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U.S. Supreme Court asked to rule on state taxation
Thursday, December 2, 2004

Taxation issues are once again before the U.S. Supreme Court this session as two states seek to impose gasoline taxes on tribes.

Despite losing big in the lower courts, officials in Idaho and Kansas are pressing their cases. Last month, both states filed petitions seeking to overturn decision favorable to tribal interests.

In Idaho, state Republicans have engaged in a multi-year fight against tribes. In the mid-1990s, GOP lawmakers changed state law to impose a 25-cent per gallon tax on fuel sold on the reservation.

Over in Kansas, state officials have seized tribal property, sought the arrest of tribal leaders and asked for millions in gasoline taxes from tribes. They say the state has an interest in business that occurs in Indian Country.

But in both states, tribes scored big victories in the courts. The Idaho Supreme Court struck down the fuel tax in 2001 and so did the 9th Circuit Court of Appeals this year after lawmakers sought to impose the tax retroactively in light of the state court decision.

The 10th Circuit Court of Appeals barred the state of Kansas from imposing taxes on the Prairie Band Potawatomi Nation's gas station. In another dispute not currently at issue, the same court barred the state from collecting $1.25 million in alleged gas taxes owed by a Nebraska tribe that does business in Kansas.

The two cases represent a clash between tribal and state interests and whether the federal government can protect tribal rights. In general, states cannot interfere with tribal sovereignty unless authorized by Congress.

In the 9th Circuit case, Idaho claims the Hayden-Cartwright Act of 1936 allows states to impose taxes on tribes. But the court ruled that language in the law referring to "military and other reservations" does not include Indian reservations.

"We are mindful of the federal government’s trust relationship with the Indian Nations, which generally is inconsistent with permitting state taxation of those sovereign Indian Nations where Congress has not so directed," the court wrote in a unanimous August 19 opinion.

In the 10th Circuit case, the state argues that its interests in generating revenue are far stronger than the tribe's right to self-government and the federal government's duty to protect that right. The state says the tribe has to collect and remit a fuel distributor tax.

But on August 11, the court said "strong federal and tribal interests" pre-empted the state tax. The tribe imposes its own tax on Indian and non-Indian customers who come to the reservation to gamble at the tribe's casino, thus adding "value" to the service.

"The nation's interests are particularly strong," the court observed. "Tribes have a recognized 'interest in raising revenues for essential governmental programs, [and] that interest 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."

The Idaho case involves the Coeur d'Alene Tribe, the Nez Perce Tribe and the Shoshone-Bannock Nation. The tribes operate gas stations that provide a significant source of revenue that is threatened by state taxation. Before the tax was struck down, the Shoshone-Bannocks says they gave $22 million to the state.

The Kansas case only involves Prairie Band Potawatomi Nation but other tribes in the state -- Kickapoo Tribe, the Sac and Fox Tribe and the Iowa Tribe -- stand to be affected. The Sac and Fox Tribe's gas station was the subject of another court case the state previously won.

The Idaho tribes have until December 23 to submit a response to Idaho's petition. The Prairie Band Potawatomi Nation waived a response but the Supreme Court last week asked the tribe to submit one by December 27.

In January 2005, the court will hear a tax-related dispute involving the Oneida Nation of New York and the town of Sherrill. The town tried to impose property taxes on land the tribe purchased within its treaty area. The court must decide whether this land is considered Indian Country.

Earlier this year, the state of South Dakota asked the court to rule on a gasoline tax imposed on reservations since the 1930s. The state also cited the Hayden-Cartwright Act of 1936 but court refused to hear the case, allowing tribal members to claim refunds.

Court Decisions:
Coeur d'Alene Tribe v. Hammond (9th Circuit August 2004) | Prairie Band Potawatomi Nation v. Richards (10th Circuit August 2004)

Relevant Links:
Coeur d'Alene Tribe - http://www.cdatribe.com
Nez Perce Tribe - http://www.nezperce.org
Shoshone-Bannock Nation - http://www.sho-ban.com
Prairie Band Potawatomi Nation - http://www.pbpindiantribe.com
Multistate Tax Commission - http://www.mtc.gov