Flandreau Santee Sioux Tribe v. Josh Haeder, 938 F.3d 941

Background

The Flandreau Santee Sioux Tribe operates the Royal River Casino & Hotel on its reservation in Moody County, South Dakota and planned a $24 million renovation/expansion.
The Tribe contracted with nonmember Henry Carlson Company in October 2015 to perform the construction; South Dakota imposes a 2% excise tax on contractors’ gross receipts for construction-related services (S.D.C.L. 10-46A-1).
The State’s Department of Revenue denied Henry Carlson’s requests for an exemption (the State does not exempt nonmember work on commercial projects like casinos); Henry Carlson remitted the tax under protest and the Tribe sought a refund and declaratory relief in federal court.
The district court granted summary judgment for the Tribe, holding IGRA expressly preempted the tax (relying in part on IGRA’s NIGC-approval provision and the catchall preemption language) and alternatively finding preemption under the Bracker balancing test.
The Eighth Circuit reversed: it held IGRA does not expressly preempt the excise tax and, under Bracker balancing, South Dakota’s interests in applying a generally applicable contractor excise tax outweigh the federal and tribal interests shown on the summary judgment record.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether IGRA expressly preempts South Dakota’s 2% contractor excise tax	IGRA (including the NIGC approval requirement and the catchall, §2710(d)(3)(C)(vii)) preempts state taxation of activities directly related to Class III gaming, including casino construction	IGRA’s preemptive text is limited to gaming activities; §2710(d)(4) is a lack of authorization for gaming regulation in compacts, not a broad prohibition on taxing nonmember activity on reservations	Not expressly preempted: the court held IGRA’s provisions do not clearly preempt taxation of nonmember contractor gross receipts for casino construction
Whether IGRA’s NIGC-approval provision (§2710(b)(2)(E)) displaces state taxation because federal oversight is comprehensive	Tribe: NIGC approval requirement shows pervasive federal regulation of casino construction, displacing state taxes	State: NIGC’s role is limited to approving tribal ordinances protecting health/safety; it does not comprehensively regulate construction, so no displacement	Not preempted: the court found NIGC involvement is limited and does not amount to the comprehensive federal scheme needed to preempt the tax
Whether the catchall phrase “directly related to the operation of gaming activities” preempts the tax	Tribe: renovation is directly related to gaming operations (without it Tribe could not operate gaming)	State: the phrase is narrower—relates to activities actually involved in playing games; construction/amenities are not per se "directly related"	Not preempted: the court adopted a narrow reading of “directly related” and rejected the district court’s broad application
Whether Bracker balancing implies preemption of the tax	Tribe: federal and tribal interests (IGRA’s promotion of self-sufficiency and tribal control of gaming) outweigh the State’s generalized revenue interest; the tax would substantially burden tribal gaming revenue	State: tax is a one-time, generally applicable contractor excise tax on a nonmember; State has significant revenue and sovereign-interest reasons to tax contractors operating within its territory	Not preempted under Bracker: on summary judgment the Tribe failed to show more than a de minimis impact on federal/tribal interests; State’s revenue and sovereignty interests prevail

Key Cases Cited

White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (establishes the balancing test for implied preemption of state taxes in Indian country)
Ramah Navajo School Bd., Inc. v. Bureau of Revenue of N.M., 458 U.S. 832 (struck state tax where federal/tribal interests in Indian programs outweighed state interest)
Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (emphasizes particularized inquiry into congressional intent and balancing of interests)
Michigan v. Bay Mills Indian Community, 572 U.S. 782 (construes “directly related to the operation of gaming activities” narrowly)
Okla. Tax Comm’n v. Chickasaw Nation, 515 U.S. 450 (tax on nonmembers not per se invalid if legal incidence falls on non-Indians)
Mashantucket Pequot Tribe v. Town of Ledyard, 722 F.3d 457 (2d Cir.) (upholding state taxation of nonmember activity used in tribal gaming where federal preemption not established)
Barona Band of Mission Indians v. Yee, 528 F.3d 1184 (9th Cir.) (cautions against ignoring Bracker when assessing IGRA preemption)
New Mexico v. Mescalero Apache Tribe, 462 U.S. 324 (discusses balancing of tribal and state interests re: taxation)
Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (recognizes state revenue interests strongest where taxpayer receives state services)
Central Machinery Co. v. Arizona State Tax Commission, 448 U.S. 160 (framework for analyzing state taxation in Indian country)
Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95 (tribe cannot invalidate state tax solely by claiming reduced revenues)