$58 Million Judgment Adds To Woes Of Cigarette Maker On Yakama Reservation

By Tom Banse, NW News Network

A federal judge in Eastern Washington has ruled a cigarette maker on the Yakama Indian Reservation owes $58 million in unpaid taxes and penalties.


King Mountain Tobacco grows a portion of the tobacco it manufactures into cigarettes on the Yakama reservation.
Credit King Mountain Tobacco


The privately owned tobacco company has tried — so far unsuccessfully — to assert a treaty right to trade tax free.

The U.S. Treasury Department went after King Mountain Tobacco Company for federal cigarette taxes unpaid since 2009. The cigarette factory is owned by a Yakama tribal member. The company’s lawyers and the tribal government insist the reservation-based business is not subject to federal or state taxes.

King Mountain attorney Randolph Barnhouse bases this position on a specific provision of the 1855 U.S. treaty with the Yakama Nation.

“They gave up 17,000 square miles of land and they gave up a lot of other things for the right to be left alone on the reservation and to bring their goods to market without regulation,” Barnhouse said. “There are only two treaties that I am aware of in the entire United States that have that ‘right to travel and trade’ provision in the treaty.”

“People sometimes don’t want to hear about the history and they say, ‘Well, history; that was a long time ago,'” Barnhouse added. “Treaties are important and the promises that we made as a nation are important. They are especially important to the people who are living it every day, the Yakama people.”

U.S. government attorneys argue that the tribal cigarette company’s interpretation of the treaty is overly broad. “If no express exemptive language can be found in the text, the analysis is over. The claim of exemption fails. That is the case here,” wrote Justice Department attorney Carl Hankla in one of his briefs.

Federal district court judge Rosanna Peterson agreed. Attorney Barnhouse said his next step will be to ask Judge Peterson to reconsider at least one aspect of her ruling. The cigarette maker could later appeal. In fact, two other cases pertaining to the company are already before the U.S. Ninth Circuit Court of Appeals.

Back story straight from Hollywood?

An FBI affidavit made public in connection with the federal tax case reads like a Hollywood movie, complete with a confidential informant, wire taps, undercover agents posing as wealthy wholesalers, a chartered aircraft for added impact and the presentation of a briefcase full of bundled $100 bills.

The affidavit even includes what would be a requisite scene in a thriller in which the informant is suspected of being a cop and is challenged by the purported bad guys. According to the FBI transcript, King Mountain Tobacco owner Delbert Wheeler addressed the informant and said it did not matter if the man were a cop “because if you are and you mess with me, I will rip out your eyeball, then I will kill you. You understand you may shoot me but it doesn’t matter because in the end we will both go to the same place.”

The affidavit also places current Yakama Nation Tribal Council chairman JoDe Goudy at the meeting where, according to the government, extensive discussion of contraband cigarette trafficking and false reporting of sales happened. Goudy was identified as King Mountain’s sales manager at the time.

Neither Goudy nor Wheeler replied to interview requests on Friday. Heavily armed federal and state agents subsequently raided King Mountain Tobacco’s cigarette factory in White Swan, Washington. An indictment or case stemming from that 2011 raid remains under seal.

Barnhouse said the government’s treatment of his client “angers” him because he believes the U.S. is trying to put “these people out of business.”

Cigarette factories on the rez

King Mountain Tobacco is one of two cigarette manufacturing operations on tribal land in the Pacific Northwest. The other is Skookum Creek Tobacco Company, operated by the Squaxin Island Tribe near Shelton, Washington. The Squaxin Island enterprise has managed to avoid litigation.

One reason for that is because, unlike the Yakama Nation, the Squaxin Island Tribe reached a cigarette tax agreement with the State of Washington. Both cigarette factories import blended tobacco from the southeastern U.S. to process into their cigarettes. King Mountain has also harvested some tobacco from fields planted near its Yakima Valley manufacturing facility.

If the Yakama Nation were to succeed in winning tax-free status for its tobacco sales, it could gain a significant price advantage. The federal excise tax stands at just over $10 per carton of cigarettes. State escrow fund deposits impose a further $5.60 per carton expense.

On its website, King Mountain says it currently distributes cigarettes under its eponymous brand name in eleven states, including Washington, Oregon, Idaho and California. Delbert Wheeler started King Mountain Tobacco in 2005.

How Big Tobacco Has Made Cigarettes So Much Deadlier Than They Used To Be

“The cigarettes sold today are quite different from the cigarettes that were on the market five decades ago, according to the new report, and that’s because tobacco companies have done extensive research to figure out how to make smoking appealing for new customers. “



In this Saturday, March 2, 2013 file photo, a woman smokes a cigarette while sitting in her truck in Hayneville, Ala. Anti-smoking measures have saved roughly 8 million U.S. lives since a landmark 1964 report linking smoking and disease, a study estimates, yet the nation's top disease detective says dozens of other countries have surpassed U.S. efforts to stop many tobacco-related harms. The study and comments were published online Tuesday, Jan. 7, 2014 in the Journal of the American Medical Association. This week’s journal commemorates the 50th anniversary of the surgeon general report credited with raising alarms about the dangers of smoking. (AP Photo/Dave Martin, File)

(AP/Dave Martin)

Fifty years ago, the U.S. surgeon general tied tobacco to lung cancer for the first time. Since then, additional scientific research has linked smoking with a host of other health issues, and efforts to publicize those harmful side effects helped spur a historic decline in the number of Americans who regularly smoke. Nonetheless, more than 42 million adults remain addicted to cigarettes, and the head of the Centers for Disease Control and Prevention (CDC) says that tobacco is still the greatest public health challenge of our time.

Why is tobacco still at the top of the CDC’s list? Why haven’t we moved past this yet? Largely because cigarette manufacturers have worked hard to keep their products relevant even in the midst of aggressive public health campaigns to crack down on smoking, according to a new report released on Monday by the Campaign for Tobacco-Free Kids.

The cigarettes sold today are quite different from the cigarettes that were on the market five decades ago, according to the new report, and that’s because tobacco companies have done extensive research to figure out how to make smoking appealing for new customers. They’ve essentially made it easier to get hooked on their products by increasing the levels of nicotine — the addictive chemical in cigarettes — and using new additives to help enhance nicotine’s impact. They’ve also added flavoring, sugars, and menthol to mask the effect of inhaling smoke, ultimately hoping that will make it more pleasurable to use cigarettes:


Cigarettes have evolved over the past 50 years to make smoking more desirable


“Most people would think that 50 years after we learned that cigarette smoking causes lung cancer, cigarettes would be safer. What’s shocking about the report we issued today is that we’ve found that a smoker today has more than twice the risk of lung cancer than a smoker fifty years ago, as a direct result of design changes made by the industry,” Matt Myers, the president of the Campaign for Tobacco-Free Kids, said in an interview with ThinkProgress.

On top of that, Myers’ organization notes that these corporations have made calculated moves to create the next generation of smokers, according to internal marketing documents from tobacco companies that have been made public as a result of litigation against them. Brands like Marlboro, Newport, and Camel have specifically worked to attract younger customers in order to remain viable, citing statistics that most regular smokers pick up the habit before they turn 18.

Most people know that cigarette makers have historically worked to target young people with their advertising. Indeed, before increased regulation attempted to rein in this practice, it used to be even more explicit than it is now. For instance, the R. J. Reynolds Tobacco Company infamously used the cartoon character Joe Camel to help sell their cigarettes in the 1990s, a practice that mobilized anti-tobacco advocates to fight hard against marketing aimed at younger Americans.

But the new report finds that tobacco companies have actually gone even further to woo teens. The R.J. Reynolds Tobacco Company didn’t just rely on its camel; it also looked to change its cigarettes to appeal to a younger demographic. “Two key areas identified for improvement were smoothness and sweetness delivery. Smoothness is an identified opportunity area for improvement versus Marlboro, and sweetness can impart a different delivery taste dimension which younger adult smokers may be receptive to,” a 1985 product development plan for the company noted.

“We would have thought, with the tobacco industry claiming they don’t market to kids, that they wouldn’t be making design changes that increase the number of our kids who smoke,” Myers said. “But they have, quietly and behind the scenes.”

The Campaign for Tobacco-Free Kids’ report was released to coincide with the five year anniversary of the Family Smoking Prevention and Tobacco Control Act, historic legislation that gave the FDA power to regulate tobacco products and marketing efforts. At the time, that measure was hailed as the “toughest anti-tobacco bill in American history” — and Myers’ group wants the government to use it to undo some of the changes that have been made to cigarettes over the past several decades.

“At a very minimum, the FDA should act swiftly to require the tobacco industry to reverse all the steps they’ve taken to make these products more dangerous, more addictive, and more appealing to our kids,” Myers said. “I think this report tells us that the tobacco industry has not reformed over the last 50 years.”