Opinion ID: 494711
Heading Depth: 1
Heading Rank: 4

Heading: sales tax

Text: 69 We next consider whether the State may impose a sales tax on the gross revenues of the tribal bingo enterprise and require the enterprise to collect and remit such a tax. The Supreme Court has recognized that a State may sometimes impose a nondiscriminatory tax on non-Indian customers of Indian retailers doing business on the reservation. Colville, 447 U.S. at 151, 100 S.Ct. at 2080. In this context of transactions between Indian sellers and nonmember purchasers, the Court has upheld the imposition of state excise and sales taxes on cigarettes and tobacco products that were imported onto the reservation for resale. See California State Bd. of Equalization v. Chemehuevi Indian Tribe, 474 U.S. 9, 106 S.Ct. 289, 88 L.Ed.2d 9 (1985); Colville, 447 U.S. 134; Moe v. Confederated Salish & Kootenai Tribes, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976); see also Chemehuevi Indian Tribe v. California State Bd. of Equalization, 800 F.2d 1446 (9th Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 2184, 95 L.Ed.2d 840 (1987). The case before us presents a different context in which to consider the reach of a state's taxing authority over transactions within Indian country involving tribal retailers. Cf. Chemehuevi, 800 F.2d at 1451 n. 2. 70 The district court recognized that the state sales tax statute provides that the legal incidence of the tax falls on the purchaser. See rec., vol. I, doc. 106, at 16. The court construed the tax code, however, to also impose the tax directly on a vendor tribe, because once the tax is collected from the consumer, the tribe becomes a taxpayer for purposes of enforcement and collection. Upon failure to collect and remit the tax, the vendor becomes personally liable and subject to penalties, interest, and liens on property. The court concluded that to the extent that its sales tax laws operate to impose liability on the Creek Nation as a taxpayer, the State's authority is pre-empted by federal law. Rec., vol. I, doc. 106, at 14-15. Alternatively, the court held that to the extent the State's tax ... [is] directed against activities created, sold and consumed on tribal lands, the State's authority interferes with the tribe's ability to exercise its sovereign functions. Id. at 15. Distinguishing the cigarette tax cases, the court concluded that in the present case, the Tribe's interests outweigh those of the State, and thus the tax is impermissible. 71 The State contends that the district court erred in treating the sales tax as placing direct tax liability on the tribe, arguing that the legal incidence of Oklahoma's tax clearly falls on the nonmember purchaser. In addition, the State argues that the tax is not preempted or otherwise impermissible, because the actual burden also falls on the purchaser. According to the State, imposition of the sales tax will not diminish tribal revenues and the collection requirements do not interfere with tribal self-government. 72 The Tribe contends that the Oklahoma sales tax places a direct tax burden on the Tribe as a taxpayer and is thus impermissible because Congress has not expressly given its consent. The Tribe further contends that the tax is preempted because it is imposed on a product created, sold, and consumed entirely upon tribal lands. The Tribe argues that the value of the product is generated on tribal lands, and involves activities in which it has a substantial interest. The Tribe suggests that imposition of the tax interferes with strong federal policies promoting Indian economic development. Thus, according to the Tribe, its strong interest outweighs the State's general interest in raising revenues. 73 We agree with the district court that the Oklahoma Sales Tax Code, Okla.Stat. tit. 68, Secs. 1350-1372 (1981 & Supp.1986), provides that the legal incidence of the tax falls on the consumer. We do not consider it appropriate, however, to treat the vendor liability provisions either as a direct tax or as a burden on the Tribe for purposes of determining the general validity of the sales tax and collection requirements. First, we note that the Washington state statute upheld in Colville also made a vendor personally liable upon failure to properly collect and remit the tax to the state. See Wash.Rev.Code Sec. 82.08.050 (1976), cited in Colville, 447 U.S. at 142, 100 S.Ct. at 2075. Second, these liability and sanction provisions are effectively triggered by noncompliance with the collection and remittance requirements. We do not believe that an otherwise valid tax is invalidated solely because of objectionable or impermissible provisions operating against the vendor that are triggered by the vendor's noncompliance. 8 Nevertheless, we agree with the district court's conclusion that the state tax is impermissible. 74 The federal government's exclusive authority over relations with Indian tribes, see Blackfeet Tribe, 471 U.S. at 764, 105 S.Ct. at 2402, and the quasi-sovereign status of tribes 75 have given rise to two independent but related barriers to the assertion of state regulatory authority over tribal reservations and members. First, the exercise of such authority may be pre-empted by federal law. Second, it may unlawfully infringe 'on the right of reservation Indians to make their own laws and be ruled by them.' [E]ither [barrier], standing alone, can be a sufficient basis for holding state law inapplicable to activity undertaken on the reservation or by tribal members. 76 White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 142-43, 100 S.Ct. 2578, 2583, 65 L.Ed.2d 665 (1980) (citations omitted) (quoting Williams v. Lee, 358 U.S. 217, 220, 79 S.Ct. 269, 270, 3 L.Ed.2d 251 (1959)). 77 The preemption analysis applies a set of principles unique to Indian cases. See Bracker, 448 U.S. at 143-44, 100 S.Ct. at 2583-84. Ambiguities in federal law are construed in favor of the tribe, and preemption does not require an express congressional statement to that effect. See id. at 144, 100 S.Ct. at 2584. In Cabazon, the Court noted the general presumption that state laws do not apply within Indian country. See 107 S.Ct. at 1092 n. 18. That presumption, however, is not as strong in the context of the assertion of state authority over non-Indian activity on a reservation. See id. Thus, when a state aserts authority over the conduct of non-Indians engaging in activity on the reservation, Bracker, 448 U.S. at 144, 100 S.Ct. at 2584, the Court has instructed us to engage in a particularized inquiry into the nature of the state, federal, and tribal interests at stake, an inquiry designed to determine whether, in the specific context, the exercise of state authority would violate federal law. Id. at 145, 100 S.Ct. at 2584. Such an inquiry focuses on an examination of the language of the relevant federal treaties and statutes in terms of both the broad policies that underlie them and the notions of sovereignty that have developed from historical traditions of tribal independence. Id. at 144-45, 100 S.Ct. at 2584. 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 state authority. Mescalero Apache Tribe, 462 U.S. at 334, 103 S.Ct. at 2386. For the reasons that follow, we conclude that the state's interest in taxing Creek bingo and related activities is minimal, and is incompatible with and outweighed by federal and tribal interests. 78 The treaties between the Creek Nation and the United States repeatedly promised to preserve and protect the Creek Nation's right of self-government and territorial immunity from state laws. See, e.g., Treaty of 1832, art. 14, 7 Stat. at 368; Treaty of 1856, arts. 4, 15, 11 Stat. at 700, 703-04; Treaty of 1866, arts. 3, 10, 12, 14 Stat. at 786, 788, 790. These express guarantees supplement and reinforce the usual preemption consideration that state laws not interfere with tribal interests and governance. In the present case, tribal and federal interests are particularly strong. The federal government has been heavily involved in promoting and assisting in the development of tribal bingo enterprises. See Cabazon, 107 S.Ct. at 1092-93. The Creek Nation's management agreement with ICUSA has been specifically approved by the Bureau of Indian Affairs, pursuant to 25 U.S.C. Sec. 81 (1982). Cf. Cabazon, 107 S.Ct. at 1093. The federal government has also adopted a position strongly oppos[ing] the imposition of state gambling regulations on Indian bingo. See id. at 1092 n. 21. Although this policy does not directly address the issue of state taxation, the state's attempt to tax bingo activities adds an additional burden to an enterprise in which the federal government opposes state interference. In Cabazon, the Court listed various statutes under which the Secretary of the Interior had financially assisted the Cabazon and Morongo Bands. Id. at 1093. The Creek Nation's reliance on capital investment from the private sector is perhaps even more in accord with current federal policies. See Brief of Appellees, at 18-19 (quoting 1983 Statement of President Reagan). Because the Creek Nation has sought to reduce its dependence on federal assistance and has utilized private sector investment in developing this tribal enterprise, we believe that the federal and tribal interests in maximizing tribal profits are particularly strong. 79 In Colville, the Court upheld the imposition of state sales and excise taxes applied to on-reservation Indian retail sales of cigarettes and tobacco products to nonmembers. See 447 U.S. 134, 100 S.Ct. at 2071. In so doing, the Court emphasized a number of crucial points. First, it was painfully apparent that the value marketed by the smokeshops to persons coming from outside is not generated on the reservations by activities in which the Tribes have a significant interest. Id. at 155, 100 S.Ct. at 2082. Second, the Court noted that the taxes were assessed against nonmembers of the Tribes and concern transactions in personalty with no substantial connection to the reservation lands. Id. at 156, 100 S.Ct. at 2082. The state tax was directed at cigarette and tobacco products that were simply imported onto the reservations for resale, and the underlying product of value was the claimed tax exemption itself, attracting customers who would normally do their business elsewhere. 80 This case is markedly different. Here, the product is a form of entertainment that is wholly created, sold, and consumed within the boundaries of Creek Nation lands. Patrons do not travel onto Creek lands to play bingo in order to avoid sales taxes. The Tribe does not market an exemption from state taxation to persons who would normally do their business elsewhere, Colville, 447 U.S. at 155, 100 S.Ct. at 2082, because high-stakes bingo is not generally available within the state. Thus, Creek Nation Bingo does not undermine the state economy or tax base. The state is not losing tax revenues it would otherwise obtain from sales made outside of tribal boundaries. In fact, at trial the Tribe introduced evidence that the overall economic effect of Creek Nation Bingo on the state and local economy is positive. In contrast to the taxes in Colville and related cigarette cases, the state tax as applied to Creek Nation Bingo is directed solely at on-reservation value. Cf. id. at 157, 100 S.Ct. at 2083 (state interest strongest when tax directed at off-reservation value). The product of value is not a tax exemption, but the bingo games themselves, an activity with a substantial connection to the Creek Nation's lands. The Tribe has a very substantial interest in providing well-run entertainment to patrons and in furnishing comfortable, clean and attractive facilites. Cabazon, 107 S.Ct. at 1094. The imposition of a sales tax would burden the tribal enterprise by increasing the total cost of playing bingo and by imposing collection, remittance, and recordkeeping requirements. Although these burdens alone might not serve to displace the tax, 9 we believe they are relevant when, as here, the state's own interest in taxing the on-reservation transaction is minimal. 81 The State has a general interest in raising revenue. That interest alone, however, is insufficient to justify taxing this tribal activity. See Mescalero Apache Tribe, 462 U.S. at 343, 103 S.Ct. at 2391. The State's interest is particularly minimal when it seeks to raise revenue by taking advantage of activities that are wholly created and consumed within tribal lands and over which it has no control. See Central Machinery Co. v. Arizona State Tax Comm'n, 448 U.S. 160, 174, 100 S.Ct. 2592, 2601, 65 L.Ed.2d 684 (1980) (separate opinion of Justice Powell). 82 The State also has a general interest in taxing its residents, for whom it provides services. Nevertheless, this interest is substantially diminished when the residents engage in activities largely beyond the state's jurisdiction and control, unless the activity or circumstances somehow undermine the state's ability to protect its economy and tax base. As already discussed, this is not the case with respect to Creek Nation Bingo. Moreover, the State has pointed to no services that it provides on Creek Nation lands that would justify the tax. Cf. Chemehuevi, 800 F.2d at 1449 (state provided substantial services on the reservation). In sum, although the state has a general interest in taxing its residents, we agree with the trial court that its interest is outweighed in this case by federal and tribal interests, and by the nature of the activity sought to be taxed. 83 We conclude that under the circumstances of this case, the application of Oklahoma's sales tax is incompatible with federal and tribal interests reflected in federal law, Mescalero Apache Tribe, 462 U.S. at 334, 103 S.Ct. at 2386, and that the state interests at stake are not sufficient to justify the assertion of state authority, id. The federal and tribal interests are particularly strong, and the treaties with the Creek Nation as well as traditional presumptions favor the exclusion of state law from Creek Nation lands. Most important, the product is created, sold, and consumed wholly within tribal boundaries, significantly reducing the state's interest. We therefore affirm the district court's decision holding the tax invalid.