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Business owners in the panhandle's Kamiah may have won the first round in their drive to end sales and cigarette tax exemptions at Indian tribal stores.

Eight of the 18 Revenue and Taxation Committee members said they support sending a bill to end the exemptions to the full House. Two said they are leaning that way, while two more said they support the concept of lifting tax exemptions in some way, although they are not sold on the Kamiah bill.But state lawmakers generally have been reluctant to challenge tribal sovereignty.

"This is an issue that has been brought before the legislative body," said the measure's sponsor, veteran Rep. Harold W. Reid, D-Craigmont. "It is an issue that should be settled at this time."

Opponents of the measure argue that the surest way to wipe out years of cooperation between the state and Idaho's five Indian nations is to pass Reid's bill. They say that could spell problems for the state in terms of ongoing negotiations over Snake River water rights, fishing and hunting issues and utility easements.

"If you want to declare war, just pass this legislation," said Rep. Michael K. Simpson, R-Blackfoot.

Moreover, the tribes have some powerful allies: utilities and mining and timber interests rely upon access to tribal lands.

"If they think they're going to jam this down the Indians' throats, they're kidding themselves," said Rep. Gary Robbins, R-Dietrich. "They aren't looking at all the cards."

The measure would extend Idaho's 5 percent sales tax and 18-cent per pack cigarette taxes to non-Indians who make purchases at tribal stores. Tribal members would continue to be exempt from both taxes when they purchase goods.

It is unclear how the state could require a sovereign Indian nation to collect its sales taxes. But a 1980 U.S. Supreme Court decision and experience in Washington state show that Idaho could restrict the flow of untaxed cigarettes to the reservations, thereby choking off the supply intended for non-Indian customers.

A state tax commission formula would cut the Indian allotment of untaxed cigarettes to 901,200 packs a year. In 1988, Idaho's Indian tribes sold an estimated 37 million packs.

Four tribal operations would be affected. The Shoshone-Bannock tribe operates a Trading Post at Fort Hall; the Coeur d'Alenes operate the Benewah Market at Plummer; and the Nez Perce tribe operates the Stop 'n Shop at Kamiah.

The Kootenai tribe operates the Kootenai River Inn at Bonners Ferry, but that tribe charges the equivalent of a 5 percent sales tax and 2 percent tourism promotion tax collected by its non-Indian competitors. The tribe retains those revenues.

Pressure for the bill is coming from Kamiah, where retailers say they face an unfair competitive disadvantage. It is the only Indian retail operation competing directly with non-Indian businesses.

Indeed, many of the Revenue and Taxation Committee members view the controversy as a Kamiah issue, and all but two of them believe a local settlement of the dispute would eliminate the justification for the bill.

An agreement at Kamiah may be in the works.

Under apparent pressure from other Idaho tribes, Nez Perce Tribal Executive Committee members last week agreed to negotiate the matter.

The tribe is considering price adjustments along the lines followed by the Kootenai tribe. The Nez Perce would charge the equivalent of sales and cigarette taxes to mitigate their price advantage over non-tribal stores. They would use the extra money to fund senior citizen and youth programs.