The Impact of Indian Reservation Cigarette Purchases on State Tax Revenues

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Introduction

Cigarette excise taxes play a crucial role in public health efforts to reduce smoking rates and improve overall population health. Higher cigarette prices have been proven to be an effective strategy for discouraging cigarette consumption, preventing smoking initiation, and promoting smoking cessation [^1][^2][^3]. However, some price-sensitive smokers in the United States have found a way to avoid state and local excise taxes by purchasing cigarettes from Indian reservations, where Native American tribes are recognized as sovereign nations and their members are exempt from state excise taxes [^4].

The prevalence and impact of cigarette purchases made on Indian reservations by non-Native Americans, also known as non-AI/ANs, have been the subject of limited research. This article aims to provide an in-depth analysis of the most recent state-specific prevalence of such purchases and assess their impact on state tax revenues. By understanding the extent of tax avoidance and evasion through reservation cigarette purchases, policymakers can develop effective strategies to reduce smoking prevalence and recoup lost tax revenues.

State-Specific Prevalence of Indian Reservation Cigarette Purchases

To evaluate the state-specific prevalence of cigarette purchases made on Indian reservations by non-AI/ANs, we analyzed data from the 2010-2011 Tobacco Use Supplement to the Current Population Survey (TUS-CPS) [^5]. This large national and state-representative survey collects self-reported measures on cigarette use and purchases. Among the 24,460 current cigarette smokers in the survey, approximately 3.8% of non-AI/ANs reported purchasing cigarettes from Indian reservations [^5].

The prevalence of reservation cigarette purchases varied significantly across states. In Arizona, Nevada, New Mexico, New York, Oklahoma, and Washington State, approximately 15% to 30% of smokers reported making such purchases [^5]. These states experienced annual tax revenue losses ranging from $3.5 million (Washington State) to a staggering $292 million (New York) during the 2010-2011 period [^5]. These findings highlight the substantial impact of reservation cigarette purchases on state tax revenues.

Strategies to Reduce Tax Avoidance and Evasion

The availability of lower-priced cigarettes purchased on Indian reservations undermines the intended impact of cigarette excise tax increases on reducing smoking rates and improving public health [^4]. To address this issue, states can consider implementing strategies aimed at reducing the sale of non- or lower-taxed cigarettes to non-AI/ANs on Indian reservations.

One potential approach is the establishment of tribal-state compacts. These compacts would allow tribes to collect state excise taxes on cigarette sales to non-tribal members while providing tribes with a portion of the revenues for tribal benefit. By entering into these compacts, states can ensure that taxes are collected on reservation sales to non-AI/ANs, reducing tax avoidance and evasion while still respecting tribal sovereignty [^4].

Another potential strategy is the distribution of a limited quota of free tribal stamps to sales made to tribal members. These stamps would serve as proof that the cigarettes were sold to eligible tribal members and would help prevent the resale of lower-taxed cigarettes to non-AI/ANs. This approach would require close collaboration between tribes and state governments to ensure effective implementation and enforcement [^4].

It is essential for states to carefully consider and evaluate these strategies when developing policies to reduce the sale of non-taxed cigarettes on Indian reservations. The impact of such policies on state tax revenue may vary depending on the specific context of each state. Therefore, further research and guidance are needed to identify and develop effective strategies that align with both public health objectives and the unique legal and political landscape of each state.

Limitations of the Study

While this study provides valuable insights into the prevalence and impact of Indian reservation cigarette purchases on state tax revenues, it is not without limitations. The data relied on self-reported measures of cigarette use and purchases, which may introduce potential biases. Smokers may underreport their consumption, and self-reported purchases may not capture those made through intermediaries, such as bootleggers [^5]. Additionally, the study used data from the 2010-2011 TUS-CPS, and the findings may not be generalizable to other years.

To obtain a more accurate picture of tax avoidance and evasion related to reservation cigarette purchases, future research should consider collecting data on actual tax-paid sales. Combining data from tax records with self-reported consumption measures would provide a more comprehensive understanding of the extent of tax avoidance and evasion and its impact on state tax revenues.

Conclusion

The prevalence of cigarette purchases made on Indian reservations by non-AI/ANs poses significant challenges to public health efforts to reduce smoking rates and improve population health. The availability of lower-priced cigarettes undermines the effectiveness of cigarette excise tax increases in discouraging smoking initiation and promoting smoking cessation. It also results in substantial tax revenue losses for states. indian reservation cigarettes

Strategies to reduce the sale of non-taxed cigarettes on Indian reservations to non-AI/ANs have the potential to decrease smoking prevalence and recoup lost tax revenues. Tribal-state compacts and the distribution of tribal stamps are two potential approaches that states can consider. However, the implementation and effectiveness of these strategies may vary depending on the legal and political context of each state. indian reservation cigarettes

To develop effective policies, states should engage in further research and collaboration with tribes, as well as seek guidance on identifying and implementing strategies to reduce tax avoidance and evasion related to reservation cigarette purchases. By addressing this issue, states can protect public health, promote equity in tobacco taxation, and ensure the financial stability of state tax revenues.

Disclaimer: The information presented in this article is based on research conducted by various authors and organizations. The views and opinions expressed do not necessarily reflect those of the authors of this article.