Confederated Tribes of the Chehalis Reservation v. Thurston County Board of Equalization

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CONFEDERATED TRIBES OF THE No. 10-35642

CHEHALIS RESERVATION, a federally

recognized Indian tribe on its own D.C. No.

behalf and as parens patriae for its 3:08-cv-05562-

members; CTGW, LLC, a limited BHS

liability company organized under

Delaware law,

Plaintiffs-Appellants, OPINION

v.

THURSTON COUNTY BOARD OF

EQUALIZATION, a political

subdivision of the State of

Washington; JOHN MORRISON,

Thurston County Board of

Equalization member, in his official

capacity; BRUCE REEVES, Thurston

County Board of Equalization

member, in his official capacity;

THURSTON COUNTY, a political

subdivision of the State of

Washington; STEVEN DREW,

Thurston County Assessor, in his

official capacity; SHAWN MYERS,

Thurston County Treasurer;

ELIZABETH LYMAN, Thurston

County Board of Equalization

member,

Defendants-Appellees.

2 CHEHALIS TRIBES V. THURSTON CNTY.

Appeal from the United States District Court

for the Western District of Washington

Benjamin H. Settle, District Judge, Presiding

Argued and Submitted

June 5, 2013—Seattle, Washington

Filed July 30, 2013

Before: Arthur L. Alarcón, M. Margaret McKeown,

and Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Ikuta

SUMMARY*

Indian Tribes / Taxation

Reversing the district court’s summary judgment, the

panel held that state and local governments lack the power to

tax permanent improvements built on non-reservation land

owned by the United States and held in trust for an Indian

tribe pursuant to 25 U.S.C. § 465.

The panel held that pursuant to Mescalero Apache Tribe

v. Jones, 411 U.S. 145 (1973), the exemption of trust lands

from state and local taxation under § 465 extends to

permanent improvements on such lands. The panel

concluded that the fact that the improvements were owned by

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

CHEHALIS TRIBES V. THURSTON CNTY. 3

a limited liability company, rather than by the tribe itself, was

irrelevant, as was the question whether the improvements

constituted personal property under state law.

COUNSEL

Gabriel S. Galanda and Anthony S. Broadman, Galanda

Broadman, PLLC, Seattle, Washington; Kevin M. Fong

(argued) and Blaine I. Green, Pillsbury Winthrop Shaw

Pittman, LLP, San Francisco, California, for Plaintiffs-

Appellants.

Jon Tunheim, Prosecuting Attorney, Jane Futterman and

Scott C. Cushing (argued), Deputy Prosecuting Attorneys,

Olympia Washington, for Defendants-Appellees.

Rob Roy Smith, Ater Wynne LLP, Seattle, Washington, for

Amicus Curiae Marine View Ventures, Inc., Island

Enterprises, Inc., and Port Madison Enterprises.

OPINION

IKUTA, Circuit Judge:

At issue in this case is whether state and local

governments have the power to tax permanent improvements

built on non-reservation land owned by the United States and

held in trust for an Indian tribe. Pursuant to 25 U.S.C. § 465,

and Mescalero Apache Tribe v. Jones, 411 U.S. 145 (1973),

we hold that they do not.

4 CHEHALIS TRIBES V. THURSTON CNTY.

I

The Confederated Tribes of the Chehalis Reservation is

a federally recognized Indian tribe in Southwest Washington.1

In 2002, the Tribe purchased approximately forty-three acres

of land known as the “Grand Mound Property,” which was

located off the Tribe’s reservation in Thurston County,

Washington. Two years later, the Tribe asked the

Department of the Interior to buy the Grand Mound Property

and hold it in trust for the use and benefit of the Tribe

pursuant to the Department’s authority under 25 U.S.C.

§ 465.2 Section 465 authorizes the Secretary of the Interior

to acquire “any interest in lands, water rights, or surface

rights to lands, within or without existing reservations,” and

to hold title to such lands and rights “in the name of the

United States in trust for the Indian tribe or individual Indian

for which the land is acquired.” The statute also provides that

“such lands or rights shall be exempt from State and local

taxation.” Id.3

1

The documents filed with this court inconsistently refer to the

Confederated Tribes of the Chehalis Reservation as both the “Tribe” and

the “Tribes.” We will use the singular form, as does the Tribe in its brief.

2

The parties indicated in passing that the Grand Mound Property was

converted to reservation land at some time after the facts at issue in this

appeal. Because the parties did not address the effect of this change, we

do not reach it here.

3

25 U.S.C. § 465 states, in pertinent part:

The Secretary of the Interior is authorized, in his

discretion, to acquire, through purchase,

relinquishment, gift, exchange, or assignment, any

interest in lands, water rights, or surface rights to lands,

within or without existing reservations, including trust

CHEHALIS TRIBES V. THURSTON CNTY. 5

In 2005, while the Tribe’s request was still pending before

the Department, the Tribe and Great Wolf Resorts, Inc.

entered into an agreement to form CTGW, LLC, a Delaware

limited liability company, for the purpose of building a resort,

conference center, and water park (collectively, the Great

Wolf Lodge) on the Grand Mound Property. Under the

agreement, the Tribe owned an undivided 51 percent interest

in CTGW. In 2006, the Department agreed to purchase the

Grand Mound Property pursuant to § 465 and to hold the land

in trust for the Tribe.

The Tribe and CTGW subsequently entered into a lease

agreement that gave CTGW the right to use the Grand Mound

Property “for a hotel, indoor water park and convention

center and related economic development or for any other

lawful purpose” for twenty-five years. Article 11 of that

lease provides:

All buildings and improvements on the

Premises shall be owned in fee by [CTGW]

during the term of this Lease provided that

such buildings and improvements (excluding

or otherwise restricted allotments, whether the allottee

be living or deceased, for the purpose of providing land

for Indians.

....

Title to any lands or rights acquired pursuant to this Act

or the Act of July 28, 1955 (69 Stat. 392), as amended

(25 U.S.C. 608 et seq.) shall be taken in the name of the

United States in trust for the Indian tribe or individual

Indian for which the land is acquired, and such lands or

rights shall be exempt from State and local taxation.

6 CHEHALIS TRIBES V. THURSTON CNTY.

removable personal property and trade

fixtures) shall remain on the Premises after

the termination of this Lease and shall

thereupon become the property of the [Tribe].

In short, under Article 11, CTGW would own the Great Wolf

Lodge’s physical structures for twenty-five years, at which

time the Tribe would become the owner. The Bureau of

Indian Affairs approved the lease on July 9, 2007, and it

remained in effect at all times relevant to this suit. The

Lodge opened the following year.

In 2007, Thurston County began assessing property taxes

on the Great Wolf Lodge. The County recognized that § 465

exempted the Grand Mound Property from state and local

taxation. It concluded, however, that the structures on the

land were not tax exempt, because under the terms of the

lease they were owned by CTGW and not the Tribe.

The Tribe and CTGW believed that federal law barred the

County from imposing these property taxes, and brought suit

against the County and related defendants on September 18,

2008, seeking declaratory and injunctive relief.4 The district

court awarded summary judgment to the County, holding that

state and local governments are not necessarily prohibited

from taxing permanent improvements, like the Great Wolf

Lodge, that are owned by non-Indians. The Tribe and CTGW

4

For convenience, we refer to the defendants collectively as “the

County.”

CHEHALIS TRIBES V. THURSTON CNTY. 7

timely appealed,5 and we have jurisdiction pursuant to

28 U.S.C. § 1291.

II

On appeal, we review the summary judgment order de

novo, asking “whether, viewing the evidence in the light most

favorable to” the Tribe and CTGW, “there are any genuine

issues of material fact and whether the district court correctly

applied the relevant substantive law.” Ellins v. City of Sierra

Madre, 710 F.3d 1049, 1056 (9th Cir. 2013) (quoting Delia

v. City of Rialto, 621 F.3d 1069, 1074 (9th Cir. 2010)).

“[S]ummary judgment is appropriate where there ‘is no

genuine issue as to any material fact’ and the moving party is

‘entitled to a judgment as a matter of law.’” Alabama v.

North Carolina, 130 S. Ct. 2295, 2308 (2010) (quoting Fed.

R. Civ. P. 56(c)).

A

This appeal raises the purely legal question whether the

exemption of trust lands from state and local taxation under

§ 465 extends to permanent improvements on such lands.

The law relevant to this appeal traces back to United

States v. Rickert, 188 U.S. 432 (1903), a case that precedes

the enactment of § 465 by over thirty years. In Rickert, the

5

The County’s argument that the appeal was not timely is meritless.

The final judgment in this case issued on April 2, 2010. The Tribe and

CTGW filed a Rule 59(e) motion seeking reconsideration, which was

denied June 23, 2010. They appealed within thirty days of that denial,

making the appeal timely under Federal Rule of Appellate Procedure

4(a)(4)(A)(iv).

8 CHEHALIS TRIBES V. THURSTON CNTY.

federal government challenged the taxes imposed by Roberts

County, South Dakota on “certain permanent improvements”

on lands within the former Sisseton Indian Reservation. Id.

at 432–33. The United States had allotted the lands to

individual members of the Sisseton band of Sioux Indians,

but held the lands in trust for a period of twenty-five years or

longer. Id. at 435–36 (discussing Act of Feb. 8, 1887, ch.

119, § 5, 24 Stat. 388, 389 (1887) (codified as amended at

25 U.S.C. § 348 (2006))). Rickert first held that state and

local governments had no power to tax the land itself because

it was owned by the federal government. Id. at 437–39 (“If,

as is undoubtedly the case, these lands were held by the

United States . . . it would follow that there was no power in

the state of South Dakota, for state or municipal purposes, to

assess and tax the lands in question until at least the fee was

conveyed to the Indians.”). In reaching this conclusion, the

Court relied on the proposition that “property of the United

States was exempt by the Constitution of the United States

from taxation under the authority of any state.” Id. at 438

(citing Van Brocklin v. Tennessee, 117 U.S. 151, 155 (1886)).

The Court then turned to the related question whether “the

permanent improvements, such as houses and other structures

upon the lands held by allotment,” were subject to state and

local taxes as personal property. Id. at 441–42. The Court

held that the state and local governments had no power to tax

these improvements, concluding that “[e]very reason that can

be urged to show that the land was not subject to local

taxation applies to the assessment and taxation of the

permanent improvements.” Id. at 442.

Decades after Rickert, the Court again addressed the

question whether state and local governments had the power

to tax permanent improvements on non-reservation land

owned by the United States and held in trust for Indians. See

CHEHALIS TRIBES V. THURSTON CNTY. 9

Mescalero Apache Tribe v. Jones, 411 U.S. 145 (1973). In

that case, the Mescalero Apache Tribe operated a ski resort

on land located adjacent to reservation lands, but outside “the

existing boundaries of the reservation.” Id. at 146. Although

the record did not establish the precise form of the business

entity that was operating the ski resort, the Court quickly

dispensed with this issue, reasoning that “the question of tax

immunity cannot be made to turn on the particular form in

which the Tribe chooses to conduct its business” Id. at 157

n.13. The Mescalero Apache Tribe challenged two taxes

imposed on the ski resort by New Mexico: a tax on the ski

resort’s gross receipts, and a use tax “based on the purchase

price of materials used to construct two ski lifts at the resort.”

Id. at 147. The Tribe argued that federal law barred the state

from assessing either tax, because the Tribe’s interest in the

lands was “within the immunity afforded by § 465.” Id. at

155 n.11; see also id. at 146.

The Court rejected the Tribe’s argument with respect to

the gross receipts tax, holding that § 465 exempted “lands and

rights in land” from taxation, and “not income derived from

[the land’s] use.” Id. at 155. But the Court struck down the

use tax, reasoning that this form of tax was equivalent to a tax

on land, and therefore barred by § 465. In reaching this

conclusion, the Court first noted that the construction material

at issue had already been “installed in the construction of the

ski lifts,” and was therefore “permanently attached to the

realty.” Id. at 158. Relying on Rickert and § 465, the Court

reasoned that “these permanent improvements on the Tribe’s

tax-exempt land would certainly be immune from the State’s

ad valorem property tax.” Id. The Court then held that the

tax exemption in § 465 barred the tax New Mexico

characterized as a “use tax.” As the Court explained, “‘use’

is among the ‘bundle of privileges that make up property or

10 CHEHALIS TRIBES V. THURSTON CNTY.

ownership’ of property,” and therefore “a tax upon ‘use’ is a

tax upon the property itself.” Id. at 158 (quoting Henneford

v. Silas Mason Co., 300 U.S. 577, 582 (1937)). It followed

that the “use of permanent improvements upon land is so

intimately connected with use of the land itself that an

explicit provision relieving the latter of state tax burdens must

be construed to encompass an exemption for the former.” Id.

at 158 (citing Rickert, 188 U.S. at 441–43). On this basis, the

Court struck down the tax.

Accordingly, Mescalero makes it clear that where the

United States owns land covered by § 465, and holds it in

trust for the use of a tribe (regardless of “the particular form

in which the [t]ribe chooses to conduct its business”), § 465

exempts permanent improvements on that land from state and

local taxation.6

6

In connection with our analysis of Mescalero, the Tribe asks us to

consider the following regulation recently promulgated by the Bureau of

Indian Affairs to further interpret § 465:

Subject only to applicable Federal law, permanent

improvements on the leased land, without regard to

ownership of those improvements, are not subject to

any fee, tax, assessment, levy, or other charge imposed

by any State or political subdivision of a State.

Improvements may be subject to taxation by the Indian

tribe with jurisdiction.

25 C.F.R. § 162.017(a). Because this regulation “merely clarifies and

confirms” what § 465 “already conveys,” we need not reach the

applicability of this regulation or the level of deference owed to the

Bureau of Indian Affairs in this context. See Watters v. Wachovia Bank,

N.A., 550 U.S. 1, 20–21 (2007).

CHEHALIS TRIBES V. THURSTON CNTY. 11

B

Mescalero’s ruling is dispositive in this case. The Grand

Mound Property at issue here is owned by the United States

and held in trust pursuant to § 465. Under Mescalero, § 465’s

exemption from state and local taxation applies to the

permanent improvements on that land. Thus, neither

Thurston County nor any other state or local entity can tax the

Great Wolf Lodge or other permanent improvements on that

land. Thurston County’s property taxes on the Grand Mound

Property are therefore invalid under § 465 and Mescalero.

The County raises several arguments to counter this

conclusion. First, the County attempts to distinguish

Mescalero on the ground that the improvements at issue in

this case are owned by CTGW, not the Tribe itself.

Mescalero instructs us, however, that this distinction is

irrelevant. In that case, as noted above, the form of the

business through which the Mescalero Apache Tribe owned

and operated the ski resort was unclear. Mescalero

acknowledged this, but concluded it was unimportant because

“the question of tax immunity cannot be made to turn on the

particular form in which the Tribe chooses to conduct its

business.” Mescalero, 411 U.S. at 157 n.13. In light of this

ruling, the question of immunity from the County’s property

tax assessments on the Great Wolf Lodge “cannot be made to

turn on” the Tribe’s decision to give ownership of the Lodge

to its limited liability company for the duration of the lease.

See id.

Second, the County argues that because the Great Wolf

Lodge constitutes “personal property” under Washington law,

it cannot constitute “lands or rights” as that phrase is used in

§ 465. See R.C.W. 84.04.080 (defining “personal property”

12 CHEHALIS TRIBES V. THURSTON CNTY.

to include “all improvements upon lands the fee of which is

still vested in the United States”). This argument also fails.

Mescalero interpreted the scope of § 465 without reference to

state law. As such, it ruled that permanent improvements on

land owned by the United States and held in trust for Indians

may not be taxed as a matter of federal law. See Mescalero,

411 U.S. at 155, 158 (holding, without consideration of New

Mexico state law, that permanent improvements are within

“the scope of the immunity specifically afforded by” § 465).

Therefore, it is irrelevant whether permanent improvements

constitute personal property under Washington law. See U.S.

Const., art. VI, cl. 2; cf. Drye v. United States, 528 U.S. 49,

52–53 (1999) (holding that federal law defines “property and

rights to property” for purposes of a federal tax statute,

irrespective of whether the right is defined as a “property”

right under state law).

Accordingly, we are bound by Mescalero’s interpretation

of § 465 to conclude that Thurston County was barred from

taxing the Great Wolf Lodge during the time in which the

Grand Mound Property was owned by the United States and

held in trust pursuant to § 465. The district court therefore

erred in granting summary judgment for the County.

C

The Tribe and CTGW argue in the alternative that the tax

here at issue is preempted under White Mountain Apache

Tribe v. Bracker, 448 U.S. 136 (1980). In Bracker, relying on

Congress’s broad authority to regulate Indians and the “semi-

independent position of Indian tribes,” id. at 142 (internal

quotation marks omitted), the Court held that the validity of

state laws taxing transactions between Indians and non-

Indians, on reservation land, is to be assessed based on “a

CHEHALIS TRIBES V. THURSTON CNTY. 13

particularized inquiry into the nature of the state, federal, and

tribal interests at stake.” Id. at 145; see also Wagnon v.

Prairie Band of Potawatomi Nation, 546 U.S. 95, 110–11

(2005) (specifying that Bracker applies “only where the legal

incidence of the tax [falls] on a nontribal entity engaged in a

transaction with tribes or tribal members . . . on the

reservation.” (internal quotation marks omitted)). Bracker

thus creates a balancing test, Wagnon, 546 at U.S. 110,

“designed to determine whether, in the specific context, the

exercise of state authority would violate federal law,”

Bracker, 448 U.S. at 145.

We have applied the Bracker balancing test in a variety of

circumstances involving the imposition of state or local taxes

on non-Indians. See, e.g., Yavapai-Prescott Indian Tribe v.

Scott, 117 F.3d 1107, 1112 (9th Cir. 1997) (balancing state,

federal, and tribal interests, and ruling against preemption of

state taxes on food and room sales); Salt River Pima-

Maricopa Indian Cmty. v. Arizona, 50 F.3d 734, 738 (9th Cir.

1995) (under a Bracker analysis, taxes on sales to non-Indians

on Indian land were not preempted). Even prior to Bracker,

we applied a similar mode of analysis in holding that

possessory interest taxes on “non-Indian lessees of property

held in trust by the United States Government for reservation

Indians” are not per se preempted. See Fort Mojave Tribe v.

Cnty. of San Bernadino, 543 F.2d 1253, 1255 (9th Cir. 1976);

see also Agua Caliente Band of Mission Indians v. Cnty. of

Riverside, 442 F.2d 1184, 1186-87 (9th Cir. 1971). None of

these cases involved property taxes, however, so they do not

implicate § 465.7

7

While the distinction between taxes imposed on non-Indian lessees’

rights of possession (as in Agua Caliente and Fort Mojave) and property

taxes imposed on improvements owned by non-Indians (as in Mescalero)

14 CHEHALIS TRIBES V. THURSTON CNTY.

Unlike the cases requiring us to undertake a Bracker

analysis, the case before us involves only property taxes on

permanent improvements on non-reservation land owned by

the United States and held in trust for Indians.8 In this

context, we are bound by Mescalero’s holding that such taxes

are preempted under § 465, and need not consider Bracker or

any other theory of preemption.

III

Mescalero sets forth the simple rule that § 465 preempts

state and local taxes on permanent improvements built on

non-reservation land owned by the United States and held in

trust for an Indian tribe. This is true without regard to the

ownership of the improvements. Because the Supreme Court

has not revisited this holding, we are required to apply it. We

may appear formalistic, it is critical here. Where a state or local

government assesses a tax on land or improvements covered by § 465, we

are bound by § 465 and Mescalero to invalidate such taxes. Cf. Rodriguez

de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477, 484 (1989) (“If

a precedent of [the Supreme] Court has direct application in a case, yet

appears to rest on reasons rejected in some other line of decisions, the

Court of Appeals should follow the case which directly controls.”). This

is not so, however, when state or local governments impose taxes on

interests other than the “lands or rights” covered by § 465. In Agua

Caliente, for example, we stressed that “[t]he California tax on possessory

interests does not purport to tax the land as such,” which would be barred

by § 465, “but rather taxes the ‘full cash value’ of the lessee’s interest in

it,” which is not covered by § 465. 442 F.2d at 1186.

8

Although neither the record nor the parties’ briefs reference the tax

statute or ordinance under which the County levied its taxes, the parties

agree that the tax at issue in this case is a property tax on the Great Wolf

Lodge, and not a possessory interest or other type of tax. The tax bills and

other evidence in the record support this conclusion.

CHEHALIS TRIBES V. THURSTON CNTY. 15

therefore reverse the district court’s summary judgment order

and remand for proceedings consistent with this opinion.

REVERSED AND REMANDED.