CONFEDERATED TRIBES AND BANDS v. Gregoire

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CONFEDERATED TRIBES AND 

BANDS OF THE YAKAMA INDIAN

NATION,

Plaintiff-Appellant,

v.

CHRISTINE O. GREGOIRE, Governor

of the State of Washington; CINDI

HOLMSTROM, Director of the No. 10-35776

Washington State Department of D.C. No.

Revenue; LESLIE CUSHMAN, Deputy  2:08-cv-03056-

Director of the Washington State RHW

Department of Revenue; STUART

OPINION

THRONSON, Assistant Director of

Special Programs of the

Washington State Department of

Revenue; PAT PARMER, Chief of

Enforcement and Education

Division of the Washington State

Liquor Control Board,

Defendants-Appellees.



Appeal from the United States District Court

for the Eastern District of Washington

Robert H. Whaley, Senior District Judge, Presiding

Argued and Submitted

August 3, 2011—Seattle, Washington

Filed September 23, 2011

18159

18160 CONFEDERATED TRIBES v. GREGOIRE

Before: John T. Noonan, Jr. and Milan D. Smith, Jr.,

Circuit Judges, and Andrew J. Guilford, District Judge.*

Opinion by Judge Milan D. Smith, Jr.;

Concurrence by Judge Guilford

*The Honorable Andrew J. Guilford, United States District Judge for

the Central District of California, sitting by designation.

18162 CONFEDERATED TRIBES v. GREGOIRE

COUNSEL

Phillip E. Katzen, Cory J. Albright, and Zach Welcker; Kanji

& Katzen, PLLC, Seattle, Washington, for the appellants

Robert M. McKenna, Attorney General of Washington, Heidi

A. Irvin, David M. Hankins, and Robert K. Costello, Office

of the Attorney General, Olympia Washington, for the appel-

lees.

OPINION

M. SMITH, Circuit Judge:

States lack authority to tax Indian tribes or registered mem-

bers of Indian tribal organizations absent a clear authorization

from Congress. Cnty. of Yakima v. Confederated Tribes &

Bands of the Yakima Indian Nation, 502 U.S. 251, 258

(1992). The Tribes of the Yakama Nation (the Yakama or

Tribes) claim that this principle of Indian tax immunity has

been violated by the State of Washington’s current cigarette

excise tax, which the Tribes argue leaves their retailers liable

CONFEDERATED TRIBES v. GREGOIRE 18163

for payment of the tax when retailers sell cigarettes to non-

Indians.

In 1978, a three-judge district court held that the legal inci-

dence of the Washington cigarette tax did not fall on the

Tribes. Confederated Tribes of Colville Indian Reservation v.

Washington, 446 F. Supp. 1339 (E.D. Wash. 1978). In 1980,

the Supreme Court agreed with the three-judge court and

upheld the validity of Washington’s cigarette tax and its

requirement that tribal retailers collect the tax from non-

Indian cigarette purchasers. Washington v. Confederated

Tribes of the Colville Indian Reservation, 447 U.S. 134,

159-61 (1980). Although some elements of Washington’s cig-

arette tax law have been modified over the past thirty years,

we conclude, as did the district court in awarding summary

judgment to the State, that none of those changes has materi-

ally altered the legal incidence of the cigarette tax approved

of in Colville, and we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Washington State Cigarette Tax

The State of Washington levies a general excise tax on all

cigarettes sold, used, consumed, handled, possessed or distrib-

uted within the State. See Revised Code of Washington

(RCW) §§ 82.24 et seq. (the Act or cigarette tax); see also id.

§§ 82.24.020, 82.24.026. This excise tax is levied “at the time

and place of the first taxable event and upon the first taxable

person within [the] [S]tate.” RCW § 82.24.080(2).

The cigarette tax primarily is collected from licensed ciga-

rette wholesalers, who purchase tax stamps from the Wash-

ington Department of Revenue (the Department), and then

affix the stamps on each package (or other unit) of cigarettes

they distribute to retailers. RCW § 82.24.030; see also Wash.

Admin. Code (WAC) § 458-20-186(101)(b). Wholesalers are

required to affix the stamps prior to their distribution of ciga-

18164 CONFEDERATED TRIBES v. GREGOIRE

rettes to retailers. RCW §§ 82.24.010(8), 82.24.030; WAC

§ 458-20-186(101)(b). Only licensed wholesalers may possess

unstamped cigarettes, and only then under certain conditions.

RCW §§ 82.24.040(2), 82.24.050.1 Moreover, only licensed

wholesalers may purchase or obtain cigarette stamps. RCW

§ 82.24.040(3). Transporting or selling unstamped cigarettes

may constitute a misdemeanor or a felony. RCW

§§ 82.24.110, 82.24.250, 82.24.260.

“Licensed wholesalers are compensated for affixing the

stamps at the rate of $6.00 per thousand stamps affixed.”

WAC § 458-20-186(201)(b). Wholesalers who affix cigarette

tax stamps “may, if they wish, absorb five one-hundredths

cents per cigarette of the tax and not pass it on to purchasers

without being in violation of th[e Act] or any other act relat-

ing to the sale or taxation of cigarettes.” RCW § 82.24.020(2).

If a wholesaler posts a bond with the State, it may defer pay-

ment of the tax for up to thirty days. See WAC § 458-20-

186(201)(b) (“Payment for stamps must be made at the time

of purchase unless the wholesaler has prior approval of the

[D]epartment to defer payment and furnishes a surety bond

equal to the proposed monthly credit limit.”). This arrange-

ment gives the wholesaler a grace period within which to col-

lect the amount of the cigarette tax from retailers prior to

paying it over to the Department.

The Act contains several provisions exempting certain enti-

ties and persons from its strictures. For example, RCW

§ 82.24.020 allows enrolled members of federally recognized

Indian tribes to “purchase cigarettes from an Indian tribal

1

Collection from wholesalers who affix stamps is not the exclusive

means of collecting the tax. The Department collects the tax by other

means with respect to cigarettes that are not sold by Washington retailers.

For example, when a manufacturer gives away cigarettes for advertising,

promotional, or other purposes, the manufacturer pays the tax directly to

the Department. WAC § 458-20-186(101)(d), (602)(f). When a Washing-

ton resident purchases cigarettes from an out-of-state retailer, the resident

pays the tax directly to the Department. Id. § 458-20-186(602)(g).

CONFEDERATED TRIBES v. GREGOIRE 18165

organization under the jurisdiction of the member’s tribe for

the member’s own use exempt from the applicable taxes

imposed by this chapter.” RCW § 82.24.020(4) (emphasis

added).2 Section 82.24.250 allows Indian tribal organizations

to possess unstamped cigarettes provided they “give[ ] notice

to the board in advance of receiving unstamped cigarettes and

. . . within a period of time after receipt of the cigarettes as

. . . the person . . . cause[s] stamps to be affixed in accordance

with RCW [§ ] 82.24.030 or otherwise ma[kes] payment of

the tax required.” RCW § 82.24.250(7)(c).

Also exempted from the notice, stamping, and cigarette tax

requirements of the Act are lawful transactions covered by

cigarette tax compacts between Indian tribes and the State

under RCW §§ 43.06.450 et seq., wherein an Indian tribe

imposes a tribal tax in lieu of the State tax. See also id.

§ 82.24.020(5) (terms of contract under compact statute con-

trol over conflicting provisions of chapter 82.24). This

exemption was added in 2001 “to promote economic develop-

ment, provide needed revenues for tribal governments and

Indian persons, and enhance enforcement of the state’s ciga-

rette tax law, ultimately saving the state money and reducing

conflict.” RCW §§ 43.06.450; 43.06.455(3), (8).

2

Another section of the Act, RCW § 82.24.260, provides similar lan-

guage clarifying the exemption:

(1) Other than:

(a) A wholesaler required to be licensed under this chapter;

(b) A federal instrumentality with respect to sales to autho-

rized military personnel; or

(c) An Indian tribal organization with respect to sales to

enrolled members of the tribe,

a person who is in lawful possession of unstamped cigarettes and

who intends to sell or otherwise dispose of the cigarettes shall

pay, or satisfy its precollection obligation that is imposed by this

chapter, the tax required by this chapter by remitting the tax or

causing stamps to be affixed in the manner provided in rules

adopted by the department.

18166 CONFEDERATED TRIBES v. GREGOIRE

Although the Act contains many provisions excluding reg-

istered tribes from its provisions, it does require them to col-

lect the cigarette tax from non-Indians who purchase

cigarettes from Indian retailers. For instance, the Act contains

a statement of legislative intent requiring Indian tribes to

serve as tax collectors and remitters:

It is the intent of the legislature that, in the absence

of a cigarette tax contract or agreement . . . applica-

ble taxes imposed by this [Act] be collected on ciga-

rettes sold by an Indian tribal organization to any

person who is not an enrolled member of the feder-

ally recognized Indian tribe within whose jurisdic-

tion the sale takes place consistent with collection of

these taxes generally within the state. The legislature

finds that applicable collection and enforcement

measures under this chapter are reasonably necessary

to prevent fraudulent transactions and place a mini-

mal burden on the Indian tribal organization, pursu-

ant to the United States supreme court’s [sic]

decision in Washington v. Confederated Tribes of the

Colville Indian Reservation, 447 U.S. 134 (1980).

RCW § 82.24.080(4) (emphasis added). However, the State

legislature has also instructed that the Act should be construed

to “not apply in any case in which the State of Washington is

prohibited from taxing under the Constitution of [Washing-

ton] or the Constitution or laws of the United States.” RCW

§ 82.24.900. This language is referred to by the State as the

“constitutional backstop.”

The Department has also adopted administrative rules con-

cerning the collection of cigarette taxes from Indian retailers.

See WAC § 458-20-186(102)(c).3 Indian retailers making on-

3

(c) Cigarettes purchased from Indian retailers. Special rules apply

to cigarettes purchased from Indian retailers.

CONFEDERATED TRIBES v. GREGOIRE 18167

reservation sales to nonmembers of the tribe must “collect and

remit” the State’s retail sales tax and cigarette tax. WAC

§ 458-20-192(5)(c). As the Department sees it, if a tribal

retailer sells cigarettes to nonmembers, the wholesaler is obli-

gated to pre-collect the tax, and the tribal retailer must pur-

chase a stock of cigarettes with tax stamps affixed to the

packages for such sales. The tribal retailer would then collect

the amount of the tax from nonmember customers. See WAC

§ 458-20-192(9)(a)(i). The Department refers to this as the

“pre-collection obligation.”

The Department is also authorized by the Act to promul-

gate rules allowing for a refund to “dealers for the cost of

stamps affixed to articles taxed . . . which by reason of dam-

age become unfit for sale and are destroyed by the dealer or

returned to the manufacturer.” RCW § 82.24.210. Under the

Department’s rules, “[a]ny person may request a refund of the

face value of the stamps when the tax is not applicable and the

stamps are returned to the department.” WAC § 458-20-

186(203).

(i) Indians purchasing cigarettes in Indian country are exempt

from the state cigarette tax; however, these sales must comply

with WAC 458-20-192. Other consumers may purchase ciga-

rettes for their personal consumption from ‘qualified Indian

retailers’ without incurring liability for state cigarette tax. A

‘qualified Indian retailer’ is one who is subject to the terms of a

valid cigarette tax contract with the state pursuant to RCW

§ 43.06.455.

(ii) Consumers who purchase cigarettes from Indian retailers who

are not subject to a cigarette tax contract with the state must com-

ply with the reporting requirements and remit the cigarette tax as

explained in subsection (602) of this rule. These consumers are

also liable for the use tax on their purchases.

(iii) It is the duty of the consumer in each instance to ascertain

his or her responsibilities with respect to such purchases.

18168 CONFEDERATED TRIBES v. GREGOIRE

B. Yakama Nation Retailers

The Yakama Nation is a federally-recognized Indian nation

with approximately 10,000 enrolled members. It is a party to

the Yakama Treaty of 1855 with the United States, 12 Stat.

951, and it exercises the sovereign right of self-government

over the 1.4 million-acre Yakama Indian Reservation, located

in central Washington. There are nine Yakama member-

owned businesses on the reservation engaged in the retail sale

of cigarettes and other tobacco products. Each of these busi-

nesses is organized, licensed, and operates under the laws of

the Yakama Nation. By affixing Yakama Nation tax stamps,

the Nation imposes a tax on tobacco products sold by Yakama

retailers. The revenues generated by this tax support essential

tribal government services, as well as fisheries, forestry, and

other programs.

In 2004, the Yakama entered into a cigarette tax compact

with the State (the 2004 Agreement). Under the 2004 Agree-

ment, the Tribes were required to impose and maintain a tribal

tax on the retail sales of cigarettes equal to the amount of

State and local sales taxes. Despite the compact, disputes

arose between the Yakama and the State, and in February

2007, the Department sent a notice to the Tribes indicating its

intent to terminate the 2004 Agreement. Following unsuccess-

ful dispute-resolution talks, the 2004 Agreement was termi-

nated in July 2008. The Department thereupon informed the

Yakama that it was reinstating the cigarette tax on sales of

cigarettes to nonmembers of the Tribes, and that it would

require cigarette tax stamps to be affixed for all such sales.

C. Procedural History

Before any cigarette taxes could be collected by the State

after the termination of the 2004 Agreement, the Yakama

commenced this action in September 2008, seeking declara-

tions (1) that it is unlawful for the State to tax Indian-to-

Indian sales; (2) that RCW §§ 82.24 et seq. is unenforceable

CONFEDERATED TRIBES v. GREGOIRE 18169

against the Yakama; (3) that acquiring and possessing

unstamped cigarettes is not prohibited by the Act; (4) that it

is unlawful for the State to prohibit the Yakama from issuing

cigarette stamps; and (5) that the State has violated the Ex

Post Facto Clause of the Constitution. Shortly after the suit

was filed, the district court entered a temporary restraining

order against the State. Thereafter, the parties cross-moved for

summary judgment. In January 2010, the district court denied

the Yakama’s motion for summary judgment and granted

summary judgment to the State on most of the Yakama’s

claims. See Confederated Tribes & Bands of the Yakama

Nation v. Gregoire, 680 F. Supp. 2d 1258 (E.D. Wash. 2010).

For purposes of this appeal, the relevant holding by the dis-

trict court was its conclusion that the “legal incidence” of the

cigarette tax does not fall on Yakama retailers. Id. at 1264

(“The Court finds that none of the differences between the

scheme examined in Colville and the current scheme are suffi-

cient to change the conclusion that the legal incidence of the

tax does not fall on Indian retailers.”). The district court dis-

solved the temporary restraining order and released the bond

posted to the State. In this appeal, the Yakama seek reversal

of the district court’s summary judgment ruling that the legal

incidence does not fall on Yakama retailers, but concede that

the answer to that question will be dispositive of the other

issues pressed in the their lawsuit.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction under 28 U.S.C. § 1291.

We review the district court’s grant of summary judgment

de novo. Coeur d’Alene Tribe of Idaho v. Hammond, 384 F.3d

674, 681 n.2 (9th Cir. 2004).

18170 CONFEDERATED TRIBES v. GREGOIRE

DISCUSSION

I. Legal Incidence of the State Cigarette Tax

A. Indian Tax Immunity

[1] “The Constitution vests the Federal Government with

exclusive authority over relations with Indian tribes . . ., and

in recognition of the sovereignty retained by [the] tribes . . .,

Indian tribes and [registered] individuals generally are exempt

from state taxation within their own territory.’ ” Oklahoma

Tax Comm’n v. Chickasaw Nation, 515 U.S. 450, 455 (1995)

(quoting Montana v. Blackfeet Tribe, 471 U.S. 759, 764

(1985)). “The initial and frequently dispositive question in

Indian tax cases, therefore, is who bears the legal incidence of

a tax. If the legal incidence of an excise tax rests on a tribe

or on tribal members for sales made inside Indian country, the

tax cannot be enforced absent clear congressional authoriza-

tion.” Chickasaw Nation, 515 U.S. at 456-57. However,

where the legal incidence of tax does not rest on a tribe or its

members, a state may impose the tax so long as “the balance

of federal, state, and tribal interests favors the [s]tate, and fed-

eral law is not to the contrary,” and a state “may place on a

tribe or tribal members ‘minimal burdens’ in collecting the

toll.” Id. at 459 (citation omitted).

[2] The “legal incidence” of an excise tax refers to deter-

mining which entity or person bears the ultimate legal obliga-

tion to pay the tax to the taxing authority. See Colville, 447

U.S. at 150-51 (“We upheld the tax, insofar as sales to non-

Indians were concerned, because its legal incidence fell on the

non-Indian purchaser” as “the competitive advantage which

the Indian seller . . . enjoy[ed] . . . [was] dependent on the

extent to which the non-Indian purchaser is willing to flout his

legal obligation to pay the tax.” (emphasis added) (citing Moe

v. Confederated Salish & Kootenai Tribes of Flathead Reser-

vation, 425 U.S. 463, 482 (1976)). Identifying legal incidence

requires a court to analyze the taxing statute and its imple-

CONFEDERATED TRIBES v. GREGOIRE 18171

mentation to determine which entities or individuals will

likely face detrimental legal consequences if the tax is not

paid. See Moe, 425 U.S. at 482; Couer D’Alene Tribe of

Idaho v. Hammond, 384 F.3d 674, 681 (9th Cir. 2004) (“[T]o

discern where the legal incidence lies, we ‘ascertain [ ] the

legal obligations imposed upon the concerned parties[.]’ ”

(quoting Crow Tribe of Indians v. Montana, 650 F.2d 1104,

1111 (9th Cir. 1981))). “[A] party does not bear the legal inci-

dence of the tax if it is merely a transmittal agent for the state

tax collector[,]” because that party’s legal liability in event of

non-payment would depend either on another responsible

party’s failure to pay to the transmittal agent or on the trans-

mittal agent’s withholding collected taxes. Hammond, 384

F.3d at 681 (citing Chickasaw Nation, 515 U.S. at 461-62).

The person or entity bearing the legal incidence of an

excise tax is not necessarily the one bearing an economic bur-

den from the tax. Hammond, 384 F.3d at 681 (citing Chicka-

saw Nation, 515 U.S. at 460). While a party bearing an

economic burden, perhaps as the result of reduced sales, may

also bear the legal incidence of the tax, the Supreme Court has

clarified that an economic analysis of the “realities” of taxa-

tion should not be a substitute for legal-incidence analysis.

Chickasaw Nation, 515 U.S. at 459-60 (“If we were to make

‘economic reality’ our guide, we might be obliged to con-

sider, for example, how completely retailers can pass along

tax increases without sacrificing sales volume—a complicated

matter dependent on the characteristics of the market for the

relevant product.”). Legal incidence “accommodates the real-

ity that tax administration requires predictability,” id., and

while a state cannot fully control how the market will adjust

to a tax, a state can control tax enforcement and the determi-

nation of who is ultimately obligated to pay the tax. Id. at 460

(“[I]f a State is unable to enforce a tax because the legal inci-

dence of the impost is on Indians or Indian tribes, the State

generally is free to amend its law to shift the tax’s legal inci-

dence.”).

18172 CONFEDERATED TRIBES v. GREGOIRE

Because few statutes are identical, legal-incidence determi-

nations necessarily will depend on myriad, often situation-

specific factors. In Moe v. Confederated Salish & Kootenai

Tribes of Flathead Reservation, the Supreme Court upheld a

Montana cigarette tax because the legal incidence of the tax

was on the non-Indian purchaser, as the Court explained:

Since nonpayment of the tax is a misdemeanor as to

the retail purchaser, the competitive advantage

which the Indian seller doing business on tribal land

enjoys over all other cigarette retailers, within and

without the reservation, is dependent on the extent to

which the non-Indian purchaser is willing to flout his

legal obligation to pay the tax. Without the simple

expedient of having the retailer collect the sales tax

from non-Indian purchasers, it is clear that wholesale

violations of the law by the latter class will go virtu-

ally unchecked.

Id. at 482 (footnotes omitted). The Moe Court also rejected

the argument that collecting the tax from non-Indian custom-

ers rendered the retailer an “involuntary agent” for collection

because the obligation to collect was only “a minimal burden

designed to avoid the likelihood that in its absence non-

Indians purchasing from the tribal seller will avoid payment

of a concededly lawful tax.” Id. at 483.

[3] In Chickasaw Nation, the Court, in holding that the

legal incidence of an Oklahoma motor-fuel tax fell on Indian

retailers, gave special attention to two factors: whether the

legislature specifically identified who bore the tax’s legal

incidence and whether the tax statute contained an explicit

“pass through” provision requiring distributors and retailers to

pass the tax onto consumers. 515 U.S. at 461. The Court

stated that if the Oklahoma legislation “expressly identif[ied]

who bears the tax’s legal incidence,” the language would be

“dispositive.” Id. (“In the absence of such dispositive lan-

guage, the question is one of ‘fair interpretation of the taxing

CONFEDERATED TRIBES v. GREGOIRE 18173

statute as written and applied.’ ” (quoting Chemehuevi Tribe,

474 U.S. at 11)). The Court returned to this concept of dispo-

sitive legislative identification in Wagnon v. Prairie Band

Potawatomi Nation, 546 U.S. 95 (2005), by again referencing

Chickasaw Nation’s “suggest[ion] that [ ] ‘dispositive lan-

guage’ from the state legislature is determinative of who bears

the legal incidence of a state excise tax.” See Wagnon, 546

U.S. at 102.

In Hammond, we held that an Idaho motor-fuel tax fell on

Indian retailers in light of its “striking” similarity with the tax

voided in Chickasaw Nation, 515 U.S. at 450. Four key fac-

tors guided us: (1) the non-tribal distributors who received the

motor fuel and sold it to the Indian tribes were required to

pass on and to collect the tax from the retailer, and then to

remit the taxes to the State; (2) the statute provided a tax

credit to the distributor, but not a retailer, for “collecting and

remitting” the tax on behalf of the State; (3) the State gave tax

credits to the distributor for fuel taxes that the distributor has

paid but cannot then collect from the retailer; and (4) retailers

could not set off their tax liability when consumers failed to

pay, nor were they compensated for their tax collection

efforts. 384 F.3d at 685-88. In short, in addition to express

statements of legislative intent, legal incidence analysis

depends on whether a taxing statute contains an explicit “pass

through” which moves incidence down the distribution chain,

Hammond, 384 F.3d at 685-86, which individuals or entities

are compensated for “collecting and remitting” the tax on

behalf of the State, id. at 686, what invoices show regarding

payment of the tax, id., whether a retailer may recoup the tax

paid for unsold product, id. at 684, if the retailer is refunded

the tax when a consumer fails to pay, id. at 687-88, and ulti-

mately who is penalized by state authorities when the tax is

not paid, Wagnon, 546 U.S. at 103; Moe, 425 U.S. at 482.

18174 CONFEDERATED TRIBES v. GREGOIRE

B. The Washington Cigarette Tax

[4] We begin our analysis of the Act with the recognition

that the primary issue before us was litigated and decided

some three decades ago in Colville, 446 F. Supp. at 1339,

aff’d in part and rev’d in part, 447 U.S. 134 (1980). There,

a three-judge district court held that the legal incidence of the

Washington cigarette tax, as then written, fell on non-Indian

cigarette purchasers as opposed to Indian retailers. 446 F.

Supp. at 1355. Although the district court found the absence

of a pass through to be “of particular importance,” id. at 1353,

a broader consideration of the other statutory provisions and

Department publications led to the conclusion that “the statute

evidences the legislature’s intent to impose the legal incidence

of the tax at the earliest constitutional opportunity.” Id. at

1355. Thus, “where on-reservation tribal sales to non-Indians

[were] involved, the first taxable event [was] . . . the use or

consumption by the non-Indian purchaser.” Id. Colville

reached the Supreme Court on direct appeal, and the Court

“accept[ed]” the district court’s conclusion that the legal inci-

dence of the cigarette tax fell on the non-Indians purchasers.

447 U.S. at 142 n.9. The Court held, inter alia, that the collec-

tion burden imposed on Indian retailers was “legally indistin-

guishable from the collection burden upheld in Moe” and was

therefore “valid in toto.” Id. at 159-60.4

The Tribes claim that amendments to the Act since Colville

have changed the legal incidence calculus, and the State does

not argue that Colville precludes such a reexamination.5 Spe-

4

In Colville, the State required “smokeshop operators to keep detailed

records of both taxable and nontaxable transactions. The operator must

record the number and dollar volume of taxable sales to nonmembers of

the Tribe. With respect to nontaxable sales, the operator must record and

retain for State inspection the names of all Indian purchasers, their tribal

affiliations, the Indian reservations within which sales are made, and the

dollar amount and dates of sales.” 447 U.S. at 159.

5

The district court noted that “while Defendants argue the doctrine of

res judicata defeats other arguments Plaintiffs advance, they do not argue

that it applies to the issue of legal incidence.” 680 F. Supp. 2d at 1264 n.1.

CONFEDERATED TRIBES v. GREGOIRE 18175

cifically, the Tribes contend that the absence of an express

pass through, the inability of retailers to defer payment of the

cigarette tax, the absence of compensation for collecting the

cigarette tax, the liability Indian retailers face for unsold prod-

ucts, and the record keeping requirements of the amended Act

shift the legal incidence of the cigarette tax onto the Indian

retailers. We disagree.

We first consider the fact that the Act does not contain an

express pass through requirement. Such a pass through

requirement was also missing from the earlier version of the

Act considered in Colville. See 446 F. Supp. at 1353. The cur-

rent Act requires wholesalers to pass on all but a tiny fraction

of the cigarette tax to their purchasers, RCW § 82.24.020(2)

(allowing for wholesalers to absorb five one-hundredths cents

per cigarette), but contains no corresponding requirement that

retailers pass through the cigarette tax to the cigarette con-

sumer. The absence of a pass through to consumers is signifi-

cant and problematic, given the Supreme Court’s observation

in United States v. Mississippi Tax Commission, 421 U.S. 599

(1975), that “where a State requires that its sales tax be passed

on to the purchaser and be collected by the vendor from him,

this establishes as a matter of law that the legal incidence of

the tax falls upon the purchaser.” Id. at 608 (characterizing

test from First Agr. Nat. Bank of Berkshire Cnty. v. State Tax

Comm’n, 392 U.S. 339 (1968)).

In response, the State first contends that there is an implied

pass through in the Act’s pre-collection obligation. See RCW

§ 82.24.080. But a pre-collection obligation, even were we to

accept the State’s characterization, is not the functional equiv-

alent of an explicit pass through as it does not resolve to a

legal certainty who is obligated to pay the tax. While it would

be prudent for any Indian retailer to pass on and then collect

the tax from consumers, the Act does not require it; rather

that is an economic choice left to the Indian retailers. In gen-

eral, the Act is anchored by the principle that whoever can

pay the tax first will pay. See RCW 82.24.080(1) (“It is the

18176 CONFEDERATED TRIBES v. GREGOIRE

intent and purpose of this chapter . . . to collect the tax from

the person who first sells, uses, consumes, handles, possesses

. . . or distributes them in the state.”).

[5] Despite the absence of a pass through, we recognize

that the Act sustained in Colville also did not include a pass

through and that its absence was not outcome determinative.

Moreover, the pre-collection obligation, even if not equivalent

to a pass through, serves a purpose in setting forth the respon-

sibilities of the Indian retailers as transmittal agents. That

obligation to transmit the tax and the record keeping require-

ments it requires are the same as the obligations the Supreme

Court endorsed in Colville as “legally indistinguishable from

the collection burden upheld in Moe.” 447 U.S. at 159. Thus,

we will not treat the absence of a pass through as dispositive.

[6] Indeed, numerous provisions in the Act are written

with the purpose of excluding Indian tribes and their members

from compliance with the Act. After all, the cigarette tax

applies only to the “first taxable event and upon the first tax-

able person” under RCW § 82.24.080. There is no dispute

between the parties that as between an Indian retailer and a

non-Indian purchaser, the latter is the first taxable person.

Even if there were a dispute, § 82.24.900 provides that “[t]he

provisions of this chapter shall not apply where the state is

prohibited from taxing under the Constitution of this state or

the Constitution or the laws of the United States,” RCW

§ 82.24.900, a catch-all provision which includes the Tribes.

Moreover, Section 82.24.260 states that “[o]ther than . . . [a]n

Indian tribal organization with respect to sales to enrolled

members of the tribe, a person who is in lawful possession of

unstamped cigarettes and who intends to sell or otherwise dis-

pose of the cigarettes shall pay, or satisfy its pre-collection

obligation that is imposed by this chapter, the tax required by

this chapter by remitting the tax . . . .” RCW § 82.24.260(1).

A fair construction of these provisions leads to the conclusion

that an Indian retailer will be excluded from paying a tax for

sales to members. The language also indicates that if an

CONFEDERATED TRIBES v. GREGOIRE 18177

Indian retailer ever found itself facing a State collection effort

for the retailer’s non-payment of the tax, the retailer would be

shielded from civil or criminal liability, except in the instance

where the Indian retailer has failed to transmit the tax paid by

the consumer and collected by the retailer.

[7] Section 82.24.020 references the Colville decisions

upholding the tax and explicitly attempts to incorporate the

Supreme Court’s holding into the Act by providing the pre-

collection obligation is a “minimal burden on the Indian tribal

organization.” Colville sustained the ability of a state to

require Indian tribes to tax sales to nonmembers, observing

that this would not “contravene the principle of tribal self-

government, for the simple reason that nonmembers are not

constituents of the governing Tribe.” 447 U.S. at 160. By

attempting to comply with Colville, the legislature reveals its

intent to incorporate that holding which permits states to

require Indian retailers to collect and transmit the tax from

non-Indian, non-exempt purchasers. Finally, the Department’s

regulations speak of “collecting and remitting” the cigarette

tax, WAC § 458-20-192(5)(c), which implies that someone

other than the Indian retailer is ultimately responsible for pay-

ment of the cigarette tax.

These points of statutory construction are buttressed by the

Act’s legislative history; since Colville, there have been no

amendments to the Act which alter the legal obligations for

paying the tax. Rather, the key amendments have been admin-

istrative in nature—to preclude retailers from affixing stamps

and to prevent retailers from absorbing a small amount of a

stamp’s cost. See 1995 Wash. Sess. Laws, ch. 278, §§ 2-4;

2003 Wash. Sess. Laws, ch. 114, § 1(4). These amendments

affect, at most, the economic burden of the cigarette tax, pri-

marily by shifting to wholesalers the entire cost of affixing

stamps. Moreover, by precluding retailers from absorbing any

portion of the cigarette tax, it is implied that they will need

to pass on the entirety of the tax to consumers.

18178 CONFEDERATED TRIBES v. GREGOIRE

We also note that the Act does not compensate any party

(wholesaler or otherwise) for serving as a collection agent for

the State. Contra Hammond, 384 F.3d at 686. Although the

Tribes argue that the State’s failure to compensate them for

fulfilling the pre-collection obligation indicates the legal inci-

dence falls on the Indian retailers, non-Indian wholesalers and

retailers are also not compensated for collecting the tax.

Rather, the only compensation wholesalers receive is “for

their services in affixing the stamps required under this chap-

ter.” RCW § 82.24.295(2) (emphasis added). As discussed

supra, in Chickasaw Nation and Hammond, courts invalidated

tax schemes where non-Indian distributors were compensated

for their role as agents in collecting a tax while Indian retail-

ers were not compensated. See Chickasaw Nation, 515 U.S.

at 462 (“[F]or their services as agent of the state for [tax] col-

lection, distributors retain a small portion of the taxes they

collect.”); Hammond, 384 F.3d at 686-87. Those factors are

not present here as there is no discriminatory compensation

scheme vis-a-vis wholesalers and retailers. Washington’s cig-

arette tax ultimately makes consumers who possess unstam-

ped cigarettes liable for a misdemeanor or felony, regardless

of whether they purchased those cigarettes from Indians or

non-Indians, whereas the statutes in Chickasaw and Ham-

mond contained no downstream liability. See RCW

§§ 82.24.260(3), 82.24.020(4).

The Tribes also have not posited a foreseeable scenario

when an Indian retailer would have an obligation greater than

transmittal agent. Instead, the only counter-scenarios offered

by the Tribes involve situations where no sale is ever made

to a customer, such as when cigarettes become damaged, or

when a customer steals the cigarettes and does not tender the

tax payment. The Act provides an express remedy in the first

situation—RCW § 82.24.210 provides that the Department

shall “promulgate rules and regulations providing for the

refund to dealers for the cost of stamps affixed to articles

taxed herein,” where such products are damaged. That section

also allows the Department to refund unused stamps. RCW

CONFEDERATED TRIBES v. GREGOIRE 18179

§ 82.24.210. In its briefing, the State has represented that

“[r]efunds are available to anyone who is legally entitled to

one” and that the refund form from the Department may be

used by “any person,” Appellees’ Answering Brief at 48-50.

Indeed, the Department’s regulations provide that “any person

may request a refund of the face value of the stamps when the

tax is not applicable and the stamps are returned to the depart-

ment.” WAC § 458-20-186(203) (emphasis added). A reason-

able interpretation of “any person” would include retailers,

Indian or not, and there is no record evidence that the State

has implemented this regulation in a discriminatory manner.

Nor have the Tribes proffered any evidence that Indian retail-

ers who have applied for tax-stamp refunds in accordance

with the regulations have had their refund claims denied by

the Department. In response to the hypothetical situation of

non-payment of the tax by a customer who steals stamped cig-

arettes, the State concedes that the Department will not issue

refunds to retailers for the cost of cigarette stamps, but a third-

party breach of contract does not alter our interpretation of the

Act. As with the damaged goods hypothetical, non-payment

by a third-party would leave Indian retailers with other legal

remedies to collect the cigarette tax.

Finally, the ability of wholesalers to defer their payment for

thirty days by posting a bond does not impact our legal inci-

dence analysis. See WAC § 458-20-186(301)(b). Deferring

the payment of money due is a matter of timing and account-

ing, which does not change who is ultimately responsible for

the payment of the tax. After all, the particular point in time

when the retailers remit that tax from the consumer does not

change the underlying fact that the retailer was not legally

obligated to pay the tax. Timing is a matter of accounting;

even though the Tribes want the tax to be treated as an

account payable, instead of an immediate cash payment, the

legal obligations remain the same.

[8] To summarize, despite the absence of a statutory pass

through, we conclude that the overall intent of the Washing-

18180 CONFEDERATED TRIBES v. GREGOIRE

ton cigarette tax, with respect to on-reservation sales by

Indian retailers, is for consumers to be legally obligated to

pay the cigarette tax. The precollection obligation is a mini-

mal burden on the Tribes and their retailers and does not

change the legal incidence calculation. We therefore hold that

the provisions of the current Act are not materially different

from those upheld in Colville, and that they do not contravene

established principles of Indian tax immunity.

CONCLUSION

For the foregoing reasons, the district court’s grant of sum-

mary judgment and its dissolution of the temporary restrain-

ing order are AFFIRMED.

GUILFORD, District Judge, concurring in the judgment:

I concur in the result.

This case requires us to determine if a tax imposed on cer-

tain economic activity of the Tribes of the Yakama Nation

creates a “legal incidence” upon the Tribes. The impact of

various forms of taxation on a people has been apparent

throughout our country’s history, going back at least to when

American patriots—ironically dressed as Indians—threw tea

into Boston Harbor. The burden of taxation was the fuel in the

fire of freedom ignited by our country’s founders, and that

burden continues to be a powerful factor in today’s politics.

In this case, the tax burden must be analyzed through the

prism of the “legal incidence” test, which often focuses on the

issue of whether the tax can be passed through or passed

along to others. An economist reviewing this “pass through”

issue would analyze the demand elasticity for the product

being taxed. In further review of the burden of taxation, an

economist, aware of the negative slope of demand curves,

CONFEDERATED TRIBES v. GREGOIRE 18181

would conclude that increasing the price of a product through

a tax necessarily will decrease sales volume. And in compar-

ing the impact of immediate cash payments with deferred

payments, an economist would review interests rates and the

time value of money. But as the majority opinion recognizes,

economic analysis of the burdens of taxation has been forbid-

den in reviewing “legal incidence.” In Oklahoma Tax

Comm’n v. Chickasaw Nation, 515 U.S. 450, 459-60 (1995),

the Supreme Court analyzed “legal incidence” while rejecting

guidance from what it called the “more venturesome

approach” involving economic reality, stating:

If we were to make “economic reality” our guide, we

might be obliged to consider, for example, how com-

pletely retailers can pass along tax increases without

sacrificing sales volume—a complicated matter

dependent on the characteristics of the market for the

relevant product.

Indians in the Tribes of the Yakama Nation might well

wonder how the analysis of what courts call “legal incidence”

can be done without reviewing the economic reality of the tax

burden on them. And here, a review of these economic reali-

ties likely would reveal that the tax at issue imposes an eco-

nomic burden on Indians in the Yakama Nation. But the law

requires an analysis through a prism that blocks economic

reality. Thus, following Supreme Court authority, without the

guidance of economic reality, I must concur with the majori-

ty’s opinion. Apart from economic reality, the provisions of

the Revised Code of Washington §§ 82.24 et seq. are not

materially different from those upheld in Washington v. Con-

federated Tribes of the Colville Indian Reservation, 447 U.S.

134 (1980), and they follow established principles of Indian

tax immunity. Thus, I concur in the judgment.