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Flandreau Santee Sioux Tribe v. Noem

United States Court of Appeals, Eighth Circuit

September 6, 2019

Flandreau Santee Sioux Tribe, a federally-recognized Indian Tribe Plaintiff - Appellee
v.
Kristi Noem, Governor of the State of South Dakota, et al.[*] Defendants - Appellants

          Submitted: February 13, 2019

          Appeal from United States District Court for the District of South Dakota - Sioux Falls

          Before LOKEN, COLLOTON, and KELLY, Circuit Judges.

          LOKEN, CIRCUIT JUDGE.

         The Flandreau Santee Sioux Tribe is a federally recognized tribe that owns and operates the Royal River Casino & Hotel (the "Casino") and the First American Mart (the "Store") on the Flandreau Indian Reservation in Moody County, South Dakota. The majority of patrons at the Casino and the Store are not members of the Tribe. The State of South Dakota (the "State") imposes a use tax on goods and services purchased within the State. See S.D.C.L. 10-46-2. When the Tribe failed to remit the use tax on goods and services sold to nonmembers at the Casino and at the Store, the State's Department of Revenue denied the Tribe renewals of alcoholic beverage licenses issued to the Casino and the Store.[1] The South Dakota Office of Hearing Examiners upheld the Department's decision.

         The Tribe filed this action in the district court in November 2014, alleging, inter alia, (i) that imposing the use tax on purchases by nonmembers on reservation land is preempted by the Indian Gaming Regulatory Act ("IGRA") because all activity under the Royal River Casino name is "gaming activity"; (ii) that the use tax remittance requirement infringes inherent tribal sovereignty and violates federal common law; and (iii) that conditioning renewal of the Tribe's alcohol licenses on use tax remittance violates 18 U.S.C. § 1161. The parties stipulated that the State would treat the alcohol licenses as valid pending a decision on the merits.

         Ruling on cross-motions for summary judgment, the district court held that IGRA expressly preempts imposing the use tax on nonmember purchases throughout the Casino, but does not preempt imposing the tax on nonmember purchases of goods and services at the Store. However, the court concluded, the State may not condition renewal of alcohol beverage licenses on the Tribe's remittance of use taxes imposed on nonmember purchases at the Store. The State appeals, arguing (i) federal law does not preempt imposition of its use tax on nonmember purchases at the Casino of goods and services the parties rather vaguely define as non-gaming "amenities, "[2] and (ii) the State may condition renewal of alcoholic beverage licenses on the Tribe's failure to remit validly imposed use taxes. Reviewing the grant of summary judgment de novo, and the facts in the light most favorable to the State, we disagree with the first contention but agree with the second. Accordingly, we affirm in part, reverse in part, and remand for determination of the appropriate remedy. See Casino Res. Corp. v. Harrah's Entm't, Inc., 243 F.3d 435, 437 (8th Cir. 2001) (standard of review).

         I. The State Tax Preemption Issue.

         A.

         Absent a federal statute permitting it, "a State is without power to tax reservation lands and reservation Indians." Okla. Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 458 (1995) (quotation omitted). If the legal incidence of a state tax falls on a Tribe or its members for sales made within Indian country, like the state motor fuels excise tax at issue in Chickasaw Nation, the tax is categorically unenforceable, without regard to its "economic realities." Id. at 458-60. In this case, however, it is undisputed that the legal incidence of South Dakota's use tax falls on nonmember purchasers of goods and services at the Casino and at the Store.[3] Thus, the per se rule against state taxation of reservation Indians does not apply.

         When a State seeks to impose a nondiscriminatory tax on the actions of nonmembers on tribal land, its authority is not categorically limited. Instead, the Supreme Court applies a flexible analysis to determine whether state taxation of nonmembers on Indian land is proper, often called the "Bracker balancing test," a reference to the Court's decision in White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980). Each case "requires a particularized examination of the relevant state, federal, and tribal interests." Ramah Navajo School Bd., Inc. v. Bureau of Revenue of N.M., 458 U.S. 832, 838 (1982). In most cases, because Indian tribes are dependent sovereigns, the issue turns on whether federal legislation has preempted state taxation of nonmember activity on Indian land, which is "primarily an exercise in examining congressional intent." Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 176 (1989). However, because of the long-recognized importance of tribal sovereignty, "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.'" Cotton, 490 U.S. at 176, quoting Bracker, 448 U.S. at 145. Instead, Indian tax immunity jurisprudence relies heavily on the "significant geographical component of tribal sovereignty," which "provides a backdrop against which the applicable treaties and federal statutes must be read." Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95, 112 (2005) (cleaned up). Federal preemption is not limited to cases in which Congress has expressly preempted the state tax. Cotton, 490 U.S. at 176-77. Generally, "a State seeking to impose a tax on a transaction between a tribe and nonmembers must point to more than its general interest in raising revenues." New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 336 (1983).

         Applying these principles, the Supreme Court has upheld some state taxes on nonmembers engaging in commercial activities on Indian lands, and held that other taxes were preempted. In Bracker, for example, the Court held that a State's use fuel tax on a nonmember's logging activity on tribal land was preempted by federal statutes and programs comprehensively encouraging and regulating logging on federal lands held in trust for Indians. In Ramah, the Court held that a State's gross receipts tax on a nonmember's activity in building a reservation school was preempted by the comprehensive federal regulation and financing of Indian education -- the tax was based on a general desire to increase state revenues and provided no specific offsetting benefit to Indian education. By contrast, in Cotton, the Court upheld a State's severance tax on oil and gas produced by nonmember lessees from wells on reservation land because state regulation provided substantial services to the tribe and the lessees, no economic burden fell on the tribe, federal regulation was extensive but not exclusive, and there was no evidence the tax affected the tribe's ability to attract lessees. And in Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1980), the Court upheld both the tribe's sovereign power to tax cigarette sales to nonmembers on the reservation, and a state excise tax on vendors who provided cigarettes for on-reservation sales to nonmembers. The value of Indian sales to nonmembers was not generated by tribal activities, the Court explained, only by the exemption of such sales from state tax; neither principles of federal Indian law nor any federal statute preempted the State from taxing this "artificial competitive advantage over all other businesses in a State." Id. at 155.

         B.

         In this case, the federal legislation most relevant to the use tax at issue is the Indian Gaming Regulatory Act, 25 U.S.C. §§ 2701 et seq. In California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987), the Supreme Court held that a California law limiting bingo could not be applied to high stakes tribal bingo and card games played predominantly by nonmembers at reservation facilities.[4] The facilities were financed and the gaming approved by the Secretary of the Interior to promote tribal economic development. The Court concluded that the federal and tribal interests in promoting Indian gaming outweighed the State's interest in preventing organized crime. 480 U.S. at 207-22. In response, States sought federal legislation permitting state regulation of tribal gaming. Congress passed IGRA the next year "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," and to establish an "independent Federal regulatory authority for gaming on Indian lands, [and] Federal standards for gaming on Indian lands." 25 U.S.C. § 2702(1), (3). IGRA sought to balance the competing federal, state, and tribal interests by giving each sovereign a role in the regulatory regime.

         IGRA divides gaming into three classes of increasing regulatory significance. Class I games -- social games and traditional forms of Indian gaming -- are left to the exclusive jurisdiction of the Indian tribes. See 25 U.S.C. §§ 2703(6), 2710 (a)(1). Tribes may engage in Class II games -- most forms of bingo and card games -- if they are authorized by and played in conformity with state law, subject to federal licensing and extensive regulation by the National Indian Gaming Commission. See 25 U.S.C. §§ 2703(7), 2710 (b)-(c). All other forms of gaming are Class III games, which include casino table games and slot machines, the forms primarily involved in this case. See § 2703(8). A tribe may conduct Class III gaming on Indian lands only pursuant to, and in compliance with, a federally approved compact that the tribe has negotiated with the surrounding State. See § 2710(d)(1)(C); Michigan v. Bay Mills Indian Cmty., 572 U.S. 782, 785 (2014).

         A State receiving a request to negotiate a tribal-state compact governing Class III gaming activity "shall negotiate with the Indian tribe in good faith to enter into such a compact." 25 U.S.C. § 2710(d)(3)(A). A tribal-state compact negotiated under subparagraph (A) "may include" provisions relating to six specific subjects, including two relating to State and tribal fees and taxation:

(iii) the assessment by the State of such [gaming] activities in such amounts as are necessary to defray the costs of regulating such activity;
(iv) taxation by the Indian tribe of such activity in amounts comparable to amounts assessed by the State for ...

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