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Supreme Court takes on tribal-state tax dispute
Tuesday, March 1, 2005

The U.S. Supreme Court accepted its first Indian taxation case in nearly five years on Monday, agreeing to determine whether the state of Kansas can impose a gasoline tax on fuel sold on reservations.

Without comment, the justices accepted a case from the 10th Circuit Court of Appeals. In a unanimous decision last August, the court invalidated the state's gasoline distribution tax as an infringement on tribal sovereignty.

Backed by a coalition of 13 other states, officials in Kansas asked the high court to review the ruling. The states claim they are losing valuable revenue when fuel is sold on reservations within their borders.

But the Prairie Band Potawatomi Nation says tribal governments are being treating unfairly. Zach Pahmahmie, the chairman of the tribe, said Kansas is trying to erect a "Berlin Wall" around reservations by interfering with their economies.

"There are strong tribal and federal interests that outweigh the state interests, and the state is in any event discriminating against Indian commerce," he said yesterday.

Indian commerce was the centerpiece of the tribe's argument before the 10th Circuit. By operating a gas station whose revenues fund essential government functions, the court said the tribe added "value" to its services, noting that customers were coming to the reservation to visit the casino.

"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,'" Judge Monroe G. McKay wrote for the majority, quoting a Supreme Court precedent.

The economic angle has tribes throughout the country interested in the case, said Richard Guest, a Native American Rights Fund attorney. He said tribes nationwide are planning "comprehensive" business strategies "in order to capture all of the benefits of their development on reservation -- including barring any state taxation."

"I think it will have broader implications because what is before the court is what will be the appropriate test under these circumstances," he said of the case.

In its briefs, the state of Kansas asked the high court to clarify which test is used to determine whether state taxation is appropriate when it affects tribes. In the Prairie Band case, the 10th Circuit applied the White Mountain Apache standard -- laid out in a 1980 Supreme Court decision -- that balances tribal, state and federal interests affecting activities that occur on the reservation.

The state argues that the Mescalero Apache test -- named after a 1983 case -- should be applied instead. The standard favors state interests when states make laws affecting activities off-reservation.

The issue is critical because the tax at issue is actually imposed on non-Indian fuel distributors. Kansas law allows the distributors to pass on the tax to tribes so the state says it is not imposing its will on sovereign governments.

"Off-reservation, states have a lot more authority to act than they do on-reservation," observed Guest.

Through their joint Tribal Supreme Court Project, NARF and the National Congress of American Indians will probably file an amicus brief, Guest said. Other tribal coalitions are likely to submit briefs to inform the court of the potential impact on tribes and tribal-state compacts involving taxation.

The strategy is meant to prevent negative rulings like the ones that came out of the court during the 2000-2001 term. During that session, tribes lost four out of five cases, including one involving tribal taxation, the last time the issue was considered by the court.

"Anytime the Supreme Court takes one of these tribal cases, it's a great concern," John Echohawk, the executive director of NARF, said in an interview yesterday.

Pahmahmie yesterday referred to the previous taxation case, Atkinson Trading Company v. Shirley, and said it limited the right of tribes to tax non-Indian businesses located within reservation boundaries. "The tribal interest in taxing its own tribal businesses is all the more critical," he said. The tribe's gas station imposes its own tax on Indian and non-Indian consumers.

The court's acceptance of the case is somewhat of a turnaround for Kansas, which has lost a series of rulings pitting its interests against tribes. In one case, the Prairie Band Potawatomi Nation won the right to offer car tags to tribal members over state objections.

In another case, the 10th Circuit blocked the state from trying to collect $1.25 million in taxes allegedly owed by the Ho-Chunk Inc., the economic development corporation of the Winnebago Tribe of Nebraska. Ho-Chunk delivers gas to tribes in Kansas and says it isn't subject to the fuel distribution tax.

Ho-Chunk Inc. owns Indianz.Com and its sister e-commerce site AllNative.Com.

Court Decision:
Prairie Band Potawatomi Nation v. Richards (10th Circuit August 2004)

Court Briefs:
Richard v. Prairie Band Potawatomi Nation (NCAI-NARF Supreme Court Project)

Related Decision:
Coeur d'Alene Tribe v. Hammond (9th Circuit August 2004)

Relevant Links:
Prairie Band Potawatomi Nation - http://www.pbpindiantribe.com
Multistate Tax Commission - http://www.mtc.gov