A tobacco shop that opened late last year in Cloverdale alongside Highway 101 is selling contraband cigarettes and making dubious claims that it is operated by an Indian tribe, according to state authorities.
The state attorney general's office has notified Native Tobacco 101 that most of the brands it sells are untaxed, not approved for sale in California, and do not meet fire safety standards.
"These cigarettes they are selling don't have a tax stamp on them," Senior Assistant Attorney General Dennis Eckhart said.
While the business claims it is exempt from state taxes because it only sells cigarettes manufactured on Indian land, Eckhart said, "We don't agree."
In a letter dated March 18, he asked the store to stop selling the cigarette brands and to confirm the "illegal conduct" has ceased.
The manager of the store on Friday said he was not aware of the letter, but requested a copy.
"We are on native land. We are a tribally operated, sovereign nation," said Tony Speer, manager of Native Tobacco 101.
"One side believes we should pay state taxes, the other that we should not - only federal (taxes). It's been going back and forth," he said.
There are complicated issues of Indian law and restrictions on state enforcement procedures involving tribes and Indian lands. But legal experts said the U.S. Supreme Court made it clear tribes have an obligation to collect and remit state tax on the sale of cigarettes to non-tribal members.
When the Cloverdale store opened in December, it drew immediate complaints from other tobacco retailers in Cloverdale who said its American Indian owners enjoyed an unfair advantage by not charging sales tax.
It also touched on a controversy that has played out in other states involving American Indian smoke shops and the taxes they sometimes avoid.
In New York, for example, state officials claim bootleg sales of tobacco products on reservations or through the Internet have resulted in hundreds of millions of dollars in lost state revenues.
When Native Tobacco 101 opened, the then-store manager confirmed he charged no state taxes on his products. But he said the tobacco products were mostly manufactured by Indians on Native American lands and had been subjected to federal taxes.
Eckhart on Friday said the shop is unlawfully avoiding an estimated $1.50 per cigarette pack in state excise and sales taxes, and other levies.
Some of the revenue from the state taxes on cigarettes goes to children health care services, tobacco control and cessation efforts, he said.
Local officials have also expressed consternation that Native Tobacco 101 has put other retailers at a disadvantage.
"They are not paying taxes and I'm not sure that's appropriate," Cloverdale Mayor Carol Russell said Friday. "I'm a firm believer in one set of rules for everybody."
Russell said she also was "shocked" to learn the brands sold at Native Tobacco 101 allegedly do not comply with cigarette safety provisions, which are designed to ensure they don't keep burning when not being puffed.
Many tribes in California sell cigarettes that are authorized on a state directory and also pay state taxes.
But the attorney general's office has recently gone after some shops in Southern California that were alleged to have sold illegal tobacco products on reservations, or failed to collect state taxes.
Earlier this month, four of the retail tobacco stores on Indian lands in Riverside County voluntarily closed after the state filed an injunction seeking compliance.
The Agua Caliente Band of Cahuilla Indians agreed that the tobacco products on the reservation were being sold illegally and they were not in partnership with the retailers.
Native Tobacco 101, located on a frontage road next to the freeway, is on a remnant of the former Cloverdale Rancheria, owned by survivors of John Santana, a Pomo elder and postmaster who was allotted the land more than 40 years after the rancheria was dissolved.
When it opened several months ago, the then-manager of the shop said the owners are working with a Native American company licensed to use the land and operate the tobacco business. But he declined to provide more detail.
Speer, the current manager, referred questions about the attorney general's allegations to the owners, who could not be reached for comment.
The restored Cloverdale Rancheria Band of Pomo Indians, who are proposing a casino on adjacent lands, have said they have no connection to the tobacco business, and it is not on land belonging to the tribe.
In his letter, Eckhart said a sign posted in the shop is misleading.
It states that the store is located on Indian land and operated by a federally recognized Indian tribe.
"We believe that the posted sign may falsely represent to your customers a fact about the shop's ownership and/or management," he said.
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