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United States v. Morrison

November 9, 2007


The opinion of the court was delivered by: Hurley, Senior District Judge


Presently before the Court are the following two motions by defendant Rodney Morrison ("Defendant" or "Morrison"): (1) Defendant's motion for reconsideration of my October 9, 2007 bench decision denying his motion to dismiss racketeering acts 4 through 80 of the superseding indictment (docket no. 367); and (2) Defendant's motion to dismiss racketeering acts 4 through 80 of the superseding indictment on substantive due process grounds (docket no. 392). For the following reasons, Defendant's motions are DENIED.


Familiarity with the facts and procedural background is presumed. Thus, the Court states only those facts necessary for disposition of the instant motions.

I. The Superseding Indictment and Relevant Statutes

Racketeering acts 4 through 80 of the superseding indictment allege that Morrison "knowingly and intentionally sold and distributed contraband cigarettes . . . lacking valid New York State tax stamps, in violation of Title 18, United States Code, Sections 2342(a) and 2" from January 8, 1997 to August 2, 2004. 18 U.S.C. § 2342(a) is part of the Contraband Cigarettes Trafficking Act ("CCTA"), 18 U.S.C. §§ 2341 et seq., and provides:

It shall be unlawful for any person knowingly to ship, transport, receive, possess, sell, distribute, or purchase contraband cigarettes or contraband smokeless tobacco.

18 U.S.C. § 2342(a). Contraband cigarettes are defined in section 2341 as follows:

a quantity in excess of 60,000*fn1 cigarettes, which bear no evidence of the payment of applicable State or local cigarette taxes in the State or locality where such cigarettes are found, if the State or local government requires a stamp, impression, or other indication to be placed on packages or other containers of cigarettes to evidence payment of cigarette taxes, and which are in the possession of any person other than [setting forth exempted persons]

Id. § 2341(2) (emphasis added).

Article 20 of the New York State Tax Law imposes "a tax on all cigarettes possessed in the state by any person for sale, except that no tax shall be imposed on cigarettes sold under such circumstances that this state is without power to impose such tax" or on certain sales to the United States. N.Y. Tax Law § 471(1). It further provides that "[i]t is intended that the ultimate incidence of and liability for the tax shall be upon the consumer, and that any agent or dealer who shall pay the tax to the tax commission shall collect the tax from the purchaser or consumer." Id. § 471(2). Federal law forbids the collection of these taxes on cigarettes sold on Native American reservations to enrolled tribal members. See Moe v. Confederated Salish & Kootenai Tribes, 425 U.S. 463 (1976). However, when cigarettes are sold on the reservation to non-Native American consumers, the taxes may be collected. See Washington v. Confederated Tribes of Colville Indians Reservation, 447 U.S. 134 (1980).

Effective May 13, 2003, the New York legislature passed N.Y. Tax Law § 471-e which provided:

Where a non-native American person purchases, for such person's own consumption, any cigarettes or other tobacco products on or originating from native American nation or tribe land recognized by the federal government and reservation land recognized as such by the state of New York, the commissioner shall promulgate rules and regulations necessary to implement the collection of sales, excise and use taxes on such cigarettes or other tobacco products.

N.Y. Tax Law § 471-e (2003). The regulations called for under § 471-e were never adopted.*fn2

II. The "Forbearance Policy"

In 1988, the New York Department of Taxation and Finance (the "DTR") determined that a large volume of unstamped cigarettes was being purchased by non-Native Americans from reservation retailers. Department of Taxation and Finance of N.Y. v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 64-65 (1994). Because unlawful purchases of unstamped cigarettes deprived New York of substantial tax revenues, the DTR adopted regulations, 22 NYCRR §§ 336 et seq., for the enforcement of the collection of taxes from non-Native American purchasers of cigarettes from on-reservation retailers. Id. at 65; see also N.Y. Association of Convenience Stores v. Urbach, 646 N.Y.S.2d 918, 921 (3d Dep't 1996). The regulations recognized the right of exempt Native American consumers to purchase untaxed cigarettes on the reservation. However, "[t]o ensure that nonexempt purchasers do not likewise escape taxation, the regulations limit[ed] the quantity of untaxed cigarettes that wholesalers may sell to tribes and tribal retailers." Milhelm, 512 U.S. at 65. "To prevent non-Indians from escaping the tax, [the] regulatory scheme . . . impose[d] record keeping requirements and quantity limitations on cigarette wholesalers who sell untaxed cigarettes to reservation Indians." Id. at 64. Under the regulations, "[r]etailers were to keep accurate records of those to whom they sold untaxed cigarettes and submit these records to the [DTR]." Warren v. Pataki, No. 01-CV-0004E, 2002 WL 450056, at *1 (W.D.N.Y. Jan. 9, 2002).

Following adoption of the regulations, a proceeding was commenced by Native American merchants to permanently enjoin the DTR from enforcing them and, as a result, the DTR suspended implementation pending the outcome of that litigation. New York Assoc. of Convenience Stores v. Urbach, 712 N.Y.S.2d 220, 221 (3d Dep't 2000). Ultimately, the Supreme Court in Milhelm held that the regulations were valid and enforceable. 512 U.S. at 70-78. Despite this outcome, the DTR continued its non-enforcement or "forbearance" policy. Urbach, 712 N.Y.S.2d at 221.

In May 1997, Governor Pataki directed the repeal of the regulations and proposed legislation that would allow on-reservation stores to sell tax-free cigarettes. Santa Fe Natural Tobacco Co. v. Spitzer, No. 00 CIV. 7274, 00 CIV. 7750, 2001 WL 636441 (S.D.N.Y. June 8, 2001), rev'd on other grounds, 320 F.3d 200 (2d Cir. 2003). The regulations were repealed by the DTR on April 28, 1998. New York Assoc. of Convenience Stores v. Urbach, 92 N.Y.2d 204, 214 (1998). In addition, although Governor Pataki sent to the legislature a bill that would amend the State Tax Law to allow ...

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