Gov. Brad Henry is expected to issue a response this week disagreeing with Cherokee Nation Principal Chief Chad Smith that the Cherokees are entitled to a lower tobacco tax rate.

Smith had said the Cherokee Nation was entitled to the same tax rate as the Kaw Nation: a 25 percent flat tax.

That would mean the Cherokees would pay taxes of 26 cents per pack rather than 46 cents, said State Treasurer Scott Meacham.

The Cherokee Nation has about 30 licensed smoke shops, said Mike Miller, Cherokee Nation spokesman. The smoke shops include those at casino operations and licenses issued to individuals. Tobacco operations amount to about 3 percent of the tribe’s total budget, Miller said.

Meacham said non-tribal tobacco retailers feel the tribal tax advantage puts them at a pricing disadvantage.

“The state’s sort of stuck in the middle, trying to make sure the state gets all the tobacco tax it can for health care,” Meacham said.

Meacham said he has reviewed a preliminary copy of the governor’s letter and expects the governor to send out the letter within the next few days.

Smith asked the governor to grant “most favored nation” status to the Cherokees, Miller said.

The most favored nation clause comes from a pact the Cherokees signed with the state in 2004. In that agreement, the state agreed that if another tribe got a better tax rate than the Cherokees, they were the most favored nation and the Cherokees would get the same treatment, Miller said.

The Kaw Nation compact was entered into in 1998, Meacham said. He contends that the most favored nation agreement with the Cherokees applied to future agreements with other tribes, not ones already in effect.

Miller argues that the state failed to give the Kaw nation proper notice of the expiration of their contract, and they are operating under a new contract with tax rates more favorable than the Cherokees have.

Meacham says the issue likely will go to an arbitration hearing.

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