Flandreau Santee Sioux Tribe, a federally-recognized Indian Tribe v. Kristi Noem, Governor of the State of South Dakota, et al.*
No. 18-1271
United States Court of Appeals For the Eighth Circuit
September 6, 2019
Submitted: February 13, 2019
Before LOKEN, COLLOTON, and KELLY, Circuit Judges.
The Flandreau Santee Sioux Tribe is a federally recognized tribe that owns and operates the Royal River Casino & Hotel (the “Casino“) and the First American Mart (the “Store“) on the Flandreau Indian Reservation in Moody County, South Dakota.*
The majority of patrons at the Casino and the Store are not members of the Tribe. The State of South Dakota (the “State“) imposes a use tax on goods and services purchased within the State. See
The Tribe filed this action in the district court in November 2014, alleging, inter alia, (i) that imposing the use tax on purchases by nonmembers on reservation land is preempted by the Indian Gaming Regulatory Act (“IGRA“) because all activity under the Royal River Casino name is “gaming activity
Ruling on cross-motions for summary judgment, the district court held that IGRA expressly preempts imposing the use tax on nonmember purchases throughout the Casino, but does not prevent imposing the tax on nonmember purchases of goods and services at the Store. However, the court concluded, the State may not condition renewal of alcohol beverage licenses on the Tribe‘s remittance of use taxes imposed on nonmember purchases at the Store. The State appeals, arguing (i) federal law does not preempt imposition of its use tax on nonmember purchases at the Casino of goods and services the parties rather vaguely define as non-gaming “amenities,”2 and (ii) the State may condition renewal of alcoholic beverage licenses on the Tribe‘s failure to remit validly imposed use taxes. Reviewing the grant of summary judgment de novo, and the facts
I. The State Tax Preemption Issue.
A. Absent a federal statute permitting it, “a State is without power to tax reservation lands and reservation Indians.” Okla. Tax Comm‘n v. Chickasaw Nation, 515 U.S. 450, 458 (1995) (quotation omitted). If the legal incidence of a state tax falls on a Tribe or its members for sales made within Indian country, like the state motor fuels excise tax at issue in Chickasaw Nation, thе tax is categorically unenforceable, without regard to its “economic realities.” Id. at 458-60. In this case, however, it is undisputed that the legal incidence of South Dakota‘s use tax falls on nonmember purchasers of goods and services at the Casino and at the Store.3 Thus, the per se rule against state taxation of reservation Indians does not apply.
When a State seeks to impose a nondiscriminatory tax on the actions of nonmembers on tribal land, its authority is not categorically limited. Instead, the Supreme Court applies a flexible analysis to determine whether state taxation of nonmembers on Indian land is proper, often called the “Bracker balancing test,” a reference to the Court‘s dеcision in White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980). Each case “requires a particularized examination of the relevant state, federal, and tribal interests.” Ramah Navajo School Bd., Inc. v. Bureau of Revenue of N.M., 458 U.S. 832, 838 (1982). In most cases, because Indian tribes are dependent sovereigns, the issue turns on whether federal legislation has preempted state taxation of nonmember activity on Indian land, which is “primarily an exercise in examining congressional intent.” Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 176 (1989). However, because of the long-recognized importance of tribal sovereignty, “questions of pre-emption in this area are not resolved by reference to standards of pre-emption that have developed in other areas of the law, and are not controlled by ‘mechanical or absolute conceptions of state or tribal sovereignty.‘” Cotton, 490 U.S. at 176, quoting Bracker, 448 U.S. at 145. Instead, Indian tax immunity jurisprudence relies heavily on the “significant geographical component of tribal sovereignty,” which “provides a backdrop against which the applicable treaties and federal statutes must be read.” Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95, 112 (2005) (cleaned up). Federal preemption is not limited to cases in which Congress has expressly preempted the state tax. Cotton, 490 U.S. at 176-77. Generally, “a State seeking to impose a tax on a transaction between a tribe and nonmembers must point to more than its general interest in raising revenues.” New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 336 (1983).
Applying these principles, the Supreme Court has upheld some state taxes on nonmembers engaging in commercial activities on Indian lands, and hеld that other taxes were preempted. In Bracker, for example,
B. In this case, the federal legislation most relevant to the use tax at issue is the Indian Gaming Regulatory Act,
IGRA divides gaming into three classes of increasing regulatory significance. Class I games -- social games and traditional forms of Indian gaming -- are left to the exclusive jurisdiction of the Indian tribes. See
A State receiving a request to negotiate a tribal-state cоmpact governing Class III gaming activity “shall negotiate with the Indian tribe in good faith to enter into such a compact.”
(iii) the assessment by the State of such [gaming] activities in such amounts as are necessary to defray the costs of regulating such activity;
(iv) taxation by the Indian tribe of such activity in amounts comparable to amounts assessed by the State for comparable activities.
(4) Except for any assessments that may be agreed to under paragraph (3)(C)(iii) of this subsection, nothing in this section shall be interpreted as conferring upon a State or any of its political subdivisions authority to impose any tax, fee, charge, or other assessment upon an Indian tribe or upon any other person or entity authorized by an Indian tribe to engage in a class III activity.
Here, the Tribe and the State entered into and maintain a gaming compact governed by IGRA, which provides the terms under which the Tribe is authorized to conduct gaming activities on the Reservation. The compact allows for the operation of Class III gaming activity at the Casino and provides guidance for various facets of the Tribe‘s gaming operations. It does not address whether the State may impose its use tax on nonmember purchases of goods and services at the Casino and the Store.
In concluding that IGRA expressly preempts the use tax, the district court reasoned that the prohibition on state taxation in
The Tribe further argued, and the district court agreed, that the State‘s imposition of its use tax on nonmember purchasers of amenities at the Casino is a subjeсt that may be included in a tribal state compact because it falls within subsection (d)(3)(C)‘s “catchall” provision, “any other subjects that are directly related to the operation of gaming activities.”
We reject this interpretation of the statute for rеlated textual reasons. First, and most obviously, amenities such as a gift shop, hotel, and RV park are not directly related to Class III gaming activity as defined by the Supreme Court in Bay Mills -- “what goes on in a casino -- each roll of the dice and spin of the wheel.” “Directly related to the operation of gaming activity” is narrower than “directly related to the operation of the Casino.” We agree with the Tenth Circuit‘s interpretation of Bay Mills: “Class III gaming activity relates only to activities actually involved in the playing of the game, and not activities occurring in proximity to, but not inextricably intertwined with, the betting of chips, the folding of a hand, or suchlike.” Navajo Nation v. Dalley, 896 F.3d 1196, 1207 (10th Cir. 2018).
Second,
C. For these reasons, we conclude that the question of federal preemption in this case must be determined by conducting the analysis mandated by Bracker to determine whether the State‘s interests in imposing the tax outweigh the relevant federal and Tribal interests. Accord Mashantucket Pequot Tribe v. Town of Ledyard, 722 F.3d 457, 469-71 (2d Cir. 2013); Barona Band of Mission Indians v. Yee, 528 F.3d 1184, 1193 (9th Cir. 2008). “Salient factors include the extent of federal regulation and control, the regulatory and revenue-raising interests of states and tribes, and the provision of state or tribal services.” Felix S. Cohen, Handbook of Federal Indian Law 707 (2012), citing Cotton, 490 U.S. at 176-77, 186-90; Cent. Mach. Co. v. Ariz. State Tax Comm‘n, 448 U.S. 160, 161-63 (1980); and Bracker, 448 U.S. at 150-51. Of great relevance are the broad poliсies that underlie IGRA and the history of tribal independence in the operation of gaming and gaming facilities. See Cotton, 490 U.S. at 176. “State jurisdiction is preempted by the operation of federal law if it interferes or is incompatible with federal and tribal interests reflected in federal law, unless the state interests at stake are sufficient to justify the assertion of
The history of tribal sovereignty over a subject “serves as a necessary backdrop” to the preemption question. Cotton, 490 U.S. at 176. As the Supreme Court explained in Cabazon, there is a long history of tribal resistance to state regulation of their independent operation of gaming activities. Before Congress enacted IGRA in 1988, Cabazon confirmed that tribes were free from non-criminal state regulation of tribal gaming on reservations. IGRA endorsed substantial tribal independence and protected tribes from state interference in the operation of gaming activity, except for limited state regulation through Class III gaming compacts. The stated purposes of IGRA include “promoting tribal economic development, self-sufficiency, and strong tribal governments . . . ensur[ing] that the Indian tribe is the primary beneficiary of the gaming operation [and] protect[ing] such gaming as a means of generating tribal revenue.”
Even if the amenities at issue are not “directly related to the operation of gaming activities” within the meaning of
The State‘s taxation of the Casino amenities would raise their cost to nonmember patrons or reduce tribal revenues from these sales. Even if gaming was not thereby reduced, the impact would be contrary to IGRA‘s broad policies of increasing tribal revenues through gaming and ensuring that tribes are the primary beneficiary of their gaming operations to promote economic development, self-sufficiency, and strong tribal governments. The State argues that any negative impаct on the Tribe‘s finances is insufficient to preempt the tax, citing Cotton and Colville. We disagree.
In Cotton, the trial court found that the State regulated aspects of the on-reservation oil and gas development at issue and provided substantial services to the tribe and its lessee, and that “no economic burden falls on the tribe by virtue of the state taxes.” Id. at 185-87 (cleaned up). The Court concluded that this indirect impairment of the federal policy favoring on-reservation oil and gas production “is simply too indirect and too insubstantial to support [the] claim of pre-emption.” Id. at 187. Similarly, in Colville, no federally regulated tribal activity was involved, and the only benefit provided nonmembers by the tribe was a state tax exemption for their on-reservation cigаrettes purchases. Id. at 154-59. Here, nonmembers benefit from the Casino‘s federally regulated gaming activities operated by
We conclude the Tribe‘s on-reservation Class III gaming activity is analogous to the nonmember logging activity on tribal land at issue in Bracker, and to the nonmember activity in building a reservation school at issue in Ramah. In both cases, the Court held that state taxes whose economic burden fell on the tribes were preempted by federal statutes and programs comprehensively encouraging and regulating the nonmember activities, where the States did not have a “specific, legitimate regulatory interest” in the activity tаxed, Ramah, 458 U.S. at 843, only a “generalized interest in raising revenue” that is insufficient to permit “intrusion into the federal regulatory scheme,” Bracker, 448 U.S. at 150. The State‘s interest in raising revenues to provide government services throughout South Dakota does not outweigh the federal and tribal interests in Class III gaming reflected in IGRA and the history of tribal independence in gaming recognized in Cabazon. As in Bracker, “this is not a case in which the State seeks to assess taxes in return for governmental functions it performs for those on whom the taxes fall.” Id. at 150. Accordingly, we affirm the district court‘s conclusion that imposition of the South Dakota use tax on nonmember purchases of amenities at the Casino is preempted by federal law.
II. The Conditional Liquor Licensing Issue.
The district court held that the South Dakota use tax may be imposed on nonmember purchases at the Store, and that the State “can require the Tribe to collect and remit such tax.” See Okla. Tax Comm‘n v. Potawatomi Indian Tribe, 498 U.S. 505, 513 (1991) (“the doctrine of tribal sovereign immunity does not prevent a State from requiring Indian retailers doing business on tribal reservations to collect a state-imposed . . . tax on their sales to nonmembers“), citing Moe v. Confederated Salish and Kootenai Tribes, 425 U.S. 463 (1976), and Colville, 447 U.S. at 134. The Tribe did not appeal those rulings.
When the Tribe failed to remit the use tax on goods and services sold to nonmembers, the State denied the Tribe renewals of alcoholic beverage licenses issued to the Casino and the Store because the use tax was not paid. See
“Congress has divested the Indians of any inherent power to regulate” the use and distribution of alcoholic beverages in Indian country. Rice v. Rehner, 463 U.S. 713, 724 (1983). In enacting
Like the district court, we conclude the issue is not that simple. Section 1161 provides the State with authority to regulate liquor on the reservation, just as the district court concluded it has authority to tax nonmember purchases of goods and services at the Store. But the question is whether the State‘s remedy for the Tribe‘s failure to collect and remit valid usе taxes -- non-renewal of its liquor licenses -- is preempted by federal law. In resolving this issue, the Supreme Court applies the Bracker balancing test. See Dep‘t of Taxation & Fin. of N.Y. v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 73 (1994), citing Cotton, 490 U.S. at 176.
In Potawatomi, the Supreme Court held that tribal sovereignty barred Oklahoma from suing the tribe to enforce its valid tax on reservation cigarette sales to nonmembers, which would be “the most efficient remedy,” but tribal sovereignty “does not excuse a tribe from all obligations to assist in the collection of validly imposed state sales taxes.” Id. at 512, 514. The Court suggested five alternative remedies: (1) imposing liability on individual agents of tribes for failing to collect the taxes; (2) seizing untaxed goods in shipment to reservations; (3) collecting taxes from wholesalers off reservations; (4) entering into сollection agreements with tribes; and (5) seeking congressional legislation. Id. at 514.
In Colville, tribes challenged detailed recordkeeping requirements imposed by the State to separate on-reservation cigarette sales to nonmembers, which were subject to state excise tax, from nontaxable sales to tribal members; the Court held the requirements “valid in toto” because “the Tribes have failed to demonstrate that the State‘s recordkeeping requirements for exempt sales are not reasonably necessary as a means of preventing fraudulent transactions.” Id. at 160. In a subsequent case, wholesalers federally licensed to sell cigarettes to reservation Indians facially challenged New York‘s “probable demand” mechanism imposing a quota on their tax-exempt cigarette sales; the Court upheld the State restrictions on reservation retailers as “reasonably necessary” to curb the illicit flow of tax-free cigarettes. Milhelm Attea, 512 U.S. at 75-76. The Court has not applied its “reasonably necessary” standard in other contexts.
Here, the district court concluded that the State‘s licensing renewal condition was not reasonably necessary because “conditioning an alcohol license on taxes entirely unrelated to alcohol and its potential for substantial impact does not further the State‘s recognized interest” in
In the district court and on appeal, the Tribe did not address this issue, arguing only that
III. Conclusion.
For the foregoing reasons, the Amended Judgment of the district court is affirmed in part and reversed in part. The case is remanded for further proceedings not inconsistent with this opinion.
COLLOTON, Circuit Judge, concurring in part and dissenting in part.
The Indian Gaming Regulatory Act does not expressly preempt South Dakota‘s use tax on purchases of non-gaming amenities at the Royal River Casino & Hotel by those who are not members of the Flandreau Santee Sioux Tribe. On this much, I agree with the court. The court proceeds, however, to affirm the district court‘s preemption ruling on an alternative ground—namely, that “the State‘s interests in imposing the tax” do not “outweigh the relevant federal and Tribal interests.” I conclude that federal law does not preempt the South Dakota use tax on the purchase of non-gaming amenities by nonmembers, so I would reverse the judgment.
The Supreme Court last addressed the subject of state taxation of nonmembers for activity on an Indian reservation thirty years ago. The Court explained that “questions of pre-emption in this area are not resolved by reference to standards of pre-emption that have developed in other areas of the law.” Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 176 (1989). What governs instead is “a flexible pre-emption analysis sensitive to the particular facts and legislation involved.” Id.
The court here concludes that South Dakota‘s use tax on nonmember purchases of amenities is preempted because the case is analogous to White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980), and Ramah Navajo School Board, Inc. v. Bureau of Revenue of New Mexico, 458 U.S. 832 (1982). Those decisions held that particular state taxes on nonmember activities undertaken on tribal land were preempted. The analogy to this case, however, is wanting.
Bracker involved a motor carrier license tax and use fuel tax that a State applied to a non-Indian logging company that operated on an Indian reservation. The Tribe had agreed to reimburse the company for any tax incurred as a result of its on-reservation business activity, so it wаs “undisputed that the economic burden of the asserted taxes [would] ultimately fall on the Tribe.” Id. at 151. The Supreme Court held that the state taxes were preempted. The opinion cited a “pervasive” and “comprehensive” federal regulatory scheme governing tribal timber that left “no room for these taxes,” as well as a failure of the State to “identify any regulatory function or service performed by the State that would justify the assessment
Ramah concerned a state tax imposed on gross receipts that a non-Indian construction company received from a tribal school board for the construction of a school on the reservation. Under standard industry practice, the school boаrd reimbursed the construction company for all taxes due, so the ultimate burden of the gross receipts tax fell on the tribal organization. Id. at 835, 844. The Supreme Court found the case indistinguishable from Bracker and declared the state tax preempted. The Court cited a “detailed regulatory scheme governing the construction of autonomous Indian educational facilities [that was] at least as comprehensive as” the scheme governing timber in Bracker, id. at 841, and emphasized that the State did “not seek to assess its tax in return for the governmental functions it provides to those who must bear the burden of paying [the] tax.” Id. at 843.
The Court‘s next decision, however, cabined Bracker and Ramah. Cotton Petroleum considered a state severance tax on the production of oil and gas by non-Indian lessees of wells loсated on a reservation. In urging federal preemption of the state tax, the Tribe cited the Indian Mineral Leasing Act of 1938 and a congressional purpose to provide tribes with a profitable source of revenue from oil and gas leases. But the Court refused to find preemption of state taxation based on the indirect burdens that the state taxes imposed on this broad congressional purpose. Without “some special factor such as those present” in Bracker and Ramah, the indirect burdens were insufficient to justify invalidating the state taxes. Id. at 187. The Court expressed concern that a preemption ruling would mean a return to the “thoroughly repudiated doctrine” of intergovernmental tax immunity. Id.
In distinguishing Bracker and Ramah, the Court in Cotton Petroleum highlighted that the prior cases both “involved complete abdication or noninvolvement of the State in the on-reservation activity.” Id. at 185. Bracker and Ramah also involved “exclusive” federal and tribal regulation of the nonmember activity, whereas the federal and tribal regulations in Cotton Petroleum were “extensive,” but not “exclusive.” Id. at 186. And Cotton Petroleum did not involve “an unusually large state tax” that “imposed a substantial burden on the Tribe.” Id.
The situation here does not share the “special” characteristics that led the Court to find preemption in Bracker and Ramah. This is not a case of “complete abdication or noninvolvement of the State in the on-reservation activity.” The State provides a range of services for the Casino: law enforcement operations, R. Doc. 80-7, at 34; R. Doc. 119-11, at 7-13; R. Doc. 125-23, at 4-5; roads that facilitate the Casino‘s fifty-mile shuttle service for patrons, R. Doc. 80-7, at 16, 21, 28-29; R. Doc. 119-15, at 50; job training for a Casino employee from the State‘s Department of Human Services, R. Doc. 81-14, at 3-5; and inspection of Casino equipment by the State Fire Marshal, R. Doc. 119-21, at 7-8. Nor is federal and tribal regulation of the amenities “exclusive.” The State issues an alcohol license to the Casino and regulates the service of alcoholic beverages, R. Doc. 32, at 14 (¶ 56); R. Doc. 80-10, at 13-14; the State‘s Department of Health licenses vendors who sell food products to the Casino, R. Doc. 80-10, at 4, 15-16; R. Doc. 82-4, at 4-6; and the Tribe purchases water from the City of Flandreau, whose water system operators are certified by the State‘s Department of Environment and Natural Resources, R. Doc. 80-2, at 8-9; R. Doc. 132-21, at 5-7. Although the state tax revenue derived from the sales of amenities would not equal the cost of the state services
Bracker and Ramah emphasized the existence of a comprehensive federal regulatory scheme of the activity taxed—logging operations and the construction of Indian schools, respectively. The Bureau of Indian Affairs exercised authority over the details of logging operations and school construction, and thereby placed administrative and economic burdens on both the Tribes and the non-Indian companies enlisted to help with the regulated aсtivities. The federal regulation was so pervasive as to preclude an additional burden that state taxes would impose. Here, the absence of a comprehensive federal regulatory scheme that encompasses the provision of non-gaming amenities distinguishes Bracker and Ramah and leaves room for the State to apply its use tax.
The court concludes that the potential negative impact of the state tax on the Tribe‘s finances is sufficient reason to declare the state tax preempted. Even if gaming is not reduced, the court believes, a reduction in tribal revenues from sales of non-gaming amenities would be contrary to the “broad policies” of the Indian Gaming Regulatory Act. To my eye, that submission is akin to the argument rejected in Cotton Petroleum, where the Court declined to accept that “[a]ny adverse effect on the Tribe‘s finances caused by the taxation of a private party contracting with the Tribe would be ground to strike the state tax.” Id. at 187. Even though it was “reasonable to infer that the [state] taxes have at least a marginal effect on the demand for on-reservation leases, the value to the Tribe of those leases, and the ability of the Tribe to increase its tax rate,” those indirect effects on a “broad” congressional purpose were insufficient to strike the state taxes without “more explicit guidance from Congress.” Id. at 186-87. So too here. As in Cotton Petroleum, the “primary burden of the state taxation falls on the non-Indian taxpayers,” id. at 187 n.18, and the indirect effects of state taxation on tribal finances do not justify a finding of preemption.
For these reasons, I would reverse the judgment of the district court declaring preemption of the state use tax on non-gaming amenities. I concur in the court‘s reversal of the district court‘s judgment concerning the State‘s authority to condition renewal of the Tribe‘s alcoholic beverage license on the Tribe‘s remittance of use taxes that it was required to collect.