benefits of gaming the prior 2 approval system against the potential long-term financial 3 loss caused by the suspension or revocation of necessary 4 licenses.22 5 Second, if wholesalers disregard the legal risks of 6 monopolistic behavior, the Department has the flexibility to 7 modify the prior approval system to deter such behavior. 8 The Department enjoys discretion to set and amend the 9 conditions for prior approval. N.Y. Tax Law § 471(5)(b) 10 ( The department shall grant agents and wholesalers prior 11 approval in a manner and form to be determined by the 12 department and as may be prescribed by regulation. ) 13 (emphasis added); N.Y. Comp. Codes R. & Regs. tit. 20, § 14 74.6(d)(3) ( The manner and form of prior approval will be 15 determined by the department, and may include the use of an 16 interactive Web application. ). 17 prior approval system s mechanics does not require amending 18 the statute or promulgating new regulations. 22 Thus, modification of the Presently, The Seneca Nation, Unkechauge Nation, and Mohawk Tribe argue that some of their own reservation retailers might collude with wholesalers to obtain monopoly positions within their reservations. Tribal sovereignty, however, vests tribes with the power to regulate the conduct of their own members, see Mescalero Apache Tribe, 462 U.S. at 332, and all three Plaintiffs in fact heavily regulate their retailers. Indeed, the Unkechauge Nation already restricts the quantity of cigarettes its reservation retailers may purchase from wholesalers. See Unkechauge Br. 8. 48 1 however, the record of the Department s effectiveness in 2 adapting the prior approval system is nonexistent because, 3 as a result of the injunctions or stays that were granted, 4 wholesalers have not been required to use the prior approval 5 system. 6 Moreover, any of the Plaintiffs may foreclose the 7 uncertainty associated with the prior approval system by 8 entering formal agreements with the Department. 9 Supreme Court observed in Milhelm Attea, [a]greements As the 10 between the Department and individual tribes might avoid or 11 resolve problems that are now purely hypothetical. 12 Attea, 512 U.S. at 77. 13 Legislature or a federal court, the collection and 14 allocation mechanism contained in the agreement would 15 supersede the statutory allocation mechanisms and eliminate 16 the uncertainty of private behavior. 17 471(6). Milhelm Upon approval from the New York See N.Y. Tax Law § 18 At this pre-enforcement stage, Plaintiffs have not 19 demonstrated that they are likely to prevail on their claim 20 that the amended tax law infringes tribal sovereignty or 21 unduly burdens tribal retailers. 22 request that the tax law be enjoined prior to its 49 Plaintiffs ultimately 1 implementation on the basis of hypothetical private behavior 2 and the assumption that there will be no Department 3 response. 4 enforcement injunction of a state taxation scheme that is 5 valid as written.23 6 This kind of speculation cannot support a pre- Finally, the Seneca Nation, Unkechauge Nation, and 7 Mohawk Tribe argue that flaws in the prior approval system 8 will disrupt the current state of their tobacco economies. 9 Specifically, they argue that certain tribal retailers might 10 be unable to obtain a sufficient quantity of tax-exempt 11 cigarettes and their businesses will suffer. 12 Plaintiffs argue that this anticipated disruption will 13 undermine the federal interest in promoting and protecting 14 tribal economic self-sufficiency and burden tribal members 15 ability to engage in tax-free commerce with one another. 16 The three Previously, all cigarettes sold to tribes and 17 reservation retailers were untaxed. Reservation retailers 18 sold approximately ninety-nine percent of those untaxed 19 cigarettes to non-members. 20 distinction between a reservation retailer s member and non- But there was no practical 23 Because we reject Plaintiffs contentions that they are entitled to a preliminary injunction enjoining the prior approval system, we do not address the severability argument of the Unkechauge Nation and Mohawk Tribe. 50 1 member cigarette markets. 2 economies developed under this system. 3 mass quantity of available untaxed cigarettes allowed 4 members of the Seneca Nation to open over 170 tobacco 5 stores. 6 these stores. 7 Plaintiffs current tobacco For example, the Members could access tax-free cigarettes at any of New York s decision to limit the quantity of tax-free 8 cigarettes sold to reservation retailers will undoubtedly 9 disrupt the status quo, regardless of how the Department 10 allocates the untaxed cigarettes. Yet in limiting the 11 availability of tax-free cigarettes, the State does not have 12 to ensure that each reservation retailer obtains its pre- 13 amendment supply. 14 members continue to enjoy the same easy access to tax-free 15 cigarettes. 16 this pre-enforcement stage that the prior approval system 17 burdens [the Oneida Nation] by not protecting the right to 18 have available tax-free cigarettes for members and itself, 19 as required by law. 20 As written, the prior approval system makes tax-free 21 cigarettes available to member purchasers. 22 of implementation can be addressed if and when they arise. Nor must the State ensure that tribal The Northern District erred in concluding at Oneida Nation, 2010 WL 4053080, at *9. 51 Actual problems 1 Milhelm Attea, 512 U.S. at 76.24 2 3 CONCLUSION Plaintiffs have failed to demonstrate a likelihood of 4 success on the merits of their claims that (1) the 5 precollection scheme impermissibly imposes a direct tax on 6 tribal retailers, or alternatively, imposes an undue and 7 unnecessary economic burden on tribal retailers; and (2) the 8 coupon and prior approval systems interfere with their 9 rights of self-government and rights to purchase cigarettes 10 free from state taxation. 11 legal error in determining that both of these arguments were 12 likely to succeed, and thus abused its discretion in 13 granting the Oneida Nation s motion for preliminary 14 injunction. 15 arguments and properly denied the Seneca Nation s, Cayuga 16 Nation s, Unkechauge Nation s, and Mohawk Tribe s motions 17 for preliminary injunctions. 18 The Northern District committed The Western District correctly rejected these The Western District s two orders of October 14, 2010 19 and November 9, 2010 are AFFIRMED. The Northern District s 20 order of October 14, 2010 is VACATED. All stays pending 24 Unlike the Western District, we express no opinion on whether the monopoly scenario, if it occurred, would constitute state infringement of tribal sovereignty. See Seneca Nation, 2010 WL 4027796, at *16 17. 52 1 appeal are VACATED. The cases are REMANDED for further 2 proceedings consistent with this opinion. 53
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