The state of Minnesota and the Leech Lake Band of Ojibwe are locked in a dispute over cigarettes and sovereignty.

Agents from the Minnesota Department of Revenue intercepted a delivery truck in St. Cloud on Good Friday, April 18. The truck, bound for a tribal gas station in Walker, was loaded with 281 cartons — 2,810 packs of cigarettes — that had been rolled at a Winnebago tribal facility in Nebraska and shipped to Minnesota unstamped and free of the state's hefty cigarette tax. If they'd made it to their destination, they would have sold for $3.50 a pack — compared to the $6 to $9 smokers were paying everywhere else in the state.

For the state Revenue Department, the seizure was an issue of tax fairness. For Leech Lake's leadership, it was a violation of tribal sovereignty. The result is a standoff, with millions of dollars in state tax revenue at stake.

In a statement, Leech Lake dubbed the incident "the Good Friday Seizure," calling it "yet another attack on Native American rights. The Band sees this seizure as an attempt by the state to implement its unfair taxation plan on the lands of the Leech Lake Reservation, this time resulting in the unfortunate economic isolation of a federally recognized American Indian Tribe."

The Department of Revenue, in turn, has cut off the taps — withholding the state tax equity revenue it normally splits with the tribe for its sale of other state-taxed items like sales, gas and alcohol — until the band agrees to start selling state-taxed cigarettes again.

Losing that shared tax revenue could cost Leech Lake $2 million or more a year, said Revenue Commissioner Myron Frans.

"We just want to make sure cigarette prices are uniform and fair," he said Friday. "Leech Lake is the only tribe now that insists on selling non-state-stamped cigarettes, and that's a considerable price differential. It's really unfair, and it's a terrible health outcome, as well."

Ten of the state's 11 tribes have agreed to sell only state-taxed cigarettes, and Frans said his department has worked with Leech Lake for years to try to reach a similar deal.

"We respect the sovereignty of all the tribes and we take their sovereignty very seriously," he said.

Leech Lake Chairwoman Carri Jones could not be reached for comment Friday, but in a statement she said the tribe tried to work with the state.

"Every time the Minnesota Department of Revenue requested a meeting on this issue, we came to the table to meet in good faith to offer innovative and creative solutions, which were consistently turned down by the state," she said in the statement. "We were hoping that by engaging in good faith negotiations we would avoid the drastic measure that Gov. Dayton's administration took on Easter weekend."

Minnesota has the sixth-highest state tobacco tax rate in the nation — $2.83 per pack, including a $1.60 increase that went into effect last year.

A familiar fight

But the tribal tax dispute goes back earlier, to 2005, when Minnesota levied a 75-cent-per-pack "health impact fee" on cigarettes. Because it was a fee and not a tax, the state argued that it did not need to split the new revenue with the tribes, as it does with other state taxes.

The decision sparked a dispute that led several tribes to start selling untaxed, out-of-state cigarettes, including Leech Lake. The fee was replaced with an excise tax last year, Frans said.

While other tribes made agreements with the state, Leech Lake held out, selling out-of-state cigarettes with tribal taxes and funneling the money back into the community.

"The majority of revenue generated through tribal taxation is recirculated into funding tribal programs like health and wellness and small business lending," the band said in its statement. "It provides alternative means for deriving income during difficult economic times."

Transporting untaxed cigarettes into Minnesota is a violation of state law, subject to stiff fines. The state has already gone after Leech Lake's supplier. Frans said the trucking company has agreed to stop shipping untaxed cigarettes to the tribe.

Jennifer Brooks • 612-618-4008