PACT Act Cuts Tribal Commerce
On March 19, 2010, the U.S. Senate presented S.1147, the Prevent All Cigarette Trafficking Act of 2009, or PACT Act, to the President to sign into law. The bill sailed through Congress with little debate and provided no opportunity for Indian Country to submit its comments regarding the bill through the hearings process. The PACT Act would modify the Jenkins Act. Under the Jenkins Act, distributors of cigarettes are required to file records with state tax administrators when transporting cigarettes within a state or face sanctions for failure to comply with reporting requirements. The PACT Act would now require common carriers transporting both cigarettes and smokeless tobacco in commerce to file information with states, federal, and tribal government authorities. The PACT Act also requires common carriers and other transporters of these products to file records with the U.S. Attorney General in order to preserve their status as an approved compliant delivery seller. These increased regulatory hurdles and record keeping rules will cost Tribal entrepreneurs and Tribal enterprises more money to maintain the records and adhere to reporting requirements. The increased costs will undoubtedly end up in the price per pack of cigarettes and smokeless tobacco products raising the price paid by consumers. This has the effect of leveling the price of Tribal products with the price charged by the big four tobacco companies and could wipe out the profit margin that small Tribal owned businesses need to compete in the tobacco market place. The PACT Act prohibits the U.S. Postal Service from transporting cigarettes and smokeless tobacco products along with online sales. These two methods of transporting and selling cigarettes and smokeless tobacco will effectively destroy the Tribal tobacco industry as their methods of delivery of Tribal tobacco products to the consumer is now strangled off.
Although the bill apparently maintains both state and tribal sovereign immunity from lawsuits, the PACT Act provisions allow state governments the ability to share information with the federal government in the event that states learn of non-compliance with the Act. States would then have the ability to initiate a civil action against an offending party in U.S. District Court in order to enforce the provisions of the PACT Act. The federal government would also have the ability to initiate its own civil and criminal actions against an offending party for violation of the requirements of the Jenkins Act as modified by the PACT Act. In short, the implications of concurrent state and federal enforcement against tribal manufacturers, tribal distributors, tribal entrepreneurs, and tribal enterprises with the PACT Act could tip the scale against tribal governmental sovereignty to engage in commerce as a business entity or dictate its own requirements as a regulator. Tribal governments would then face a choice between engaging in commerce and regulating tribal commercial transactions involving tobacco under Tribal law or facing the possibility of state and federal enforcement with the threat of a Jenkins Act proceeding if the state or federal authorities believe that a violation has occurred.
Another area of concern is the non-compliant delivery sellers list that the PACT Act creates and that the U.S. Attorney General will be responsible for maintaining. The list would be used by the U.S. Attorney General to promote enforcement of the Jenkins Act against carriers or other transporters of cigarettes or smokeless tobacco. The Jenkins Act list looks similar to the list of certified manufacturers maintained by each state as a result of the Master Settlement Agreement (MSA). The MSA was a settlement between 46 state attorneys general and the big four tobacco companies (Tribes were not consulted or included in the MSA) in 1998 that was centered on recovering billions of dollars from the companies to cover health care and other costs for the treatment of conditions caused by smoking cigarettes. As a result of the MSA, any non-participating manufacturer (who was not one of the big four tobacco companies) of cigarettes must register with each state and pay a specified amount of money into an escrow account (which arguably would include Tribal entities since they are considered a non-participating manufacturer). Failure to register and pay the amount of escrow required for inclusion on state lists of certified tobacco manufacturers under the MSA can result in a manufacturer’s product being deemed contraband by state officials and seized. The Jenkins Act appears to be an effort on the part of state governments to have a new federal compliant delivery seller list which is similar to the MSA certified tobacco manufacturer list. The federal list will act as a lynchpin to imploring federal authorities to bring Tribal entities in line with state MSA related statutes, which are clearly inapplicable to Tribal entities or governments. States and Tribes which have tobacco compacts in place will have to determine if the PACT Act changes the equation with regard to reporting requirements and enforcement authorities. Interested parties should weigh in with the White House soon as the President still must sign the bill.
