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<DIV style="FONT: 10pt arial">----- Original Message -----
<DIV style="BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A
title=pilar.montalvo@yale.edu href="mailto:pilar.montalvo@yale.edu">Pilar
Montalvo</A> </DIV>
<DIV><B>To:</B> <A title=schaghticoke@att.net
href="mailto:schaghticoke@att.net">schaghticoke@att.net</A> </DIV>
<DIV><B>Sent:</B> Wednesday, January 11, 2006 8:48 AM</DIV>
<DIV><B>Subject:</B> Tribal Sovereignty Article</DIV></DIV>
<DIV><BR></DIV>Ruth,<BR><BR>Please share this with the
list.<BR><BR>Thanks,<BR>Pilar Montalvo<BR>Assistant Dean<BR>Yale
University<BR>School of Forestry & Environmental Studies<BR><BR><B>States
Winning Tax Battles With Tribal Reservations<BR><BR></B>Peter Adomeit<BR>The
Connecticut Law Tribune<BR>01-09-2006<BR><BR><BR>With the explosion of American
Indian-owned casinos, highlighted by the unprecedented success of the Foxwoods
and Mohegan Sun resort casinos in southeastern Connecticut, certain tribes are
bringing non-Indians in great numbers onto reservation property to gamble and
then to sell them ordinary commercial products, like gasoline. Commerce begets
taxation, and taxation ... well, everyone likes to fight about taxes.
<BR><BR>From time to time, the U.S. Supreme Court has been called on to referee
the eternal conflicts between the efforts of the various states to impose taxes
and the efforts of the various tribes to resist such taxation. The opposing
sides meet on a battlefield that might as well be called Sovereignty Junction.
In a decision issued in December 2005, entitled <I>Wagnon v. Prairie Band
Potawatami Nation</I>, a 7-2 majority of the U.S. Supreme Court handed the
Potawatamis a decisive defeat. The decision was just cited in an Indian income
taxation case from Connecticut, <I>Dark-Eyes v. Commissioner of Revenue
Services</I>. The state's right to tax was upheld in both cases. <BR><BR>The
<I>Prairie Band</I> holding is straightforward: Kansas may impose a
nondiscriminatory tax on the sale of gasoline taking place off the reservation
to non-Indian distributors. The distributors truck the gasoline to the
Potawatami Nation's reservation, where 73 percent of it is sold to non-Indian
customers who come onto the reservation to gamble at the Nation's casino.
Without the tax, the Nation, which competes directly with non-Indian gasoline
stations located off the reservation, could undercut the retail prices, reducing
Kansas tax revenue. The price the distributor charges the tribe includes the
Kansas tax. The 10th Circuit had accepted the Nation's argument that the legal
incidence of the tax was felt on the reservation and could not be imposed
without congressional approval. In upholding the right of Kansas to tax the
gasoline, the U.S. Supreme Court, reversing the lower court, held that the legal
incidence of the tax is on the distributor and occurs off the reservation.
<BR><BR>Writing for the majority, Justice Clarence Thomas stated that, while the
Kansas tax increases the cost of the gasoline to the Indians and may diminish
their ability to impose their own taxes, such downstream effects always occur
when two jurisdictions tax the same transaction. The Nation imposed a 20
cents-per-gallon tax and set the pump price within 2 cents of the retail market.
The tribe's tax generated $300,000 of revenue per year, which the tribe used for
road maintenance, including the road connecting the state highway to the casino.
<BR><BR><B>WINNING FOR LOSING</B> <BR><BR>The significance of the case is not so
much the arguments that worked as the arguments that failed. The two dissenters,
Justice Ruth Bader Ginsburg and Justice Anthony M. Kennedy, agreed with the 10th
Circuit Court of Appeals to use a balancing test, articulated in <I>White
Mountain Apache Tribe v. Bracker</I>. It is that balancing test that the
majority rejected. Under <I>Bracker</I>, whether Kansas could impose a tax would
depend in part on the Nation's prices and the impact on Kansas. Under this
balancing test, Kansas could impose a tax only if the tribe priced the gasoline
too low, leading the state to impose the tax to act to offset its losses. The
majority opted instead for a "bright line" rule for off-reservation taxation in
place of the ambiguity and unpredictability of a balancing approach.
<I>Bracker</I>, the majority stated, only applies to on-reservation activities
by non-Indians. It has no place whatsoever for activities occurring off the
reservation. <BR><BR>The Supreme Court rejected the argument that the existence
of the casino created a new market for gasoline. The Nation had argued, and the
10th Circuit agreed, that under a balancing test, the state could not tax that
new market. <BR><BR>The majority also rejected the dissenters'
"equal-protection-against-sovereigns" argument. Kansas gave credit to taxes paid
to other states, but not to the Nation. The court recognized that Indian tribes
are not the functional equivalent of states, and Kansas may treat them
differently from the states. <BR><BR>With the introduction of casino gambling,
the economic power of some wealthy Indian tribes exceeds that of many
corporations. This economic activity inevitably draws them into conflicts with
state government over taxation. What is interesting about this decision is the
relative ease with which the Supreme Court was able to dispose of the Nation's
arguments based on sovereignty. <BR><BR>The decision states that states may
impose nondiscriminatory taxes if the incident of the tax is off the
reservation. This would also apply to state income taxes falling on Indians who
may receive income from the tribe but live off the reservation. A unanimous
Connecticut Supreme Court cited <I>Prairie Band</I> in deciding such a case,
released this month. A member of the Mashantucket Pequot Indian Tribal Nation
challenged the right of Connecticut to tax her income received from the Tribal
Counsel while she was living off the reservation in Ledyard, but on land owned
by the tribe. The case offers an interesting window into a private financial
world: her income from the Tribal Counsel for 1996, 1997 and 1998 was
$1,307,713, $1,666,950 and $654,381, respectively, a sum somewhat greater than
the $44,349 average annual family income in Connecticut for those three years.
<BR><BR>Interpreting the act of Congress that recognized the tribe and
extinguished the tribe's land claims, but affirmed the tribe's rights to an
800-acre reservation plus granting them $900,000 of settlement funds, with which
the tribe could purchase from willing sellers additional land within an 800-acre
area known as "private settlement lands," the Connecticut Supreme Court upheld
the state's right to tax the income. The court rejected the argument the lands
were "Indian Country," a term of art, even though located within the settlement
area and even though owned by the tribe, but not purchased with settlement
funds. <BR><BR>The Connecticut court, like the U.S. Supreme Court, rejected
arguments based on notions of tribal sovereignty. The Connecticut court also
rejected arguments based on cases that established a canon of statutory
construction favoring interpretations that supported the tribes. Had the
taxpayer lived on the reservation, she would be exempt from state taxes on
income from the Tribal Counsel. Living within the settlement area on land
purchased by the tribe was insufficient. <BR><BR>Within a few years, the U.S.
Supreme Court may be faced with whether the National Labor Relations Board's
recent assertion in <I>San Miguel Indian Bingo and Casino</I> of jurisdiction
over an Indian casino violates notions of Indian sovereignty. Because the
National Labor Relations Act is a federal statute and because the federal
government has significant power in dealing with the Indian tribes, the issues
will not be the same. However, the majority opinion in <I>Prairie Band</I> could
be an indication that the Supreme Court will give serious though to imposing the
same, nondiscriminatory business conditions on these casinos as on their
non-Indian competitors. <BR><BR>If that is the case, <I>Prairie Band </I>will be
far more than a simple taxation case, but could be the precursor to changing
notions of Indian sovereignty. An Indian casino that employs thousands of
non-Indians, attracts patrons numbering in the hundreds of thousands, as do the
Connecticut casinos, constitutes an economic engine of enormous size and power.
This new economic reality may well bring about a new adjustment of the
relationship between government and the casino tribes.
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