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MAY 30, 2001

Overturning an appeals court decision, the Supreme Court on Tuesday struck down a tax that has brought in $1.2 million in annual revenues to the Navajo Nation.

In a unanimous decision, the Court ruled that the tribe's hotel occupancy tax (HOT) is an unlawful exercise of its sovereignty over non-tribal members. The tribe cannot force non-Indian businesses located on non-Indian land to collect the tax from customers, said the Court.

"Indian tribes are unique aggregations possessing attributes of sovereignty over both their members and their territory, but their dependent status generally precludes extension of tribal civil authority beyond these limits," wrote Chief Justice William Rehnquist.

"The Navajo Nation's imposition of a tax upon non-members on non-Indian fee land within the reservation is, therefore, presumptively invalid."

The Court's ruling brings an end to a eight-year debate over the legality of the tax. First instituted in 1992, the 5 percent tax was raised to 8 percent in 1994.

The New Mexico-based Atkinson Trading Co., which owns several businesses located within the borders of the three-state Navajo Nation, protested the tax as early as 1993. The company argued its Cameron Trading Post hotel in Cameron, Arizona -- which is billed as a way for visitors to experience Indian culture -- could possibly collect the tax from Indian customers, but not from non-Indians.

The Navajo Nation court system and a federal court, however, sided with the tribe. In May 2000, the 10th Circuit Court of Appeals upheld the tax as a valid exercise of sovereignty over non-Indians.

But the Court yesterday said that ruling was incorrect. In overturning the decision, the Court said the tribe failed to satisfy either one of two criteria that are required to establish authority over the actions of non-Indians on non-Indian land.

First, the tribe failed to show the hotel or its guests entered into a consensual relationship to allow the tax. Even if the tribe provides police, fire, and other services to hotel guests, the Court said no relationship exists.

Next, the tribe failed to show the hotel's operation directly affected its political integrity, economic security, or health and welfare. The hotel employs tribal members and happens to be surrounded by Indian land, but doesn't affect the tribe directly, reasoned the Court.

One of the lawyers who has represented Atkinson welcomed yesterday's ruling. "We think that the Court struck the appropriate balance between the rights of private landowners and the sovereignty of the tribe," said Charles Cole of the Washington, DC-based Steptoe & Johnson.

The tax imposed on the Cameron Trading Post brought in about $84,000 yearly for the Navajo Nation. A lawyer for Atkinson said the tribe should reimburse his clients the amount they've paid so far.

A spokesperson for Navajo Nation President Kelsey Begaye referred all comments to the tribe's Department of Justice, who were unavailable yesterday.

The Court's ruling is expected to have an effect on tribes throughout Indian Country. A federal judge in Montana struck down the Crow Tribe's 4 percent hotel resort tax last August.

The 9th Circuit last year also struck down the Crow Tribe's tax on utility companies. The Crow Tribe declined to appeal the case to the Supreme Court.

Get the Decision Atkinson v. Shirley:
Summary | Opinion | Concurrence

In Depth:
Atkinson v. Shirley: Legal briefs, oral arguments, and more (3/27)

Relevant Links:
The Supreme Court - http://www.supremecourtus.gov
The Navajo Nation - http://www.navajo.org
Cameron Trading Post - http://camerontradingpost.com

Related Stories:
Supreme Court to take on taxation (11/28)
Crow fate may rest in decision (11/28)