Opinion ID: 527087
Heading Depth: 2
Heading Rank: 1

Heading: Validity of the Tax

Text: 9 The district court found that the exercise of state authority in assessing the timber yield tax against companies which purchase Tribal timber from BIA or from HTC or other Indian-owned firms is preempted by the pervasive federal regulation of Indian timber and is thus in violation of federal law. Hoopa Valley, 590 F.Supp. at 203. On appeal, California argues that its interest in imposing the tax outweighs the federal and tribal interests at issue. 10 Preemption analysis in Indian tribal cases requires a particularized examination of the relevant state, federal, and tribal interests. Cotton Petroleum Corp. v. New Mexico, --- U.S. ----, 109 S.Ct. 1698, 1707, 104 L.Ed.2d 209 (1989) (quoting Ramah Navajo School Board v. Bureau of Revenue, 458 U.S. 832, 838, 102 S.Ct. 3394, 3398, 73 L.Ed.2d 1174 (1982)). The question of whether federal law, which reflects related federal and tribal interests, preempts state activity is not controlled by the standards of preemption developed in other areas. Id. Ambiguities in federal law are to be construed generously in favor of the tribe; no specific congressional intention to preempt state activity is required. Id.; White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 142-43, 100 S.Ct. 2578, 2583, 65 L.Ed.2d 665 (1980); accord Crow Tribe of Indians v. Montana, 819 F.2d 895, 898 (9th Cir.1987), aff'd, --- U.S. ----, 108 S.Ct. 685, 98 L.Ed.2d 638 (1988). If the state law interferes with the purpose or operation of a federal policy regarding tribal interests, it is preempted. Crow Tribe, 819 F.2d at 898. 11 Indian lands are exempt from state real property taxes. The Kansas Indians, 72 U.S. (5 Wall.) 737, 18 L.Ed. 667 (1866); see McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164, 169-71, 93 S.Ct. 1257, 1260-62, 36 L.Ed.2d 129 (1973). Federal policy encourages the economic development of tribal lands. White Mountain, 448 U.S. at 143, 100 S.Ct. at 2583. Federal laws and policies comprehensively support and regulate the harvest of timber on tribal lands. Id. at 145-49, 100 S.Ct. at 2584-87. 12 State taxes or regulations that interfere with tribal activities may be preempted if the tribal activity the state seeks to affect involves goods produced on the reservation. Compare Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134, 155, 100 S.Ct. 2069, 2082, 65 L.Ed.2d 10 (1980) (upholding state tax on on-reservation sales of cigarettes to non-Indians because product obtained off-reservation) with California v. Cabazon Band of Mission Indians, 480 U.S. 202, 107 S.Ct. 1083, 94 L.Ed.2d 244 (1987) (state regulation of bingo games preempted because tribe was generating value on reservation through activities in which tribe had strong interest). In White Mountain, Arizona applied its motor carrier license and fuel taxes to the equipment and activities of a private contractor hired by the tribe to assist in harvesting timber on reservation lands. 448 U.S. at 139-40, 100 S.Ct. at 2581. The Court found those taxes preempted because they undermined the federal policy of assuring that timber sale profits inure to the tribe. Id. at 148-49, 100 S.Ct. at 2586. In Ramah, New Mexico imposed a tax on the gross receipts that a non-Indian construction company received from a tribal school board for the construction of a school for Indian children on the reservation. 458 U.S. at 834, 102 S.Ct. at 3396. Although the tax was paid by a private company, the Court found the tax preempted because it burdened the comprehensive federal scheme regulating education for Indian children. Id. at 845, 102 S.Ct. at 3402. 13 In Crow Tribe, we invalidated Montana's coal severance tax as applied to coal mined from tribal lands because the tax had a financial impact on tribal resource development activities. 819 F.2d at 899-900. Montana argued that its severance tax on coal did not burden the tribe's economic interests because the tax was imposed on the tribe's lessee, a private company, and not the tribe. 819 F.2d at 899. We rejected the argument because the taxes ultimately reduced the royalty received by the tribe. 2 Id. 14 In Cotton Petroleum the Court reaffirmed the basic principles of White Mountain and Ramah while holding that New Mexico could impose its oil and gas severance tax on the production of oil and gas by non-Indians from tribal lands. 109 S.Ct. at 1711-13. The Court distinguished White Mountain and Ramah by recognizing that New Mexico regulated the oil and gas activities affected by the tax. Cotton, 109 S.Ct. at 1712. Additionally, the Court noted that the New Mexico tax primarily burdened non-Indian taxpayers. Cotton, 109 S.Ct. at 1712-13 & n. 18. This is not a case in which the State has had nothing to do with the on-reservation activity, save tax it. Nor is this a case in which an unusually large state tax has imposed a substantial burden on the tribe. Cotton, 109 S.Ct. at 1713. The Court also noted that it had no reason to reexamine its summary affirmance of our decision in Crow Tribe, because the Montana tax had a negative effect on the marketability of coal produced in Montana. 109 S.Ct. at 1713 n. 17. In contrast to New Mexico's regulation of oil and gas in Cotton, California plays no role in the Hoopa Valley Tribe's timber activities. Hoopa, 590 F.Supp. at 201-02. Also unlike Cotton, the burden of the tax concededly falls on the tribe. Hoopa, 590 F.Supp. at 201 n. 2. 15 The state argues that the district court erred because its interest in imposing the tax is much stronger than Arizona's interest in White Mountain. The state points out that in White Mountain, Arizona imposed motor vehicle taxes on entities that used reservation roads maintained by the BIA and not the state. Here, California notes that the timber tax helps fund various services used by tribal members, and that the services provided by the state to tribal members far exceed the income from the timber tax. 16 The district court correctly determined that the state's interest was not strong enough to outweigh the substantial federal and tribal interests in timber harvesting on the reservation. The Supreme Court rejected a parallel argument in Ramah: We are similarly unpersuaded by the State's argument that the significant services it provides to the Ramah Navajo Indians justify the imposition of this tax. The State does not suggest these benefits are in any way related to the construction of schools on Indian land. 458 U.S. at 845 n. 10, 102 S.Ct. at 3402 n. 10; see also White Mountain, 448 U.S. at 150, 100 S.Ct. at 2587. (We do not believe that respondents' generalized interest in raising revenue is in this context sufficient to permit its proposed intrusion into the federal regulatory scheme with respect to the harvesting and sale of tribal timber.). Although California points to a variety of services that it provides to residents of the reservation and the surrounding area, none of those services is connected with the timber activities directly affected by the tax. To be valid, the California tax must bear some relationship to the activity being taxed. See Crow Tribe, 819 F.2d at 900. Showing that the tax serves legitimate state interests, such as raising revenues for services used by tribal residents and others, is not enough. Id. at 901. To the extent that this [coal severance] tax is not related to the actual governmental costs associated with the mining of the Indian coal ... the state's interest in acquiring revenues is weak in comparison with the Tribe's right to the bounty from its own land. Crow Tribe v. Montana, 650 F.2d at 1117 (citations omitted). 17 The state's general interest in revenue collection is insufficient to outweigh the specific federal and tribal interests with which the timber yield tax interferes. The services provided by the state and county are provided to all residents. The road, law enforcement, welfare, and health care services provided by the state and county benefit both tribal and non-tribal members. California admits that there is no direct connection between revenues from the timber yield tax and the provision of services to tribal members or area residents generally. 18 The purpose of the timber yield tax bears no relationship to tribal timber. Prior to enactment of the timber yield tax, the state imposed an ad valorem tax on timber. Tribal timber was not subject to the tax. Recognition of the disincentives to proper timber management created by the ad valorem tax led to the enactment of the timber yield tax. See Unkel & Cromwell, supra, at 832-38. Those concerns were not relevant to tribal timber, because that timber was not subject to the ad valorem tax and was managed under detailed guidelines by the BIA. See Comment, Challenging the Assessment of the California's Timber Yield Tax Against Purchasers of Indian Timber, 13 Pac.L.J. 1325, 1327-30 (1982). 19 Because the timber yield tax does not fund services that directly relate to the harvesting of tribal timber and is otherwise unconnected with tribal timber activities, the timber yield tax should be preempted.