Flandreau Santee Sioux Tribe v. Sattgast et al
Filing
102
ORDER granting 66 Plaintiff's Motion for Summary Judgment as to its first, second and third claims; dismissing plaintiff's fourth claim for lack of jurisdiction; denying as moot 91 Plaintiff's Motion for Preliminary Injunction; denying Defendants' 31 Motion for Summary Judgment as to plaintiff's first, second and third claims. Signed by U.S. District Judge Karen E. Schreier on 7/16/18. (DJP)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
FLANDREAU SANTEE SIOUX TRIBE,
A FEDERALLY-RECOGNIZED INDIAN
TRIBE;
Plaintiff,
vs.
RICHARD L. SATTGAST, TREASURER
OF THE STATE OF SOUTH DAKOTA;
ANDY GERLACH, SECRETARY OF
REVENUE OF THE STATE OF SOUTH
DAKOTA; AND DENNIS DAUGAARD,
GOVERNOR OF THE STATE OF
SOUTH DAKOTA;
4:17-CV-04055-KES
ORDER GRANTING PLAINTIFF’S
MOTION FOR SUMMARY
JUDGMENT IN PART AND DENYING
IN PART AND DENYING
DEFENDANT’S MOTION FOR
SUMMARY JUDGMENT IN PART
BUT DISMISSING PLAINTIFF’S
FOURTH CLAIM WITHOUT
PREJUDICE
Defendants.
Plaintiff, Flandreau Santee Sioux Tribe, filed this action against
defendants Richard L. Sattgast, Andy Gerlach, and Dennis Daugaard seeking a
judicial declaration that, under federal law, the State of South Dakota does not
have the authority to impose the State’s excise tax in connection to services
performed by non-Indian contractors in the Tribe’s on-reservation construction
project. Docket 1. Plaintiff and defendants move for summary judgment.
Docket 31; Docket 66.
FACTUAL BACKGROUND
The undisputed facts 1 are:
The undisputed facts are derived from the parties’ submitted briefs,
attachments, oral arguments, and the portions of the statements of undisputed
material facts that are either not disputed or not subject to genuine dispute.
Where the facts are disputed, both parties’ averments are included.
1
The Flandreau Santee Sioux Tribe is a federally recognized Indian tribe.
Docket 32 at 2; Docket 75 at 10. The Flandreau Indian Reservation is wholly
located in Moody County, South Dakota. Docket 32 at 2. The Tribe owns and
operates the Royal River Casino on the reservation. Docket 32 at 2; Docket 75
at 11. The State and the Tribe entered into a Tribal-State gaming compact
under the Indian Gaming Regulatory Act (IGRA) that took effect on September
14, 2016. Docket 72-14. IGRA regulates Class III gaming activities at the Royal
River Casino. Docket 32 at 2; Docket 75 at 11-12. The compact does not
contain provisions specifically relating to construction standards, construction
activities, or the taxation of construction activities at the casino. Docket 32 at
2; Docket 75 at 13. Casino revenue comprises approximately forty percent of
the Tribe’s income. Docket 75 at 12-13. Federal funding accounts for
approximately fifty-two percent of the Tribe’s income. Id. at 13. The Tribe also
utilizes proceeds from the casino to help fund off-reservation projects in the
local community including donations to the local school and fire department.
The Tribe first opened the casino in 1990 and relocated it to the present
building in 1997. Docket 75 at 11. Casino gaming amenities used or
consumed at the casino by gaming patrons include: hotel rooms, alcoholic
drinks consumed on the gaming floor and at the bar, concert tickets, and food
eaten at the restaurant, on the gaming floor, and at the snack bar. Docket 77
at 35. The Tribe decided to invest in a $24 million renovation and expansion of
the casino. Docket 32 at 2. The project includes doubling the number of slot
machines, adding a VIP lounge, renovating the casino cage area, relocating the
2
bar, and renovating the snack bar, restaurant, and hotel. Docket 75 at 14-15.
The Tribe retained Leo A. Daly as the architectural firm and Henry Carlson
Company as the general contractor. Docket 32 at 2.
Under SDCL § 10-46A-1, a contractor’s gross receipts are subject to a
two percent excise tax. SDCL § 10-46A-1. The excise tax is deposited into the
general fund. The general fund is used for a number of services, but for
purposes of this case, the State points out that the general fund is used for
professional licensing such as attorneys, electricians, plumbers, and notaries,
and for the supervision of parolees. Certain construction projects within Indian
country are exempt under federal law. Docket 32 at 3. The South Dakota
Department of Revenue requires contractors to complete an “Indian Country
Project Request for Exemption” form to receive an exemption from the tax. Id.
at 3. The Department of Revenue denied requests by the Tribe and its
construction manager for an exemption for the casino construction project.
Docket 75 at 15-16. As a result, Henry Carlson has paid contractor’s excise
tax under protest consistent with SDCL § 10-27-2. Docket 32 at 4; Docket 75
at 16. Henry Carlson’s protest letters requested that the state issue refunds to
the Tribe as the entity who paid the cost of taxes. Docket 75 at 16. The Tribe
seeks to have a judicial declaration that the State does not “have the authority
to impose the State’s contractor’s excise tax” and seeks a refund of the
“contractor’s excise tax paid, or to be paid, under protest.” Docket 1.
Currently, the Tribe estimates that the contractor’s excise tax on the project
will be approximately $480,000.
3
STANDARD OF REVIEW
Summary judgment is proper “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). “[A] party seeking summary judgment
always bears the initial responsibility of . . . demonstrat[ing] the absence of a
genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). The moving party must inform the court of the basis for its motion and
also identify the portion of the record that shows there is no genuine issue in
dispute. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992) (citation
omitted).
To avoid summary judgment, “[t]he nonmoving party may not ‘rest on
mere allegations or denials, but must demonstrate on the record the existence
of specific facts which create a genuine issue for trial.’ ” Mosley v. City of
Northwoods, 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. County of Le
Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). “[T]he mere existence of some alleged
factual dispute between the parties is not sufficient by itself to deny summary
judgment . . . . Instead, ‘the dispute must be outcome determinative under
prevailing law.’ ” Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir.
1992) (quoting Holloway v. Pigman, 884 F.2d 365, 366 (8th Cir. 1989)). On a
motion for summary judgment, the facts and inferences drawn from those facts
are “viewed in the light most favorable to the party opposing the motion.”
4
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88
(1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).
DISCUSSION
I.
Per se Invalidity
“The initial and frequently dispositive question in Indian tax cases . . . is
who bears the legal incidence of a tax.” Okla. Tax Comm’n v. Chicksaw Nation,
515 U.S. 450, 458 (1995). “If the legal incidence of an excise tax rests on a
tribe or on tribal members for sales made inside Indian country, the tax
cannot be enforced absent clear congressional authorization.” Id. at 459. But if
the legal incidence of the tax rests on non-Indians, no categorical bar prevents
enforcement of the tax[.]” Id. Here, the legal incidence of the tax is on the nonIndian contractor because under South Dakota law, the contractor has the
legal obligation to pay the contractor’s excise tax. See SDCL § 10-46A-1. As a
result, the state is not categorically barred from imposing its tax and the tax is
not per se invalid.
II.
Barriers to State’s Exercise of Taxing Authority
“More difficult questions arise where, as here, a state asserts authority
over the conduct of non-Indians engaging in activity on the reservation.” White
Mountain Apache Tribe v. Bracker, 448 U.S. 136, 144 (1980). There are two
potential “barriers” to the state’s exercise of authority to tax non-Indian onreservation activity. Ramah Navajo Sch. Bd., Inc. v. Bureau of Revenue of N.M.,
458 U.S. 832, 837 (1982). “First, the exercise of such authority may be preempted by federal law.” Bracker, 448 U.S. at 142. “Second, it may unlawfully
5
infringe ‘on the right of reservation Indians to make their own laws and be
ruled by them.’ ” Id. (quoting Williams v. Lee, 358 U.S. 217, 220 (1959)). These
barriers are “independent but related.” Id.
The two barriers are independent because either, standing alone,
can be a sufficient basis for holding state law inapplicable to activity
undertaken on the reservation or by tribal members. They are
related, however, in two important ways. The right of tribal selfgovernment is ultimately dependent on and subject to the broad
power of Congress. Even so, traditional notions of Indian selfgovernment are so deeply engrained in our jurisprudence that they
have provided an important ‘backdrop’ . . . against which vague or
ambiguous federal enactments must always be measured.
Id. at 143 (quoting McClanahan v. Arizona State Tax Comm’n, 411 U.S. 164, 172
(1973)).
A. Pre-Emption by Federal Law—IGRA
1. Comprehensive regulation of Indian gaming
The Tribe argues that IGRA pre-empts the State’s authority to impose an
excise tax. “[I]n examining congressional intent, the history of tribal
sovereignty serves as a necessary ‘backdrop’ to that process.” Cotton Petroleum
Corp. v. New Mexico, 490 U.S. 163, 176 (1989) (quoting McClanahan, 411 U.S.
at 172. “As a result, questions of pre-emption in this area are not resolved by
reference to standards of pre-emption that have developed in other areas of the
law, and are not controlled by ‘mechanical or absolute conceptions of state or
tribal sovereignty.’ ” Id. (quoting Bracker, 448 U.S. at 145.) “Instead, we have
applied a flexible pre-emption analysis sensitive to the particular facts and
legislation involved. Each case ‘requires a particularized examination of the
6
relevant state, federal, and tribal interests.’ ” Id. (quoting Ramah, 458 U.S. at
838).
In California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987),
the United States Supreme Court held that California’s gaming regulations
were pre-empted by tribal and federal interests. Id. As a result, Congress
passed IGRA “to provide a statutory basis for the operation of gaming by
Indian tribes as a means of promoting tribal economic development, selfsufficiency, and strong tribal governments[.]” 25 U.S.C. § 2702(1). IGRA also
“provide[s] a statutory basis for the regulation of gaming by an Indian tribe”
and “declare[s] that the establishment of independent Federal regulatory
authority for gaming on Indian lands, the establishment of Federal standards
for gaming on Indian lands, and the establishment of a National Indian
Gaming Commission are necessary to meet congressional concerns regarding
gaming and to protect such gaming as a means of generating tribal revenue.”
Id. § 2702(2)–(3). “Any claim which would directly affect or interfere with a
tribe’s ability to conduct its own [gaming] licensing process should fall within
the scope of [IGRA’s] complete preemption.” Casino Res. Corp. v. Harrah’s
Entm’t, Inc., 243 F.3d 435, 437 (8th Cir. 2001) (alterations in original) (quoting
Gaming Corp. of America v. Dorsey & Whitney, 88 F.3d 536, 549 (8th Cir.
1996)).
7
Under IGRA, “[a]n Indian tribe may engage in, or license and regulate”
class III 2 gaming on Indian land if the tribe’s governing body adopts a
resolution approved by the Chairman of the NIGC. 25 U.S.C. § 2710(b)(1). The
Chairman must approve a tribal resolution that provides for “the construction
and maintenance of the gaming facility, and the operation of that gaming is
conducted in a manner which adequately protects the environment and the
public health and safety[.]” Id. § 2710(b)(2)(E). The Tribe must certify to the
NIGC that the gaming facilities meet the standards set forth in IGRA and the
Chairman may inspect the Tribe’s documentation and can close the casino if
the casino fails to meet the appropriate standards. See 25 U.S.C. § 2713; 25
C.F.R. §§ 559.3–6.
In Bracker, the United States Supreme Court found that the federal
government’s comprehensive and pervasive regulations of tribal logging and
tribal roads pre-empted Arizona’s motor carrier license and excise taxes.
Bracker, 448 U.S. at 148. The Court reasoned that the taxes interfered with
the federal objective of guaranteeing tribes the profit from timber sales. Id. at
149. Also, the Court stated that the tax undermined the Secretary of Interior’s
duties and the tribe’s ability to comply with several federal sustained yield
policies. Id. at 149-50.
25 U.S.C. § 2710(b) relates to the regulation of class II gaming. But
§ 2710(d)(1)(A)(ii) clarifies that class III gaming activities must also meet the
requirements set forth in § 2710(b).
2
8
In Ramah Navajo School Bd., Inc. v. Bureau of Revenue of New Mexico,
458 U.S. 832 (1982), the State of New Mexico sought to impose a gross
receipts tax on a non-Indian construction company for the construction of a
tribal school on the reservation. Id. at 835-36. The United States Supreme
Court found that the federal government’s regulation of Indian educational
institutions is “comprehensive and pervasive” because Congress has enacted
numerous statutes regulating Indian education and the Secretary of the
Interior promulgated comprehensive rules for school construction and
operation. Id. at 839-42. And the Court further stated that “the State [did] not
seek to assess its tax in return for the governmental functions it provides to
those who must bear the burden of paying this tax.” Id. at 843. Thus, the
Court ruled that “the comprehensive federal regulatory scheme and the
express federal policy of encouraging tribal self-sufficiency in the area of
education preclude the imposition of the state gross receipts tax[.]” Id. at 84647.
In Barona Band of Mission Indians v. Yee, 528 F.3d 1184 (9th Cir. 2008),
the Ninth Circuit Court of Appeals found that California could impose a sales
tax on purchases made for casino renovations. Id. at 1192. In Yee, the tribe
engaged in a renovation of its casino on tribal lands. Id. at 1187. As part of the
contract with the contractor, the tribe and the contractor devised language
that circumvented state sales tax by scheduling deliveries to occur on tribal
lands. Id. So the “parties contracted to create a taxable event on Indian
territory which otherwise would occur on non-Indian territory[.]” Id. at 1191.
9
The Ninth Circuit stated that the courts looked unfavorably on “tribal
manipulation of tax policy” and reasoned that the case was distinguishable
from “the multitude of cases where courts have analyzed state taxation on
non-Indians performing work on Indian land. Id. at 1190-91. Thus, the Ninth
Circuit found that California could impose its sales tax because the tribe
engaged in tax manipulation by marketing a tax exemption to third parties. Id.
at 1193.
Here, similar to Ramah and Bracker, Congress created a comprehensive
and pervasive regulatory scheme with the explicit intent of providing tribal
governments with revenue and the ability to be self-sufficient. IGRA not only
regulates gaming operations, but it also requires the Tribe to adopt a tribal
resolution for the construction and maintenance of the gaming facility that is
subject to approval by the Chairman of NIGC. 25 U.S.C. § 2710(2)(E). And
unlike Yee, the Tribe did not engage in tax manipulation and the Tribe is a
party to the transaction subject to the tax. The State’s excise tax undermines
the objective of IGRA because the tax is passed from the contractor to the
Tribe which interferes with the Tribe’s ability to make a profit from gaming
activities. Thus, Congress intended for IGRA to completely regulate Indian
gaming and there is no room for the State’s imposition of an excise tax.
2. Renovation of casino falls under the catchall provision
Alternatively, the Tribe argues that under either § 2710(d)(3)(C)(vi) or the
catchall provision in § 2710(d)(3)(C)(vii) IGRA pre-empts the excise tax.
Sections 2710(d)(3)(C)(vi)-(vii) provide that any Tribal-State compact negotiated
10
under § 2710(d)(3)(A) “may include provisions relating to[:] . . . (vi) standards
for the operation of such activity and maintenance of the gaming facility,
including licensing; and (vii) any other subjects that are directly related to the
operation of gaming activities.” 25 U.S.C. § 2710(d)(3)(C)(vi)-(vii).
This court has previously adopted the analysis set forth in In re Indian
Gaming Related Cases, 331 F.3d 1094 (9th Cir. 2003) (Coyote Valley II), to
determine whether something falls within IGRA’s catchall provision. See
Flandreau Santee Sioux Tribe v. Gerlach, 269 F. Supp. 3d 910, 923-24 (D.S.D.
2017), appeal docketed, No. 18-1271 (8th Cir. Feb. 6, 2018). Based on the
opinion in Coyote Valley II, an activity falls within the catchall provision if, but
for the tribal gaming, the activity would not exist, and if the Tribe could not
operate its gaming activities without the activity. See Coyote Valley II, 331 F.3d
at 1116. To fully analyze whether IGRA pre-empts the State’s tax under
Coyote II, a brief history and explanation of IGRA provides the court with
guidance. But IGRA grants states “a power that they would not otherwise have,
viz., some measure of authority of gaming on Indian lands[]” through the
utilization of a tribal-state gaming compact. Seminole Tribe of Florida v. Florida,
517 U.S. 44, 58 (1996). The Eighth Circuit Court of Appeals has previously
explained “that Congress intended [IGRA to] completely preempt state law.”
Gaming Corp. of America v. Dorsey & Whitney, 88 F.3d 536, 544 (8th Cir.
1996). And the court has stated that “[t]he only avenue for significant state
involvement is through tribal-state compacts covering class III gaming.” Id.
“Congress left the states without a significant role under IGRA unless one is
11
negotiated through a compact.” Id. at 547. IGRA provides a list of subjects that
a tribal-state compact may address. 25 U.S.C. § 2710(d)(3)(C). Section
2710(d)(4) states that IGRA shall not “be interpreted as conferring upon a
State . . . authority to impose any tax . . . upon an Indian Tribe or upon any
other person or entity authorized by an Indian tribe to engage in a class III
activity.” 25 U.S.C. § 2710(d)(4). Thus, if a compact does not address an area
that is listed in § 2710(d)(3)(C), then the state does not have authority to
regulate it. Gaming Corp., 88 F.3d at 547.
As stated above, the Tribe argues that the State’s excise tax falls within
the catchall provision in § 2710(d)(3)(C)(vii), namely “any other subjects that
are directly related to the operation of gaming activities.” 25 U.S.C. §
2710(d)(3)(C)(vii). The first question in the Coyote II analysis presents a clear
answer. If no casino existed, then there would not be a need to renovate the
casino. Thus, the construction project would not exist but for the Tribe’s
gaming activities. The second question requires a more nuanced analysis.
Congress iterated in IGRA that the intention of IGRA was to utilize the
proceeds of tribal gaming to encourage “tribal economic development, selfsufficiency, and strong tribal governments[.]” 25 U.S.C. § 2702(1). And the
Tribe is required under IGRA to maintain the “construction and maintenance
of the gaming facility.” 25 U.S.C. § 2710(b)(2)(E).
Here, the casino’s profits currently make-up approximately forty percent
of the Tribe’s income. Docket 77 ¶ 9. The Tribal government’s finance
department, legal department, and the Tribal Executive Committee are all
12
funded with federal and tribal funds. Docket 77 ¶ 13. The casino was built in
1997 and the casino floor has not been renovated since that time. Docket 77 ¶
149. In 2011, a new and larger casino was built in nearby Larchwood, Iowa,
which is the casino’s first major nearby competitor. Docket 77 ¶ 125. Thus, to
stay competitive and maintain the building, the Tribe must renovate the
casino. Updating the interior of the building and adding additional slot
machines is a necessary expense in order to compete with bigger, newer
casinos in the area and to attract patrons. If the Tribe failed to update the
casino and let it fall into disrepair, patrons would go elsewhere for gaming, and
the Tribe would risk a casino closure if the Chairman of the NIGC determined
that the Tribe failed to maintain the appropriate standards. See 25 U.S.C. §
2713; 25 C.F.R. §§ 559.3–4; 25 C.F.R. § 559.6. Thus, without the construction
project, the Tribe would be unable to operate its gaming activities. Because the
excise tax is a subject that falls within IGRA’s catchall provision and it was not
included in the Tribal-State compact, the State cannot impose the contractor’s
excise tax on the casino construction project.
B. Infringement on Right of Indians to Make Their Own Laws
The Tribe also argues that the excise tax unlawfully infringes “on the
right of reservation Indians to make their own laws and be ruled by them.”
Bracker, 448 U.S. at 142 (quoting Williams, 358 U.S. at 220). The State
contends that the excise tax helps fund services that Henry Carlson Company
and the Tribe utilize, so the tax is not pre-empted. Generally, a state does not
have regulatory power over the on-reservation conduct by Indians. Bracker,
13
448 U.S. at 144. Where the state asserts authority over the conduct of nonIndians on the reservation, the court engages in a “particularized inquiry into
the nature of the state, federal, and tribal interests at stake, [and] . . .
determine[s] whether, in the specific context, the exercise of state authority
would violate federal law.” Id. at 145. The Supreme Court has repeatedly
stated that there is “a firm federal policy of promoting tribal self-sufficiency
and economic development.” Id. at 143. “Ambiguities in federal law have been
construed generously in order to comport with these traditional notions of
sovereignty and with the federal policy of encouraging tribal independence.” Id.
at 143-44. The “regulatory interest of the State must be given weight,” but a
“general desire to raise revenue” is insufficient. Id. at 144, 150. “State
jurisdiction is pre-empted 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.” Casino Res. Corp., 243 F.3d at 437 (quoting New Mexico v.
Mescalero Apache Tribe, 462 U.S. 324, 334 (1983)).
Courts have consistently expressed a strong federal interest in
regulating gaming activity so as to encourage economic development on Indian
reservations. In City of Duluth v. Fond du Lac Band of Lake Superior Chippewa,
785 F.3d 1207, 1211 (8th Cir. 2015), the Eighth Circuit Court of Appeals
stated that “IGRA explicitly defined the policies and goals which led to its
enactment. Congress indicated that its intent upon passing IGRA was ‘to
provide a statutory basis for the regulation of gaming by an Indian tribe
14
adequate . . . to ensure that the Indian tribe is the primary beneficiary of the
gaming operation.’ ” Id. at 1211 (quoting 25 U.S.C. 2702(2)). This desire to
ensure that the Tribe is the primary beneficiary of the gaming operations
originates from the text of IGRA itself, which states that IGRA’s purpose is “to
provide a statutory basis for the operation of gaming by Indian tribes as a
means of promoting tribal economic development, self-sufficiency, and strong
tribal governments[.]” 25 U.S.C. § 2702(1). “Congress has noted that for
tribes, gaming income ‘often means the difference between an adequate
governmental program and a skeletal program that is totally dependent on
Federal funding.’ ” City of Duluth, 785 F.3d at 1211 (quoting S. Rep. No. 100446, at 3 (1988)).
As discussed above, the Supreme Court found in Ramah that New
Mexico’s imposition of a gross receipts tax on the construction of a tribal
school interfered with the tribe’s ability to regulate its own school. Ramah, 458
U.S. at 846. The Court noted that New Mexico did not provide any services to
the tribe that were funded by the tax and reasoned that because the state
“declined to take any responsibility for the education of these Indian children,
the State is precluded from imposing an additional burden on the
comprehensive federal scheme intended to provide this education—a scheme
which has ‘left the State with no duties or responsibilities.’ ” Id. at 843 (quoting
Warren Trading Post Co. v. Arizona State Tax Comm’n, 380 U.S. 685, 691
(1965)). Thus, the Court ruled that New Mexico’s gross receipts tax was preempted. Id. at 846-47. In Bracker, the Supreme Court also found that
15
Arizona’s general desire to raise revenue without “a responsibility or service
that justifies the assertion of taxes imposed for on-reservation operations
conducted solely on tribal and Bureau of Indian Affairs roads” was not
sufficient to overcome the tribal and federal interests. Bracker, 448 U.S.
at 150.
In Marty Indian School Board, Inc. v. State of South Dakota, 824 F.2d 684
(8th Cir. 1987), the State of South Dakota sought to impose a motor fuel tax
on fuel the school purchased from non-Indian Weisser Oil Company. Id. at
685. The Eighth Circuit Court of Appeals, applying the Bracker test, found that
there is a strongly expressed policy in favor of developing Indian-controlled
educational opportunities “tailored to the needs and goals of the Indian
people.” Id. at 687. The court quoted from Ramah, where the Supreme Court
reasoned that “[t]he Self-Determination Act declares that a ‘major national goal
of the United States is to provide the quantity and quality of education services
and opportunities which will permit Indian children to compete and excel in
the life areas of their choice[.]’ ” Id. (quoting 25 U.S.C. § 450a(c). Applying the
logic from Ramah, the Eighth Circuit stated that the Yankton Sioux Tribe
sought to “promote Indian self-determination by creating and operating an
Indian school . . . operated exclusively by members of the Tribe[,] . . . which
offer[ed] classes specifically designed for Indian students[.]” Id. (citation
omitted). In contrast, the State of South Dakota’s revenues from the tax were
used to maintain roads and were not used for the benefit of educating Indian
children. Id. at 688. Thus, the Eighth Circuit found that “the strong federal
16
policy of promoting Indian self-determination and education and the pervasive
involvement of the federal government” left “no room for the additional burden
which the state’s tax would impose.” Id.
Here, the excise tax is deposited in the State’s general funds and the
Department of Revenue’s Business Tax Division. Docket 77 ¶ 281. The State
argues that the general fund goes toward a variety of services that benefit the
Tribe and Henry Carlson Company such as the licensing of attorneys,
electricians, plumbers, and notaries and the supervision of parolees. The State
relies on Cotton Petroleum Corp., 490 U.S. at 163 and Yee, 528 F.3d at 1185 to
support its contention that the excise tax does not interfere with the Tribe’s
ability to govern itself.
In Cotton Petroleum Corp., the United States Supreme Court found that
New Mexico’s tax on a company’s on-reservation oil and gas production was
permissible under the Bracker analysis. 490 U.S. at 186-87. First, the Court
stated that, historically, states were expressly permitted to tax oil and gas
production on reservations. Id. at 182 (“There is, accordingly, simply no
history of tribal independence from state taxation of these lessees to form a
‘backdrop’ against which the 1938 Act must be read.”). And the Court noted
that Congress’ most recent act—the Indian Mineral Leasing Act of 1938—was
silent as to whether states’ express permission to tax such activity remained in
effect. Id. Thus, there was not a strong federal interest in preventing a state’s
taxation of on-reservation oil and gas production.
17
Second, the Court compared New Mexico’s tax on oil and gas production
to the taxes in Bracker and Ramah and found that the tax in Cotton was
distinguishable. Id. at 184-85. The Court reasoned that New Mexico provided
substantial services to the tribe and to the oil company. Id. at 185. And unlike
the states in Bracker and Ramah where “both cases involved complete
abdication or noninvolvement of the State in the on-reservation activity[,]” New
Mexico was involved in the on-reservation activity of oil and gas. Id. Thus, the
Court found that Congress had expressed minimal interest in preventing state
taxes on oil and gas and New Mexico had maintained a strong interest in the
oil and gas production because of the services New Mexico provided to the oil
company and to the tribe.
In Yee, the tribe engaged in tax manipulation by contracting with nonIndian third parties to have materials delivered on the reservation even though
the seller and buyer of the materials were both non-Indians. Yee, 528 F.3d at
1191. The Ninth Circuit rejected the argument that the sales tax was preempted by IGRA because “IGRA’s comprehensive regulation of Indian gaming
does not occupy the field with respect to sales taxes imposed on third-party
purchases of equipment used to construct the gaming facilities.” Id. at 1193.
Thus, because the tribe engaged in tax manipulation and the sales tax was
imposed on a transaction between two non-Indian parties, the Ninth Circuit
found that the tax was not pre-empted by IGRA. Id.
The State also relies on Washington v. Confederated Tribes of Colville
Indian Reservation, 447 U.S. 134 (1980), to argue that the State can impose
18
taxes on non-Indians doing business on a reservation. In Colville, the United
States Supreme Court found that Washington’s tax on cigarettes sold to nonIndians on the reservation was permissible because the tribal cigarette sellers
were only in business to offer an exemption to off-reservation customers. Id. at
155. The Court stated that tribal interests are “strongest when the revenues
are derived from value generated on the reservation by activities involving the
Tribes and when the taxpayer is the recipient of tribal services.” Id. at 156-57.
And the Court stated that it did “not believe that principles of federal Indian
law . . . authorize Indian tribes [] to market an exemption from state taxation
to persons who would normally do their business elsewhere.” Id. at 155. Thus,
Washington’s interest in taxing non-members who would otherwise purchase
cigarettes off-reservation was stronger than the tribe’s general interest in
creating a tax exemption. 3
Here, unlike in Yee and Colville, the Tribe has not engaged in any tax
manipulation and the Tribe is the entity ultimately responsible for paying the
tax, thus it is involved in the transaction being taxed. In Yee, the tribe set up a
system whereby two non-Indian parties would avoid paying California sales tax
by delivering the goods to the reservation. The court found that the tax was not
pre-empted because tax manipulation was the reason the on-reservation
Similarly, in Yee, the Ninth Circuit found that California’s sales tax was valid
under Bracker where the tribe invited “the non-Indian subcontractor to
theoretically consummate purchases on its tribal land for the sole purpose of
receiving preferential tax treatment. Barona Band of Mission Indians v. Yee,
528 F.3d 1184, 1191 (9th Cir. 2008).
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delivery system was set up and the Tribe was not a party to the transaction.
And in Colville, the Indian cigarette retail sellers were marketing a tax
exemption to non-Indian cigarette buyers who would otherwise have been
subject to the state tax. Here, the Tribe has not engaged in any tax
manipulation 4 and the Tribe is a party to the transaction being taxed. Also,
this case is distinguishable from Cotton because the State does not provide
substantial services to the Tribe or Henry Carlson Company. At oral argument
the State argued that services such as licensing for attorneys, notaries,
electricians, and plumbers, and the supervision of parolees were services that
benefit the Tribe and Henry Carlson Company.
The court finds that argument unpersuasive. The attorneys, electricians,
plumbers, and notaries involved in the renovation project maintain licenses in
South Dakota for their own general purposes and did not become licensed
specifically for this project. Further, the State supervises parolees as a service
to all citizens in South Dakota and there is not any evidence in the record that
there is a parolee currently working for Henry Carlson Company on the casino
renovation project. All of the services identified by the State are services
provided to the general population of the State of South Dakota and not
specific to this project. There is no evidence that the State incurred additional
costs specifically related to this project. In fact, the evidence indicates that the
costs of inspection and supervision of the project are born by the Tribe. Thus,
When asked during oral argument whether there was any evidence of tax
manipulation by the Tribe, the State of South Dakota answered, “No.”
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the court finds that the State’s tax infringes on the Tribe’s ability to govern
itself because there is not a nexus between State services and the excise tax
and the Tribe has not engaged in manipulation of tax policy.
In conclusion, the court finds that both barriers to the State’s exercise of
authority are present here. The excise tax is pre-empted by federal law by
IGRA. Also, the State’s interests in imposing the excise tax do not outweigh the
tribal and federal interests in promoting self-sufficiency because there is not a
nexus between any services the State provides to the Tribe or the contractor
and the imposition of the excise tax. Either barrier, on its own, is sufficient to
find that state authority inapplicable. Bracker, 448 U.S. at 143. Thus, the
court finds that the State’s excise tax is inapplicable.
Because the court finds in favor of the Tribe under both prongs of the
Bracker analysis, it does not reach the other theory raised by the Tribe—
namely whether the Indian Trader Statutes pre-empt the State’s ability to
impose the contractor’s excise tax.
III.
Refund
The State argues that this court does not have jurisdiction to grant the
Tribe’s claim for a refund of the tax paid in protest because the Eleventh
Amendment only permits tribes to obtain prospective relief from state officials.
Docket 32 at 6. The State acknowledges, however, that a suit for monetary
damages against the State may proceed where the suit is “brought by the
United States on behalf of [the Tribe.]” Id. at 7. Given the State’s assertion of
sovereign immunity, “the Tribe concedes that the Court does not have
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jurisdiction to grant the relief sought in the Tribe’s fourth claim.” Docket 81 at
44. Thus, the Tribe’s fourth claim for relief is dismissed, without prejudice, for
lack of jurisdiction.
CONCLUSION
In conclusion, IGRA pre-empts the State’s excise tax because IGRA
comprehensively and pervasively regulates Indian gaming, and alternatively,
because there would not be a renovation project without the casino and the
casino needs the renovation project to operate. Also, the federal and tribal
interest in promoting tribal self-sufficiency through Indian gaming outweigh
the State’s interest in raising revenue for the general fund. And the Tribe’s
claim for a refund of the tax is dismissed due to lack of jurisdiction. Thus, it is
ORDERED that defendants’ motion for summary judgment (Docket 31)
as to plaintiff’s first, second, and third claims is DENIED; it is
FURTHER ORDERED that plaintiff’s motion for summary judgment as to
its first, second, and third claims (Docket 66) is GRANTED; it is,
FURTHER ORDERED that plaintiff’s fourth claim is DISMISSED for lack
of jurisdiction; and it is
FURTHER ORDERED that plaintiff’s motion for a preliminary injunction
(Docket 91) is DENIED as moot.
Dated July 16, 2018.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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