508 P.3d 246
Ariz.2022Background
- In 1999 the Fort Mojave Indian Tribe leased 320 acres to a non‑Indian lessee (Calpine and successors, here South Point) to build and operate a merchant electric power plant on land held in trust for the Tribe with BIA approval.
- The amended lease expressly states South Point owns the plant and all improvements, must remove them at lease end (except foundations/roads), and must pay and indemnify the Tribe for any taxes or liens.
- Mohave County, using ADOR valuations, assessed ad valorem property taxes only on the plant and its operating personal property (not on the underlying trust land); South Point paid and sought refunds.
- South Point’s primary claim: 25 U.S.C. § 5108 (§5 of the Indian Reorganization Act) expressly preempts state/local taxation of permanent improvements affixed to §5 trust lands regardless of the improvements’ ownership; alternatively it urged implied preemption under Bracker.
- The tax court rejected both arguments and entered summary judgment for the County; the court of appeals reversed, holding §5 categorically exempts permanent improvements on §5 trust lands from taxation regardless of ownership. The Arizona Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §5 (25 U.S.C. §5108) expressly preempts state ad valorem taxation of permanent improvements affixed to land held in trust under §5 when the improvements are owned by non‑Indians | §5’s phrase "such lands or rights" covers the "bundle" of rights in trust land, including permanent improvements and their use, so the plant is categorically tax‑exempt regardless of ownership | §5 exempts only the trust lands/rights actually owned by the United States in trust for the Tribe; here the lessee (South Point) owns the plant, so the plant is not within "such lands or rights" and may be taxed | Held: §5 does not expressly preempt taxation of non‑Indian‑owned improvements on §5 trust land; because South Point owns the plant, the tax is not exempt under §5 |
| Whether Mescalero, Rickert, or related authorities compel a broader reading of §5 to exempt non‑Indian property or otherwise resolve preemption without addressing ownership | Mescalero and Rickert interpret §5 broadly to protect the entire "bundle of privileges" of trust property and thus bar taxation that burdens those privileges even when improvements are non‑Indian‑owned | Those cases involved Indian ownership or governmental protection of Indian interests; they do not support exempting non‑Indian lessee‑owned improvements where the Tribe has no possessory/use interest | Held: Mescalero and Rickert do not extend §5 immunity to permanent improvements owned by non‑Indians; prior authorities and regulatory materials do not override §5’s plain language or create categorical immunity here |
Key Cases Cited
- Mescalero Apache Tribe v. Jones, 411 U.S. 145 (1973) (interprets §5 to protect tribal interests in land and extends immunity to taxes on use of permanent improvements owned/used by tribe)
- United States v. Rickert, 188 U.S. 432 (1903) (pre‑IRA precedent disallowing state taxation of Indian‑owned improvements on trust/allotted land to protect federal obligations to Indians)
- White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980) (establishes balancing test for implied preemption of state regulation/taxation affecting reservation activities)
- Oklahoma Tax Comm’n v. Texas Co., 336 U.S. 342 (1949) (refuses to extend immunity to non‑Indian lessees absent congressional action)
- Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989) (clarifies limits on broad immunity from state taxation for private parties doing business with tribes)
- Confederated Tribes of Chehalis Rsrv. v. Thurston Cnty. Bd. of Equalization, 724 F.3d 1153 (9th Cir. 2013) (applied Mescalero to exempt permanent improvements on §5 trust land in context of tribal business structures but did not control here)
- Seminole Tribe of Fla. v. Stranburg, 799 F.3d 1324 (11th Cir. 2015) (applies Mescalero to preempt tax on rental/use privileges tied to tribal property interests)
- Calpine Constr. Fin. Co. v. Ariz. Dep’t of Revenue, 221 Ariz. 244 (App. 2009) (prior Arizona appellate decision recognizing lease‑allocation of ownership can make lessee own permanent improvements)