The Osage Nation, Muscogee Nation and the Quapaw Nation are unifying in their approach to resolving their Tobacco Compact issues with the state of Oklahoma.
In a May 19 joint statement, the leaders of the three tribes have “committed to collaborate and seek positive action from the State of Oklahoma on tobacco tax compacts. To date, the Nations have not been able to reach tobacco tax compacts in negotiations with Governor Stitt. Nation leaders have committed to seeking a resolution to tobacco tax issues through the State Legislature.”
According to the three tribal leaders:
- First Things First. Nation leaders believe that reaching agreement on tobacco compacts is an important first step to other cooperative discussions with State leaders. Each of these issues should be considered as separate issues with consideration on the merits of each one, not used as a way to strong arm the Nations. Nation leaders are committed to meaningful conversations with the State regarding the Oklahoma turnpikes that travel through Tribal lands and Nation motor vehicle tag issues, but only after a successful resolution of the tobacco compact.
- Respect. Nation leaders seek respectful dealings with State leaders to resolve issues that impact Tribal and non-Tribal citizens of Oklahoma. Nation leaders agree to come to the table with State leaders with respect and serious focus on reaching mutually-acceptable outcomes. The Nations must be respected and treated as independent, sovereign governments – each with unique concerns and responsibilities within their communities. This includes the vital ability of each Nation to support public safety, economic development, and essential services for both tribal citizens and surrounding communities. The Nations look forward to working with the Legislature on a true government-to-government basis to meet these shared objectives.
- Good Faith. Nation leaders and representatives have spent months in good faith negotiations with the Governor for a tobacco compact. With no resolution, Nation leaders now seek legislation that would accomplish a fair agreement with the State.
“The Nations’ leadership and legal teams will continue to remain in contact with the State of Oklahoma, committed to reaching a solution that provides long-term clarity and stability to Tribal communities, supports business owners, the people of Oklahoma, and the economic well-being of the entire state,” according to the statement.
Tax Code overhaul
Meanwhile, the ON Tax Commission has been busy working with Assistant Attorney General Morgan Cass and Congresswoman Whitney Red Corn in updating the Nation’s Tax Code. The tax code, which was established in 2006, has undergone changes in the past, but the two bills Red Corn is proposing overhauls the code.
The two bills, ONCA 25-65 and ONCA 25-64, are currently being debated during the 9th Osage Nation Congress’s fifth Special Session.
ONCA 25-65 is “An Act to repeal ONCA 25-40; to amend Chapter 2 of the Revenue and Taxation Act of 2006 to recognize the Nation’s Tobacco Tax Compact with the State of Oklahoma; to establish the tax rate on cigarettes and other tobacco products sold within the Osage Reservation; to amend Section 2-114 to establish the Compact Payment Revolving Fund; to establish Compact Payment Allocation Payments for Retailers; and to establish an alternate effective date.” This bill has passed out of the Commerce and Gaming Committee to the whole of Congress, but has not come up yet for a vote.
ONCA 25-64 is “An Act to amend Chapter 1 of the Osage Nation Revenue and Taxation Act; and to establish an alternate effective date.” This bill will be debated in the Commerce and Gaming Committee on Friday, May 23, immediately following session. All committee meetings are open to the public and you can stream them live from the Osage Nation website.
The Tobacco Tax system and smokeshop rebates
The ON Tax Commission, which consists of three members, Teresa Bates Rutherford (chair), Beverly Brownfield and Rhonda Wallace, has growing concerns over how compact tax revenues are being used – and who they’re truly benefiting.
How the system works is, the smokeshops purchase tobacco products from licensed wholesalers. The price includes all required Oklahoma state taxes. The wholesaler then submits the taxes to the Oklahoma Tax Commission. When the Nation had a compact with the state, the Oklahoma Tax Commission returned 50% of the collected tax to the Nation, which is known as the “compact tax.”
While the smokeshops initially pay the tax to wholesalers, they pass the cost of the tax directly to the consumer, thus the smokeshops are not financially burdened by the tax, according to the Tax Commission. The smokeshops are setting their retail price to include their cost, plus the tax, plus a profit margin. This is why the Tax Commission wants to review the rebate amounts, or subsidies, the Nation is giving smokeshop owners.
Historically, the Osage Nation returned a portion of the tax revenue to smokeshops to support their operations in a competitive tobacco market. However, the ON Congress has steadily increased the rebate over time, from 45% to a high of 85.2%.
Under the latest change, ONCA 25-40, sponsored by Congresswoman Maria Whitehorn, the rebate is set at 77.8%.
“It is not in the best interest of the Osage Nation to continue paying large subsidies to smokeshops. While subsidizing a portion of the compact tax to smokeshops to help them to remain competitive in the tobacco market, the current levels are unsustainable,” according to the Tax Commission. “It is time to exercise careful oversight and implement flexible, strategic policy adjustments to stabilize and strengthen this important revenue stream for the benefit of the entire Nation.”
The Tax Commission said Congressional legislation has caused inequity in the past and has significantly reduced the share of tobacco tax revenue coming back to the Nation, while returning a higher portion to smokeshop owners.
Smokeshop owners
Several smokeshop owners attended a Commerce and Gaming Committee meeting on May 19 to defend the rebate percentage provided to their businesses. They have not received rebate payments since Jan. 1, 2025, after the Tobacco Compact ended.
Congresswoman Whitehorn successfully sponsored a bill in March, ONCA 25-40, to backpay the smokeshop owners, which passed through Congress and was signed into law. However, in that same legislation, Congress repealed the Tax Relief Fund. Legal questions arose on how to backpay the rebate to the smokeshop owners without the fund. This gave the ON Treasurer pause. The smokeshops still have not received the backpay.
The committee discussed Congresswoman Red Corn’s bill, ONCA 25-65, and they addressed the scenario where smokeshops function without a Tobacco Compact with the state.
One of the amendments in the proposed legislation angered some smokeshop owners because it introduced a “sliding scale” for the rebates. The amounts were based on store size and performance.
While some Congress members said the approach could help smaller retailers remain competitive, several smokeshop owners argued it was unfair and would cause inequity.
“This is more where I see of the socialistic aspect of this, and I know I don’t care for it. The reason I say that is because I understand that I have, and some of the other people in here have, stores that run a higher volume, but we also have a larger overhead than the smaller stores also,” said PJ Mays, who owns three Osage Trading Co. smokeshops. “I feel like that this sliding scale is to separate us and turn us against each other.”
As debate intensified, committee members postponed a vote to allow for further amendments addressing notification, transparency, and equitable treatment of smokeshop owners. Assistant Attorney General Morgan Cass reiterated that the bill remains flexible and amendable, and that public concerns would be reflected in revisions. The committee met again on May 21 and passed the bill out of committee for the whole of Congress to consider with a “do pass” recommendation.
Congresswoman Whitehorn filed ONCA 25-86 on May 19, and it is an act “To authorize and appropriate eighteen thousand eight hundred one dollars ($18,801) to the tobacco retailers who are owed money pursuant to law; and to establish an alternate effective date.” That bill has passed out of committee and will go before the whole of Congress. The bill, if passed, will authorize the appropriation out of the Nation’s treasury.
Non-starter
Despite the many concerns discussed, the Nation is preparing for economic independence amid growing distrust in the state’s willingness to engage in good-faith negotiations. Cass said the revisions to the tax code are not retaliatory, as some smokeshop owners alleged, and that the “sliding scale” was proposed to help the smaller smokeshop owners, but the Tax Commission would do whatever Congress passed into law.
She also addressed the rumors that the Tax Commission and attorneys waited too long to negotiate a compact with the governor, as some smokeshop owners have claimed. She said they have been negotiating for over a year and a half and during that time, they’ve gone through several of Gov. Stitt’s attorneys.
Cass said the state offered a compact where the state kept 75% of the tax revenue and the Nation’s portion was 25%. That was a non-starter, she said. The governor also insisted that the Nation enter into a motor vehicle compact, which was also a non-starter.
Cass said the governor is very anti-tribe.
“We have outside counsel in Oklahoma City right now, fighting for the Nation to get a compact. And that’s the fight that we are going to continue to make so you all can continue to operate,” she said to the smokeshop owners. “If we get the compact and get your rebates back, that’s the best-case scenario. But we also have to prepare for if we don’t have a compact, and that’s what we’re trying to do.”
Until there is a compact, the only entity receiving tobacco tax revenue will be the state.
For more information, contact the Osage Nation Tax Commission at (918) 287-5393 or visit https://www.osagenation-nsn.gov/boards/tax-advisory-board
