National Congress of American Indians President Jefferson Keel addresses the organization's winter session in Washington, D.C., on February 13, 2018. Photo by Indianz.Com (CC BY-NC-SA 4.0)

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Tribes weigh in on taxation case ahead of Supreme Court arguments

Monday, March 5, 2018

An upcoming U.S. Supreme Court case affecting online taxation could hinder economic growth in Indian Country, according to the nation's largest inter-tribal organization.

In South Dakota v. Wayfair, Inc., the Supreme Court will decide whether an online retailer must pay sales taxes to the state of South Dakota. The case is being closed watched across the country because the outcome affects a centerpiece of the American economy -- according to the Department of Commerce, consumers spent more than $453 billion on the internet in 2017, representing nine percent of all retail sales.

Ahead of oral arguments on April 17, the National Congress of American Indians wants the Supreme Court to know that tribes and their citizens will be impacted too. Although the organization isn't taking sides in the dispute, President Jefferson Keel said the justices must take into account tribal sovereignty before they issue a decision.

“The Commerce Clause recognizes tribes as sovereign governments with the authority to collect taxes and to be immune from certain taxes,” Keel said in a press release on Monday.

“We are urging the Supreme Court to protect these fundamental principles as it considers whether to expand state authority to collect online sales taxes," Keel continued. "Tribal governments operate and fund courts of law, police, road systems and schools, and have a great need for tax revenue to fund governmental services.”

Under the 1992 decision in Quill v. North Dakota., the Supreme Court limited the ability of states to collect taxes from online sales. A retailer must have a physical presence in a state in order to be taxed by the state, according to the ruling.

Decades later, South Dakota is presenting a simple yet stark argument to the nation's highest court. "Times have changed," the state's opening brief reads

"Internet retail now makes it possible to do billions in business in a forum without having a strictly 'physical' presence there, while also interacting far more pervasively— and being much more 'present'—than catalog mailers ever were," the brief states.

If states win the right to tax internet transactions, tribes fear they will be unable to do the same. The concern is grounded in reality -- some states and counties impose taxes on everything from retail sales to energy development in Indian Country but few of the dollars -- if any at all -- make it to reservations, where infrastructure and service needs are great.

"I'm sure there's people on your reservations who buy things online, they buy things in mail order," John Dossett, NCAI's general counsel, told tribal leaders during the organization's winter session in Washington, D.C., last month. "Does the state get to collect those taxes or does the tribe get to say who collects the taxes?"

A slide presented during the annual convention of National Congress of American Indians in October 2017 explains the background of the Indian Trader Regulations, which govern economic activity on reservations. Photo by Indianz.Com (CC BY-NC-SA 4.0)

In some places, the dollar figures from the dual system of taxation are staggering. In North Dakota, for example, the state has taken more than $1.2 billion from energy development on the homelands of the Mandan, Hidatsa and Arikara Nation since 1992.

The tribe, in comparison, has seen less than $1 billion during that same time, according to figures from the state's tax department.

"The state of North Dakota is draining our taxes," Randy Phelan, the tribe's vice chairman, said during NCAI's annual convention last October.

Such systems of dual taxation are "unfair" to tribes., NCAI writes in its Wayfair brief.

"This problem of double taxation could be exacerbated if the court issues an opinion in this case that lacks the limiting language [tribes] seek and thus could be misinterpreted as expanding states’ authority to impose sales taxes in Indian Country," the filing reads.

Tribes thought they were going to get a leg up in the dual taxation battle, which has raged in and out of the courts for decades, with an update to the so-called Indian Trader Regulations. But many believe the Trump administration has basically killed the effort -- since Deputy Secretary David Bernhardt, the second-in-command arrived at the Department of the Interior last August, there's been no movement to finalize the rule.