A California tribe can't market an "exemption" to the state's sales tax, a federal appeals court ruled on Wednesday.
In a unanimous opinion, the 9th Circuit Court of Appeals
said the Barona Band of Mission Indians
can't protect non-Indian contractors from state taxation. The tribe hired a construction firm to provide services on the reservation but the decision noted the context of the arrangement -- an expansion of the Barona Valley Ranch Resort & Casino
"It is true that tribes have an interest in their economic self-sufficiency," Judge Kim McLane Wardlaw
, Clinton nominee, wrote for the majority. "However, this concern carries minimal weight in the context of a $75 million casino expansion," the court said.
The court said the tribe "invited" commercial activity to the reservation that would otherwise take place off the reservation. So it is non-Indian businesses -- not the tribe -- whose rights are at stake, Wardlaw wrote in the 15-page ruling.
"In these circumstances, we find the state interest in the application of its general sales tax to be greater than the combined federal and tribal interests," the court said.
The dispute centered over a $200,000 tax payment that the state sought from a subcontractor who performed nearly $4 million of electrical work on the casino expansion. The subcontractor passed the bill on to the tribe, whose leaders sued the California State Board of Equalization
to challenge the sales tax.
Judge Dana M. Sabraw ruled for the tribe. Though she determined that the legal incidence of the tax falls on off-reservation businesses, she said a U.S. Supreme Court
test that weighs tribal, federal and state interests tipped the case in the tribe's favor.
On appeal, the 9th Circuit agreed about the legal incidence, rejecting the tribe's argument that it bore the burden of the tax as the "buyer" of services and materials. The tribe also said all transactions took place on the reservation.
But the 9th Circuit disagreed with the Sabraw's analysis regarding the Supreme Court's test in White Mountain Apache Tribe v. Bracker
. The 1980 case seeks to resolve "difficult questions ... where, as here, a state asserts authority over the conduct of non-Indians engaging in activity on the reservation."
The 9th Circuit acknowledged that the tribe's sovereignty is affected by the tax. But the court said the tribe's "right of territorial autonomy is significantly compromised by the tribe's invitation to the non-Indian subcontractor to theoretically consummate purchases on its tribal land for the sole purpose of receiving preferential tax treatment."
The court also said federal interests were weak. Though the Indian Gaming Regulatory Act
prohibits state taxation of tribal gaming revenues, "California's tax is not on Indian gaming activity or profits," the decision stated.
The case isn't the first time Indian gaming has been used to weaken a California tribe's sovereign rights. The D.C. Circuit Court of Appeals
ruled that the San Manuel Band of Mission Indians
is subject to federal labor laws because the tribe markets its casino to non-Indians and employs a significant number of non-Indians.
9th Circuit Decision:
Barona Band of Mission Indians v. Yee
(June 18, 2008)