CONFEDERATED TRIBES AND BANDS OF THE YAKAMA INDIAN NATION, Plaintiff-Appellant, v. CHRISTINE O. GREGOIRE, Governor of the State of Washington; CINDI HOLMSTROM, Director of the Washington State Department of Revenue; LESLIE CUSHMAN, Deputy Director of the Washington State Department of Revenue; STUART THRONSON, Assistant Director of Special Programs of the Washington State Department of Revenue; PAT PARMER, Chief of Enforcement and Education Division of the Washington State Liquor Control Board, Defendants-Appellees.
No. 10-35776
United States Court of Appeals for the Ninth Circuit
September 23, 2011
D.C. No. 2:08-cv-03056-RHW OPINION
Argued and Submitted August 3, 2011—Seattle, Washington
Filed September 23, 2011
Opinion by Judge Milan D. Smith, Jr.; Concurrence by Judge Guilford
Phillip E. Katzen, Cory J. Albright, and Zach Welcker; Kanji & Katzen, PLLC, Seattle, Washington, for the appellants.
Robert M. McKenna, Attorney General of Washington, Heidi A. Irvin, David M. Hankins, and Robert K. Costello, Office of the Attorney General, Olympia Washington, for the appellees.
OPINION
M. SMITH, Circuit Judge:
States lack authority to tax Indian tribes or registered members of Indian tribal organizations absent a clear authorization from Congress. Cnty. of Yakima v. Confederated Tribes & Bands of the Yakima Indian Nation, 502 U.S. 251, 258 (1992). The Tribes of the Yakama Nation (the Yakama or Tribes) claim that this principle of Indian tax immunity has been violated by the State of Washington‘s current cigarette excise tax, which the Tribes argue leaves their retailers liable
In 1978, a three-judge district court held that the legal incidence of the Washington cigarette tax did not fall on the Tribes. Confederated Tribes of Colville Indian Reservation v. Washington, 446 F. Supp. 1339 (E.D. Wash. 1978). In 1980, the Supreme Court agreed with the three-judge court and upheld the validity of Washington‘s cigarette tax and its requirement that tribal retailers collect the tax from non-Indian cigarette purchasers. Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 159-61 (1980). Although some elements of Washington‘s cigarette tax law have been modified over the past thirty years, we conclude, as did the district court in awarding summary judgment to the State, that none of those changes has materially altered the legal incidence of the cigarette tax approved of in Colville, and we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Washington State Cigarette Tax
The State of Washington levies a general excise tax on all cigarettes sold, used, consumed, handled, possessed or distributed within the State. See
The cigarette tax primarily is collected from licensed cigarette wholesalers, who purchase tax stamps from the Washington Department of Revenue (the Department), and then affix the stamps on each package (or other unit) of cigarettes they distribute to retailers.
“Licensed wholesalers are compensated for affixing the stamps at the rate of $6.00 per thousand stamps affixed.”
WAC § 458-20-186(101)(b) . Wholesalers who affix cigarette tax stamps “may, if they wish, absorb five one-hundredths cents per cigarette of the tax and not pass it on to purchasers without being in violation of th[e Act] or any other act relating to the sale or taxation of cigarettes.”RCW § 82.24.020(2) . If a wholesaler posts a bond with the State, it may defer payment of the tax for up to thirty days. SeeWAC § 458-20-186(201)(b) (“Payment for stamps must be made at the time of purchase unless the wholesaler has prior approval of the [D]epartment to defer payment and furnishes a surety bond equal to the proposed monthly credit limit.“). This arrangement gives the wholesaler a grace period within which to collect the amount of the cigarette tax from retailers prior to paying it over to the Department.
The Act contains several provisions exempting certain entities and persons from its strictures. For example,
Also exempted from the notice, stamping, and cigarette tax requirements of the Act are lawful transactions covered by cigarette tax compacts between Indian tribes and the State under
It is the intent of the legislature that, in the absence of a cigarette tax contract or agreement . . . , applicable taxes imposed by this [Act] be collected on cigarettes sold by an Indian tribal organization to any person who is not an enrolled member of the federally recognized Indian tribe within whose jurisdiction the sale takes place consistent with collection of these taxes generally within the state. The legislature finds that applicable collection and enforcement measures under this chapter are reasonably necessary to prevent fraudulent transactions and place a minimal burden on the Indian tribal organization, pursuant to the United States supreme court‘s [sic] decision in Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134 (1980).
The Department has also adopted administrative rules concerning the collection of cigarette taxes from Indian retailers. See
The Department is also authorized by the Act to promulgate rules allowing for a refund to “dealers for the cost of stamps affixed to articles taxed . . . which by reason of damage become unfit for sale and are destroyed by the dealer or returned to the manufacturer.”
The Yakama Nation is a federally-recognized Indian nation with approximately 10,000 enrolled members. It is a party to the Yakama Treaty of 1855 with the United States, 12 Stat. 951, and it exercises the sovereign right of self-government over the 1.4 million-acre Yakama Indian Reservation, located in central Washington. There are nine Yakama member-owned businesses on the reservation engaged in the retail sale of cigarettes and other tobacco products. Each of these businesses is organized, licensed, and operates under the laws of the Yakama Nation. By affixing Yakama Nation tax stamps, the Nation imposes a tax on tobacco products sold by Yakama retailers. The revenues generated by this tax support essential tribal government services, as well as fisheries, forestry, and other programs.
In 2004, the Yakama entered into a cigarette tax compact with the State (the 2004 Agreement). Under the 2004 Agreement, the Tribes were required to impose and maintain a tribal tax on the retail sale of cigarettes equal to the amount of State and local sales taxes. Despite the compact, disputes arose between the Yakama and the State, and in February 2007, the Department sent a notice to the Tribes indicating its intent to terminate the 2004 Agreement. Following unsuccessful dispute-resolution talks, the 2004 Agreement was terminated in July 2008. The Department thereupon informed the Yakama that it was reinstating the cigarette tax on sales of cigarettes to nonmembers of the Tribes, and that it would require cigarette tax stamps to be affixed for all such sales.
C. Procedural History
Before any cigarette taxes could be collected by the State after the termination of the 2004 Agreement, the Yakama commenced this action in September 2008, seeking declarations (1) that it is unlawful for the State to tax Indian-to-Indian sales; (2) that
For purposes of this appeal, the relevant holding by the district court was its conclusion that the “legal incidence” of the cigarette tax does not fall on Yakama retailers. Id. at 1264 (“The Court finds that none of the differences between the scheme examined in Colville and the current scheme are sufficient to change the conclusion that the legal incidence of the tax does not fall on Indian retailers.“). The district court dissolved the temporary restraining order and released the bond posted to the State. In this appeal, the Yakama seek reversal of the district court‘s summary judgment ruling that the legal incidence does not fall on Yakama retailers, but concede that the answer to that question will be dispositive of the other issues pressed in the their lawsuit.
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction under
We review the district court‘s grant of summary judgment de novo. Coeur d‘Alene Tribe of Idaho v. Hammond, 384 F.3d 674, 681 n.2 (9th Cir. 2004).
I. Legal Incidence of the State Cigarette Tax
A. Indian Tax Immunity
[1] “The Constitution vests the Federal Government with exclusive authority over relations with Indian tribes . . . , and in recognition of the sovereignty retained by [the] tribes . . . , Indian tribes and [registered] individuals generally are exempt from state taxation within their own territory.” Oklahoma Tax Comm‘n v. Chickasaw Nation, 515 U.S. 450, 455 (1995) (quoting Montana v. Blackfeet Tribe, 471 U.S. 759, 764 (1985)). “The initial and frequently dispositive question in Indian tax cases, therefore, is who bears the legal incidence of a tax. If the legal incidence of an excise tax rests on a tribe or on tribal members for sales made inside Indian country, the tax cannot be enforced absent clear congressional authorization.” Chickasaw Nation, 515 U.S. at 456-57. However, where the legal incidence of tax does not rest on a tribe or its members, a state may impose the tax so long as “the balance of federal, state, and tribal interests favors the [s]tate, and federal law is not to the contrary,” and a state “may place on a tribe or tribal members ‘minimal burdens’ in collecting the toll.” Id. at 459 (citation omitted).
[2] The “legal incidence” of an excise tax refers to determining which entity or person bears the ultimate legal obligation to pay the tax to the taxing authority. See Colville, 447 U.S. at 150-51 (“We upheld the tax, insofar as sales to non-Indians were concerned, because its legal incidence fell on the non-Indian purchaser” as “the competitive advantage which the Indian seller . . . enjoy[ed] . . . [was] dependent on the extent to which the non-Indian purchaser is willing to flout his legal obligation to pay the tax.” (emphasis added) (citing Moe v. Confederated Salish & Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 482 (1976))). Identifying legal incidence requires a court to analyze the taxing statute and its imple-
The person or entity bearing the legal incidence of an excise tax is not necessarily the one bearing an economic burden from the tax. Hammond, 384 F.3d at 681 (citing Chickasaw Nation, 515 U.S. at 460). While a party bearing an economic burden, perhaps as the result of reduced sales, may also bear the legal incidence of the tax, the Supreme Court has clarified that an economic analysis of the “realities” of taxation should not be a substitute for legal-incidence analysis. Chickasaw Nation, 515 U.S. at 459-60 (“If we were to make ‘economic reality’ our guide, we might be obliged to consider, for example, how completely retailers can pass along tax increases without sacrificing sales volume—a complicated matter dependent on the characteristics of the market for the relevant product.“). Legal incidence “accommodates the reality that tax administration requires predictability,” id., and while a state cannot fully control how the market will adjust to a tax, a state can control tax enforcement and the determination of who is ultimately obligated to pay the tax. Id. at 460 (“[I]f a State is unable to enforce a tax because the legal incidence of the impost is on Indians or Indian tribes, the State generally is free to amend its law to shift the tax‘s legal incidence.“).
Since nonpayment of the tax is a misdemeanor as to the retail purchaser, the competitive advantage which the Indian seller doing business on tribal land enjoys over all other cigarette retailers, within and without the reservation, is dependent on the extent to which the non-Indian purchaser is willing to flout his legal obligation to pay the tax. Without the simple expedient of having the retailer collect the sales tax from non-Indian purchasers, it is clear that wholesale violations of the law by the latter class will go virtually unchecked.
Id. at 482 (footnotes omitted). The Moe Court also rejected the argument that collecting the tax from non-Indian customers rendered the retailer an “involuntary agent” for collection because the obligation to collect was only “a minimal burden designed to avoid the likelihood that in its absence non-Indians purchasing from the tribal seller will avoid payment of a concededly lawful tax.” Id. at 483.
[3] In Chickasaw Nation, the Court, in holding that the legal incidence of an Oklahoma motor-fuel tax fell on Indian retailers, gave special attention to two factors: whether the legislature specifically identified who bore the tax‘s legal incidence and whether the tax statute contained an explicit “pass through” provision requiring distributors and retailers to pass the tax onto consumers. 515 U.S. at 461. The Court stated that if the Oklahoma legislation “expressly identifi[ed] who bears the tax‘s legal incidence,” the language would be “dispositive.” Id. (“In the absence of such dispositive language, the question is one of ‘fair interpretation of the taxing
In Hammond, we held that an Idaho motor-fuel tax fell on Indian retailers in light of its “striking” similarity with the tax voided in Chickasaw Nation. Hammond, 384 F.3d at 450. Four key factors guided us: (1) the non-tribal distributors who received the motor fuel and sold it to the Indian tribes were required to pass on and to collect the tax from the retailer, and then to remit the taxes to the State; (2) the statute provided a tax credit to the distributor, but not a retailer, for “collecting and remitting” the tax on behalf of the State; (3) the State gave tax credits to the distributor for fuel taxes that the distributor has paid but cannot then collect from the retailer; and (4) retailers could not set off their tax liability when consumers failed to pay, nor were they compensated for their tax collection efforts. 384 F.3d at 685-88. In short, in addition to express statements of legislative intent, legal incidence analysis depends on whether a taxing statute contains an explicit “pass through” which moves incidence down the distribution chain, Hammond, 384 F.3d at 685-86, which individuals or entities are compensated for “collecting and remitting” the tax on behalf of the State, id. at 686, what invoices show regarding payment of the tax, id., whether a retailer may recoup the tax paid for unsold product, id. at 684, if the retailer is refunded the tax when a consumer fails to pay, id. at 687-88, and ultimately who is penalized by state authorities when the tax is not paid, Wagnon, 546 U.S. at 103; Moe, 425 U.S. at 482.
[4] We begin our analysis of the Act with the recognition that the primary issue before us was litigated and decided some three decades ago in Colville. 446 F. Supp. 1339, aff‘d in part and rev‘d in part, 447 U.S. 134 (1980). There, a three-judge district court held that the legal incidence of the Washington cigarette tax, as then written, fell on non-Indian cigarette purchasers as opposed to Indian retailers. 446 F. Supp. at 1355. Although the district court found the absence of a pass through to be “of particular importance,” id. at 1353, a broader consideration of the other statutory provisions and Department publications led to the conclusion that “the statute evidences the legislature‘s intent to impose the legal incidence of the tax at the earliest constitutional opportunity.” id. at 1355. Thus, “where on-reservation tribal sales to non-Indians [were] involved, the first taxable event [was] . . . the use or consumption by the non-Indian purchaser.” Id. Colville reached the Supreme Court on direct appeal, and the Court “accept[ed]” the district court‘s conclusion that the legal incidence of the cigarette tax fell on the non-Indians purchasers. 447 U.S. at 142 n.9. The Court held, inter alia, that the collection burden imposed on Indian retailers was “legally indistinguishable from the collection burden upheld in Moe” and was therefore “valid in toto.” Id. at 159-60.4
The Tribes claim that amendments to the Act since Colville have changed the legal incidence calculus, and the State does not argue that Colville precludes a reexamination.5 Spe-
We first consider the fact that the Act does not contain an express pass through requirement. Such a pass through requirement was also missing from the earlier version of the Act considered in Colville. See 446 F. Supp. at 1353. The current Act requires wholesalers to pass on all but a tiny fraction of the cigarette tax to their purchasers,
In response, the State first contends that there is an implied pass through in the Act‘s pre-collection obligation. See
[5] Despite the absence of a pass through, we recognize that the Act sustained in Colville also did not include a pass through and that its absence was not outcome determinative. Moreover, the pre-collection obligation, even if not equivalent to a pass through, serves a purpose in setting forth the responsibilities of the Indian retailers as transmittal agents. That obligation to transmit the tax and the record keeping requirements it requires are the same as the obligations the Supreme Court endorsed in Colville as “legally indistinguishable from the collection burden upheld in Moe.” 447 U.S. at 159. Thus, we will not treat the absence of a pass through as dispositive.
[6] Indeed, numerous provisions in the Act are written with the purpose of excluding Indian tribes and their members from compliance with the Act. After all, the cigarette tax applies only to the “first taxable event and upon the first taxable person” under
[7] Section
These points of statutory construction are buttressed by the Act‘s legislative history; since Colville, there have been no amendments to the Act which alter the legal obligations for paying the tax. Rather, the key amendments have been administrative in nature—to preclude retailers from affixing stamps and to prevent retailers from absorbing a small amount of a stamp‘s cost. See 1995 Wash. Sess. Laws, ch. 278, §§ 2-4; 2003 Wash. Sess. Laws, ch. 114, § 1(4). These amendments affect, at most, the economic burden of the cigarette tax, primarily by shifting to wholesalers the entire cost of affixing stamps. Moreover, by precluding retailers from absorbing any portion of the cigarette tax, it is implied that they will need to pass on the entirety of the tax to consumers.
The Tribes also have not posited a foreseeable scenario when an Indian retailer would have an obligation greater than transmittal agent. Instead, the only counter-scenarios offered by the Tribes involve situations where no sale is ever made to a customer, such as when cigarettes become damaged, or when a customer steals the cigarettes and does not tender the tax payment. The Act provides an express remedy in the first situation—
Finally, the ability of wholesalers to defer their payment for thirty days by posting a bond does not impact our legal incidence analysis. See
[8] To summarize, despite the absence of a statutory pass through, we conclude that the overall intent of the Washing-
CONCLUSION
For the foregoing reasons, the district court‘s grant of summary judgment and its dissolution of the temporary restraining order are AFFIRMED.
GUILFORD, District Judge, concurring in the judgment:
I concur in the result.
This case requires us to determine if a tax imposed on certain economic activity of the Tribes of the Yakama Nation creates a “legal incidence” upon the Tribes. The impact of various forms of taxation on a people has been apparent throughout our country‘s history, going back at least to when American patriots—ironically dressed as Indians—threw tea into Boston Harbor. The burden of taxation was the fuel in the fire of freedom ignited by our country‘s founders, and that burden continues to be a powerful factor in today‘s politics.
In this case, the tax burden must be analyzed through the prism of the “legal incidence” test, which often focuses on the issue of whether the tax can be passed through or passed along to others. An economist reviewing this “pass through” issue would analyze the demand elasticity for the product being taxed. In further review of the burden of taxation, an economist, aware of the negative slope of demand curves,
If we were to make “economic reality” our guide, we might be obliged to consider, for example, how completely retailers can pass along tax increases without sacrificing sales volume—a complicated matter dependent on the characteristics of the market for the relevant product.
Indians in the Tribes of the Yakama Nation might well wonder how the analysis of what courts call “legal incidence” can be done without reviewing the economic reality of the tax burden on them. And here, a review of these economic realities likely would reveal that the tax at issue imposes an economic burden on Indians in the Yakama Nation. But the law requires an analysis through a prism that blocks economic reality. Thus, following Supreme Court authority, without the guidance of economic reality, I must concur with the majority‘s opinion. Apart from economic reality, the provisions of the
Notes
(1) Other than:
(a) A wholesaler required to be licensed under this chapter;
(b) A federal instrumentality with respect to sales to authorized military personnel; or
(c) An Indian tribal organization with respect to sales to enrolled members of the tribe,
a person who is in lawful possession of unstamped cigarettes and who intends to sell or otherwise dispose of the cigarettes shall pay, or satisfy its precollection obligation that is imposed by this chapter, the tax required by this chapter by remitting the tax or causing stamps to be affixed in the manner provided in rules adopted by the department.
(i) Indians purchasing cigarettes in Indian country are exempt from the state cigarette tax; however, these sales must comply with
WAC 458-20-192 . Other consumers may purchase cigarettes for their personal consumption from “qualified Indian retailers” without incurring liability for state cigarette tax. A “qualified Indian retailer” is one who is subject to the terms of a valid cigarette tax contract with the state pursuant toRCW § 43.06.455 .(ii) Consumers who purchase cigarettes from Indian retailers who are not subject to a cigarette tax contract with the state must comply with the reporting requirements and remit the cigarette tax as explained in subsection (602) of this rule. These consumers are also liable for the use tax on their purchases.
(iii) It is the duty of the consumer in each instance to ascertain his or her responsibilities with respect to such purchases.