Opinion ID: 4436314
Heading Depth: 2
Heading Rank: 2

Heading: The Conditional Liquor Licensing Issue.

Text: 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 stateimposed . . . 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 S.D.C.L § 35-2-24. This issue is not moot as to use taxes validly imposed on nonmember purchases at the Store. The district court held that the “imposition of a condition that the tribe remit all outstanding taxes on the renewal of an alcohol license” was not “reasonably necessary” to the assessment or collection of lawful state taxes. The court’s Amended Judgment precluded the State from enforcing § 35-2-24 for the collection and remittance of a use tax on nonmember consumer purchases. The State appeals that ruling. -12- “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 18 U.S.C. § 1161, “Congress contemplated that its absolute but not exclusive power to regulate Indian liquor transactions would be delegated to the tribes themselves, and to the States.” Id. at 728. Accordingly, the Court held in Rehner that a State may require a federally licensed Indian trader operating a general store on a reservation to obtain a state license to sell liquor for offpremises consumption. The State argues that conditioning liquor license renewals is well within its traditional police power as extended to the regulation of on-reservation liquor transactions by § 1161 and Rehner. 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 use 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.” 498 U.S. 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 collection agreements with tribes; and (5) seeking congressional legislation. 498 U.S. at 514. -13- 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.” 447 U.S. 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 taxexempt 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 § 1161 and in Rehner. But that is not the state interest at issue. The alternatives the Court suggested in Potawatomi are alternative remedies to “produce the [tax] revenues to which [the States] are entitled.” 498 U.S. at 514. That the remedy may impose a burden that goes beyond collection of the tax does not mean it is not reasonably necessary to the State’s interest in collecting the tax. Rather, the issue to be addressed under Bracker balancing is whether the remedy “will unduly interfere with Indian trading,” or, in this case, with the Tribe’s Class III gaming activity. Milhelm Attea, 512 U.S. at 76. On its face, the State’s remedy seems no more burdensome than some alternatives suggested in Potawatomi -- imposing liability on tribal agents who fail to collect the taxes and seizing untaxed goods in shipment to the reservation. In either case, the tribal retailer is unable to continue its reservation business until it complies with the valid obligation to collect and remit State tax on nonmember purchases. -14- In the district court and on appeal, the Tribe did not address this issue, arguing only that SDCL § 35-2-24 “exceeds the authority delegated to the State [by 18 U.S.C. § 1161] because the tax remittance condition is not reasonably related to the State’s interests in controlling the impacts of alcohol within its borders.” As that assertion, even if true, does not address the “reasonably necessary” issue under Bracker, the Tribe has failed to meet its burden to demonstrate that the State alcohol license requirement is not reasonably necessary to further its interest in collecting valid state taxes. Colville, 447 U.S. at 160. Accordingly, Paragraph 3 of the district court’s Amended Judgment declaring that the State “cannot condition renewal of any alcoholic beverage license issued to the Tribe on the collection and remittance of a use tax on nonmember consumer purchases” is reversed.