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U.S. Supreme Court weighs tribal-state tax case

The U.S. Supreme Court attempted to make sense of a tribal-state tax dispute on Monday but no clear answers emerged as the justices reconvened for their latest session.

New Chief Justice John G. Roberts Jr. presided over an hour of oral arguments for Wagnon v. Prairie Band Potawatomi Nation, No. 04-631. He asked several questions that indicated his familiarity with the tribal and state sovereignty questions at the center of the case.

But Roberts, like a number of the other justices, appeared ready to ignore the tribal aspects of the debate in favor of a more straightforward analysis. An overwhelming majority of their questions were focused on the "legal incidence" of a tax imposed by state of Kansas on gasoline distributors.

This analysis, if it prevails in the court's thinking, would seem to favor the state's view that tribal sovereignty isn't an issue at all. "This involves an entirely off-reservation tax on non-Indians," former U.S. Solicitor General Ted Olson, who represented Kansas, told the court.

At the same time, Roberts and some of his colleagues expressed concerns that the tax, despite the way it is written in state law, is indeed imposed on the Prairie Band Potawatomi Nation. The tribe operates a gasoline station on its reservation, purchases fuel from a non-Indian distributor and collects its own tax whose proceeds are used to maintain reservation roads.

"The reservation roads are in abysmal shape," attorney Ian Heath Gershengorn said, referring to federal statistics on the condition of Indian Country roadways. He added that the tribe "has a sovereign right and interest in imposing a tax" on the sale of gasoline at the station.

Edwin Kneedler, the deputy solicitor general at the Department of Justice who worked under Olson, also said the case raises issues "at the core of tribal sovereignty." Since the distribution tax is incurred only when the tribe buys the gas -- a transaction that occurs within reservation boundaries -- "the tax is clearly pre-empted," he argued.

The 10th Circuit Court of Appeals, in a unanimous decision in August 2004, ruled that tribal and federal interests in promoting self-government, self-sufficiency and providing services like maintaining roads outweighed the state's interest in imposing the tax.

But if the state can prove that the legal incidence of the tax falls outside the reservation, the ruling could be overturned.

Olson argued that the Kansas Legislature was "clear" in stating who is responsible for the tax. He said the law was written to ensure the tax remained viable under the Supreme Court's decision in Chickasaw Nation v. Oklahoma Tax Commission, which held that state taxes imposed on tribes are illegal because they infringe on sovereignty.

But Roberts questioned whether "some bright lawyer in Kansas" wrote the law to mask its true intent of taxing the tribe. If that is the case, he told Olson, "it suggests we shouldn't give too much weight to that.

Justice Stephen G. Breyer wondered why Kansas provides an exemption to the distribution tax for sales to other states and to the federal government. He suggested it might discriminatory for the state to exclude tribes from this policy.

The tribe, he argued, can say "We too are a foreign and independent state. Why don't you treat us that way?"

Justice Ruth Bader Ginsburg said she was "puzzled" by the matter. She said both the tribe and the state have the authority to imposed taxes "but the two can't co-exist because the consumer won't pay the price."

In this case, that suggests the state tax is illegal, she said. "I thought it was clear," she said, "that the tribe couldn't put its tax on top of the state tax."

The retiring Justice Sandra Day O'Connor, who normally asks many questions in Indian law cases, was relatively quiet yesterday. She suggested that the court ignore the tribal issues and rule that the tax falls outside the reservation. "That's the end of it," she said.

Justice Antonin Scalia, who has questioned tribal sovereignty in the past, also asked relatively few questions during the hearing. His only concern seemed to be whether the tribe was taxing itself at the gasoline station. "I've never heard of that happening," he said.

Justice Anthony M. Kennedy wondered why the tribe is imposing taxes at all. But Gershengorn, and the other justices, noted that the Supreme Court has made clear that tribes can't market a tax exemption and avoid collecting state taxes.

The case was the second one heard yesterday, the first day of the court's October 2005-2006 term. The oral argument session was preceded by an investiture, or swearing-in, of Roberts as the 109th Supreme Court justice and as the 17th chief justice of the United States.

The court typically gives no indication of when it might issue a ruling. A decision could come as early as November or December or possibly in early 2006.

Supreme Court Documents:
Day Call | Docket Sheet | Questions Presented

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

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

Relevant Links:
Prairie Band Potawatomi Nation -
NARF-NCAI Tribal Supreme Court Project -
Multistate Tax Commission -