[nativestudies-l] Fw: Tribal Sovereignty Article

[Ruth Garby Torres]

----- Original Message ----- 
From: Pilar Montalvo 
To: schaghticoke at att.net 
Sent: Wednesday, January 11, 2006 8:48 AM
Subject: Tribal Sovereignty Article


Ruth,

Please share this with the list.

Thanks,
Pilar Montalvo
Assistant Dean
Yale University
School of Forestry & Environmental Studies

States Winning Tax Battles With Tribal Reservations

Peter Adomeit
The Connecticut Law Tribune
01-09-2006


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. 

>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 Wagnon v. Prairie Band Potawatami Nation, 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, Dark-Eyes v. Commissioner of Revenue Services. The state's right to tax was upheld in both cases. 

The Prairie Band 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. 

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. 

WINNING FOR LOSING 

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 White Mountain Apache Tribe v. Bracker. It is that balancing test that the majority rejected. Under Bracker, 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. Bracker, the majority stated, only applies to on-reservation activities by non-Indians. It has no place whatsoever for activities occurring off the reservation. 

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. 

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. 

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. 

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 Prairie Band 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. 

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. 

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. 

Within a few years, the U.S. Supreme Court may be faced with whether the National Labor Relations Board's recent assertion in San Miguel Indian Bingo and Casino 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 Prairie Band 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. 

If that is the case, Prairie Band 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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