A Yakama tribal cigarette manufacturer could be on the hook for some $30 million in federal tobacco taxes under a recent federal court ruling.

Delbert Wheeler, owner of King Mountain Tobacco in White Swan, along with the Yakama Nation, sought an order in January of last year in U.S. District Court blocking the Alcohol, Tobacco and Trade Bureau from assessing federal excise taxes on cigarettes and other tobacco products he manufactures on tribal land.

Held in federal trust, tribal land and products directly derived from it are exempt from federal and state taxes. Wheeler argues that his business is also exempt because it’s situated on tribal land deep within the Yakama reservation, where he grows a portion of his tobacco.

But on Feb. 11, U.S. District Judge Rosanna Malouf Peterson in Spokane ruled that King Mountain products are subject to federal taxes because they are not directly derived from tribal land. Wheeler blends his tobacco with off-reservation tobacco and uses other products not derived from tribal land to manufacture his products, Peterson said in her ruling.

“When taking into account the manufacturing process and the amount of nontrust-land tobacco that is used in King Mountain’s products, the court finds that the cigarettes and roll-your-own tobacco produced by King Mountain are not principally generated from the use of reservation land and resources,” she wrote.

Wheeler, Yakama Tribal Council Chairman Harry Smiskin and their attorneys did not return phone calls Wednesday requesting comment.

Wheeler’s dispute over federal taxes began when Federal Bureau of Investigation agents raided his business on Feb. 16, 2011, and seized company records and computer equipment. Responding to the raid, the tribe sued the federal government, seeking an order requiring the FBI and the Department of Justice to notify the tribe before entering the reservation and unspecified compensation for punitive damages.

Under the 1855 Yakama treaty, the tribe reserved its right to the exclusive use of the reservation. That lawsuit is pending.

Meanwhile, the federal government has sued King Mountain in U.S. District Court, seeking $30 million in federal excise taxes it claims the company has not paid since 2009. That case is also pending.

It’s not the first legal skirmish King Mountain has had over untaxed smokes. Also pending is a lawsuit filed by the city of New York over unpaid state cigarette taxes.

The city of New York claims King Mountain sold and distributed untaxed cigarettes in New York state and seeks unspecified damages as well as an order forcing the cigarette manufacturer to comply with state taxation laws.

According to that lawsuit, King Mountain shipped $455,000 worth of cigarettes to Watkins Sellers on the Poospatuck Indian reservation west of New York City between November 2009 and February 2010. Wheeler said he’s a wholesaler, and that the local retailer is responsible for the state tax.

Independently owned by the Wheelers, King Mountain is situated on Fort Simcoe Road at the west end of White Swan, licensed by the tribe and has been in operation since December 2005.

Phil Ferolito can be reached at 509-577-7749 or pferolito@yakimaherald.com.