Week in Insights: Tribal Sovereignty Doesn’t Outweigh Tax Law

Azuma Corp. is a tribal-owned cigarette distributor that repeatedly flouted state and federal law. California regulators flagged the company in 2018, federal authorities placed it on a noncompliance list in 2019, and California sent a cease-and-desist letter in 2022. Then came a federal injunction.

Azuma’s response throughout? Keep shipping, selling, and pretending tribal sovereignty is a license to disregard tax law.

By the time the US Court of Appeals for the Ninth Circuit weighed in earlier this month, Azuma had moved nearly 30 million cigarettes in the year following the federal injunction. The court’s opinion in State v. Del Rosa didn’t need to break new legal ground; it just reiterated that sovereign immunity isn’t impunity.

Sovereign immunity protects tribes from being sued unless they clearly waive that protection, and it generally extends to tribal officials when they act in their official capacity. But when tribal officials act outside of their official capacity and violate federal law, they instead act as individuals.

This provides a narrow path around sovereign immunity when injunctive relief is the remedy, which helps keep sovereign immunity from becoming a shield for ongoing illegality. So tribal officials can’t violate federal law, and immunity doesn’t apply when the state is enforcing tax regulations. Rather than vindicating personal rights against the tribe, California was trying to stop a large-scale, unlawful distribution of untaxed tobacco.

What’s remarkable here isn’t the legal doctrine established by the holding—it’s Azuma’s audacity. The cigarette distributor steamrolled past tribal sovereignty’s boundaries. The Ninth Circuit merely affirmed that no one gets a free pass to run a shadow cigarette operation under the cover of immunity.

Other states, take note: The judicial roadmap for going after similar tax violations by tribal-affiliated businesses or individual officials has been laid out.

—Andrew Leahey

Packs of Camel cigarettes, an R.J. Reynolds Tobacco Co. brand, sit on display in Garner, N.C.

Photographer: Jim R. Bounds/Bloomberg via Getty Images

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Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

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