Saying that untaxed cigarettes continue to be sold on the Yakama Reservation, the state is terminating its agreement legalizing Yakama cigarette sales to non-tribal members.

"Unfortunately this agreement is just not working," said state Department of Revenue Director Cindi Holmstrom said in a news release this afternoon.

Trying to head off this kind of faceoff, the tribe and the state have been working with a mediator since 2006 to reach agreement amid a complex legal playing field. Among the challenges: tribal members are suing the governor in tribal court.

Under a 2004 agreement with the state, the tribe can impose its own cigarette tax in lieu of the state tax. Under such compacts, tribes typically apply their own tax stamps to the packs. The tribal tax was to start at 80 percent of the state tax and ramp up to 100 percent on July 1st. The tribe keeps the money, and the state considered purchases of tribally-stamped cigarettes by non-Indians to be legitimate.

Both sides agree that that it's impractical to insist that tribal smokeshops charge the same tax rate as the state would, said the department's deputy director, Leslie Cushman. The price break allowed in the 2008 legislation -- $17.75 in tax per carton, instead of the normal $20.25 -- was intended to allow cigarettes to be cheaper enough that people will continue to patronize the rural tribe's tobacco shops.

"The state doesn't want businesses to go out of business," said Cushman. Unlike on many reservations, the Yakama smokeshops are owned by tribal members, not the tribe itself.

The state's next move, Cushman said, is a reluctant "return to enforcement."

For years, state agents would play cat-and-mouse games with tribal smokeshops, trying to seize truckloads of untaxed cigarettes en route to reservations. (The state cannot enforce its laws on reservation land.) But the Yakamas have an interesting hole card in this dispute: their treaty includes an unusual provision guaranteeing them the right to travel on the state's roads. That means that a seizure en route "is probably not allowable," Cushman said.

"But it doesn't cover sales and it doesn't cover possession," she said of the treaty clause. The state can also still sue tribal members and officers, she said, and the federal Bureau of Alcohol, Tobacco and Firearms is empowered to go onto tribal land and seize sales records.

"We have a lot of options," Cushman said. "we don't know which ones we're going to use."

Twenty other tribes in Washington agree to charge a tribal tax of the same amount as the state's. The Puyallup Tribe, which like the Yakamas has privately owned smokeshops, can charge a lower tribal tax -- but they also must share 30 percent of that revenue with the state.

"In the long run we are hopeful we can get to an agreement the Yakama Nation and the state can live with," said Holmstrom.

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