Facebook Twitter Email
SEPTEMBER 12, 2000

The Ninth Circuit Court of Appeals on Monday ruled that the Agua Caliente Band of Cahuilla Indians of California can challenge the state of California over the collection of taxes on its reservation.

A lower court had dismissed the tribe's lawsuit against California's taxation board, due to the Eleventh Amendment of the US Constitution. The Amendment bars lawsuits against states without their consent.

But the Ninth Circuit said the tribe has a right to challenge the state, since the issue at stake is taxation. Citing a long list of cases, the court said that "the federal tradition of Indian immunity from state taxation is very strong and . . . state interest in taxation is correspondingly weak."

The tribe's lawsuit stems from a tax bill they received in 1998. The state said the tribe owed approximately $354,040, not including interest from the years 1992 to 1997, for the sale of food and beverages to non-tribal members at its casino and hotel in Palm Springs, California.

Although courts in some cases have allowed states to collect taxes on the sale of goods and services to non-Indians, the Ninth Circuit on Monday said the Cahuilla should be able to defend its right not to pay they bill.

And while the tribe doesn't dispute the amount of the bill, they believe they add a "reservation-based value" to the goods and services offered at their resort and that the state doesn't have a right to collect the tax. The tribe's defense is similar to one raised in the California v. Cabazon case of 1991.

Then, the Supreme Court reasoned, among other issues, that the Cabazon Mission Band of Indians added value to services offered at its gaming facility. As such, the state didn't have enough reason to attempt to regulate the tribe's activities.

Like the Cahuilla, tribes around the country frequently deal with taxation disputes with states. Last month, a court in New York ruled that the state cannot be forced to collect taxes on the sale of cigarettes and gas to non-Indians.

Many tribes also breathed a sigh of relief in July when a bill that would punish them for not collecting state sales tax was killed in a House Committee. The bill would have allowed the Department of Interior to take away trust land from tribes who didn't pay their tax bills.

The California Department of Alcoholic Beverage Control had also threatened the Cahuilla with a punishment of its own. But they agreed to hold off on a decision to revoke the tribe's liquor license until the lawsuit can be decided.

The case is now scheduled to the United States District Court for the Central District of California for a hearing on the Cahuilla's "reservation-based value" defense.

Get the Decision:
Agua Caliente v. Klehs (Ninth Circuit Court of Appeals. No. 9955251. September 2000)

Relevant Links:
The California State Board of Equalization - www.boe.ca.gov
The Ninth Circuit Court of Appeals - www.ca9.uscourts.gov
United States District Court for the Central District of California - www.cacd.uscourts.gov

Related Stories:
Tax bill killed (Money Matters 07/20)