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(Cite as: 2003 WL 136197)
United States District Court,
D. Kansas.
PRAIRIE
BAND POTAWATOMI NATION, Plaintiff,
v.
Stephen RICHARDS, Secretary of the Kansas Department of Revenue, State of
Kansas, Defendant.
No. 99-4071-JAR.
Jan.
15, 2003.
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
ROBINSON, District Judge.
*1
This action is before the Court on defendant's Motion for Summary Judgment (Doc.
49). Plaintiff has filed a Response (Doc. 59) and defendant has filed a Reply
(Doc. 68). The Court has reviewed the parties' filings and is now prepared to
rule.
I.
FACTS
The
following facts are taken from the record and are either stipulated,
uncontroverted or viewed in the light most favorable to plaintiff's case. The
Court ignores factual assertions that are immaterial, or unsupported by
affidavits and/or authenticated and admissible documents. The Court also
disregards conclusory statements.
Plaintiff, the Prairie Band Potawatomi Nation ("Tribe"), is a federally recognized
Indian tribe whose reservation is in Jackson County, Kansas. Pursuant to the
Indian Gaming Regulatory Act, [FN1] the Tribe owns and operates a casino complex
on its reservation land near Mayetta, Kansas. In addition to the casino, the
Tribe owns and operates a convenience store and gas station, ("Nation Station"),
located near the casino. Gasoline and diesel fuel are imported from outside
the reservation for re-sale at the Nation Station. Once the fuel arrives on
the reservation, the Nation Station unloads, stores, monitors and dispenses
the fuel. Fuel sales made to casino patrons and employees account
for approximately seventy-three percent of the total fuel sales. An additional
eleven percent of fuel sales are made to people who work on the reservation
but not for the casino, tribal government employees, and reservation residents.
Seventy-one percent of the Nation Station's proceeds are generated by fuel sales.
The
Tribe imposes a tax of $.16 per gallon of gasoline and $.18 per gallon of diesel
fuel. The Nation Station is subject to $300,000 in tribal fuel taxes per year.
The Tribe spends revenue from the fuel tax to construct and maintain roads,
including the road leading from U.S. Highway 75 to the Tribe's casino and other
roads on and near the reservation. The Tribe also provides government services
including law enforcement, fire protection, emergency services, education
services, urban planning, court services and other miscellaneous
services.
Prior to May of 1995, the Kansas Department of Revenue did not collect motor
fuel tax on fuel distributed to Indian lands. Then, in 1995, the Kansas legislature
amended the Kansas Motor Fuel Tax Act [FN2] and the Department
of Revenue began to impose fuel tax on fuel distributed to Indian tribes on
tribal land. The structure of the fuel tax statute places the legal incidence
of the tax on the fuel distributors, but permits the distributors to pass the
tax directly to the fuel retailers. [FN3]
II.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law. [FN4] A factual dispute is "material"
only if it "might affect the outcome of the suit under the governing law." [FN5]
A "genuine" factual dispute requires more than a mere scintilla of evidence.
[FN6]
*2 The moving party bears the initial burden of showing that there is
an absence of any genuine issue of material fact. [FN7] Once the moving party
meets its burden, the burden shifts to the nonmoving party to demonstrate that
genuine issues remain for trial "as to those dispositive matters for which it
carries the burden of proof." [FN8] The nonmoving party may not rest on its
pleadings but must set forth specific facts. [FN9]
"[The court] must view the record in a light most favorable to the parties opposing
the motion for summary judgment." [FN10] Summary judgment may be granted if
the non-moving party's evidence is merely colorable or is not significantly
probative. [FN11] Essentially, the inquiry is "whether the evidence presents
a sufficient disagreement to require submission to a jury or whether it is so
one-sided that one party must prevail as a matter of law." [FN12]
III.
DISCUSSION
The Tribe brought suit seeking injunctive and declaratory relief, asking the
Court to issue an order prohibiting the State from collecting motor fuel tax
from fuel distributors who deliver fuel to the Nation Station. The Tribe claims
that the Indian Commerce Clause, [FN13] the Tribe's sovereign right to self-
government and self-determination, the Act for Admission of Kansas [FN14] or
other federal law prohibits imposition of the Kansas fuel tax laws on distributors
distributing fuel to the Tribe. Defendant asserts that summary judgment should
be granted because the State is entitled to Eleventh Amendment immunity, [FN15]
the Tribe lacks standing, and the Hayden-Cartwright Act provides congressional
consent for imposition of the State's fuel tax. [FN16] Defendant also asserts
that there is no material issue of fact concerning whether the state fuel tax
is preempted by federal law, whether the state fuel tax improperly infringes
upon the Tribe's sovereign right to self- government, or whether the Kansas
Act for Admissions bars imposition of the tax. The Court will take each of defendant's
contentions in turn.
A.
Jurisdiction and the Eleventh Amendment
The Tribe asserts that this Court has jurisdiction over this matter pursuant
to 28 U.S.C. ? 1362 , [FN17] which grants district courts original jurisdiction
over civil actions brought by federally-recognized Indian tribes wherein the
matter in controversy arises under the Constitution, laws or treaties of the
United States. Defendant argues that despite the grant of jurisdiction in ?
1362 , the Eleventh Amendment bars the Tribe's claims. Defendant also asserts
that Ex parte Young, [FN18] a legal fiction created to overcome the Eleventh
Amendment's bar under certain circumstances, is inapplicable in this case. As
discussed below, defendant's arguments are unfounded.
[1] The Eleventh Amendment grants states sovereign immunity from suits in federal
court brought by the state's own citizens, citizens of another state, citizens
of a foreign state, suits by other sovereigns and suits by an Indian tribe.
[FN19] In Ex parte Young, the Supreme Court created a legal fiction,
circumventing Eleventh Amendment immunity for suits seeking injunctive and declaratory
relief against state officers, sued in their official capacity, to enjoin an
alleged ongoing violation of federal law. [FN20] Defendant contends that the
Ex Parte Young exception is inapplicable in this case because the relief
being sought by the Tribe implicates special sovereignty interests.
*3 Defendant points to the Supreme Court case Idaho v. Coeur d'Alene
Tribe of Idaho, [FN21] wherein the Court ruled that the Ex parte Young
exception could not be entertained when the relief requested would be as much
of an intrusion on state sovereignty as an award of money damages. In Coeur
d'Alene, the tribe sought a declaratory judgment against the state establishing
its right to quiet enjoyment to submerged lands located within the boundaries
of the Coeur d'Alene Reservation. [FN22] The tribe also sought injunctive relief
against various state officials to prevent them from exercising regulatory jurisdiction
over the submerged land. The Court determined that the tribe's claims were the
functional equivalent to a quiet title action and if relief was granted, it
would have divested the state of substantially all regulatory power over the
land at issue. [FN23] Thus, the Court found that the requested relief would
affect Idaho's sovereign interests "in a degree fully as intrusive as almost
any conceivable retroactive levy upon funds in its Treasury," defeating plaintiff's
Ex parte Young action. [FN24]
Soon after the Supreme Court's Coeur d'Alene decision, the Tenth Circuit
decided ANR Pipeline Co. v. Lafaver, [FN25] where it held that the states'
power to assess and levy personal property taxes on property located within
its borders implicated special sovereignty interests, defeating an Ex parte
Young action. In so holding, the Tenth Circuit interpreted Coeur d'Alene
as requiring a new two-step analysis for determining whether Ex parte Young
applies in any given case. According to ANR Pipeline, federal courts
are to first "examine whether the relief being sought against a state official
implicates special sovereignty interests." [FN26] If the answer to the first
inquiry is affirmative, the court "must then determine whether that requested
relief is the functional equivalent to a form of legal relief against the state
that would otherwise be barred by the Eleventh Amendment." [FN27]
Relying on Coeur d'Alene and the ANR Pipeline, defendant asserts
that an Ex parte Young action does not apply in this case because the
relief sought by the Tribe implicates special sovereignty interests in the State's
system of taxation and the requested relief would be the functional equivalent
to money damages against the State. The Court finds defendant's reliance on
these cases is misplaced. To rule otherwise would be to ignore the long line
of cases decided in federal court relating to state taxation on tribal affairs.
[FN28] As the Ninth Circuit pointed out in Agua Caliente Band of Cahuilla
Indians v. Hardin, [FN29] "in the context of state taxation of tribes,
there are preemption considerations and competing sovereignty interest,
the merits of which are governed by a long line of cases." The issues presented
by state taxation of tribal interests were not present in either ANR Pipeline
or Coeur d'Alene, both of which have been limited to their particular
facts. [FN30] Thus, the Court finds that an Ex parte Young action is
appropriate under the circumstances of this case.
*4 In the alternative, the Tenth Circuit has ruled that Indian tribes,
asserting jurisdiction under 28 U.S.C. ? 1362 , may seek injunctive relief from
state taxation in federal court. [FN31] In Sac and Fox, the Tenth Circuit
contemplated, under a set of facts very similar to those at hand, whether Indian
tribes could maintain suits in federal court to enjoin collection of the State
of Kansas's motor fuel tax. Relying on the Supreme Court's decision in Moe
v. Confederated Salish and Kootenai Tribes, [FN32] the court determined
that neither the Eleventh Amendment nor the Tax Injunction Act, 28 U.S.C. ?
1341 , barred the tribes' suit. [FN33] The court reached this conclusion notwithstanding
the Supreme Court's decision in Seminole Tribe of Florida v. Florida,
[FN34] finding that the Seminole Tribe Court had expressly recognized
that in Moe it had reached a different conclusion due to the fact that
the case involved an Indian tribe's access to federal court for the purpose
of obtaining injunctive relief from state taxation. [FN35] Based on the Moe
decision, the Tenth Circuit reasoned that federal courts have jurisdiction under
28 U.S.C. ? 1362 to consider the merits of the Kansas fuel tax case. [FN36]
Like the Tenth Circuit, this Court asserts jurisdiction under ? 1362 and finds
the Eleventh Amendment does not bar this suit.
[2] As instructed by the Tenth Circuit in Sac and Fox, this Court has
jurisdiction and the Eleventh Amendment does not bar the Tribe's claim brought
pursuant to ? 1362 . Further, based on the legal fiction created in Ex parte
Young, the Court finds that it has jurisdiction to hear this dispute. Therefore,
summary judgment is not appropriate based on the State's Eleventh Amendment
immunity.
B.
Standing
[3] [4] Under Article III, ? 2 United States Constitution, Federal courts have
jurisdiction to hear a matter only if an actual "case or controversy" exists.
[FN37] In determining whether a case or controversy exists, the Court must evaluate
whether the Tribe has standing to sue. [FN38]
[5] [6] [7] [8] As stated by the Tenth Circuit in Sac and Fox, the Constitutional
standing question addresses "whether the plaintiff has alleged such a personal
stake in the outcome of the controversy as to warrant its invocation of federal-court
jurisdiction and to justify exercise of the court's remedial powers on its behalf."
[FN39] To meet the standing requirement, the Tribe must allege "1) a concrete
and particularized actual or imminent injury, 2) which is fairly traceable to
the defendant's conduct, and 3) which a favorable court decision will redress."
[FN40] In addition to the above mentioned requirements, the Supreme Court has
enunciated several other prudential standing requirements. First, a plaintiff
must assert its own rights and not those of others. [FN41] Next, a plaintiff
will not meet the standing requirement if he or she asserts a "generalized grievance
shared by a large class of citizens." [FN42] Finally, the interest which a plaintiff
wants protected must be within the "zone of interests to be protected by the
statute or Constitutional guarantee." [FN43]
*5 Defendant argues that the Tribe lacks standing to bring this case
because the tax in question falls on the distributors, not the Tribe. [FN44]
The Court finds that the Tenth Circuit's decision in Sac and Fox settles
this issue.
Addressing the exact arguments made by defendant here, the Sac and Fox
court held that a tribe has standing to sue a state in federal court where the
tribe alleges particularized imminent economic injury due to the state's imposition
of the fuel tax. [FN45] In Sac and Fox, the state alleged that the tribes
did not have standing to bring suit challenging the Kansas motor fuel tax because
the legal incidence of the tax falls on the distributors of the fuel rather
than on the tribal retailers. The court rejected this argument stating that
the court had "little difficulty concluding that the Tribes [have] constitutional
standing to maintain their suit against the State." [FN46]
[9] Like the tribes in Sac and Fox, the Tribe here meets the standing
criteria to challenge the State's fuel tax. [FN47] First, the Tribe provides
affidavits claiming injury including interference with the right of self government
and economic injury caused by the state fuel tax. Next, the alleged injury is
directly traceable to the State's desire to impose a fuel tax, [FN48] in that
the Act allows the tax to be passed on directly to the retailers. [FN49] Finally,
deciding in favor of the Tribe will redress the alleged injury because if the
distributors who distribute fuel to the Nation Station are not required to pay
the tax, there will be no threat of passing the tax through to the Tribe. [FN50]
Further, like in Sac and Fox, the prudential standing principles discussed
above do not bar the Court's exercise of jurisdiction. [FN51] First, the Tribe
asserts its own rights to be free from the cost of motor fuel tax. The fact
that the consumers and fuel distributors will unquestionably benefit if the
Tribe is successful in challenging the tax, does not alter the Court's analysis.
[FN52] Next, because the Tribe has asserted its right to be free from the fuel
tax, it is not asserting a "generalized grievance" prohibiting the Court from
exercising jurisdiction. [FN53] Finally, the Tribe's alleged economic interest
in being free from taxation is arguably within the "zone of interest" that federal
law seeks to protect. [FN54] In grappling with the "zone of interest" prudential
requirement for standing, the Tenth Circuit noted that federal law has long
sought to "protect tribal self-government from state interference, including
state taxation." [FN55]
Based
on the above analysis, the Court finds that the Tribe has demonstrated that it
has standing to bring this action in federal court. Therefore, summary judgment
will not be granted on defendant's challenge to the Tribe's standing.
C. Hayden-Cartwright Act, 4 U.S.C. ? 104
Defendant argues that pursuant to the Hayden-Cartwright Act, 4 U.S.C. ? 104
, Congress consented to the states' power to tax fuel distributions to Indian
tribes, leaving the Tribe without recourse to challenge the tax. In pertinent
part ? 104(a) of the Act states:
*6 All tax levied by any State, Territory, or the District of Columbia upon, with respect to, or measured by, sales purchases, storage, or use of gasoline or other motor vehicle fuels may be levied, in the same manner and to the same extent, with respect to such fuels when sold by or through post exchanges, ship stores, ship service stores, commissaries, filling stations, licensed traders, and other similar agencies, located on United States military or other reservations, when such fuels are not for the exclusive use of the United States. Such taxes, so levied, shall be paid to the proper taxing authorities of the State ... within whose borders the reservation may be located. [FN56]
The
State argues that the phrase "other reservations" includes Indian lands and that
the term "licensed trader" specifically refers to tribal retailers. The Tribe
counters that the Act is ambiguous and that ambiguity should be construed in
favor of Indian sovereignty.
Unfortunately, the Court is left with little guidance from the Circuit Courts
or the Supreme Court in determining whether Congress intended the phrase "other
reservations" to include Indian reservations. [FN57] Only the Idaho Supreme
Court and the United States District Court for the District of Idaho have struggled
with this difficult issue. [FN58] Although the Court is not bound by either
of these decisions, the Court finds the decisions persuasive and holds that
the Hayden-Cartwright Act does not amount to congressional authorization
for states to impose fuel tax on fuel delivered to Indian reservations.
[10] [11] The Court begins its analysis by noting that a state may not levy
taxes on Indian tribes or individual Indians inside Indian country without express
approval of Congress. [FN59] Because of the "unique trust relationship" between
the United States and Indian Nations, statutes that affect Indians are to be
"construed broadly, with any ambiguous provision to be interpreted to their
benefit." [FN60] Unless Congress makes it abundantly clear that it intends to
grant taxing authority to the states, the Court must construe the statute as
not allowing the taxation of Indians. [FN61]
[12] Defendant argues that the language in the Hayden-Cartwright Act expressly
approves state taxation of fuel delivered in Indian country. The Tribe argues
that Congress did not expressly approve state taxation of motor fuel on Indian
reservations and that the statute is, at best, ambiguous. Thus, the Tribe argues
that the statute must be construed in favor of the Tribe and interpreted so
as to not grant such taxing authority. Following the principles elucidated above,
the Court agrees with the Tribe and finds that the Hayden- Cartwright Act does
not expressly provide for state taxation on fuels delivered in Indian country.
Defendant argues that the language in the Act, which allows for state taxation
of motor fuels sold on "United States military or other reservations," [FN62]
includes Indian reservations. The Court is not persuaded by defendant's argument.
As noted by United States District Court for the District of Idaho in Hammond,
the term "reservation" has broad meaning and may or may not include Indian reservations.
[FN63] The Hammond court explained that the term reservation has been
used in land law to describe any body of land which Congress has reserved from
sale. [FN64] The term has also been used to describe "military bases, national
parks and monuments, wildlife refuges, and federal property." [FN65]
*7 Additionally, as articulated by the Idaho Supreme Court in Goodman
Oil, if Congress intended to include Indian lands in the pertinent part
of the statute, ? 104(a) , it would have done so. The Act uses the phrase "Indian
Lands or other federal reservations" in section three and the phrase "Indian
reservation roads" in section six. [FN66] Congress's use of these distinct phrases
convinces this Court that Congress could have specified that the entire Act
was to apply to Indian reservations or Indian lands but did not. Therefore,
by not using the word "Indian Reservation" in the applicable part of the Act,
? 104(a) , the language of the Act does not clearly show that Congress intended
to allow state taxation of tribal fuel. [FN67]
Defendant also argues that the use of the term "licensed traders" equates to
Indians or Indian traders, lending support for the position that Congress intended
to allow states to tax in Indian country. The Court disagrees with defendant
and finds that use of the term "licensed traders" is also ambiguous and therefore
does not support defendant's position that the Act expressly grants states the
authority to tax fuel on Indian reservations. As noted by the Goodman Oil
court, at the time the Hayden-Cartwright Act was passed, the term licensed traders
could have meant licensed sellers of malt beverages, licensed retailers on government
reservations or licensed traders selling goods on all government reservations.
[FN68] So, once again the term used by Congress is too broad to have the effect
of conveying upon states the right to tax Indians. Congress could have used
the term licensed Indian traders had it meant to grant states the authority
to tax fuel on Indian reservations.
Defendant also urges the Court to resolve any ambiguities in the language of
the Act by turning to the Act's legislative history and the executive interpretation
of the Act. Defendant insists that the Court is required to defer to agency
interpretation of a statute as required by the Supreme Court's decision in Chevron
U.S.A., Inc v. Natural Resources Defense Council. [FN69] Defendant argues
that the stated purpose of the statute, and two agencies' interpretations show,
that the Act applies to Indian reservations. Again, the Court disagrees. The
Court will address defendant's arguments regarding the legislative history and
agency interpretation in turn.
First, defendant draws the Court's attention to legislative history explaining
the intended purpose of the Act. The purpose of the Act, which was passed in
1936, was to fund the extension of highway construction and maintenance. Congress
intended to correct the general unfairness in the sale of fuel exempt from state
taxation on federal reservations. The legislative history discussing the purpose
of the Act never specifically refers to Indian reservations. [FN70] Instead,
the legislative history only discussed the inequities of selling gasoline free
of state tax in "post exchange stores" and "government reservations." Once again,
defendant contends that the use of the term government reservations was meant
to include Indian reservations. As discussed above, the Court is not convinced
that the use of the term "government reservations" includes Indian reservations.
Further, as noted by the Hammond court, simply because Congress expressed
its intent to give up the federal government's exemption from state motor fuel
taxes, does not mean Congress was willing to sacrifice the Indians' exemption
from the tax as well. [FN71]
*8 Next, defendant calls the Court's attention to the opinions of the
Attorney General and Solicitor of the Department of Interior, alleging that
the opinions clarify any ambiguity contained in the language of the statute
Four months after the Act was passed in 1936, the Attorney General stated that
the Act applied to a "military reservation, or an Indian reservation ...." [FN72]
Also, the Solicitor of the Department of the Interior concluded that the Act
authorizes state taxation of sales of motor fuel purchased on a reservation
for tribal enterprise for resale both to non-Indians and members of the
tribe. [FN73]
These statements suggest that the Attorney General and the Solicitor of the
Department of Interior believed that the Act applied to Indian reservations,
but as discussed in Goodman Oil, these statements are not sufficient
to clarify the ambiguities contained in the Act. [FN74] The Attorney General
Opinion of 1936 dealt with whether national parks fell within the Act and mentions
"Indian Reservations" in passing. [FN75] The entire passage reads "some of the
agencies which are expressly designated in Section 10 apparently are such as
usually pertain to military, naval, or Indian reservations and that section
does not expressly mention national parks." [FN76] The qualifier of "apparently"
lends weight to this Court's conclusion that the Attorney General's interpretation
is ambiguous.
The opinion of the Solicitor of the Department of the Interior is equally ambiguous.
Referencing the Act, the Solicitor said "[i]t is not clear, however, whether
the Government agencies specified are intended to include such federal agency
as the Menominee tribal enterprise and whether the reference to reservations
includes Indian reservations." [FN77] While the Solicitor eventually concluded
that the taxes could be levied in the circumstances before him, his statement
shows that he also found the Act ambiguous.
Further, as noted in Goodman Oil and Hammond, Congress has recently
attempted to pass legislation to authorize the state taxation of fuel sales
on Indian reservations. [FN78] Such an attempt was apparently a recognition
by Congress that more precise language would be necessary to grant states the
authority to tax fuel on Indian reservations. If Congress intended the Hayden-
Cartwright Act to allow for state taxation of fuel on Indian reservations, it
is unlikely that Congress would continue to propose bills to permit a tax it
apparently already allowed.
Interpreting
ambiguities in the Act in favor of the Tribe, the Court finds that the language
of the Act does not show that Congress consented to taxation of the Indian
reservations. The Court is further not persuaded by defendant's arguments
relating to the legislative history or subsequent agency interpretation of the
Act. Because Congress must be explicit if it intends to grant states the power
to tax within Indian country, and because the Court finds Hayden-Cartwright does
not provide for an explicit grant of Congressional authority for state taxation
of motor fuel delivered to Indian reservations, defendant's request for summary
judgment on this issue is denied.
*9
Because the Hayden-Cartwright Act is not a basis for summary judgment and
because there is no jurisdictional bar preventing the Court from moving forward,
the Court must now turn to the merits of the case.
D.
Preemption and Tribal Self-Government
Two separate but distinct doctrines pose a barrier to the assertion of state
taxation over transactions occurring on reservation land: federal preemption
and tribal rights to self-government. [FN79] These doctrines manifest themselves
from the broad authority given to Congress to regulate tribal affairs under
the Indian Commerce Clause and from "the semi-independent" position of Indian
tribes. [FN80] The Tribe asserts these doctrines bar the State from imposing
its motor fuel tax on fuel delivered to the reservation. The Court is required
to analyze the barriers posed by these doctrines independently because either
doctrine, standing alone, can be a sufficient basis for holding that Kansas's
motor fuel tax is invalid as it relates to fuel delivered to the Tribe's reservation.
[FN81]
1.
Preemption
[13] [14] It is settled law that a state tax is unenforceable if the legal incidence
of the tax falls on an Indian tribe or its members for sales made within Indian
country. [FN82] If, however, the legal incidence of the tax rests on non-Indians,
as it undisputably does here, "no categorical bar prevents enforcement of the
tax; if the balance of federal, state, and tribal interests favors the State,
and the federal law is not to the contrary, the State may impose its levy."
[FN83] Because the legal incidence of the Kansas motor fuel tax falls on non-Indians,
the Court is required to determine if a material issue of fact exists as to
whether the balance of the federal, state and tribal interests tilt in favor
of the Tribe. The Court must grant defendant's motion for summary judgment if
the Court finds the evidence favoring the State's interest in imposing the motor
fuel tax is so one-sided that defendant is entitled to prevail as a matter of
law. [FN84]
Ordinarily, when state taxes are imposed on the sale of non-Indian products
to non-Indian consumers, the balance of the federal, state and tribal interests
tilt in favor of the state. [FN85] In Washington v. Confederated Tribes of
the Colville Indian Reservation, the Supreme Court held that while federal
policy seeks to foster tribal self-government and economic development, it does
not preclude state taxation of sales by Indians to nonmembers of the tribe.
[FN86] In so holding, the Court announced that tribes cannot assert an exemption
from state taxation by "imposing their own taxes or otherwise earning revenues
by participating in the reservation enterprises." [FN87] The Court reasoned
that "[i]f this assertion were accepted, the Tribes could impose a nominal tax
and open chains of discount stores at reservation borders, selling goods of
all descriptions at deep discounts ...." [FN88]
[15] The Tribe asserts that the rules set forth in Colville are inapplicable
in this case because unlike the customers who were drawn to the smokeshops to
avoid state cigarette tax in Colville, gas purchasers are drawn to the
Nation Station because of its close proximity to the casino, a tribally owned
and operated endeavor. The Ninth Circuit was presented with a similar argument
in Salt River Pima-Maricopa Indian Community v. Arizona. [FN89] In that
case, the tribe argued that the rules set forth in Colville only apply
in cases where a tribe attempts to create a "magnet" effect of drawing customers
on to the reservation by offering a lower sales tax rate than the state. The
court cast serious doubt on the tribe's attempt to read Colville so narrowly
and held that even if Colville is narrowly read, the state tax will be
allowed where the tribe is attempting to sell non- Indian products to non-Indians
and where the state tax precludes the tribe from creating the type of tax haven
the Colville court sought to prevent. According to the Salt River
court, the most important factors in determining that the state tax was not
preempted by federal law was that the goods and services sold were non-Indian,
the legal incidence of the tax falls on non- Indians and the state provided
most of the governmental services to those who bear the ultimate economic burden
of the state tax. [FN90] Likewise, in the case before the court, the legal incidence
of the tax falls on non-Indians, the Tribe is importing a non-Indian product
[FN91] and selling the product mostly to non-Indians and those who bear the
ultimate economic burden of the fuel tax, the consumers, are provided governmental
services by the state. [FN92]
*10 While the Tribe certainly has an interest in raising revenues, that
interest is at its weakest when goods are imported from off-reservation for
sale to non-Indians. [FN93] The State's interest in raising revenues is strongest
when, as here, non-Indians are taxed, and those taxes are used to provide the
taxpayer with government services. [FN94] Based on the foregoing analysis, it
is clear that the preemption balance unmistakably tips in favor of the State.
Thus, summary judgment shall be granted as to the Tribe's claim arising under
federal preemption.
2.
Tribal Self-Government
The Tribe also asserts that imposition of the state fuel tax infringes on the
Tribe's sovereign right to impose tribal fuel taxes, infringes upon the Tribe's
sovereign right to finance and provide essential government services, infringes
upon the Tribe's sovereign right to self-government and self-determination,
and infringes upon the Tribe's right to conduct business and to economically
develop its reservation. "The doctrine of tribal self-government, while constituting
an independent barrier to the assertion of state taxing authority over activities
taking place on tribal reservations, bears some resemblance to that of federal
preemption." [FN95] Application of this doctrine requires the Court to weigh
both state and tribal interests in raising revenue to provide taxpayers with
essential government services.
[16] The Tribe's interest in raising revenues to support essential tribal services
is 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. " [FN96] Revenues will not be considered derived from
"value generated on the reservation" if the value of the product marketed by
the tribe is merely an exemption from state tax. In other words, if the tribe
earns its profits simply by importing non-Indian products onto the reservation
for resale to non-Indians free from state taxation, the profits are not derived
from value generated on Indian lands. [FN97]
The Tribe asserts that the revenues derived from the fuel sold at the Nation
Station are a result of value generated on Indian lands because the casino,
operated in close proximity to the gas station, generates a flow of motor vehicle
traffic. The Tribe contends that the gasoline market exists because of the nearby
casino, not simply because patrons can purchase gas free from state motor fuel
tax. Assuming the Tribe can show that they are marketing a product, the value
of which is derived on reservation land, the Tribe cannot show that those who
ultimately take on the economic burden of the tax, the consumers, are the recipients
of tribal services as opposed to state services. [FN98]
The
Tribe proposes that the ultimate economic burden of the tax does not fall on the
consumers but rather it falls on the Tribe. The Tribe bases this assertion on
the presumption that the tax will destroy the Nation Station's business by
burdening the Nation Station with double taxation and interfering with the
Tribe's right to impose tribal taxes and to finance its government. The Court
cannot agree for several reasons.
*11 First, in Sac and Fox, the Tenth Circuit held that even though
the legal incidence of the Kansas motor fuel tax falls on the fuel distributors,
the ultimate, albeit indirect, economic burden of the Kansas motor fuel tax
falls on the consumer. [FN99] Thus, according to the Tenth Circuit, if the Tribe
can show that the ultimate economic burden falls on tribal members as the consumers
of the fuel, the tax improperly interferes with internal tribal affairs. [FN100]
Such a showing would require the Tribe to produce evidence that a substantial
portion of the Tribe's retail fuel sales are to tribal members. The Tribe cannot
make the required showing as their own evidence indicates that only a small
percentage of the retail fuel sales are made to tribe members. The Tribe presents
evidence indicating that seventy-three percent of the fuel sold at the Nation
Station is sold to casino patrons and only eleven percent of the fuel sales
are made to persons who live or work on the reservation. Although the Tribe
certainly provides substantial services to those persons who live and work on
the reservation, that group of persons constitutes only a small portion of the
consumers who purchase fuel at the Nation Station. The majority of the fuel
consumers are not members of the Tribe and are thus recipients of state services.
[FN101]
[17] Second, the Tribe's contention that the state fuel tax and the tribe's
fuel tax cannot coexist because the result will be double taxation and an increase
in the product's cost must also be rejected. There is no question that the Tribe's
power to tax transactions occurring on trust lands "is a fundamental attribute
of sovereignty which the tribes retain unless divested of it by federal law
...." [FN102] But, a tribe cannot oust a state from any power to tax on-reservation
purchases by nonmembers of the tribe by simply imposing its own tax on the transactions
or by otherwise earning its revenues from the tribal business. [FN103] Further,
any negative economic impact on the Tribe by the imposition of the state fuel
tax is not necessarily sufficient to invalidate the tax. [FN104] Indeed, the
state may sometimes impose a "non-discriminatory tax on non-Indian consumers
of Indian retailers doing business on the reservation ... even if it seriously
disadvantages or eliminates the Indian retailer's business with non-Indians."
[FN105]
Finally,
the Tribe has failed to show that the state motor fuel tax substantially affects
its ability to offer governmental services or in any way affects the Tribe's
right to self-government. The Supreme Court has held that merely because the
result of imposing the fuel tax will deprive the Tribes of the revenues which
they are currently receiving, does not infringe on the right of reservation
Indians to "make their own law and be ruled by them."
[18] The Tribe's interests in raising revenues simply cannot outweigh the State's
legitimate interest in raising revenues through its system of taxation. [FN106]
The State's interest in imposing such a tax is greatest when the "tax is directed
at off-reservation value and when the taxpayer is the recipient of state services".
[FN107] In this case, it is undisputed that the legal incidence of the tax is
directed off-reservation at the fuel distributors. [FN108] Further, it is also
undisputed that only a small part of the fuel sales are made to persons who
either live or work on the reservation who are the recipient of tribal services.
The majority of the fuel consumers are recipients of state services. Even if
the Court accepts the Tribe's proposition that the fuel sales are a result of
value generated on reservation land, the Tribe cannot show that a substantial
portion of the taxpayers are recipients of tribal services as opposed to state
services. For the above reasons, defendant's motion for summary judgment shall
be granted on the Tribe's claim regarding tribal rights to self-government.
E.
Kansas Act for Admission
*12
In addition to claims based on preemption and tribal rights to self- government,
the Tribe also asserts a claim under the Kansas Act for Admission ? 1. The
Kansas Act for Admission states that:
[n]othing contained in said [Kansas] constitution respecting the boundary of said state shall be construed to impair the rights of person or property now pertaining to the Indians of said territory, so long as such rights shall remain unextinguished by treaty between the United States and such Indians, or to include any territory which, by treaty with such Indian tribe, is not, without the consent of such tribe, to be included within the territorial limits or jurisdiction of any state or territory ....
Based on this language, the Tribe argues that the state is prohibited from taking
action that impairs the Tribe's right to impose and collect its own tribal taxes,
impairs the Tribes right to finance its government through tribal taxation and
imposes on the Tribe's right to engage in sovereign functions of self-government.
The Tribe asserts that unlike causes of action based on federal preemption,
there is no need to balance the state, federal and tribal interests for claims
arising from the Kansas Act for Admission.
[19] The Court finds that even if the Kansas Act for Admission can be read to
preserve the Tribe's sovereign right to impose tribal taxes on reservation and
to engage in commercial business on its reservation as proposed by the Tribe,
the Court's foregoing analysis regarding tribal rights to self- government is
still applicable. As mentioned above, while the Tribe has every right to impose
tribal fuel taxes, by doing so it does not oust the State from imposing state
tax on sales made to non-Indians. Further, even if the state tax imposes on
the Tribe's ability to carry-on a commercial business by increasing the cost
of the product, a state tax on non-Indians "may be valid even if it seriously
disadvantages or eliminates the Indian retailer's business with non- Indians."
[FN109] "[T]he tribes have no vested right to a certain volume of sales to non-Indians,
or indeed to any such sales at all." [FN110] For these reasons defendant is
entitled to judgment as a matter of law and summary judgment is granted on the
Tribe's claim asserted under the Kansas Act for Admission.
IV. CONCLUSION
In
finding that the Court has jurisdiction over this matter, the Court rejects
defendant's claim to immunity based on the Eleventh Amendment and rejects
defendant's claim that the Tribe lacks standing to bring this suit.
Additionally, the Court finds, contrary to defendant's arguments, that the
Hayden-Cartwright Act does not provide for an explicit grant of Congressional
authority for state taxation of motor fuel delivered to Indian reservations.
Finally, because no material issue of fact remains regarding the Tribe's claims
arising under federal preemption, tribal right to self-government or Kansas Act
for Admission and because defendant is entitled to judgment as a matter of law,
defendant's motion for summary judgment is granted.
*13
IT IS THEREFORE BY THE COURT ORDERED that
State's Motion for Summary Judgment (Doc. 59) is GRANTED.
IT
IS SO ORDERED.