By: Del Laverdure and Bryan Newland
Last week’s decision out of the U.S. District Court in Southern Florida in Seminole Tribe of Florida v. Florida could signal a potential shift in Indian tax law.
For many tribal leaders and Indian law practitioners, tax law in Indian country is an intimidating jurisdictional maze – often times allowing state and local taxes to apply in Indian country in spite of tribal territorial sovereignty. The outcome of an Indian tax case depends upon a combination of the type of tax or government fee imposed, the government doing the taxing, the individual or entity being taxed, and the location of the activity, individual, or property being taxed.
Many states have levied taxes on non-Indians and non-Indian businesses working in Indian country; and, in recent years, these efforts have been upheld under the Supreme Court’s decision in White Mountain Apache Tribe v. Bracker. Under that case, a reviewing court must balance the interest of the tribe, the state, and the federal government when deciding whether state taxes in Indian country are preempted by federal law. In many losing cases, tribal litigants have tried to invalidate state taxation without a clear statement of the federal government’s interest.
In the Seminole case, the State of Florida was attempting to impose two different taxes on tribal lands: a “rental tax” on businesses leasing property from the Tribe; and, a “utility tax” on electricity delivered to the Tribe’s lands. The Court held that Florida’s rental tax was preempted by federal laws governing leasing on Indian lands (it also invalidated the utility tax because the legal incidence of the tax fell on the Tribe).
The Court held that both the Indian Long-Term Leasing Act and the BIA’s new leasing regulations preempt state taxes on the use of tribal property.
The Department of the Interior published those new regulations in November 2012, which include this provision:
162.017 What taxes apply to leases approved under this part?
(a) Subject only to applicable Federal law, permanent improvements on the leased land, without regard to ownership of those improvements, are not subject to any fee, tax, assessment, levy, or other charge imposed by any State or political subdivision of a State. Improvements may be subject to taxation by the Indian tribe with jurisdiction.
(b) Subject only to applicable Federal law, activities under a lease conducted on the leased premises are not subject to any fee, tax, assessment, levy, or other charge (e.g., business use, privilege, public utility, excise, gross revenue taxes) imposed by any State or political subdivision of a State. Activities may be subject to taxation by the Indian tribe with jurisdiction.
(c) Subject only to applicable Federal law, the leasehold or possessory interest is not subject to any fee, tax, assessment, levy, or other charge imposed by any State or political subdivision of a State. Leasehold or possessory interests may be subject to taxation by the Indian tribe with jurisdiction.
The Court noted the importance of this new provision, and its impact on the preemption analysis under Bracker: “Unlike in Cotton Petroleum or Bracker, this Court now has the benefit of the comprehensive analysis performed by the Secretary of the Interior showing how tribal interests are affected by state taxes on leases of restricted Indian land.” (p. 4).
The Court cited numerous passages from the Preamble to the new leasing regulations (pp. 5-6), and noted, “[t]he Court finds the Secretary’s preemption analysis thorough and persuasive.”
With respect to Florida’s rental tax, the Court held:
For the reasons detailed by the Secretary of the Interior, this Court finds that the federal regulatory scheme regarding leases of restricted Indian land is so pervasive that it precludes the additional burdens imposed by Florida’s Rental Tax. Florida’s assessment of its Rental Tax to the leases in this case would obstruct federal policies.
This decision follows on the heels of the 9th Circuit’s decision in Confederated Tribes of the Chehalis Reservation v. Thurston County, in which the Court held that local taxes on permanent improvements on tribal lands were preempted by federal law (the Court noted that the new leasing regulations clarify existing federal statutes on this point).
Last year, the 2nd Circuit issued a contrary decision, upholding a local government’s effort to tax slot machines leased to the Mashantucket Pequot Tribe for use at the Foxwoods casino. But, the Court didn’t apply the new regulations in that case.
The tax language in the BIA’s new leasing regulations is at issue in a pending lawsuit between the Agua Caliente Band and Riverside County, in which the Tribe is asserting that the County’s possessory interest tax on non-Indian lessees on its reservation is preempted by federal law. The U.S. District Court in Central California dismissed the County’s prior challenge to the tax provisions in the leasing regulations on ripeness grounds.
Last week’s decision in Seminole should support the notion that federal law preempts state and local taxation of activities, individuals, and property in Indian country. The new leasing regulations finally offer a clear expression of the federal government’s interest in preempting dual taxation in Indian country in order to promote economic development. As the Court explained in Seminole: “The Secretary of the Interior’s new regulations have changed the landscape of this area of the law, specifically regarding the issue of preemption.” (p. 8).
- Donald “Del” Laverdure is the former Acting Assistant Secretary – Indian Affairs, and the founder of the Indigenous Law & Policy Center at the Michigan State University College of Law.
- Bryan Newland is the former Senior Policy Advisor to the Assistant Secretary – Indian Affairs, and is an alumnus of the Indigenous Law & Policy Center at the Michigan State University College of Law