Seminole Tribe of Florida v. State of Florida, Department of Revenue et al
Filing
84
ORDER granting 59 Plaintiff's Motion for Summary Judgment; denying 61 Defendant's Motion for Summary Judgment. Signed by Judge Robert N. Scola, Jr. on 9/5/2014. (rss)
United States District Court
for the
Southern District of Florida
Seminole Tribe Of Florida, Plaintiff
v.
State Of Florida, Department Of
Revenue, and Marshall Stranburg,
as Interim Executive Director and
Deputy Executive Director,
Defendants
)
)
)
)
) Civil Action No. 12-62140-Civ-Scola
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Order On Cross Motions For Summary Judgment
The Seminole Tribe of Florida filed this lawsuit challenging the
imposition of two Florida taxes: the Rental Tax and the Utility Tax. After
considering the extensive briefing by the parties, as well as hearing oral
argument from each side, the Court finds that Federal law prohibits both taxes
from being imposed.
1. Background
The Seminole Tribe of Florida is a federally recognized Indian tribe, with
reservations throughout Florida. The Florida Department of Revenue is the
agency responsible for collecting tax revenues and enforcing Florida’s tax laws.
Marshall Stranburg is the executive director of the Department of Revenue.
The Seminole Tribe owns and operates entertainment and gaming
facilities, including the Seminole Hard Rock Hotel and Casinos, at its
Hollywood Reservation and its Tampa Reservation. (Compare Compl. ¶10, ECF
No. 1 with Answer ¶10, ECF No. 52.) As part of these operations, the Tribe has
leased a portion of the space at the Seminole Hollywood Casino to Ark
Hollywood, LLC, and a portion of the space at the Seminole Tampa Casino to
Ark Tampa, LLC. (Answer ¶¶12–13 , ECF No. 52.) Florida assessed a tax on
the rent paid to the Seminole Tribe by Ark Hollywood and Ark Tampa for the
leases on the Tribe’s Reservations. (Compare Compl. ¶18, ECF No. 1 with
Answer ¶18, ECF No. 52.) The Seminole Tribe asserts that Federal law
prohibits this Rental Tax. Stranburg disagrees.
Florida imposes a Utility Tax on electricity that is delivered to the
Seminole Tribe on tribal reservations. (Compare Compl. ¶¶22, 24, ECF No. 1
with Answer ¶¶22, 24, ECF No. 52.) The Tribe argues that Federal law
prohibits Florida from imposing this tax. Again, Stranburg disagrees.
Previously, this Court determined that the State of Florida is immune
from suit under the Eleventh Amendment, but that Stranburg, as executive
director of the Florida Department of Revenue, was a proper defendant in this
lawsuit.
2. Florida’s Rental Tax
Florida imposes a Rental Tax on tenants leasing commercial property
within the State. See Fla. Stat. § 212.013 (2012). The Tribe argues that federal
law prohibits Florida from enforcing its Rental Tax against Ark Hollywood and
Ark Tampa on their leases of Tribal land. Specifically, the Tribe cites to 25
U.S.C. § 465 and 25 C.F.R. §§ 162.001–162.703 for the proposition that federal
law expressly prohibits Florida’s Rental Tax. Stranburg argues that “the Rental
Tax is not a tax on Tribal land; rather it is a privilege tax imposed on nonIndian tenants for the use of commercial property, and is not prohibited by
either provision.” (Def.’s Mot. Summ. J. 3, ECF No. 61.) Stranburg also argues
that 25 U.S.C. § 465 does not prohibit the State from imposing nondiscriminatory taxes to non-Indian leases. (Def.’s Resp. 4, ECF No. 66.)
Finally, Stranburg resolutely contends that the Secretary of the Interior (the
author of federal regulations in dispute) does not have the authority to create a
tax exemption and that the Supreme Court has previously rejected the
Secretary’s stated rationale in establishing the regulations. (Id. 3–8.) This
Court finds that federal law prohibits Florida from collecting the Rental Tax
from the Ark entities, despite Stranburg’s arguments to the contrary.
A. The Rental Tax is unlawful by virtue of 25 U.S.C. § 465.
The Seminole Tribe’s Reservations fall under Section 465’s exemption
from state taxes. In 1956, Congress conveyed land in Florida to the Seminole
Tribe. Act of July 20, 1956, Pub. L. No. 736, 70 Stat. 581 (conveying equitable
title to the Seminole Tribe and administrative jurisdiction to the Secretary of
the Interior). The Act of July 20, 1956 also declared “all lands which have been
acquired by the United States for the Seminole Tribe of Indians in the State of
Florida under authority of [the Act of June 18, 1934, Pub. L. No. 383, 48 Stat.
984]” are “a reservation for the use and benefit” of the Seminole Tribe. 1 (Id.)
The Act of July 20, 1956 refers to “An Act to conserve and develop Indian
lands and resources; to extend to Indians the right to form business and other
organizations; to establish a credit system for Indians; to grant certain rights of
home rule to Indians; to provide for vocational education for Indians; and for
other purposes, approved June 18, 1934.” The Act of June 18, 1934, Pub. L.
No. 383, 48 Stat. 984 was later codified in several sections of the United States
Code, including 25 U.S.C. § 465.
1
Reservation lands acquired by virtue of the Act of June 18, 1934, Pub. L. No.
383, 48 Stat. 984 are “exempt from State and local taxation.” 25 U.S.C. 465.
The Supreme Court has interpreted Section 465 as prohibiting a state
from imposing a “use tax” on “permanent improvements” that an Indian tribe
installs on off-reservation land. Mescalero Apache Tribe v. Jones, 411 U.S. 145,
158 (1973). A use tax is a “tax imposed on the use of certain goods that are
bought outside the taxing authority’s jurisdiction.” Black’s Law Dictionary
1688 (10th ed. 2014). The rationale supporting this rule is that “use is among
the bundle of privileges that make up property or ownership of property and, in
this sense, at least, a tax upon use is a tax upon the property itself.” Mescalero
Apache Tribe v. Jones, 411 U.S. at 158 (internal quotation marks omitted).
Among the other bundle of privileges that make up property ownership
are the right to manage the property and the right to the income from the
property. See Burns v. Pa. Dep’t of Corr., 544 F.3d 279, 287 (3d Cir. 2008)
(citing A.M. Honoré, Ownership, in Oxford Essays In Jurisprudence 107 (A.G.
Guest, ed. 1961) and Denise R. Johnson, Reflections on the Bundle of Rights,
32 Vt. L. Rev. 247, 253 (2007)). The right to manage the property consists of
the right to decide who may use the property and how it may be used; the right
to the income from the property consists of the right to the benefits derived
from allowing others to use the property. Denise R. Johnson, Reflections on the
Bundle of Rights, 32 Vt. L. Rev. 247, 253 (2007). The right to lease property to
another for profit, like use, is among the bundle of privileges that make up
property or ownership of property. See Terrace v. Thompson, 263 U.S. 197, 215
(1923) (explaining that a property owner’s rights includes the right to lease the
land). In this sense, a tax upon a lease is a tax upon the property itself. See
Mescalero Apache Tribe v. Jones, 411 U.S. at 158. Accordingly, this Court finds
that Florida’s Rental Tax on the Seminole Tribe’s lease of reservation land has
been prohibited by Congress by virtue of 25 U.S.C. § 465.
B. The Rental Tax is also preempted by Federal Law and impermissibly
interferes with the Tribe’s ability to exercise its sovereign functions.
The Indian Commerce Clause coupled with the semi-autonomous status
of Indian tribes prohibits state taxes on non-Indians engaged in commerce on
an Indian reservation if (1) the tax is preempted by federal law or, if (2) the tax
interferes with a tribe’s ability to exercise its sovereign functions. White
Mountain Apache Tribe v. Bracker, 448 U.S. 136, 142 (1980); Ramah Navajo
Sch. Bd., Inc. v. Bureau of Revenue of N.M., 458 U.S. 832, 837 (1982). While
either preemption or interference alone can be a sufficient basis for striking
down a state tax, the two barriers are usually analyzed in conjunction with
each other. See Bracker, 448 U.S. at 143; see Ramah Navajo Sch. Bd., 458
U.S. at 837.
Current federal regulations expressly prohibit the Rental Tax, as applied
to tribal leases. “In the area of Indian affairs, the [President] has long been
empowered to promulgate rules and policies, and the power has been given
explicitly to the Secretary [of the Interior] and his delegates at the [Bureau of
Indian Affairs].” Morton v. Ruiz, 415 U.S. 199, 231, 231 n.25 & n.26 (1974)
(citing 25 U.S.C. §§ 2 & 9). Consistent with this authority, the Secretary of the
Interior promulgated regulations that apply to leases of Indian land entered
into under 25 U.S.C. § 415 (“Leases of restricted lands”). One such regulation
states that when an Indian tribe leases restricted Indian land to a non-Indian,
under 25 U.S.C. § 415, “the leasehold or possessory interest is not subject to
any fee, tax, assessment, levy, or other change imposed by any State or
political subdivision of a State.” 25 C.F.R. § 162.017. In enacting this
regulation, the Secretary of the Interior undertook a comprehensive evaluation
of existing federal law, both statutory and decisional. The Secretary concluded
that “[t]he Federal statutory scheme for Indian leasing is comprehensive, and
accordingly precludes State taxation [of Indian leases].” Residential, Bus., &
Wind & Solar Res. Leases on Indian Land, 77 Fed. Reg. 72440–01, at *72447–
72448 (December 5, 2012).
Neither the Supreme Court, nor the Eleventh Circuit Court of Appeals
has directly addressed the question of whether the current federal statutes and
regulations governing the leasing of restricted Indian lands (under 25 U.S.C. §
415) have preempted state taxation of such lessees. In the past, the Supreme
Court has analyzed the preemption issue regarding the taxing of leases for
mining purposes (25 U.S.C. § 396a), and the taxing of fuel used in connection
with harvesting of Indian timber (25 U.S.C. §§ 405–407). Cotton Petrol. Corp. v.
New Mexico, 490 U.S. 163 (1989); White Mountain Apache Tribe v. Bracker, 448
U.S. 136 (1980). In the Cotton Petroleum case, the Court found that the state
tax was not preempted, while in Bracker, the Court found the federal regulatory
scheme was so persuasive that it precluded the state from imposing the tax.
Cotton Petrol., 490 U.S. at 186; Bracker, 448 U.S. at 148.
This Court must give some weight and deference to the new regulations.
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.
This is not to say that the Secretary’s conclusions are entitled to full Chevron
deference. They are not. United States v. Mead Corp., 533 U.S. 218, 234
(2001). But, “given the specialized experience and broader investigations and
information available to the [Secretary], and given the value of uniformity in its
administrative and judicial understandings of what a national law requires” the
Secretary’s analysis is entitled “some deference.” Id. When the relevant history
and background of a particular subject are “complex and extensive,” courts
may give “some weight” to a Secretary’s views about the impact of state laws on
federal objectives. Wyeth v. Levine, 555 U.S. 555, 576 (2009). And there is no
dispute that the topic of state taxation of Indian tribes has a complicated
history and background. See, e.g., Washington v. Confed’d Tribes of Colville
Indian Res., 447 U.S. 134, 176 (1980) (Rehnquist, J concurring in part,
concurring in the result in part, and dissenting in part) (explaining that for the
past 200 years, the courts of this Nation have struggled to develop “a coherent
doctrine by which to measure with some predictability the scope of Indian
immunity from state taxation.”). “While [Secretaries] have no special authority
to pronounce on pre-emption absent delegation by Congress, they do have a
unique understanding of the statutes they administer and an attendant ability
to make informed determinations about how state requirements may pose an
obstacle to the accomplishment and execution of the full purposes and
objectives of Congress.” Wyeth, 555 U.S. at 576-77 (citation & quotation
marks omitted). The amount of weight a court should give to a Secretary’s
“explanation of state law’s impact on the federal scheme depends on its
thoroughness, consistency, and persuasiveness.” Id. at 577.
The Secretary of the Interior’s analysis on the issue of preemption of
state taxes on leases of restricted Indian land merits the full amount of
deference available under the law. First, the Secretary of the Interior, through
the Bureau of Indian affairs, is involved with Indians and Indian tribes on a
daily basis. Cf Bracker, 448 U.S. at 147. In enacting its new regulations, the
Secretary examined this Nation’s extensive history with Indian tribes. The
Secretary cited case law dating back to the 1800s and several treatises in
detailing the historical backdrop of traditional notions of Indian selfgovernment.
77 Fed. Reg. 72440–01, at *72447.
The Secretary then
painstakingly listed nearly 30 separate aspects of Indian leasing that federal
regulations cover. Id. Next, the Secretary examined the legislative history of
congressional enactments regulating the leasing of restricted Indian lands. Id.
The Secretary identified multiple federal policies that state taxes would
obstruct, including tribal economic development, traditional notions of tribal
sovereignty, and territorial autonomy. Id. The Secretary also reviewed and
cited to a strategy paper on tribal economic development, a 2001 study by the
U.S. Department of the Treasury, and a 2006 U.S. Census Report. Id. at
*72447–72448. Finally, the Secretary detailed the practical reality—a reality
that can only be known by an agency that oversees the day-to-day existence of
Indians and tribes on reservations across the country—that “the very
possibility of an additional State or local tax has a chilling effect on potential
lessees as well as the tribe that as a result might refrain from exercising its
own sovereign right to impose a tribal tax to support its infrastructure needs.”
Id. at *72448.
The Court finds the Secretary’s preemption analysis thorough and
persuasive. 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. The Court concludes that, in these
circumstances, 25 U.S.C. § 415 and 25 C.F.R. § 162.017 prohibit the
imposition of the Rental Tax to the Ark leases.
Stranburg argues that the Rental Tax is not a tax on the leasehold or
possessory interest of the tribal land, but rather an “excise tax on the privilege
of renting or leasing real property.” (Def.’s Mot. Summ. J. 6–8, ECF No. 61.)
This argument is not persuasive. Section 162.017 reads that a state may not
tax the “leasehold or possessory interest” under a lease, nor may it apply
“privilege” or “excise” taxes to activities associated with the lease. Stranburg’s
argument that the Rental Tax is an excise tax on the privilege of renting or
leasing real property provides no traction. Even if the Rental Tax is an “excise”
or “privilege” tax, it is still impermissible as applied to the Seminole Tribe–Ark
leases in this case. 25 C.F.R. § 162.017(b)–(c). Of course, to the extent
Stranburg is arguing that the Rental Tax is taxing the Seminole Tribe directly
for the privilege of renting the property, the tax would be barred by Oklahoma
Tax Commission v. Chickasaw Nation, 515 U.S. 450, 458 (1995) as an
impermissible direct tax upon the Seminole Tribe for transactions occurring on
their Reservations.
Stranburg next argues that the lease agreements between the Seminole
Tribe and Ark Hollywood and Ark Tampa are contrary to 25 C.F.R. § 162.017
because the lease agreements require Ark Hollywood and Ark Tampa to pay the
Rental Tax. (Def.’s Mot. Summ. J. 6, ECF No. 61.) Stranburg contends that
the Rental Tax must apply to these leases because 25 C.F.R. § 162.008(a)
states that “if the provisions of the lease document conflict with this part, the
provisions of the lease govern.” As the Seminole Tribe points out, Stranburg’s
argument is flawed for several reasons. First, the lease agreements do not
specifically refer to Florida’s Rental Tax. (See Am. & Restated Lease Agreement
§ 6.3, ECF Nos. 1–4 & 1–5.) Instead, the lease agreements state in general
terms that the Ark entities are responsible for paying all applicable taxes on the
leased property. (Id.) Since the Rental Tax is unlawful, as applied to these
leases, it is not applicable to this property. In other words, there is no conflict
between the lease agreements and 25 C.F.R. § 162.017. The language of the
lease agreements cannot be read to require the Ark entities to pay unlawfully
imposed taxes. The second problem with this argument is that, even if the
language of the lease agreements was in conflict with 25 C.F.R. § 162.017, the
lease agreement is a contract between the Seminole Tribe and the Ark
entities—it conveys no rights upon Stranburg to enforce an otherwise unlawful
tax. The law requires a party to “assert his own legal rights and interests,” and
not to rely on “the legal rights or interests of third parties.” Bochese v. Town of
Ponce Inlet, 405 F.3d 964, 984 (11th Cir. 2005). And the lease agreements
expressly disclaim that the terms of the agreements convey third-partybeneficiary rights to anyone. (Am. & Restated Lease Agreement § 22.15, ECF
Nos. 1–4 & 1–5.) Stranburg has not offered any legal authority to the contrary.
Stranburg also argues that the case of Cotton Petroleum Corp. v. New
Mexico, 490 U.S. 163 (1989), requires this Court to uphold the Rental Tax.
This argument is not convincing because there are several material differences
between the Rental tax at issue here, and the state taxes that were challenged
in the Cotton Petroleum case. First, in Cotton Petroleum the challengers of the
tax were relying on a single sentence contained in a letter from the Secretary of
the Interior to Congress regarding proposed legislation. Cotton Petrol., 490 U.S.
at 177–78. In contrast, here, the Seminole Tribe has offered the detailed and
comprehensive analysis from the Secretary of the Interior. This case does not
involve a solitary sentence in a missive, but instead a comprehensive set of
regulations “addressing non-agricultural surface leasing of Indian land.” 77
Fed. Reg. 72440-01, at *72440. This case does not involve the unilateral view
of the Secretary of the Interior speaking to the legislature, but instead a set of
collaborative regulations enacted through the regular notice-and-comment
rulemaking process.
The second material difference between the Rental tax and the oil-andgas-severance tax challenged in the Cotton Petroleum case is that in Cotton
Petroleum the Court found that the “legislative background” and “relevant
backdrop of tribal independence” revealed that Congress had expressly
permitted states to tax oil-and-gas production on Indian land on several
occasions in the past. Cotton Petrol., 490 U.S. at 180–82. There is no similar
Congressional history expressly permitting states to tax non-agricultural
surface leasing of Indian land. Stranburg has not cited to any such laws, nor
has he argued that such a legislative history exists. In this case then, the
relevant backdrop of tribal independence is the “deeply rooted” historical
“policy of leaving Indians free from state jurisdiction and control.” McClanahan
v. State Tax Comm’n of Ariz., 411 U.S. 164, 168 (1973) (quoting Rice v. Olson,
324 U.S. 786, 789 (1945)). In this case, where there is no Congressional
history of allowing states to tax non-agricultural surface leasing of Indian land,
the Court must resolve these “ambiguities in federal law . . . in favor of tribal
independence.” Cotton Petrol., 490 U.S. at 177. Because the facts and tax in
this case are so different from those in the Cotton Petroleum case, the Court is
not persuaded by Stranburg’s arguments that this Court should reach the
same result as the Court in Cotton Petroleum.
Finally, Stranburg argues that the Court should uphold the Rental Tax
because the Seminole Tribe has not presented adequate evidence that the
Rental Tax imposes an economic burden on the Tribe. (Def.’s Mot. Summ. J.
10–11, ECF No. 61.) This argument also fails for several reasons. First, the
Bracker case does not require a finding that a state’s tax imposes an economic
burden upon a Tribe. The Supreme Court explained that its analysis and
decision was not based on the economic burden of the tax falling upon the
Tribe—rather, the Court struck the tax because federal law preempted it.
Bracker, 448 U.S. at 151 n.15. Even if such an economic burden were
required, the Court in Bracker accepted the proposition that the state tax,
although imposed on non-Indians engaged in activities on the reservation,
affected the amount of revenue available to the Tribe. Id. at 150. Of course,
this is nothing more than an acknowledgment of the law of scarcity—a
fundamental concept of economics. See Paul A. Samuelson & William D.
Nordhaus, Economics 333 (James A. Bittker, et al. eds., 14th ed. 1992) (“At the
very core of economics lies the fact of scarcity.”). If Florida’s Rental Tax does
not apply, an entity leasing tribal land will have additional money in its
pocket—money that would then be available to the Tribe, either through
negotiated higher rent or through a tribal tax.
In conclusion, the Court finds that federal law preempts the application
of the Rental Tax to the Tribe’s leases with the Ark entities. The Secretary of
the Interior’s new regulations have changed the landscape of this area of the
law, specifically regarding the issue of preemption. To ignore these regulations
would be contrary to well-established precedent.
3. Florida’s Utility Tax
Florida’s Utility Tax is “imposed on gross receipts from utility services
that are delivered to a retail consumer.” Fla. Stat. § 203.01(1)(a)(1) (2012). The
Seminole Tribe asks this Court to declare that “utility services provided to the
Tribe on Tribal Land are not subject to [Florida’s] Utilities Tax;” and to prevent
“further imposition or collection of [the] Utilities Tax on utility services provided
to the Tribe on Tribal Land.” (Compl. 1–2, ECF No. 1.)
A state may not directly tax an Indian Tribe on an Indian reservation
unless a federal statute expressly permits the tax. Okla. Tax Comm’n v.
Chickasaw Nation, 515 U.S. 450, 458 (1995). “If the legal incidence of an
excise tax rests on a tribe . . . for sales made inside Indian country, the tax
cannot be enforced.” Id. at 459. Florida’s utility tax is an excise tax. Cf. Heriot
v. City of Pensacola, 146 So. 654, 655 (Fla. 1933) (holding that a tax on the
purchase of electricity is “clearly an excise tax”). So the dispositive question on
this issue is whether the legal incidence of Florida’s Utility Tax falls upon the
Seminole Tribe or upon the utility company. This Court finds that it rests
upon the Tribe.
A. The Concept of Legal Incidence.
The incidence of a tax refers to who pays the tax. See Paul A. Samuelson
& William D. Nordhaus, Economics 333 (James A. Bittker, et al. eds., 14th ed.
1992); see also Dictionary.com Unabridged. Random House, Inc.
http://dictionary.reference.com/browse/incidence (accessed: August 22, 2014)
(defining incidence as “falling upon, affecting, or befalling.”). Economists
distinguish between the economic incidence of a tax and its statutory incidence.
George R. Zodrow, Incidence of Taxes, in The Encyclopedia of Taxation and Tax
Policy 168–72 (Joseph J. Cordes et al. eds., 1999). The distinction accepts the
reality that just because a legislature enacts a statute requiring A to pay a
certain tax doesn’t mean that A will ultimately bear the full impact of the tax
because A will likely pass the burden of the tax onto B.
Id. at 169.
“Businesses may be able to shift the tax ‘forward’ onto their customers by
raising their price by the amount of the tax.” Samuelson & Nordhaus, supra.
Discerning the actual economic incidence of a tax is an extremely complicated
and controversial undertaking. See generally 4 Don Fullerton & Gilbert E.
Metcalf, Handbook of Public Economics Ch. 26, (A.J. Auerbach, et al. eds.,
2002).
Some legal questions require a court to decide who bears the incidence of
a particular tax. See, e.g., First Agric. Nat’l Bank of Berkshire Cnty. v. State Tax
Comm’n, 392 U.S. 339, 346–47 (1968) (“And essentially the question for us is:
On whom does the incidence of the tax fall?”). Since the law requires
predictability and certainty, when faced with this question courts look only to
the statutory—or legal—incidence of the tax. See Okla. Tax Comm’n v.
Chickasaw Nation, 515 U.S. at 459–60 (“If we were to make ‘economic reality’
our guide, we might be obliged to consider, for example, how completely
retailers can pass along tax increases without sacrificing sales volume—a
complicated matter dependent on the characteristics of the market for the
relevant product.”); cf. also Laurence H. Tribe, Intergovernmental Immunities in
Litigation, Taxation, and Regulation: Separation of Powers Issues in
Controversies About Federalism, 89 Harv. L. Rev. 682, 713 n.104 (1976) (“The
legal incidence test might be said to focus on who is ‘hit’ rather than on who is
‘hurt.’”).
B. The legal incidence of Florida’s Utility Tax impermissibly falls upon
the Seminole Tribe.
If a statute does not “expressly identify who bears the tax’s legal
incidence” a court must make a “fair interpretation of the taxing statute as
written and applied.” Okla. Tax Comm’n v. Chickasaw Nation, 515 U.S. at 461.
Both the language and structure of Florida’s Utility Tax reveal that its
legal incidence falls upon the consumer, not the utility company. Florida’s
Utility Tax is “imposed on gross receipts from utility services that are delivered
to a retail consumer.” Fla. Stat. § 203.01(1)(a)(1) (2012). Every consumer is
required to “remit the tax” to the utility company as a part of the total bill. Fla.
Stat. § 203.01(4). The utility company then pays the taxes to the Florida
Department of Revenue on a monthly basis. Fla. Admin. Code R. 12B–
6.005(1)(a). Although a utility company may separately itemize the tax on a
consumer’s bill, the consumer is still required to “remit the tax” to the utility
company and the utility company is still responsible for collecting the tax and
paying the State. See Fla. Stat. § 203.01(4) & (5).
If the consumer does not remit the tax to the utility company, then the
utility company is not required to pay the tax over to the State. Fla. Admin.
Code R. 12B–6.005(1)(e)(2) & (3); (Steffens Dep. 37:20–38:11, Nov. 13, 2013,
ECF No. 63-1). A utility company may deduct uncollected taxes from future
payments to the Florida Department of Revenue. Fla. Admin. Code R. 12B–
6.005(1)(e)(2) (“[The utility company] may take a credit for net uncollectables for
which gross receipts tax has been previously paid to the Department.”). In
other words, the utility company is no more than a transmittal agent for the
tax imposed on the consumer of the utility. This scenario is identical to the tax
analyzed by the Supreme Court in Oklahoma Tax Commission v. Chickasaw
Nation, where the Court determined the legal incidence was not on the
transmittal agent, but rather on the person paying the tax to the transmittal
agent. 515 U.S. at 461–62 (explaining that since “the distributor may deduct
the uncollected amount [of taxes] from its future payments to the Tax
Commission,” the distributor was “no more than a transmittal agent for the
taxes imposed on the retailor”). Stranburg argues that the utility company is
ultimately “fully and completely liable for the tax,” and thus the legal incidence
falls upon the utility company. (Def.’s Mot. Summ. J. 12, ECF No. 61.) But in
reality, the utility company is only liable for the tax if and when the consumer
remits the tax to the utility company as a part of the consumer’s utility bill.
(Steffens Dep. 30:17–24, 38:5–11, ECF No. 63-1); Fla. Admin. Code R. 12B–
6.005(1)(e)(2).
The way the Utility Tax addresses exemptions and exceptions reveals the
legal incidence of the tax is upon consumer. The Utility Tax has several
provisions relating to exemptions based on the identity of the consumer. For
example, certain consumers who are engaged in industrial operations are
exempt from paying the Utility Tax when purchasing natural gas. See Fla.
Stat. § 203.01(3)(d). If it turns out that the consumer was not entitled to the
exemption, the Department of Revenue will look to collect the tax directly from
the consumer, not the utility company. Id. Although this subsection of the
Utility Tax is not the subject of the Tribe’s complaint, the provisions of the
statute must be read as a whole. Another example regarding exemptions is
found in another statute within the same Chapter. In that statute, the Florida
legislature expressly stated that no other “exemptions or exceptions” apply to
the Utility Tax. Fla. Stat. § 203.04. The fact that the Florida legislature
provided some exemptions to the Utility Tax, and disavowed many other
exemptions, reveals that the legislature intended the legal incidence of the
Utility Tax to fall upon consumers. If the legal incidence of the tax were on the
utility company, there would be no need for the disavowal of most exemptions
and exceptions, or the inclusion of others. Stranburg argues that the legal
incidence of the tax falls upon the utility company because even governmental
units that would otherwise be exempt from taxation are obligated to pay the
Utility Tax. (Def.’s Mot. Summ. J. 13, ECF No. 61.) This argument is
unconvincing. The Florida legislature has the authority to waive the State’s
usual tax immunity by statute. Cf. Dickinson v. City of Tallahassee, 325 So. 2d
1, 3 (Fla. 1975). It has expressly done so in enacting the Utility Tax.
Another feature of the Utility Tax reveals that its legal incidence is on the
consumer. The Utility Tax only applies to sales to consumers, but not to sales
between utility companies. See Fla. Admin. Code R. 12B–6.0015(2)(c). Again,
this is identical to the tax considered by the Supreme Court in Oklahoma Tax
Commission v. Chickasaw Nation. 515 U.S. at 461. In that case, the Court
found that the legal incidence of a tax that applied to sales by distributors to
retailors but not to sales between distributors, fell upon the retailors. In this
case, Florida’s Utility Tax applies to sales by utility companies to consumers,
but does not apply to sales between utility companies. Consequently, it is
apparent that the legal incidence of Florida’s Utility Tax is upon the consumer.
The Florida Utility Tax is different from the tax considered by the
Supreme Court in Wagon v. Prairie Band Potawatomi Nation, 546 U.S. 95
(2005). In Wagon, the Kansas tax permitted distributors “to pass along the
cost of the tax to downstream purchasers” but did not require them to do so.
Wagon, 546 U.S. at 103. The Florida Utility Tax does not give utility companies
the option to choose between passing the tax downstream to consumers or not.
Although Stranburg argues that the utility-tax statute “does not require the tax
to be passed on to the purchaser,” he provides no citation for that
proposition—and the language and application of the Utility Tax are completely
contrary to that statement. (Def.’s Opp’n Br. 13, ECF No. 66.) Under the
structure and application of the Utility Tax, the tax is automatically applied to,
and collected from, consumers. Stranburg’s argument that a utility company
may itemize the tax on a consumer’s bill, or not, misses the point. The fact
that the tax may be separately itemized or not, is not the same as saying that
the tax may be passed on or not. Under Florida law, the tax is passed on to
consumers, whether it is separately itemized or not—the two concepts are not
related in the way that Stranburg has argued.
Another key difference between the Florida Utility Tax and the Kansas
fuel tax in Wagon is that a fuel distributor owed the Kansas tax even if it never
delivered the fuel to a consumer. Wagon, 546 U.S. at 108–09, 109 n.4 (“[A]
distributor must pay the tax even if the fuel is never delivered.”). The fact that
a fuel distributor was liable to the state for the fuel tax even if the fuel was
never delivered to a consumer supports the Court’s conclusion that the legal
incidence of the tax was on the distributor (not the consumer). By contrast, in
Florida, a utility company does not pay the Utility Tax on electricity that is
never delivered to a consumer. Fla. Admin. Code R. 12B–6.0015(2)(c)(4). The
fact that the Utility Tax is not owed unless and until it is actually delivered to a
consumer, supports this Court’s conclusion that the legal incidence of the
Utility Tax is on the consumer (not the utility company).
Florida’s Utility Tax is similar to the tax considered by the Supreme
Court in United States v. State Tax Commission of Mississippi, 421 U.S. 599
(1975). In that case, the Court examined a tax scheme that required suppliers
to collect the tax from the consumer and remit it to the State. State Tax
Comm’n of Mississippi, 421 U.S. at 608. The Court explained that the legal
incidence of a tax falls on the consumer when a state requires the tax to be
passed on to the consumer, collected by the seller, and then paid over to the
state. Id. That is precisely how Florida has structured its Utility Tax. The
Utility Tax is automatically imposed upon the consumer, collected by the utility
company, and paid over to the Florida Department of Revenue. An example
provided by Stranburg makes the point: If a consumer pays only half of a $100
utility bill, 2.5% of the consumer’s $50 payment is automatically allocated to
the State for the Utility Tax—but not 2.5% of the full $100 utility bill. (Def.’s
Opp’n Br. 12, ECF No. 66 (citing Steffens Dep. 30:17–24, ECF No. 63-1).)
There could never be a situation where the utility company could be
responsible to the State for the Utility Tax unless it collected the tax from the
consumer. (See Steffens Dep. 38:5–11.) The structure and application of the
Utility Tax unavoidably requires that the utility company pass on the tax to
consumers. Consequently, the legal incidence of the Florida Utility Tax falls
upon the consumer. See State Tax Comm’n of Mississippi, 421 U.S. at 608–09
(“The Tax Commission clearly intended—indeed, the scheme unavoidably
requires—that the out-of-state distillers and suppliers pass on the markup to
the military purchasers.”).
Stranburg argues that the legal incidence of the Utility Tax falls upon the
utility company because the statute states that the “tax is imposed . . . for the
privilege of conducting a utility . . . business.” Fla. Stat. § 203.01(4).
Stranburg’s rationale is that since the tax is on the privilege of conducting a
utility business, the legal incidence of the tax must be upon the utility
company as the entity exercising the privilege.
This argument is not
persuasive. As the Seminole Tribe points out, Florida’s sales tax taxes the
“privilege . . . of selling tangible personal property at retail in this state,” but
that tax’s legal incidence falls upon the consumer, not on the retailer who is
exercising the privilege. Fla. Dep’t Revenue v. Naval Aviation Museum Found.,
Inc., 907 So. 2d 586, 587 (Fla. 1st DCA 2005). Under Florida’s sales tax
statute, the legal incidence of the tax falls upon the consumer, even though the
retailor is obligated to collect the tax and “ultimately pay the state sales tax.”
Id. The retailor “must add the amount of the tax to the sale price and
separately state the amount, which then becomes part of the price of the sale.”
Id. Under the Florida Utility Tax, the tax is automatically included in, and
becomes part of, the utility bill, though it may be separately stated. See Fla.
Stat. § 203.01 (4). Although there are some differences between the statutory
language of the two statutes, the structure, application, and result of both
taxes is the same: The legal incidence falls upon the consumer, the seller
collects the tax and pays it to the State. In both instances, although the
statute purports to tax the privilege of engaging in the business, the structure
and application of the taxes reveal that the legal incidence of the taxes is upon
the consumer. Of course, Stranburg’s argument here would also invalidate the
Rental Tax since that tax is imposed on the “privilege” of renting or leasing
commercial property within the State. Fla. Stat. § 212.031(1)(a); see also Fla.
Revenue Comm’n v. Maas Bros., Inc., 226 So. 2d 849, 852 (Fla. 1st DCA 1969)
(“It follows, since it is the landlord and not the tenant who engaged in the
business, that the tax was intended to be imposed on the landlord.”).
The Utility Tax arises when the utility is provided to the Seminole Tribe
on its Reservation. Stranburg argues that “[t]he tax obligation arises when the
utility company receives payments from its retail consumers for utility services,
which occurs outside the reservation.” (Def.’s Mot. Summ. J. 15, ECF No. 61.)
Based on this statement, Stranburg reasons that the rule of Chickasaw Nation
should not apply here, but that the Utility Tax should be analyzed under a
completely different framework applicable when a state taxes an Indian tribe
outside of a reservation. (Id.) Stranburg offers no legal citation for the
proposition that the tax obligation of a utility tax arises when the utility
company receives payment for the service. “The premise of our adversarial
system is that . . . courts do not sit as self-directed boards of legal inquiry and
research, but essentially as arbiters of legal questions presented and argued by
the parties before them.” Carducci v. Regan, 714 F.2d 171, 177 (D.C. Cir.
1983). When parties do not fully develop their arguments and support them
with citation to legal authority, the burden upon the Court is improperly
increased. “[T]he onus is upon the parties to formulate arguments.” Resolution
Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir. 1995). Generally, a
“litigant who fails to press a point by supporting it with pertinent authority, or
by showing why it is sound despite a lack of supporting authority or in the face
of contrary authority, forfeits the point. The court will not do his research for
him.” Phillips v. Hillcrest Medical Center, 244 F.3d 790, 800 n.10 (10th Cir.
2001) (internal quotation omitted); McPherson v. Kelsey, 125 F.3d 989, 995-96
(6th Cir. 1997) (“Issues adverted to in a perfunctory manner, unaccompanied
by some effort at developed argumentation, are deemed waived. It is not
sufficient for a party to mention a possible argument in the most skeletal way,
leaving the court to put flesh on its bones.” (internal quotation omitted)). The
Court finds that Stranburg has forfeited this argument by failing to develop it
sufficiently. In any event, Seminole Tribe has cited to authority standing for
the proposition that the tax obligation of a service tax arises where the service
is delivered. Cf. Ramah Navajo Sch. Bd., Inc. v. Bureau of Revenue of N.M., 458
U.S. 832, 844 (1982) (construing a gross receipts tax on construction services
as being imposed on tribal lands where the construction was taking place).
Stranburg’s skeletal argument—that the tax obligation arises when the utility
company receives payment since the utility company is not liable to pay the tax
to the State until it collects it from the consumer—is flawed. The tax is a debt
of the consumer, owed to the utility company (to be forwarded to the State
upon collection). Fla. Stat. § 203.01(4). As a result, the tax obligation (i.e., the
debt) arises when the utility company provides utility services to the consumer.
In conclusion, the fairest reading of Florida’s utility-tax scheme as a
whole is that the legal incidence of the tax falls upon the consumer. The
utility-tax scheme unavoidably requires utility companies to include the tax in
their bill to consumers (whether separately stated or not). The scheme requires
utility companies to collect the tax from consumers and then to deliver the tax
to the Department of Revenue. Although the utility-tax statute does not
contain express language requiring a utility company to pass on and collect the
tax from consumers, the Supreme Court has never required that “pass-through
provisions or collections requirements be explicitly stated.” Cal. State Bd. of
Equalization v. Chemehuevi Indian Tribe, 474 U.S. 9, 11 (1985).
Since the Court has concluded that Florida’s Utility Tax is an
impermissible direct tax upon the Seminole Tribe on its reservation, the Court
need not address the Tribe’s alternative arguments that the tax is
impermissible under a Bracker preemption analysis, or that the Tribe may
challenge the tax as an assignee of the utility company.
4. Conclusion
This Court finds that federal law prohibits Florida from collecting the
Rental Tax from the Ark entities for their leases of reservation land. The Court
further finds that federal law preempts the application of the Rental Tax to the
Tribe’s leases with the Ark entities. The Court also finds that federal law
prohibits Florida from collecting the Utility Tax from the Tribe since the legal
incidence of the Utility Tax falls on the Seminole Tribe.
Consistent with these findings, the Court grants the Seminole Tribe’s
Motion for Summary Judgment (ECF No. 59), denies Stranburg’s Motion for
Summary Judgment (ECF No. 61). The Court will set out its judgment in a
separate document as required by Federal Rule of Civil Procedure 58. The
Order resolves all of the issues in this matter. The Court directs the Clerk to
close this case.
Done and ordered, in chambers, at Miami, Florida, on September 5, 2014.
_______________________________
Robert N. Scola, Jr.
United States District Judge
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