Petition for Writ of Certiorari — South Point Energy Center LLC, Petitioner v. Arizona Department of Revenue, et al.

Supreme Court briefMar 3, 2025

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No.

In the Supreme Court of the United States

SOUTH POINT ENERGY CENTER, LLC,

PETITIONER,

ARIZONA DEPARTMENT OF REVENUE; MOHAVE COUNTY,

RESPONDENTS.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF ARIZONA

PETITION FOR A WRIT OF CERTIORARI

BENNETT EVAN COOPER

VAIL C. CLOAR

DICKINSON WRIGHT PLLC

1850 N. Central Avenue,

Suite 1400

Phoenix, AZ 85004

(602) 285-5000

PATRICK DERDENGER

KAREN M. LOWELL

WOMBLE BOND DICKINSON

(US) LLP

201 E. Washington Street,

#1200

Phoenix, AZ 85004

(602) 262-5311

LISA S. BLATT

Counsel of Record

AMY MASON SAHARIA

ROHIT P. ASIRVATHAM

R. SHANE ROBERTS, JR.

WILLIAMS & CONNOLLY LLP

680 Maine Avenue S.W.

Washington, DC 20024

(202) 434-5000

lblatt@wc.com

Attorneys for Petitioner

South Point Energy Center,

LLC

QUESTIONS PRESENTED

The Indian Reorganization Act of 1934 provides that

Indian trust “lands … shall be exempt from State and local taxation.” 25 U.S.C. § 5108. It is settled that § 5108

preempts state and local taxation on “permanent improvements” upon tribal land. Mescalero Apache Tribe v.

Jones, 411 U.S. 145, 158 (1973). But courts have split over

whether that principle covers non-Indian-owned permanent improvements. In this case, petitioner South Point

Energy Center, LLC owns a permanent improvement, a

natural-gas-fired power plant, on the Fort Mojave Indian

Reservation. The plant falls completely on trust land and

is regulated entirely by the Tribe and the federal government. Yet Mohave County, Arizona, imposes property

taxes on the plant. The Arizona Supreme Court upheld

that tax solely because South Point, the owner of the permanent improvement, “is a non-Indian.” Pet.App.42a.

The questions presented are:

1. Whether 25 U.S.C. § 5108 expressly preempts

state and local taxation of permanent improvements on

trust land when the improvement’s owner is a non-Indian.

2. Whether federal law impliedly preempts state and

local taxation of petitioner’s permanent improvement.

(I)

CORPORATE DISCLOSURE STATEMENT

Petitioner South Point Energy Center, LLC is a

wholly owned subsidiary of Calpine Corporation, a privately held corporation.

Calpine recently executed a definitive agreement to

be acquired by Constellation Energy Corporation, a publicly traded company. That transaction has not yet closed.

III

STATEMENT OF RELATED PROCEEDINGS

This case arises from the following proceedings:

•

S. Point v. Ariz. Dep’t of Revenue, et al., No. CV24-0076-PR (Ariz.) (denial of petition for review

entered on December 4, 2024).

•

S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue, et al., No. 1 CA-TX 20-0004 (Ariz. Ct. App.)

(opinion and judgment issued on March 19, 2024,

regarding implied preemption).

•

S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue, et al., No. CV-21-0130-PR (Ariz.) (opinion

and judgment issued on April 26, 2022, regarding

express preemption).

•

S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue, et al., No. 1 CA-TX 20-0004 (Ariz. Ct. App.)

(opinion and judgment issued on April 27, 2021,

regarding express preemption).

•

S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue, et al., No. TX 2013-000522 (Ariz. Tax Ct.)

(judgment issued on March 10, 2020; opinion on

implied preemption entered on February 4, 2020;

opinion on express preemption entered on May

16, 2018).

•

S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue, et al., Nos. 1 CA-TX 15-0005, 1 CA-TX 150006 (Ariz. Ct. App.) (opinion and judgment issued on November 3, 2016, reversing tax court’s

dismissal).

•

S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue, et al., No. TX 2013-000522 (Ariz. Tax Ct.)

(judgment issued on June 10, 2015; order denying

motion for reconsideration entered on May 13,

2015; order granting motion to dismiss entered on

February 27, 2015).

There are no other proceedings in state or federal

trial or appellate courts, or in this Court, directly related

to this case within the meaning of this Court’s Rule

14.1(b)(iii).

TABLE OF CONTENTS

Page

OPINIONS BELOW ........................................................... 1

JURISDICTION ................................................................. 2

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED ......................................... 2

STATEMENT ...................................................................... 3

Legal Background .............................................. 5

Factual Background .......................................... 7

Procedural History .......................................... 11

REASONS FOR GRANTING THE PETITION ......... 13

The Arizona Supreme Court’s Express

Preemption Holding Requires This Court’s

Review ..................................................................... 13

The Decision Below Creates an Intolerable

Split Over Whether § 5108 Expressly

Preempts State and Local Taxes on NonIndian-Owned Permanent Improvements to

Trust Land ........................................................ 14

The Express Preemption Question Is

Important and Squarely Presented ............... 17

The Arizona Supreme Court’s Interpretation

of § 5108 Is Incorrect ....................................... 20

II.

The Arizona Court of Appeals’ Implied

Preemption Holding Also Merits Review............ 22

CONCLUSION .................................................................. 27

TABLE OF AUTHORITIES

Cases:

Page

Agua Caliente Band of Cahuilla Indians v. Riverside

County, 749 F. App’x 650 (9th Cir. 2019) ................. 24

Calpine Constr. Fin. Co. v. Ariz. Dep’t of Revenue,

211 P.3d 1228 (Ariz. Ct. App. 2009) ...................... 11-12

Confederated Tribes of Chehalis Rsrv. v. Thurston

Cnty. Bd. of Equalization,

724 F.3d 1153 (9th Cir. 2013) ...................... 4, 12, 14-18

Cotton Petroleum Corp. v. New Mexico,

490 U.S. 163 (1989) ...................................................... 26

Flandreau Santee Sioux Tribe v. Noem,

938 F.3d 928 (8th Cir. 2019) ................................. 24, 26

Fort Mojave Tribe v. San Bernardino County,

543 F.2d 1253 (9th Cir. 1976) ....................................... 7

HCI Distrib., Inc. v. Peterson,

110 F.4th 1062 (8th Cir. 2024) .................................... 24

Herpel v. County of Riverside,

258 Cal. Rptr. 3d 444 (Cal. Ct. App. 2020) ........... 23-24

Match-E-Be-Nash-She-Wish Band of Pottawatomi

Indians v. Patchak, 567 U.S. 209 (2012) ................. 5-6

Merrion v. Jicarilla Apache Tribe,

455 U.S. 130 (1982) ...................................................... 19

Mescalero Apache Tribe v. Jones,

411 U.S. 145 (1973) ............................. 4, 6, 14, 16, 20-21

Moe v. Confederated Salish & Kootenai Tribes of

Flathead Rsrv., 425 U.S. 463 (1976) .......................... 17

Peabody Coal Co. v. Navajo County,

572 P.2d 797 (Ariz. 1977) ............................................ 20

Ramah Navajo Sch. Bd., Inc. v. Bureau of Revenue

of N.M., 458 U.S. 832 (1982) .................................. 23-26

VII

Cases—continued:

Page

Seminole Tribe of Fla. v. Stranburg,

799 F.3d 1324 (11th Cir. 2015) ........... 4, 6, 15-16, 23-26

United States v. Allegheny County,

322 U.S. 174 (1944) ...................................................... 20

United States v. Rickert, 188 U.S. 432 (1903) ........ 6, 20-21

Upper Skagit Indian Tribe v. Lundgren,

584 U.S. 554 (2018) ........................................................ 5

White Mountain Apache Tribe v. Bracker,

448 U.S. 136 (1980) ............................................. 4, 22-26

Constitution, Statutes, and Regulations:

U.S. Const., art. VI............................................................ 2-3

25 U.S.C.

§ 415 ................................................................................ 6

§ 5108 .................................................... 2-7, 12-17, 20-21

28 U.S.C.

§ 1257 .............................................................................. 2

§ 1341 ............................................................................ 17

25 C.F.R.

§ 162.017 ................................................................... 7, 21

§ 162.414 ......................................................................... 6

§ 162.415 ......................................................................... 6

§ 162.416 ......................................................................... 7

§ 162.417 ......................................................................... 7

§ 162.434 ......................................................................... 7

§ 162.437 ......................................................................... 7

77 Fed. Reg. 72,440 (Dec. 5, 2012)

72,447 .............................................................................. 6

72,448 .................................................................. 7, 19, 21

72,449 .............................................................................. 7

Or. Rev. Stat. § 307.181 ..................................................... 16

VIII

Page

Other Authorities:

Appellant’s Brief, S. Point Energy Ctr., LLC v. Ariz.

Dep’t of Revenue, 490 P.3d 372 (Ariz. Ct. App. 2021)

(No. 1 CA-TX 20-0004) ................................................. 8

Ariz. Dep’t of Educ., 22 Federally Recognized Tribes in

Arizona, https://www.azed.gov/oie/22-federallyrecognized-tribes-arizona........................................... 17

Bureau of Indian Affairs, Southpoint Power Plant: Final

Environmental Impact Statement (Jan. 1999),

https://www.energy.gov/sites/prod/files/2015/04/

f22/EIS-0308-FEIS.pdf ................................. 7-8, 10, 19

Bureau of Land Mgmt., The Lands of Navajo Nation

(Nov. 30, 2020) https://www.blm.gov/blog/2020-1130/lands-navajo-nation ................................................ 18

1 Cohen’s Handbook of Federal Indian Law § 7.03 ....... 22

Colo. River Indian Tribes, About the Mohave,

Chemehuevi, Hopi and Navajo Tribes,

https://www.crit-nsn.gov/crit_contents/about/......... 18

Adam Crepelle, How Federal Indian Law Prevents

Business Development in Indian Country,

23 U. Penn. J. Bus. L. 683 (2021) ............................... 19

Kelly S. Croman & Jonathan B. Taylor, Why Beggar Thy

Indian Neighbor?, JOPNA 2016-1 (May 4, 2016),

https://nnigovernance.arizona.edu/sites/nnigovernan

ce.arizona.edu/files/202402/2016_Croman_why_beggar_thy_Indian_

neighbor.pdf................................................................. 18

Matthew L.M. Fletcher, In Pursuit of Tribal Economic

Development as a Substitute for Reservation Tax

Revenue, 80 N.D. L. Rev. 759 (2004) ........................ 19

Fort Mojave Indian Tribe et al. Amicus Brief, S. Point

Energy Ctr. LLC v. Ariz. Dep’t of Revenue,

508 P.3d 246 (Ariz. 2022) (No. CV-21-0130-PR) ........ 3

Page

Other Authorities—continued:

Fort Mojave Indian Tribe, The People by the River,

https://www.fortmojaveindiantribe.com/about-us/ .. 18

Fort Mojave Indian Tribe v. Killian,

No. 02-cv-1212, slip op. (D. Ariz. Jan. 29, 2004),

ECF No. 99 .................................................................. 11

Fort Mojave Indian Tribe v. Killian,

No. 02-cv-1212, slip op. (D. Ariz. Jan. 29, 2004),

ECF No. 138 ................................................................ 11

Inter Tribal Council of Ariz., Quechan Tribe,

https://itcaonline.com/member-tribes/quechantribe/ ............................................................................. 18

NCAI, Suppemental Comments on ANPRM for 25

C.F.R. Part 140 (Oct. 30, 2017),

https://www.bia.gov/sites/default/files/dup/assets/asia/raca/pdf/40%20-%20NCAI.pdf .............................. 18

Nev. Dep’t of Tax’n, Guidance Letter 14-001, Taxability

of Real Property Located on Tribal Lands Held in

Trust by the U.S. Government (Sept. 17, 2014) ....... 15

S. Point Disclosure, S. Point Energy Ctr. LLC v. Ariz.

Dep’t of Revenue, et al., No. TX 2013-000522

(Ariz. Tax Ct. Mar. 11, 2020) ...................................... 11

U.S. Code Editorial Reclassification Table,

http://uscode.house.gov/editorialreclassification/

t25/T25-ERT.pdf ........................................................... 5

Wash. State Dep’t of Revenue, Property Tax Advisory

1.1.2014, Taxation of Permanent Improvements on

Tribal Trust Land (Mar. 31, 2014)............................ 16

In the Supreme Court of the United States

SOUTH POINT ENERGY CENTER, LLC,

PETITIONER,

ARIZONA DEPARTMENT OF REVENUE; MOHAVE COUNTY,

RESPONDENTS.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF ARIZONA

PETITION FOR A WRIT OF CERTIORARI

Petitioner South Point Energy Center, LLC respectfully petitions for a writ of certiorari to review the

judgments of the Arizona Supreme Court and Arizona

Court of Appeals.

OPINIONS BELOW

The order of the Arizona Supreme Court denying discretionary review of the Arizona Court of Appeals’ postremand decision on implied preemption is unreported and

appended at Pet.App.1a-2a. The post-remand opinion of

the Arizona Court of Appeals in favor of respondents on

implied preemption is reported at 546 P.3d 1130.

Pet.App.3a-20a. The opinion of the Arizona Supreme

Court vacating and remanding the Arizona Court of Appeals’ decision on express preemption is reported at 508

(1)

P.3d 246. Pet.App.21a-43a. The Arizona Court of Appeals’

opinion on express preemption is reported at 490 P.3d 372.

Pet.App.44a-57a. The Arizona Tax Court’s summary

judgment opinion is unreported and available at 2020 WL

13907987. Pet.App.58a-62a. The Arizona Tax Court’s decision denying South Point’s motion for partial summary

judgment on express preemption is unreported and appended at Pet.App.63a-70a.

JURISDICTION

The judgment of the Arizona Court of Appeals was

entered on March 19, 2024. The order of the Arizona Supreme Court denying a timely filed petition for

discretionary review was entered on December 4, 2024.

This Court has jurisdiction under 28 U.S.C. § 1257(a).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Article VI of the United States Constitution provides

in relevant part:

This Constitution, and the Laws of the United

States which shall be made in Pursuance

thereof … shall be the supreme Law of the Land;

and the Judges in every State shall be bound

thereby, any Thing in the Constitution or Laws of

any State to the Contrary notwithstanding.

25 U.S.C. § 5108 (Section 5 of the Indian Reorganization Act of 1934) provides in relevant 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 or otherwise restricted allotments,

whether the allottee be living or deceased, for the

purpose of providing land for Indians.

…

Title to any land or rights acquired pursuant to

this Act … 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.

The full text of Article VI of the Constitution and 25

U.S.C. § 5108 is set forth in the Appendix. Pet.App.71a72a.

STATEMENT

Tribal lands are some of the most economically vulnerable places in our Nation. Attracting non-Indianowned permanent improvements—like power plants—

that tribes can tax spurs economic development on tribal

lands. State and local taxes on such permanent improvements undercut those efforts. As tribes and tribal

organizations argued in this case as amici, such taxes “interfere with tribal sovereignty by undermining tribes’

ability to raise revenue” and “chill[] the economic activity

on which the vitality of reservation economies depend.”

Fort Mojave Indian Tribe et al. Amicus Br. (Tribes Br.)

17-18, S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue,

508 P.3d 246 (Ariz. 2022) (No. CV-21-0130-PR).

Section 5 of the Indian Reorganization Act, 25 U.S.C.

§ 5108, provides that “lands or rights” taken in trust for

tribes by the United States “shall be exempt from State or

local taxation.” Given that taxes on permanent improvements function as taxes on land, this Court has long

understood “land” in § 5108 to encompass “permanent improvements on [a] Tribe’s tax-exempt land.” Mescalero

Apache Tribe v. Jones, 411 U.S. 145, 158 (1973). This case

presents the important question whether the statute

preempts state and local taxation of such permanent improvements owned by non-Indians. That issue demands a

national resolution that only this Court can provide.

In the decision below, the Arizona Supreme Court

held that § 5108 does not “exempt taxation of non-Indianowned permanent improvements.” Pet.App.36a. That

holding squarely conflicts with decisions of the Ninth and

Eleventh Circuits. The Ninth Circuit held that § 5108

preempts state taxation of permanent improvements to

trust land “without regard to the ownership of the improvements.” Confederated Tribes of Chehalis Rsrv. v.

Thurston Cnty. Bd. of Equalization, 724 F.3d 1153, 1159

(9th Cir. 2013) (emphasis added). The Eleventh Circuit

similarly held that § 5108 preempts a state tax imposed on

“non-Indian lessees.” Seminole Tribe of Fla. v. Stranburg, 799 F.3d 1324, 1328 (11th Cir. 2015). The split

between the Arizona Supreme Court and the Ninth Circuit in particular plunges into uncertainty Arizona’s 22

federally recognized tribes and the non-Indian businesses

that own permanent improvements on the tribes’ 19 million acres of trust land and threatens to discourage

investment on these trust lands.

Further, the Arizona Court of Appeals held below

that federal law does not impliedly preempt the County’s

tax. The implied preemption inquiry in this context calls

for an examination “into the nature of the state, federal,

and tribal interests at stake.” White Mountain Apache

Tribe v. Bracker, 448 U.S. 136, 145 (1980). The court gave

short shrift to the significant federal and tribal interests

at stake and improperly treated the State’s general interest in generating revenue as dispositive, in significant

tension with this Court’s precedents and with federal circuit precedents. That one-sided assessment of the

relevant interests skewed the implied preemption analysis

in the State’s favor and amplifies the case for this Court’s

review.

The decisions below upset the consistent and evenhanded application of federal law on questions that strike

at the heart of tribal sovereignty and self-sufficiency. This

case offers an optimal vehicle to resolve these questions,

as the decisions below turned entirely on the questions

presented. Only this Court can resolve the warring

preemption rules that linger over tribes and their business

partners.

A. Legal Background

1. In 1934, Congress enacted the Indian Reorganization Act “to restore the principles of tribal selfdetermination and self-governance” that earlier federal

policies had sought to extinguish. Upper Skagit Indian

Tribe v. Lundgren, 584 U.S. 554, 558 (2018) (citations

omitted). Section 5108 is “the capstone of the IRA’s land

provisions.” Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak, 567 U.S. 209, 226 (2012)

(citation omitted). Section 5108 authorizes the Secretary

of the Interior “to acquire … any interest in lands … for

the purpose of providing land for Indians.” 25 U.S.C.

§ 5108. 1 “Title to any lands or rights acquired” under this

law are taken in trust for the relevant Indian tribe, and

Before the 2016 reclassification of Title 25 of the U.S. Code, current

§ 5108 was instead § 465. See U.S. Code Editorial Reclassification Table, http://uscode.house.gov/editorialreclassification/t25/T25ERT.pdf.

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

taxation.” Id.

This provision plays “a key role in the IRA’s overall

effort ‘to rehabilitate the Indian’s economic life.’”

Patchak, 567 U.S. at 226 (quoting Mescalero, 411 U.S. at

152). Trust land insulated from state and local taxation

“functions as a primary mechanism to foster Indian tribes’

economic development.” Id. This Court has held that

§ 5108’s tax exemption for trust land extends to permanent improvements on that land, confirming the decadesold rule that permanent improvements enjoy the same

tax-exempt status as the land beneath them. Mescalero,

411 U.S. at 158 (citing United States v. Rickert, 188 U.S.

432, 441-43 (1903)).

2. Congress exerts extensive control over leasing of

trust lands. Any tribe wishing to lease trust land must obtain “the approval of the Secretary of Interior.” 25 U.S.C.

§ 415(a). To guide the lease-approval process, the Secretary has promulgated “an extensive, exclusive,

comprehensive, and pervasive regulatory framework governing the leasing of Indian land.” Stranburg, 799 F.3d at

1341. The Bureau of Indian Affairs (BIA) manages the

Secretary’s lease-approval process. The “regulations

cover all aspects of leasing,” from big-ticket items like

BIA authorization to details like land valuations and late

payments. Residential, Business, and Wind and Solar Resource Leases on Indian Land, 77 Fed. Reg. 72,440, 72,447

(Dec. 5, 2012).

The BIA also heavily regulates permanent improvements created pursuant to these leases, including

“construction of … permanent improvements,” 25 C.F.R.

§ 162.414; “ownership of permanent improvements,”

id. § 162.415; “removal of the permanent improvements,”

id. § 162.416; “due diligence requirements” for permanent

improvements, id. § 162.417; “performance bond[s]” for

“[t]he construction of any required permanent improvements,” id. § 162.434(a)(2); and “insurance” for “all

insurable permanent improvements,” id. § 162.437.

A BIA regulation confirms § 5108’s application to taxation of all permanent improvements to trust land:

“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.” Id. § 162.017(a)

(emphasis added). The BIA explained that it used the

phrase “without regard to ownership” “to indicate that no

improvements on leased Indian land are subject to State

taxation, regardless of who owns the improvements.” 77

Fed. Reg. at 72,449. According to the BIA, “State and local taxation of improvements undermine Federal and

tribal regulation of improvements.” Id. at 72,448. Of

course, “[i]mprovements may be subject to taxation by the

Indian tribe with jurisdiction.” 25 C.F.R. § 162.017(a).

B. Factual Background

1. The Fort Mojave Indian Tribe is a federally recognized Indian tribe organized under the Indian

Reorganization Act. Fort Mojave Tribe v. San Bernardino County, 543 F.2d 1253, 1255 (9th Cir. 1976). The Fort

Mojave Indian Reservation consists of 33,000 acres of desert land, spanning portions of Arizona, California, and

Nevada. Pet.App.76a-77a, 145a; BIA, Southpoint Power

Plant: Final Environmental Impact Statement 99 (Jan.

1999) (EIS). 2 The Secretary of Interior holds title to all of

https://www.energy.gov/sites/prod/files/2015/04/f22/EIS-0308FEIS.pdf.

the Reservation’s land in trust for the Tribe’s benefit. EIS

at 115.

2. In 1999, the Tribe leased 320 acres of Reservation

trust land to South Point for the construction of a 500megawatt natural-gas-fired power plant (the “Facility”). 3

Pet.App.23a, 74a, 143a. South Point was drawn to the

Tribe’s trust land in part because the Tribe had perfected

water rights to the Colorado River in quantities adequate

to meet the Facility’s consumptive use requirements. EIS

at 164-65. After the 1999 lease was executed, South Point

built and operated the Facility. Pet.App.23a. In 2012, the

Tribe and South Point executed an amended lease that altered the parties’ financial obligations but otherwise

remained substantially the same. Pet.App.24a-25a. The

Facility falls entirely on Reservation trust land leased

from the Tribe, within the geographical boundaries of Mohave County, Arizona. EIS at S-2. South Point owns the

Facility, Pet.App.24a-25a, pictured here: 4

While the Tribe initially leased to South Point’s predecessors-in-interest, South Point now owns the facility and directly leases the trust

land.

Appellant’s Br. 16, S. Point Energy Ctr., LLC v. Ariz. Dep’t of Revenue, 490 P.3d 372 (Ariz. Ct. App. 2021) (No. 1 CA-TX 20-0004).

The Facility would typically be subject to tribal taxes.

Pet.App.134a, 202a. But the Tribe generally grants taxpayers on the Reservation a credit against tribal taxes for

similar state or local taxes. Pet.App.134a, 202a. Alternatively, the Tribe allows developers to enter agreements for

lump-sum payments in lieu of separately assessed annual

taxes. Pet.App.134a-135a, 203a.

The Tribe and South Point settled on lump-sum payments. Under a modification to the 1999 lease, South

Point agreed to pay the Tribe $2 million per year in lieu of

leasehold interest taxes. Pet.App.86a, 152a. South Point

made these payments in addition to payments for other

items, like base rent and water rights. Pet.App.86a, 151a152a. The 2012 lease superseded this arrangement and

authorized South Point to make a lump-sum payment of

$27 million, together with annual payments totaling $18

million, in satisfaction of amounts owed for the ground

lease, water usage, and tribal taxes. Pet.App.88a-89a,

158a. South Point’s payments helped the Tribe achieve its

goal of becoming debt-free by 2017. Pet.App.133a, 201a.

3. The United States has regulated the Tribe’s lease

to South Point from its inception. The BIA approved each

version of the lease and its modifications. Pet.App.7a; see

also Pet.App.83a-85a, 88a, 149a-151a, 157a. The approval

involved a 374-page BIA-issued Environmental Impact

Statement. EIS at S-1. The BIA concluded that the Facility would bring “substantial economic benefits to the

[Tribe] through the land lease revenues, water lease payments, … and employment opportunities.” EIS at 31. The

BIA further found that the Facility would help “fulfill

stated tribal goals for economic development and self-sufficiency.” EIS at 193.

The Tribe also regulates the Facility. Tribal laws required South Point to obtain water use and building

permits. EIS at 4. South Point had to get certificates of

occupancy from the Tribe’s Building and Safety Department. Pet.App.119a, 189a. The lease required South

Point to enter a compliance agreement with the Tribe regarding tribal employment preferences at the Facility.

Pet.App.109a, 176a. And federal environmental laws require the Tribe to regulate South Point’s on-reservation

activities

for

emergency

planning

purposes.

Pet.App.102a-104a, 168a-170a.

The Tribe provides the Facility with all customary

government services. The Fort Mojave Tribal Police Department takes care of law enforcement. Pet.App.81a82a, 148a. Fire and emergency-response services come

from the Mohave Valley Fire Department under a service

agreement with the Tribe. Pet.App.126a-127a, 195a-196a.

Tribal entities provide sewer, telephone, internet, and

back-up power services. Pet.App.128a-131a, 197a-200a.

4. The County admits that it has no regulatory authority over South Point, the Tribe, or on-reservation

activities. Pet.App.102a, 120a-121a, 168a, 189a-191a. And

the County admits that it provides no services to the Facility. Pet.App.125a, 130a-131a, 195a, 198a-200a; see also

Pet.App.19a.

Yet the County seeks to tax the Facility as if it were

any other property within the State. Between 2010 and

2017 (and continuing to this day), the Arizona Department

of Revenue centrally valued the Facility as an electric generation plant, and Mohave County assessed and collected

state ad valorem property taxes on the Facility based on

the Department’s valuation. Pet.App.75a-76a, 143a-144a;

see also Pet.App.23a. South Point timely paid these taxes,

which totaled more than $20 million. Pet.App.76a, 144a;

S. Point Disclosure 2-4, S. Point Energy Ctr. LLC v. Ariz.

Dep’t of Revenue, et al., No. TX 2013-000522 (Ariz. Tax Ct.

Mar. 11, 2020).

C. Procedural History

1. After entering the 1999 lease, the Tribe challenged

the County’s taxing authority in the U.S. District Court

for the District of Arizona. South Point attempted to intervene. Fort Mojave Indian Tribe v. Killian, No. 02-cv1212, slip op. at 3 (D. Ariz. Jan. 29, 2004), ECF No. 99. The

district court, however, dismissed South Point’s intervenor complaint for lack of jurisdiction under the Tax

Injunction Act. Id. at 8-9. And the district court dismissed

the Tribe’s complaint for lack of Article III standing, reasoning that any harm to the Tribe would not be “fairly

traceable” to the County’s tax against South Point.

Killian, No. 02-cv-1212, slip op. at 21 (Mar. 31, 2004), ECF

No. 138.

South Point also sued the County under state law for

a refund in the Arizona Tax Court. Calpine Constr. Fin.

Co. v. Ariz. Dep’t of Revenue, 211 P.3d 1228, 1231 (Ariz.

Ct. App. 2009). But the Arizona Court of Appeals upheld

the tax under Arizona law because South Point, not the

Tribe, owned the permanent improvements. Id. at 249.

2. Around the time of the 2012 lease agreement,

South Point returned to the Tax Court, claiming that federal law expressly or impliedly preempts the County’s tax.

The Tax Court did not agree. Pet.App.62a, 69a.

The Arizona Court of Appeals, however, held that

“§ 5108 establishes a categorical exemption for permanent

improvements on Indian land held in trust by the United

States.” Pet.App.57a. The court recognized that this rule

comported with the rule in the Ninth Circuit, which “held

§ 5108 applies to all permanent improvements on trust

land, regardless of whether they are tribal-owned.”

Pet.App.50a (citing Chehalis, 724 F.3d at 1157, 1159). The

court did not reach implied preemption. Pet.App.51a-52a.

The Arizona Supreme Court granted review and vacated the decision.

The Arizona Supreme Court

recognized that § 5108 “preempts state and local taxes imposed on [trust] land.” Pet.App.42a. But the court held

that § 5108 “does not preempt a state or locality from taxing [permanent] improvements” when the “lessee” of trust

land “is a non-Indian.” Pet.App.42a. The Arizona Supreme Court then remanded for the court of appeals to

consider implied preemption. Pet.App.43a.

On remand, the Arizona Court of Appeals held that

South Point was not “impliedly exempt from the County’s

tax.” Pet.App.20a. The court rejected “the pervasiveness

of federal regulation of tribal leases” as “immaterial.”

Pet.App.17a. The court discounted the Tribe’s “interest in

economic development” because, according to the court,

the “legal incidence” of the tax fell on South Point.

Pet.App.18a. And the court credited the County’s general

interest in revenue generation, even though “South Point

demands few

Pet.App.19a.

direct services

from”

the

County.

The Arizona Supreme Court denied South Point’s petition for discretionary review. Pet.App.1a.

REASONS FOR GRANTING THE PETITION

As tribes and tribal organizations emphasized below,

this case presents “an issue of critical importance for

tribal self-government and self-sufficiency.” Tribes Br. 3.

The Arizona Supreme Court’s decision creates a direct

conflict with the Ninth and Eleventh Circuits over

whether federal law expressly preempts state and local

taxes on non-Indian-owned permanent improvements to

tribal trust land. Especially pernicious is the split with the

Ninth Circuit, which subjects Arizona’s 22 tribes and their

business partners to conflicting rules: state and local

taxes on non-Indian-owned permanent improvements to

trust land in Arizona are simultaneously preempted (if in

federal court) and valid (if in state court). Only this Court

can end the uncertainty that threatens to chill desperately

needed investment and development on tribal land.

The Arizona Supreme Court’s Express Preemption Holding Requires This Court’s Review

The Arizona Supreme Court’s holding that 25 U.S.C.

§ 5108 does not preempt state or local taxes on permanent

improvements to trust land if a non-Indian entity owns

those improvements flatly contradicts the rule in the

Ninth and Eleventh Circuits and demands this Court’s review.

The Decision Below Creates an Intolerable Split Over

Whether § 5108 Expressly Preempts State and Local

Taxes on Non-Indian-Owned Permanent Improvements to Trust Land

Section 5108 provides that trust “lands or rights shall

be exempt from State or local taxation.” These trust

“lands” include “permanent improvements upon [the]

land” given that permanent improvements are “so intimately connected with use of the land itself.” Mescalero,

411 U.S. at 158. In holding that § 5108 does not “exempt

taxation of non-Indian-owned permanent improvements,”

Pet.App.36a, the Arizona Supreme Court created a direct

conflict with the Ninth and Eleventh Circuits.

1. The Ninth Circuit confronted this question in Chehalis, which concerned a local property tax on a

permanent improvement on trust land—the Great Wolf

Lodge. The district court upheld the tax because, in its

view, “state and local governments are not necessarily

prohibited from taxing permanent improvements, like the

Great Wolf Lodge, that are owned by non-Indians.” 724

F.3d at 1155. The Ninth Circuit reversed, holding that

§ 5108 “preempts state and local taxes on permanent improvements built on” trust land “without regard to the

ownership of the improvements.” Id. at 1159 (emphasis

added).

The Arizona Supreme Court recognized the conflict.

The court posited that Chehalis was distinguishable because the tribe owned 51% of the LLC that owned the

Great Wolf Lodge. Pet.App.38a; see Chehalis, 724 F.3d at

1154. Given that fact, the Arizona Supreme Court concluded that Chehalis stands only for the proposition that

§ 5108 “preemption applies to permanent improvements

regardless of the ownership vehicle a tribe uses to own the

improvements.” Pet.App.39a. The Arizona Supreme

Court recognized, however, that the Ninth Circuit broadly

stated that § 5108 preempts “without regard to the ownership of the improvements.” Pet.App.39a (quoting

Chehalis, 724 F.3d at 1159) (emphasis omitted). The Arizona Supreme Court stated that, if the Ninth Circuit

meant that “broader reading,” the Arizona Supreme

Court “reject[ed]” it. Pet.App.39a.

Chehalis makes clear that the Ninth Circuit’s broad

language was intentional. The Ninth Circuit viewed the

appeal as raising a “purely legal question,” 724 F.3d at

1155, and its reasoning did not turn on the facts surrounding the Tribe’s ownership of the LLC. Its analysis focused

exclusively on where the permanent improvement sits, not

who owns the permanent improvement: if land is “held in

trust pursuant to [§ 5108],” § 5108’s “exemption from state

and local taxation applies to the permanent improvements

on that land.” Id. at 1157. And the court made clear that

its conclusion was not limited to permanent improvements

with ownership structures like the Great Wolf Lodge, as

it held that the county could not “tax the Great Wolf Lodge

or other permanent improvements on that land.” Id. (emphasis added). Indeed, the Eleventh Circuit likewise has

read Chehalis as “invalidat[ing] a Washington state tax on

permanent improvements owned by a non-Indian corporation.” Stranburg, 799 F.3d at 1333.

Similarly, both States and localities within the Ninth

Circuit have understood Chehalis plainly to foreclose

State taxation of non-Indian-owned permanent improvements to trust land.

Citing Chehalis, Nevada’s

Department of Taxation announced that “[d]ue to recent

decisions by Federal courts … any permanent improvement owned by any person or company and located on

trust lands, are not taxable property by the State of Nevada and its subdivisions.” Nev. Dep’t of Tax’n, Guidance

Letter 14-001, Taxability of Real Property Located on

Tribal Lands Held in Trust by the U.S. Government 1

(Sept. 17, 2014). Washington’s State Department of Revenue similarly explained that under Chehalis “state and

local governments cannot assess property tax on permanent improvements built on trust land” “without regard to

the ownership of the improvements.” Wash. State Dep’t

of Revenue, Property Tax Advisory 1.1.2014, Taxation of

Permanent Improvements on Tribal Trust Land 1-2

(Mar. 31, 2014). And, following Chehalis, Oregon passed

legislation providing that “[r]egardless of ownership, permanent improvements are exempt from state and local

property taxes and fees … if the improvements are located on [trust] land.” Or. Rev. Stat. § 307.181(2)(a).

There is no doubt that, had this case been in federal court,

state taxation would have been foreclosed.

2. The outcome below also would have been different

in the Eleventh Circuit. In Stranburg, the Eleventh Circuit held that § 5108 preempted a state rental tax imposed

on “non-Indian lessees” of tribal land. 799 F.3d at 1328.

The Eleventh Circuit reasoned that § 5108 extends to

rental taxes by equating them to taxes on permanent improvements, which it deemed unquestionably within the

ambit of § 5108: “[j]ust as the use of permanent improvements on land ‘is so intimately connected with use of the

land itself,’ … payment under a lease is intimately and indistinguishably connected to the leasing of the land itself.”

Id. at 1331 (quoting Mescalero, 411 U.S. at 158). The court

then explained why § 5108 preempts taxes that “fall[] on

the non-Indian lessees”: “By the plain text of the statute,

the tax exemption contained in [§ 5108] attaches to the

[trust] land and the rights in that land.” Id. at 1331 n.8. A

fortiori then, § 5108 preempts state and local taxes on nonIndian-owned permanent improvements in the Eleventh

Circuit.

B. The Express Preemption Question Is Important and

Squarely Presented

This split over the meaning of § 5108 is enormously

consequential for tribes and their business partners. And

the question implicates an issue that demands a national,

uniform rule.

1. The Arizona Supreme Court created an intolerable

split over the meaning of a federal statute that will cause

disparate outcomes based on location and court system.

Most absurdly, in federal courts in Arizona, § 5108

“preempts state and local taxes on permanent improvements built on” Indian trust land, “without regard to the

ownership of the improvements.” Chehalis, 724 F.3d at

1159. But down the street in state court, § 5108 “does not

preempt a state or locality from taxing the improvements”

when the “lessee is a non-Indian.” Pet.App.42a.

Worse, the affected parties may not be able to obtain

a federal forum in the first instance. Because of the Tax

Injunction Act, 28 U.S.C. § 1341, non-tribal taxpayers are

stuck bringing their challenges to state taxes in state

court. See supra p. 11. That leaves the tribes, which are

not barred by the Tax Injunction Act, to challenge the tax

in federal court. See Moe v. Confederated Salish & Kootenai Tribes of Flathead Rsrv., 425 U.S. 463, 474-75 (1976).

But tribes may not always succeed in establishing standing, as occurred in this case. See supra p. 11.

The decision below has therefore plunged into uncertainty the 22 federally recognized tribes in Arizona 5 and

the non-Indian businesses that own permanent improvements to the tribes’ trust land. For parties who entered

Ariz. Dep’t of Educ., 22 Federally Recognized Tribes in Arizona,

https://www.azed.gov/oie/22-federally-recognized-tribes-arizona.

leases relying on Chehalis, their mutual understanding of

the deal will be upended if they cannot get into federal

court. And going forward, to find out which reading of federal law applies, tribes and taxpayers will be forced to put

their fate in the which-court-will-we-get roulette. As the

National Congress of American Indians has explained,

such “uncertainty” surrounding state and local taxation

has a “chilling effect on both outside and tribal investment.” 6

The geographical makeup of some tribes compounds

the prospect of disparate outcomes. Numerous tribes

have reservation trust land that spans several States. In

Arizona, for instance, the Fort Mojave Tribe, the Navajo

Nation, the Colorado River Indian Tribes, and the

Quechan Tribe all occupy land in several States. 7 These

tribes and their lessees will face conflicting taxation rules

depending on the location of leased land within the same

tribe’s sovereign boundaries.

2. The tax status of non-Indian-owned permanent improvements to tribal trust lands is enormously

NCAI, Supplemental Comments on ANPRM for 25 C.F.R. Part 140,

at 4 (Oct. 30, 2017), https://www.bia.gov/sites/default/files/dup/assets/as-ia/raca/pdf/40%20-%20NCAI.pdf; see also, e.g., Kelly S.

Croman & Jonathan B. Taylor, Why Beggar Thy Indian Neighbor?,

JOPNA 2016-1, at 24 (May 4, 2016), https://nnigovernance.arizona.edu/sites/nnigovernance.arizona.edu/files/202402/2016_Croman_why_beggar_thy_Indian_neighbor.pdf.

Fort Mojave Indian Tribe, The People by the River,

https://www.fortmojaveindiantribe.com/about-us/; Bureau of Land

Mgmt., The Lands of Navajo Nation (Nov. 30, 2020)

https://www.blm.gov/blog/2020-11-30/lands-navajo-nation;

Colo.

River Indian Tribes, About the Mohave, Chemehuevi, Hopi and Navajo Tribes, https://www.crit-nsn.gov/crit_contents/about/; Inter

Tribal Council of Ariz., Quechan Tribe, https://itcaonline.com/member-tribes/quechan-tribe/.

consequential. State taxes on permanent improvements

on trust land severely undercut tribal sovereignty. “The

power to tax is an essential attribute of Indian sovereignty.” Merrion v. Jicarilla Apache Tribe, 455 U.S. 130,

137 (1982).

Moreover, as the BIA has explained, “[s]tate and local

taxation of lessee-owned improvements … can impede a

tribe’s ability to attract non-Indian investment to Indian

lands,” which is “critical to the vitality of tribal economies.”

77 Fed. Reg. at 72,448.

“[E]mployment

opportunities are few” on tribal trust land because there

is “virtually no private sector.” Adam Crepelle, How Federal Indian Law Prevents Business Development in

Indian Country, 23 U. Penn. J. Bus. L. 683, 690 (2021).

And the lack of “income, property, or sales” on trust land

means “there is no stable tax base on most reservations.”

Matthew L.M. Fletcher, In Pursuit of Tribal Economic

Development as a Substitute for Reservation Tax Revenue, 80 N.D. L. Rev. 759, 774 (2004).

The decision below puts tribes into a cruel and economically unbearable dilemma that only this Court can

correct. The tribe can forgo taxing permanent improvements on trust land, for which the tribe provides utilities,

law enforcement, and fire and emergency services. As the

tribal amici below explained, that would mean losing out

on “crucial tax revenues.” Tribes Br. 19. Or the tribe can

tax permanent improvements even though the improvements are subject to state and local taxes, which will

“depress[] investment in projects key to the vitality of

tribal communities.” Id. That can mean the loss of facilities like South Point’s, which provide the Tribe

“substantial economic benefits” through “lease revenues”

and “employment opportunities,” and thereby help the

tribe achieve its “goals for economic development and self-

sufficiency.” EIS at 31, 193. And it can mean the loss of

businesses that provide critical services to Indians such as

grocery stores. Only this Court can restore these vital

economic lifelines for tribes in Arizona and restore uniformity for other tribes across the Nation.

3. This case is the ideal vehicle to resolve the express

preemption question. There are no jurisdictional or procedural barriers to this Court’s review. And the question

presented squarely determined the outcome in the Arizona Supreme Court. Pet.App.42a.

C. The Arizona Supreme Court’s Interpretation of § 5108

Is Incorrect

The Arizona Supreme Court wrongly interpreted

§ 5108 as not preempting state and local taxes on non-Indian-owned permanent improvements to trust land.

1. The plain text of § 5108 displays no preference for

Indian ownership. Section 5108 preempts state and local

taxes on land “taken in the name of the United States in

trust for” Indians. If the land is trust land, § 5108

preempts state and local taxes on that land. And permanent improvements on trust land are part of the trust land

such that taxes on permanent improvements amount to

taxes on the land. Mescalero, 411 U.S. at 158; Rickert, 188

U.S. at 441-42. That principle does not change depending

on who owns the permanent improvement. After all, the

legal incidence of a property tax falls on the property, not

the owner. See United States v. Allegheny County, 322

U.S. 174, 184 (1944); see also Peabody Coal Co. v. Navajo

County, 572 P.2d 797, 800 (Ariz. 1977) (“it is the property

that owes the tax and not the owner”). And the relationship between a permanent improvement and the land is

based on the improvement’s permanence, not its ownership.

The BIA recognizes this basic principle. As the

agency has explained, “a property tax on … improvements burdens the land, particularly if a State or local

government were to attempt to place a lien on the improvement.” 77 Fed. Reg. at 72,448. A BIA regulation

thus provides that “permanent improvements on the

leased land, without regard to ownership of those improvements, are not subject to” state or local taxation. 25

C.F.R. § 162.017(a) (emphasis added).

2. The Arizona Supreme Court’s contrary reasoning

is unpersuasive. First, the court reasoned that Mescalero

does not control because Mescalero “concerned tribal

property and tribal activities.” Pet.App.36a. But ownership of the permanent improvements was not relevant to

the Court’s logic in Mescalero. See 411 U.S. at 158-59.

Second, the Arizona Supreme Court stated that Rickert, this Court’s pre-§ 5108 case holding permanent

improvements on trust land immune from state and local

taxes, “turned on the property owners’ status as Indians.”

Pet.App.36a. But Rickert did not turn on ownership; it

turned on the fact that the improvements were permanent

improvements, making them “essentially a part of the

lands.” 188 U.S. at 442.

Third, the Arizona Supreme Court pointed to preMescalero cases that indicated that the Constitution does

not by its own force preempt state and local taxes on nonIndian-owned

permanent

improvements.

See

Pet.App.36a-37a. Those cases, where preemption had no

statutory basis, are irrelevant to the interpretation of

§ 5108.

Finally, the Arizona Supreme Court concluded that

§ 5108 does not apply because “the Indian beneficiary has

no possessory or use interest in the permanent improvements, and the federal government’s ‘lands or rights’

[thus] do not include those improvements.” Pet.App.38a.

But permanent improvements to trust land are literally

attached to the federal government’s trust land. And

tribes retain an interest in regulating and taxing permanent improvements on tribal trust lands even if they do

not own or possess them.

II. The Arizona Court of Appeals’ Implied Preemption Holding Also Merits Review

The Arizona Court of Appeals’ post-remand decision

on implied preemption involves questions that have divided courts and also merits this Court’s review. This

Court should grant review on both questions presented to

give itself the broadest possible set of preemption grounds

to resolve this case.

1. This Court has “rejected the proposition that in order to find a particular state law to have been preempted

by operation of federal law, an express congressional

statement to that effect is required.” Bracker, 448 U.S. at

144. The normal presumption against preemption “is reversed” in this context because the “backdrop of tribal

sovereignty” “free from state jurisdiction and control is

deeply rooted in the Nation’s history.” 1 Cohen’s Handbook of Federal Indian Law § 7.03 (citations omitted).

In this context, courts assess “the nature of the state,

federal, and tribal interests at stake” to ascertain whether

“the exercise of state authority would violate federal law.”

Bracker, 448 U.S. at 145. The Arizona Court of Appeals

mangled its analysis of all three sets of interests.

2. State regulation implicating a “pervasive” “federal

regulatory scheme” puts at issue significant federal interests. Id. at 148. This is true even when the federal

government does not directly regulate “the activity

taxed.” Ramah Navajo Sch. Bd., Inc. v. Bureau of Revenue of N.M., 458 U.S. 832, 839-42 & n. 5 (1982) (citation

omitted); see also Bracker, 448 U.S. at 147-49.

The federal government has a strong interest in regulating permanent improvements on tribal trust land.

“[T]he federal government administers an extensive, exclusive, comprehensive, and pervasive regulatory

framework governing the leasing of Indian land,” spanning “dozens of congressional statutes and federal

regulations.” Stranburg, 799 F.3d at 1341; see supra pp.

6-7. And the BIA specifically regulates permanent improvements on trust land. See supra pp. 6-7. In this case,

the BIA approved each version of South Point’s lease and

its modifications. See supra p. 10. State tax authority over

permanent improvements constructed pursuant to these

leases frustrates the federal scheme.

In assessing the federal interests, the court below

overlooked this Court’s precedents and put Arizona on the

wrong side of an acknowledged conflict over what establishes a legally cognizable federal interest—in particular,

whether a federal regulatory scheme must directly regulate the object of state taxation to create a cognizable

federal interest.

The Arizona Court of Appeals held that “the pervasiveness of federal regulation of tribal leases is immaterial

because no aspect of the lease” itself “is subject to tax.”

Pet.App.17a (emphasis added). The Arizona Court of Appeals aligned itself with the California Court of Appeal,

which held that “extensive” federal regulation of leases on

Indian land did not sufficiently evince a federal interest

regarding taxes on possessory interests in property under

those leases. Herpel v. County of Riverside, 258 Cal. Rptr.

3d 444, 454-57 (Cal. Ct. App. 2020). The California Court

of Appeal acknowledged “that this [view] puts [it] in disagreement with courts that have described the federal

interest in the context of the Leasing Regulations as similar to those in Bracker and Ramah.” Id. at 456.

Contrary to the decision below, other courts have held

that extensive federal regulation of leasing gives rise to

substantial federal interests in the Bracker analysis even

when the state tax is not imposed directly on the lease. In

holding a state rental tax impliedly preempted, the Eleventh Circuit held that federal regulations concerning

leasing of Indian land demonstrate a federal interest in

not only state regulation of the “leasing of Indian land” itself, but also state “regulation of the activities occurring

under the lease.” Stranburg, 799 F.3d at 1339; see also

Agua Caliente Band of Cahuilla Indians v. Riverside

County, 749 F. App’x 650, 652 (9th Cir. 2019) (Watford, J.,

concurring) (“pervasive[]” BIA regulation of the “leasing

of Indian trust lands” creates a “substantial” federal interest in taxes on “non-tribal-member lessees”).

Likewise, the Eighth Circuit held that the Indian

Gaming Regulatory Act’s regulation of gaming activities

on tribal land evinces a federal and tribal interest in avoiding state taxes on non-tribal individuals’ purchases of

amenities at tribal casinos, even if not “directly related to

the operation of gaming activities.” Flandreau Santee

Sioux Tribe v. Noem, 938 F.3d 928, 936 (8th Cir. 2019). It

sufficed that those purchases “contribute significantly to

the economic success of” the gaming activities. Id.

What is more, the Eighth Circuit recognizes that an

especially “strong[]” federal interest exists “in cases

where the Federal Government has blessed the Tribe’s

venture.” HCI Distrib., Inc. v. Peterson, 110 F.4th 1062,

1069 (8th Cir. 2024). The federal government blessed the

venture here, see supra p. 10, yet the Arizona Court of Appeals erroneously deemed the federal government’s

involvement in the leasing categorically “immaterial” because Arizona is not taxing the lease itself, Pet.App.17a.

3. The Arizona Court of Appeals also erred in assessing the State’s interest. A State’s “generalized

interest in raising revenue [is not] sufficient.” Bracker,

448 U.S. at 150; Ramah, 458 U.S. at 845. Even where a

State provides “significant services” to a tribe, those services must be “related to” the on-reservation activity

being taxed to “justify the imposition of [the] tax.”

Ramah, 458 U.S. at 845 & n.10.

Here, as in Bracker and Ramah, “this is not a case in

which the State seeks to assess taxes in return for governmental functions it performs for those on whom the taxes

fall.” Bracker, 448 U.S. at 150; Ramah, 458 U.S. at 843.

The Arizona Court of Appeals acknowledged that “South

Point demands few direct services from the state or Mohave County.” Pet.App.19a. The County, in fact, concedes

that it provides no services to the Facility. See supra pp.

10-11.

The Arizona Court of Appeals nonetheless found that

the state interest in taxation outweighed the competing

federal and tribal interests, pointing to the County’s interest in generating revenue to pay for schools, to “maintain

roads,” and to provide, among other things, “flood control,” “libraries,” and “law enforcement.” Pet.App.20a. As

just discussed, that approach conflicts with Ramah and

Bracker. It also conflicts with circuit-level authority. The

Eleventh Circuit held that a “state’s interests in a particular tax can outweigh federal tribal interests” only when

the State’s tax “relate[s] to services it provides in connection with the entity and activity being taxed and not

merely serve a generalized interest in raising revenue.”

Stranberg, 799 F.3d at 1337 (emphasis added). And the

Eighth Circuit held that “a ‘generalized interest in raising

revenue’ … to provide government services throughout”

the State “does not outweigh … federal and tribal interests.” Flandreau Santee Sioux, 938 F.3d at 937 (citation

omitted).

4. Finally, the Arizona Court of Appeals erred in discounting the tribal interests at stake. The court held that

the Tribe lacks a strong interest because South Point, not

the Tribe, “bears the tax’s legal incidence.” Pet.App.18a.

But this Court has expressly rejected the view that “the

legal incidence and not the actual burden of the tax would

control the pre-emption inquiry” and has deemed “it significant [if] the economic burden of the asserted taxes

would ultimately fall on the Tribe, even though the legal

incidence of the tax was on the non-Indian” entity.

Ramah, 458 U.S. at 844 n.8. The tax here imposes real

burdens on the Tribe. See supra pp. 9-11.

The court below believed that this Court’s decision in

Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163

(1989), supported its narrow approach to measuring tribal

interests. Pet.App.18a-19a. Cotton Petroleum, however,

did not direct courts to categorically ignore taxes’ true impacts on a tribe. The Eleventh Circuit has therefore

considered indirect economic burdens on a tribe in conducting the Bracker analysis. See Stranburg, 799 F.3d at

1340-41.

The court’s one-sided analysis of each factor tipped

the analysis in the State’s favor. Under the court’s analysis, it is difficult to conceive of any situation in which a

state or local tax could be impliedly preempted, making

Bracker preemption meaningless. The implied preemption question implicates the same weighty interests that

undergird the express preemption question. At the very

least, this Court should grant review on both questions

presented to have all possible arguments available to the

Court on the merits.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

BENNETT EVAN COOPER

VAIL C. CLOAR

DICKINSON WRIGHT PLLC

1850 N. Central Avenue,

Suite 1400

Phoenix, AZ 85004

(602) 285-5000

PATRICK DERDENGER

KAREN M. LOWELL

WOMBLE BOND DICKINSON

(US) LLP

201 E. Washington Street,

#1200

Phoenix, AZ 85004

(602) 262-5311

MARCH 3, 2025

LISA S. BLATT

Counsel of Record

AMY MASON SAHARIA

ROHIT P. ASIRVATHAM

R. SHANE ROBERTS, JR.

WILLIAMS & CONNOLLY LLP

680 Maine Avenue S.W.

Washington, DC 20024

(202) 434-5000

lblatt@wc.com

Attorneys for Petitioner

South Point Energy Center,

LLC

APPENDIX

TABLE OF CONTENTS

APPENDIX A:

Order Denying Discretionary

Review, No. CV-24-0076-PR,

Ariz., Dec. 4, 2024 ........................... 1a

APPENDIX B:

Opinion & Order, No. 1 CA-TX

20-0004, Ariz. Ct. App.,

Mar. 19, 2024 .................................. 3a

APPENDIX C:

Opinion & Order, No. CV-210130-PR, Ariz., Apr. 26, 2022 ...... 21a

APPENDIX D:

Opinion & Order, No. 1 CA-TX

20-0004, Ariz. Ct. App.,

Apr. 27, 2021.................................. 44a

APPENDIX E:

Decision & Order, No. TX 2013000522, Ariz. Tax Ct.,

Feb. 4, 2020 ................................... 58a

APPENDIX F:

Decision & Order, No. TX 2013000522, Ariz. Tax Ct.,

May 16, 2018 .................................. 63a

APPENDIX G:

U.S. Const. art. VI ........................ 71a

APPENDIX H:

25 U.S.C. § 5108 ............................ 72a

APPENDIX I:

Plaintiff’s Statement of Facts in

Support of Motion for Summary

Judgment, Ariz. Tax Ct. No. TX

2013-000522, Sept. 17, 2019 ......... 73a

APPENDIX J:

Defendants’ Response to

Statement of Facts in Support of

Motion for Summary Judgment,

Ariz. Tax Ct. No. TX 2013000522, Oct. 18, 2019................... 142a

APPENDIX A

Supreme Court

STATE OF ARIZONA

ANN A. SCOTT

TIMMER

Chief Justice

ARIZONA STATE COURTS BUILDING

1501 WEST WASHINGTON STREET,

SUITE 402

PHOENIX, ARIZONA 85007

TELEPHONE: (602) 452-3396

TRACIE K.

LINDEMAN

Clerk of the Court

December 4, 2024

RE:

SOUTH POINT v ADOR et al

Arizona Supreme Court No. CV-24-0076-PR

Court of Appeals, Division One No. 1 CA-TX

20-0004

Arizona Tax Court No. TX2013-000522

Arizona Tax Court No. TX2016-001228

Arizona Tax Court No. TX2017-001744

Arizona Tax Court No. TX2018-000019

Arizona Tax Court No. TX2019-000086

Arizona Tax Court No. TX2014-000451

Arizona Tax Court No. TX2015-000850

GREETINGS:

The following action was taken by the Supreme Court of

the State of Arizona on December 3, 2024, in regard to the

above-referenced cause:

ORDERED: Petition for Review = DENIED.

FURTHER ORDERED: Request for Attorneys’

Fees (Appellant South Point Energy) = DENIED.

Tracie K. Lindeman, Clerk

TO:

Patrick Derdenger

Karen M. Jurichko Lowell

Bennett Evan Cooper

Vail Cloar

Cameron C. Artigue

Christopher L. Hering

Amy M. Wood

APPENDIX B

IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

__________________________________

SOUTH POINT ENERGY CENTER LLC,

Plaintiff/Appellant,

ARIZONA DEPARTMENT OF REVENUE, et al.,

Defendants/Appellees.

No. 1 CA-TX 20-0004

FILED 3-19-2024

__________________________________

Appeal from the Arizona Tax Court

No. TX2013-000522

TX2014-000451

TX2015-000850

TX2016-001228

TX2017-001744

TX2018-000019

TX2019-000086

(Consolidated)

The Honorable Christopher T. Whitten, Judge

AFFIRMED

__________________________________

COUNSEL

Lewis Roca Rothgerber Christie LLP, Phoenix

By Patrick Derdenger, Karen M. Jurichko Lowell

Co-Counsel for Plaintiff/Appellant

Dickinson Wright PLLC, Phoenix

By Bennett Evan Cooper, Vail C. Cloar

Co-Counsel for Plaintiff/Appellant

Gammage & Burnham, P.L.C., Phoenix

By Cameron C. Artigue, Christopher L. Hering

Counsel for Defendants/Appellees Arizona Department

of Revenue and Mohave County

Arizona Attorney General’s Office, Phoenix

By Kimberly J. Cygan

Counsel for Defendant/Appellee Arizona Department of

Revenue

Arizona Attorney General’s Office, Phoenix

By Jerry A. Fries

Counsel for Defendant/Appellee Mohave County

Kewenvoyouma Law, PLLC, Tempe

By Verrin T. Kewenvoyouma, Christopher Love

Co-Counsel for Amici Curiae Fort Mojave Indian Tribe,

et al.

Jenner and Block, LLP, Washington, D.C.

By Charles W. Galbraith, Pro Hac Vice

Co-Counsel for Amici Curiae Fort Mojave Indian Tribe,

et al.

__________________________________

OPINION

Judge Cynthia J. Bailey delivered the opinion of the

Court, in which Presiding Judge Paul J. McMurdie and

Judge D. Steven Williams joined.

__________________________________

B A I L E Y, Judge:

¶1

Plaintiff South Point Energy Center, LLC (“South

Point”) appeals the tax court’s summary judgment for the

Arizona Department of Revenue (“ADOR”) and Mohave

County (collectively, “the County”). South Point argues

that the tax court erred in concluding that the County’s

valuation and taxation of South Point’s electric power

generating plant (“the Plant”) is not preempted under

White Mountain Apache Tribe v. Bracker, 448 U.S. 136

(1980). The issue comes to us on remand from the Arizona

Supreme Court, which directed us to consider whether

applying the Bracker interest-balancing test evidences

Congress’s implicit intent to preempt taxing the Plant—a

question previously raised by South Point on appeal but

not decided by this court. See S. Point Energy Ctr. LLC

v. Ariz. Dep’t of Revenue (South Point I), 251 Ariz. 263,

268, ¶ 24 (App. 2021), vacated in part and remanded by S.

Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue (South

Point II), 253 Ariz. 30, 39, ¶¶ 37–38 (2022). For the

following reasons, we affirm the tax court, which correctly

ruled that the Plant is not exempt from the County’s tax

under Bracker.

FACTS AND PROCEDURAL HISTORY 1

¶2

In 1999, Calpine Construction Finance Co.

(“Calpine”), a non-Indian-owned entity, leased 320 acres

of undeveloped land on a long-term basis from the Fort

Mojave Indian Tribe (“the Tribe”) to build and operate

the Plant on reservation land. Beginning operations in

2001, the Plant is a “merchant plant” that sells electrical

energy to public and private utility companies for resale

to end-users. It does not supply electrical power to the

Tribe or any person or entity on the reservation. The

Tribe did not finance the Plant and does not contribute

any operating funds.

¶3

Mohave County then assessed ad valorem

property taxes against the Plant based on valuations

determined by ADOR. See former Ariz. Const. art. 9,

§ 2(13) (“All property in the state not exempt under the

laws of the United States or under this constitution or

exempt by law under the provisions of this section shall be

subject to taxation to be ascertained as provided by

law.”) 2; accord Ariz. Rev. Stat. (“A.R.S.”) § 42-11002.

ADOR assessed the value of the Plant itself and the

personal property used to operate the Plant; ADOR did

not assess the value of the underlying land.

The facts set out in this section are largely taken from our supreme

court’s opinion in South Point II. See 253 Ariz. at 31–33, ¶¶ 2–8.

In the November 8, 2022 general election, voters approved

Proposition 130 to amend the Arizona Constitution with regard to

property tax exemption provisions. Article 9, Section 2, of the Arizona

Constitution was amended effective December 5, 2022, to reflect the

results of the election, and Section 2(A) now provides: “All property

in this state that is not exempt under the laws of the United States or

under this section is subject to taxation as provided by law.”

¶4

Calpine paid the taxes and unsuccessfully sued for

a refund, arguing the Tribe, as lessor, owned all

improvements to the leased property, thereby exempting

the Plant from state taxation according to federal law. See

Calpine Constr. Fin. Co. v. Ariz. Dep’t of Revenue, 221

Ariz. 244, 249, ¶ 22 (App. 2009); see also Cass Cnty. v.

Leech Lake Band of Chippewa Indians, 524 U.S. 103, 110

(1998) (“State and local governments may not tax Indian

reservation land ‘absent cession of jurisdiction or other

federal statutes permitting it.’” (quoting Cnty. of Yakima

v. Confederated Tribes & Bands of Yakima Nation, 502

U.S. 251, 258 (1992))). On appeal, this court acknowledged

the general rule that a lessor owns all real property

improvements made by a lessee, but concluded the

parties’ lease varied that rule by providing that Calpine

owned all improvements. Calpine Constr., 221 Ariz. at

248, ¶¶ 16–17. Consequently, this court affirmed the tax

court’s judgment that Calpine was liable for property

taxes based on the value of the Plant and related personal

property. See id. at 246, ¶ 1.

¶5

After a series of transactions involving Calpine and

several of its related entities, the Tribe’s land and the

Plant were sublet to South Point, another Calpine-related

entity, with the Tribe’s consent and approval by the

United States Bureau of Indian Affairs (“the BIA”). In

2012, the Tribe and Calpine’s successor-lessees, which are

included in references to “South Point,” executed an

amended lease that remained in place during this lawsuit.

The amended lease provides that no partnership exists

between the Tribe and South Point. The amended lease

also reaffirms that the Plant and “all [i]mprovements and

associated materials, supplies, and equipment” are

“owned and controlled” by South Point, and that at the

expiration of the lease, South Point must remove all

above-ground real property improvements and personal

property, excepting roads and foundations.

¶6

The amended lease contemplates that ad valorem

property taxes may be assessed on the Plant. In addition,

the amended lease requires South Point to timely pay all

taxes levied by any governmental entity to prevent the

imposition of any liens and to hold the Tribe harmless

against any imposed liens. The BIA approved the

amended lease.

¶7

South Point initiated these consolidated lawsuits

seeking a refund of payments for property taxes imposed

from 2010 to 2018, to the extent they were based on

valuations of the Plant. See A.R.S. § 42-11005 (authorizing

a lawsuit to recover illegally levied, assessed, or collected

taxes). South Point did not challenge the tax assessments

based on ownership of the Plant, as Calpine did in its

earlier lawsuit. Instead, South Point argued that § 5 of

the Indian Reorganization Act of 1934 (“the Act”), see 25

U.S.C. § 5108 (former 25 U.S.C. § 465), expressly

preempts states from imposing property taxes on any real

property improvements, regardless of ownership, located

on land held in trust by the federal government to benefit

Indian tribes or individual Indians. Alternatively, South

Point argued that applying the balancing test announced

in Bracker demonstrates Congress’s implicit intent to

preempt taxing the Plant.

¶8

The tax court rejected both of South Point’s

arguments and granted summary judgment for the

County. We reversed, concluding § 5 of the Act expressly

and categorically exempted permanent improvements on

the Tribe’s land from state taxation regardless of

ownership. See South Point I, 251 Ariz. at 269, ¶ 30. We

remanded for the tax court to conduct an analysis under

Whiteco Industries, Inc. v. Commissioner, 65 T.C. 664

(1975), 3 to determine which, if any, of the assets making

up the Plant constituted permanent tax-exempt

improvements. South Point I, 251 Ariz. at 269, ¶ 30. We

did not apply the Bracker balancing test but directed the

tax court to do so in considering whether property taxes

on the Plant’s impermanent assets were preempted. Id.

¶9

The Arizona Supreme Court granted the County’s

petition for review to decide whether the Act’s § 5

“expressly preempts taxing permanent improvements

constructed on tribal lands acquired under that section

when those improvements are owned by non-Indians.”

South Point II, 253 Ariz. at 33, ¶ 9. The supreme court

then vacated a portion of our opinion, holding that the Act

does not expressly preempt Mohave County’s ad valorem

property tax on the Plant. Id. at 31, 39, ¶¶ 1, 37–38. The

court remanded the case to this court, see ARCAP

23(m)(2), to decide the remaining issue we had not

addressed: “whether the tax court correctly ruled that

the Plant is also not impliedly exempt from the County’s

tax under Bracker,” South Point II, 253 Ariz. at 39, ¶ 37.

¶10

On remand, we ordered additional briefing by the

parties and invited other interested parties to file amicus

briefs, setting forth their respective positions on the

issue. 4 We now address the question presented to us on

Whether an asset is a permanent improvement or personal property

turns on the guidelines set out in Whiteco. See 65 T.C. at 672–73. See

also PPL Corp. v. Comm’r, 135 T.C. 176, 193–97 (2010); Trentadue v.

Comm’r, 128 T.C. 91, 99–108 (2007).

At oral argument on remand, the parties agreed that we need not

remand for a Whiteco analysis.

10a

remand, and after consideration of Bracker and its

progeny, we affirm the tax court.

DISCUSSION

¶11

“We review the tax court’s entry of summary

judgment de novo, viewing the facts in the light most

favorable to South Point as the nonmoving party.” South

Point II, 253 Ariz. at 33, ¶ 10 (citing Dinsmoor v. City of

Phoenix, 251 Ariz. 370, 373, ¶ 13 (2021)). We will affirm if

there is no genuine issue of material fact and the moving

party is entitled to judgment as a matter of law. Id. (citing

Dinsmoor, 251 Ariz. at 373, ¶ 13; Ariz. R. Civ. P. 56(a)).

¶12

Preemption is a question of law, and we can decide

the issue “based on a de novo Bracker analysis of the

record before us.” Seminole Tribe of Fla. v. Stranburg,

799 F.3d 1324, 1329 (11th Cir. 2015). The burden rests on

South Point, as plaintiff, to prove implied federal

preemption of state law. See Pickerel Lake Outlet Ass’n

v. Day Cnty., 953 N.W.2d 82, 92, ¶ 23 (S.D. 2020).

¶13

Our primary goal in interpreting federal statutes

is to determine and give effect to Congress’s intent. See

Steven H. v. Ariz. Dep’t of Econ. Sec., 218 Ariz. 566, 570,

¶ 14 (2008) (citing federal cases). We read words within

the statutory context and aim to bring about the plain,

logical meaning of a statute unless doing so would bring

about an absurd result. See Conroy v. Aniskoff, 507 U.S.

511, 515–16 (1993); Armstrong Paint & Varnish Works v.

Nu-Enamel Corp., 305 U.S. 315, 332–33 (1938); Welch v.

Cochise Cnty. Bd. of Supervisors, 251 Ariz. 519, 523, ¶ 11

(2021). If the language is ambiguous, we consider

secondary interpretive principles, such as an act’s subject

matter, history, and purpose, and the consequences of

differing interpretations. See Conroy, 507 U.S. at 516–18;

11a

United States v. Am. Trucking Ass’ns, 310 U.S. 534, 543–

44 (1940); Welch, 251 Ariz. at 523, ¶ 11.

¶14

By statute, the United States Secretary of the

Interior can acquire “any interest in lands, water rights,

or surface rights to lands, within or without existing

reservations . . . for the purpose of providing land for

Indians.” 25 U.S.C. § 5108. This statute further provides

that “[t]itle to any lands or rights acquired . . . 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.” 25 U.S.C. § 5108.

¶15

In South Point II, our supreme court determined

that although § 5 of the Act “preempts state and local

taxes imposed on land and rights acquired by the

Secretary of the Interior and titled in the name of the

United States in trust for Indian tribes or individual

Indians,” “[w]hen that lessee is a non-Indian, § 5 does not

preempt a state or locality from taxing the

improvements.” 253 Ariz. at 39, ¶ 36. Thus, under the

facts present here, no express authorization for

preemption exists under § 5 of the Act. But express

authorization is not necessarily required for preemption

to apply. See Bracker, 448 U.S. at 144. “In the absence of

express pre-emptive language, Congress’ intent to preempt all state law in a particular area may be inferred

where the scheme of federal regulation is sufficiently

comprehensive to make reasonable the inference that

Congress ‘left no room’ for supplementary state

regulation.” Hillsborough Cnty. v. Automated Med.

Laboratories, Inc., 471 U.S. 707, 713 (1985) (quoting Rice

v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). We

will not, however, lightly presume that preemption exists.

12a

See Washington v. Confederated Tribes of Colville Indian

Rsrv., 447 U.S. 134, 155–56 (1980).

¶16

Bracker imposes a balancing test that applies when

“a State asserts authority over the conduct of non-Indians

engaging in activity on the reservation.” 448 U.S. at 144.

To determine whether a state or local tax on non-Indians

doing business on the reservation is preempted, a court

undertakes a “particularized inquiry into the nature of the

state, federal, and tribal interests at stake, an inquiry

designed to determine whether, in the specific context,

the exercise of state authority would violate federal law.”

Id. at 145; accord Dep’t of Tax’n & Fin. of N.Y. v. Milhelm

Attea & Bros., Inc., 512 U.S. 61, 73 (1994) (“Resolution of

conflicts of this kind does not depend on ‘rigid rules’ or on

‘mechanical or absolute conceptions of state or tribal

sovereignty,’ but instead on ‘a particularized inquiry

. . . .’” (quoting Bracker, 448 U.S. at 142, 145)). In

balancing these interests, “[t]he traditional notions of

Indian sovereignty provide a crucial ‘backdrop’ against

which any assertion of State authority must be assessed,”

as does the fact that “both the tribes and the Federal

Government are firmly committed to the goal of

promoting tribal self-government, a goal embodied in

numerous federal statutes.” New Mexico v. Mescalero

Apache Tribe, 462 U.S. 324, 334–35 (1983) (internal

citations omitted). If the state authority “interferes or is

incompatible with” federal and tribal interests, the state

authority will be preempted, “unless the State interests at

stake are sufficient to justify the assertion of State

authority.” Id. at 334 (citations omitted).

¶17

In applying Bracker, courts must consider “(1) the

extent of the federal and tribal regulations governing the

taxed activity; (2) whether the ‘economic burden’ of the

13a

tax falls on the tribe or the non-Indian individual or entity;

and (3) the extent of the state interest in justifying the

imposition of the taxes.” Ute Mountain Ute Tribe v.

Rodriguez, 660 F.3d 1177, 1187 (10th Cir. 2011). A federal

statutory scheme, agency regulations, and day-to-day

agency supervision can “inform the federal and tribal

interests” and “signal a federal regulatory scheme that is

so pervasive that it preempts the state tax.” Seminole

Tribe, 799 F.3d at 1337 (citing Bracker, 448 U.S. at 145–

48). Further, a tax may be impermissible when “a number

of the policies underlying the federal regulatory scheme

are threatened” by its application, and the taxing

authority is “unable to justify the taxes except in terms of

a generalized interest in raising revenue.” Bracker, 448

U.S. at 151.

¶18

Courts have applied the Bracker interestbalancing test in several 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,

1111–12 (9th Cir. 1997) (ruling against preemption of state

transaction privilege taxes on lodging, food, and beverage

sales on tribal land); Gila River Indian Cmty. v. Waddell,

91 F.3d 1232, 1236, 1239 (9th Cir. 1996) (allowing

transaction privilege taxes on tickets and concessionary

items at a raceway and concert center on tribal land); Salt

River Pima–Maricopa Indian Cmty. v. Arizona, 50 F.3d

734, 736, 738 (9th Cir. 1995) (holding that taxes on sales to

non-Indians by a non-Indian business on Indian land were

not preempted). But see Ramah Navajo Sch. Bd., Inc. v.

Bureau of Revenue of N.M., 458 U.S. 832, 841–43 (1982)

(holding that a tax imposed on the gross receipts that a

non-Indian construction company received from a tribal

school board for the construction of a school for Indian

14a

children on the reservation was preempted because the

Interior Department had a detailed regulatory plan for

Indian schooling and the State of New Mexico had

declined to take any responsibility for the education of the

Indian children).

¶19

None of the aforementioned cases dealt with a

property tax like the one at issue, however. In Seminole

Tribe, an Indian tribe sued the Florida Department of

Revenue executive director, challenging the imposition of

a rental tax on rent paid to the tribe by non-Indian lessees

for the use of commercial space at the tribe’s casinos. 799

F.3d at 1326–27. The 11th Circuit Court of Appeals held

that the tax was preempted, partly because it was a tax on

“a right in land” rather than a tax on economic activity or

tangible property removed from the land. Id. at 1331–32.

In effect, Seminole Tribe held that the leases were so

connected to the land that their taxation amounted to

taxation of the land itself. Id. at 1329, 1331. Similarly, in

Confederated Tribes of Chehalis Reservation v. Thurston

County Board of Equalization, the Ninth Circuit Court of

Appeals barred property taxes on permanent

improvements on non-reservation Indian trust lands. 724

F.3d 1153, 1159 (9th Cir. 2013).

¶20

This case is distinguishable from Seminole Tribe

and Chehalis. Here, the amended lease provides that the

Plant and related operating equipment are owned and

controlled by South Point, which must remove all aboveground real property improvements and personal

property, except roads and foundations, at the expiration

of the lease. And neither the land itself nor South Point’s

leasehold interest in the land is a factor in the tax because

(1) in determining the tax, ADOR assessed only the value

of the Plant itself and the personal property used to

15a

operate it and did not assess the value of the underlying

land, and (2) the amended lease provides that no

partnership exists between the Tribe and South Point.

Since land owned by the Tribe is exempt from state

property taxes, no portion of the fee interest, including

South Point’s leasehold interest, is taxed.

¶21

South Point relies on United States Department of

the Interior/BIA regulations—and specifically 25 C.F.R.

§ 162.017(a)—as support for its preemption argument.

Recently, the South Dakota Supreme Court upheld an ad

valorem property tax assessed by a local taxing authority

on non-Indian owners of structures and permanent

improvements located on Indian trust land. See Pickerel

Lake, 953 N.W.2d at 85, ¶ 1. 5 In considering the extent of

the regulations governing the taxed activity, the court

rejected reliance on 25 C.F.R. § 162.017(a) as authority for

implied preemption, concluding that “Congress has not

authorized the BIA to preempt the State’s authority to tax

structures owned by non-Indians.” Pickerel Lake, 953

N.W.2d at 92–93, ¶¶ 25–29; see also South Point II, 253

Ariz. at 39, ¶ 35 (holding that “the regulation itself [25

C.F.R. § 162.017(a)] cannot preempt the County’s tax” and

“we have no need to defer to the Department of Interior’s

interpretation” (citations omitted)). The Pickerel Lake

court further concluded that any preemptive language in

the federal regulations should have no impact on its

The court applied what it deemed a “standard preemption analysis”

rather than a Bracker analysis after noting (1) the parties agreed

Bracker did not apply, (2) the Tribe had not intervened, and (3) the

record contained no evidence that (a) tribal interests weighed against

the county’s taxation authority with respect to non-Indian lessees, (b)

the county’s separate ad valorem tax affected the Tribe’s ability to

lease the land, or (c) the taxes had otherwise impacted tribal interests.

Pickerel Lake, 953 N.W.2d at 88, ¶ 12.

16a

analysis and found “little evidence of congressional intent

to supersede the State’s authority.” 953 N.W.2d at 93, ¶ 30

(citing Wyeth v. Levine, 555 U.S. 555, 576 (2009)); see also

South Point II, 253 Ariz. at 39, ¶ 35 (“The Department of

Interior has taken the position in other cases that

‘§ 162.017 has no legal effect at all,’ and . . . is ‘agnostic’ on

whether any specific state tax is preempted.” (citing

Desert Water Agency v. U.S. Dep’t of the Interior, 849

F.3d 1250, 1254–55 (9th Cir. 2017) (adopting the view that

the phrase “[s]ubject only to applicable Federal law” in

the regulation means subject to a Bracker analysis))).

¶22

The court also reasoned that although the federal

government retains exclusive power to regulate Indian

affairs, it “has asserted little to no regulatory power in the

area of state-imposed ad valorem taxes on structures

owned by non-Indians,” and “[i]t is generally within the

province of the State to assess property taxes.” Pickerel

Lake, 953 N.W.2d at 94, ¶ 31 (citations omitted). The court

noted that courts “presume that ‘Congress does not intend

to pre-empt areas of traditional state regulation,’” and

“assume the State retains its historic power to regulate by

imposing state and local taxes.” Id. (citations omitted).

Finally, in concluding that implied preemption did not

apply, the Pickerel Lake court held: “Because there is

little or no federal regulatory scheme in place with respect

to property taxes, and because the State’s taxation does

not implicate Indians or their tribes, thereby implicating

federal law, the State’s assessment of nondiscriminatory

ad valorem property taxes against structures owned

exclusively by non-Indians [on Indian trust land] is not

[impliedly] preempted by federal law.” Id. at ¶ 32. See

also N. Border Pipeline Co. v. State, 772 P.2d 829, 835

(Mont. 1989) (upholding a state property tax on a pipeline

17a

crossing tribal land); Thomas v. Gay, 169 U.S. 264, 273–74

(1898) (holding that Oklahoma could tax cattle owned by

non-Indian lessees of Indian land and rejecting the

suggestion that the tax constituted a tax on the land);

Utah & N. Ry. Co. v. Fisher, 116 U.S. 28, 29–30, 33 (1885)

(upholding a territorial tax of a section of a non-Indian’s

railroad that crossed onto reservation land, reasoning that

the tax did not interfere with tribal sovereignty). 6

¶23

The truisms relied on by the Pickerel Lake court

apply here as well, and South Point points to nothing about

the federal regulation of power plants that is more

extensive or intensive when a plant is on tribal land or how

a particularized inquiry into the nature of the federal,

tribal, and state interests at stake leads to the conclusion

that the tax is preempted. See generally Ute Mountain

Ute Tribe, 660 F.3d at 1187. As the tax court noted, the

pervasiveness of federal regulation of tribal leases is

immaterial because no aspect of the lease is subject to tax,

and federal regulation of power plants applies to all power

plants regardless of their location; thus, if state or local

taxation of power plants on reservations is preempted,

state taxation on every other power plant would also be

preempted.

¶24

As for whether the economic burden of the

County’s property tax falls on the non-Indian entity

(South Point) or the Tribe, see id., it is clear the tax is

being levied on the Plant and related improvements, all of

which are wholly and separately owned by South Point,

Bracker cited both Thomas and Fisher but did not overrule either

case. See 448 U.S. at 142, 145; see also Mashantucket Pequot Tribe v.

Town of Ledyard, 722 F.3d 457, 472 (2d Cir. 2013) (concluding that

“Thomas [and other pre-Bracker non-Indian lessee cases] inform[]”

but do not forgo a Bracker analysis).

18a

and not on the land, which the Tribe owns, and that no

partnership exists between South Point and the Tribe.

Thus, South Point is the actual taxpayer and bears the

tax’s legal incidence. See Circle K Stores, Inc. v. Apache

Cnty., 199 Ariz. 402, 407, ¶ 13 (App. 2001). Moreover, the

United States Supreme Court has rejected the argument

that when the federal government’s or a tribe’s interest in

economic development on reservations—and the

associated profitability that comes with that interest—

might be indirectly affected, that indirect burden supports

granting non-Indian contractors immunity from state or

local taxation:

It is, of course, reasonable to infer that the

existence of the state tax imposes some limit on

the profitability of Indian oil and gas leases—just

as it no doubt imposes a limit on the profitability

of off-reservation leasing arrangements—but

that is precisely the same indirect burden that we

rejected as a basis for granting non-Indian

contractors an immunity from state taxation in

Helvering v. Mountain Producers Corp., 303 U.S.

376 (1938); Oklahoma Tax Comm’n v. United

States, 319 U.S. 598 (1943); Oklahoma Tax

Comm’n v. Texas Co., 336 U.S. 342 (1949); Moe v.

Confederated Salish and Kootenai Tribes of

Flathead Reservation, 425 U.S. 463 (1976); and

Colville, 447 U.S. at 134.

Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 191

(1989) (citations cleaned up); accord Waddell, 91 F.3d at

1239 (concluding that indirect economic effects, including

those flowing from double taxation, were insufficient

grounds to preempt a state tax). As the Supreme Court

previously stated in Colville, “We do not believe that

19a

principles of federal Indian law, whether stated in terms

of pre-emption, tribal self-government, or otherwise,

authorize Indian tribes thus to market an exemption from

state taxation to persons who would normally do their

business elsewhere.” 447 U.S. at 155.

¶25

Moreover, no salient argument exists that should

the property tax not be paid, the State could impose a tax

lien on the underlying real property, thereby damaging

the Tribe. We cannot see how a tax lien could be imposed

on land exempt from taxation, and A.R.S. § 42-17153

provides that “a tax that is levied on real or personal

property is a lien on the assessed property.” (Emphasis

added.) Under the amended lease, South Point’s property

never becomes part of the land, so the Tribe’s land is not

part of the assessed property.

¶26

Finally, as to the extent of the state interest in

justifying the imposition of the taxes, see Ute Mountain

Ute Tribe, 660 F.3d at 1187, we conclude that although

South Point demands few direct services from the state or

Mohave County, there has also been no complete

declination of responsibility for services as found to exist

in Ramah Navajo School Board, see 458 U.S. at 843–45,

cited in Cotton Petroleum, 490 U.S. at 184–87. As the

Cotton Petroleum court recognized, there is no

“proportionality requirement” imposed on the taxing

authority, and preemption should occur only when there

has been a “complete abdication or noninvolvement” by

the state or County. 490 U.S. at 185.

¶27

Here, the tax revenue supports local services that

help South Point, its employees, and the Tribe, including

“services on the reservation” and “services off the

reservation that benefit the reservation and members of

the Tribe.” See id. at 171 n.7, 185 (relying on the trial

20a

court’s factual findings to distinguish the case from

Bracker and Ramah Navajo School Board).

For

example, the tax revenue supports the local school

districts, and both tribal-member children and children of

South Point non-Indian employees attend schools in these

districts. See N. Border Pipeline, 772 P.2d at 835 (finding

no preemption because “the State’s interest in funding the

school districts involved here and providing local services

outweighs the federal/tribal interests asserted”).

Additionally, the tax helps Mohave County maintain

roads that provide important and commonly used access

to the Plant. Revenue from the tax also supports

numerous other state and County services—some of

which aid the reservation—including flood control, law

enforcement and emergency planning, local fire districts,

libraries, the County Recorder, and the Arizona

Corporation Commission’s oversight and inspection of the

pipelines used to fuel the Plant. A substantial state

interest exists justifying the imposition of the taxes, and

the funding of these numerous services militates against

finding an implied preemption of the County’s tax.

Accordingly, application of the interest-balancing test

announced in Bracker does not establish Congress’s

implicit intent to preempt taxing the Plant.

CONCLUSION

¶28

We affirm the tax court, which correctly ruled that

the Plant is not impliedly exempt from the County’s tax

under Bracker.

21a

APPENDIX C

IN THE

SUPREME COURT OF THE STATE OF ARIZONA

_________________

SOUTH POINT ENERGY CENTER LLC,

Plaintiff/Appellant,

ARIZONA DEPARTMENT OF REVENUE, ET AL.,

Defendants/Appellees.

_________________

No. CV-21-0130-PR

Filed April 26, 2022

_________________

Appeal from the Arizona Tax Court

The Honorable Christopher T. Whitten, Judge

Nos. TX2013-000522, TX2014-000451, TX2015-000850,

TX2016-001228, TX2017-001744, TX2018-000019,

TX2019-000086 (Consolidated)

_________________

Opinion of the Court of Appeals, Division One

251 Ariz. 263 (App. 2021)

VACATED IN PART AND REMANDED

_________________

22a

COUNSEL:

Bennett Evan Cooper (argued), Vail C. Cloar, Dickinson

Wright PLLC, Phoenix; Pat Derdenger, Karen Lowell,

Lewis Roca Rothgerber Christie LLP, Phoenix,

Attorneys for South Point Energy Center LLC

Cameron C. Artigue (argued), Camila Alarcon,

Christopher L. Hering, Gammage & Burnham, P.L.C.,

Phoenix, Attorneys for Arizona Department of Revenue,

et al.

Charles W. Galbraith, Jenner and Block LLP,

Washington, D.C.; Verrin T. Kewenvoyouma, Christopher

Love, Kewenvoyouma Law, PLLC, Tempe, Attorneys for

Amici Curiae Fort Mojave Indian Tribe, the Navajo

Nation, the Gila River Indian Community, Gila River

Indian Community Utility Authority, the Inter-Tribal

Association of Arizona, and the National Congress of

American Indians

James M. Susa, DeConcini McDonald Yetwin & Lacy,

P.C., Tucson, Attorneys for Amicus Curiae County

Supervisors Association of Arizona and the Arizona

Association of Counties

_________________

VICE CHIEF JUSTICE TIMMER authored the opinion

of the Court, in which CHIEF JUSTICE BRUTINEL

and JUSTICES BOLICK, LOPEZ, BEENE,

MONTGOMERY, and KING joined.

_________________

23a

VICE CHIEF JUSTICE TIMMER, opinion of the

Court:

¶1

The issue here is whether the Indian

Reorganization Act of 1934 (the “Act”) expressly

preempts Mohave County’s ad valorem property tax on a

power plant owned by non-Indian lessees of land

purportedly acquired by the federal government under

the Act and held in trust for the benefit of an Indian tribe.

We hold the Act does not expressly preempt this tax.

BACKGROUND

¶2

In 1999, Calpine Construction Finance Co.

(“Calpine”), a non-Indian-owned entity, leased 320 acres

of undeveloped land on a long-term basis from the Fort

Mojave Indian Tribe (the “Tribe”) to construct and

operate an electric power generating plant (the “Plant”)

on reservation lands. The Plant, which began operating in

2001, is a “merchant plant” that sells electrical energy to

public and private utility companies for resale and

redistribution to end-users. It does not supply electrical

energy to the Tribe or to any person or entity located on

the reservation. The Tribe did not finance the Plant’s

construction and does not contribute any operating funds.

¶3

After the Plant was built, Mohave County assessed

ad valorem property taxes against the Plant based on

valuations determined by the Arizona Department of

Revenue (“ADOR”). See Ariz. Const. art. 9, § 2(13) (“All

property in the state not exempt under the laws of the

United States or under this constitution or exempt by law

under the provisions of this section shall be subject to

taxation to be ascertained as provided by law.”); A.R.S.

24a

§ 42-11002 (to same effect). ADOR assessed only the

value of the Plant itself and the personal property used to

operate it; ADOR did not assess the value of the

underlying land.

¶4

Calpine paid the taxes and unsuccessfully sued for

a refund, arguing the Tribe, as lessor, owned all

improvements to the leased property, thereby exempting

the Plant from state taxation pursuant to federal law. See

Calpine Constr. Fin. Co. v. Ariz. Dep’t of Revenue, 221

Ariz. 244, 249 ¶ 22 (App. 2009); see also Cass County v.

Leech Lake Band of Chippewa Indians, 524 U.S. 103, 110

(1998) (“State and local governments may not tax Indian

reservation land ‘absent cession of jurisdiction or other

federal statutes permitting it.’” (quoting County of

Yakima v. Confederated Tribes & Bands of Yakima

Nation, 502 U.S. 251, 258 (1992))). In the ensuing appeal,

the court of appeals acknowledged the general rule that a

lessor owns all real property improvements made by a

lessee but concluded the parties’ lease varied that rule by

providing that Calpine owns all improvements. Calpine

Constr., 221 Ariz. at 248 ¶¶ 16–17. Consequently, the court

affirmed the tax court’s judgment that Calpine was liable

for property taxes based on the value of the Plant and

related personal property. See id. at 246 ¶ 1.

¶5

After a series of transactions involving Calpine and

several of its related entities, the Tribe’s land and the

Plant were sublet to South Point Energy Center LLC

(“South Point”), another Calpine-related entity, with the

Tribe’s consent and approval by the Bureau of Indian

Affairs (the “BIA”). In 2012, the Tribe and Calpine’s

successor-lessees, which we include in our references to

“South Point” for convenience, executed an amended

lease, which remained in place during this lawsuit. Among

25a

other things, the amended lease provides that no

partnership exists between the Tribe and South Point. It

further reaffirms that the Plant and “all [i]mprovements

and associated materials, supplies, and equipment” are

“owned and controlled” by South Point, and that at the

expiration of the lease, South Point must remove all

above-ground real property improvements and personal

property, excepting roads and foundations.

¶6

The amended lease contemplates that ad valorem

property taxes may be assessed on the Plant. The lease

requires South Point to timely pay all taxes levied by any

governmental entity to prevent imposition of any liens and

to hold the Tribe harmless against any liens that are

imposed. The BIA approved the amended lease.

¶7

South Point initiated these consolidated lawsuits

seeking a refund of payments for property taxes imposed

from 2010 to 2018, to the extent they were based on

valuations of the Plant. See A.R.S. § 42-11005 (authorizing

suit to recover illegally levied, assessed, or collected

taxes).

South Point does not challenge the tax

assessments based on ownership of the Plant, as Calpine

did in its earlier lawsuit. Instead, South Point argues that

§ 5 of the Act, 25 U.S.C. § 5108, expressly preempts states

from imposing property taxes on any real property

improvements, regardless of ownership, located on land

held in trust by the federal government for the benefit of

Indian tribes or individual Indians. Alternatively, South

Point argues that application of a balancing test

announced in White Mountain Apache Tribe v. Bracker,

448 U.S. 136 (1980), evidences Congress’s implicit intent

to preempt taxing the Plant.

26a

¶8

The tax court rejected both of South Point’s

arguments and granted summary judgment for Mohave

County and ADOR (collectively, the “County”). The court

of appeals reversed, reasoning that § 5 of the Act

expressly and categorically exempts permanent

improvements on the Tribe’s land from state taxation

regardless of ownership. S. Point Energy Ctr. LLC v.

Ariz. Dep’t of Revenue, 251 Ariz. 263, 269 ¶ 30 (App. 2021).

It remanded for the tax court to determine which, if any,

of the assets making up the Plant constitute the taxexempt permanent improvements. Id. The court did not

itself apply the balancing test under Bracker but instead

instructed the tax court to do so in considering whether

property taxes on the Plant’s impermanent assets were

taxable. Id.

¶9

We granted review to decide whether § 5 of the Act

expressly preempts taxing permanent improvements

constructed on tribal lands acquired under that section

when those improvements are owned by non-Indians, an

issue of statewide importance.

DISCUSSION

¶10

We review the tax court’s entry of summary

judgment de novo, viewing the facts in the light most

favorable to South Point as the nonmoving party.

Dinsmoor v. City of Phoenix, 251 Ariz. 370, 373 ¶ 13

(2021). We will affirm if there is no genuine dispute of

material fact and the State is entitled to judgment as a

matter of law. Id.; Ariz. R. Civ. P. 56(a). We review the

prior courts’ preemption decisions and their

27a

interpretation of § 5 of the Act de novo as issues of law.

See Conklin v. Medtronic, Inc., 245 Ariz. 501, 504 ¶ 7

(2018) (preemption); Brenda D. v. Dep’t of Child Safety,

243 Ariz. 437, 442 ¶ 15 (2018) (statutory interpretation).

II.

¶11

The Supremacy Clause of the United States

Constitution makes valid federal laws predominate over

conflicting state laws. See U.S. Const. art. 6, cl. 2. Within

constitutional limits, Congress may generally preempt

application of state law in a few ways, including “by so

stating in express terms,” which is known as “express

preemption.” See Pac. Gas & Elec. Co. v. State Energy

Res. Conservation & Dev. Comm’n, 461 U.S. 190, 203–04

(1983) (describing different types of preemption). In

deciding whether state laws apply to non-Indian activities

conducted on an Indian reservation, the Court in Bracker

provided an additional pathway for finding federal

preemption. 448 U.S. at 144–45. A court faced with a

preemption challenge in that circumstance, absent

express preemption, should make “a particularized

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

interests at stake . . . to determine whether, in the specific

context, the exercise of state authority would violate

federal law.” Id. If so, the state law is impliedly

preempted. See id.; see also Cotton Petroleum Corp. v.

New Mexico, 490 U.S. 163, 176–77 (1989) (“It bears

emphasis that although congressional silence no longer

entails a broad-based immunity from taxation for private

parties doing business with Indian tribes, federal

preemption is not limited to cases in which Congress has

28a

expressly—as compared to impliedly—preempted the

state activity.”).

¶12

The only issue before us is whether § 5 of the Act

expressly preempts application of Arizona’s ad valorem

tax laws against the Plant. See Confederated Tribes of

Chehalis Rsrv. v. Thurston Cnty. Bd. of Equalization, 724

F.3d 1153, 1159 (9th Cir. 2013) (stating that when § 5 of

the Act applies to preempt taxation, there is no need to

consider implied preemption under Bracker).

¶13

Section 5 of the Act provides in relevant 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 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.

29a

25 U.S.C. § 5108 (emphasis added). South Point argues

that the above-emphasized language categorically

exempts the Plant from the County’s property tax

regardless of ownership. The County asserts that because

the Plant is not owned by the United States in trust for the

Tribe or for individual Indians, the Plant is not included in

“such lands or rights” exempt from tax under § 5.

¶14

Our primary goal in interpreting § 5 is to determine

and give effect to Congress’s intent. See Steven H. v. Ariz.

Dep’t of Econ. Sec., 218 Ariz. 566, 570 ¶ 14 (2008). We read

words in context and effectuate the plain meaning of § 5

unless doing so would be absurd. See Welch v. Cochise

Cnty. Bd. of Supervisors, 251 Ariz. 519, 523 ¶ 11 (2021). If

the language is ambiguous, we consider secondary

interpretive principles, such as the Act’s subject matter,

history, and purpose, and the consequences of differing

interpretations. Id.

¶15

We start with § 5’s plain language. The provision

exempts “such lands or rights” from state and local

taxation. § 5108. “Such lands or rights” are identified as

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

lands” acquired by the Secretary of the Interior “for the

purpose of providing land for Indians” and titled “in the

name of the United States in trust for [an] Indian tribe or

[an] individual Indian.” Id. These “lands or rights” can be

located “within or without existing reservations.” Id.

Thus, to fall under § 5’s tax exemption, the Plant must be

(1) an “interest in lands, water rights, or surface rights to

lands,” (2) acquired by the Secretary of the Interior

pursuant to § 5, and (3) titled “in the name of the United

States in trust for the Indian tribe or [an] individual

Indian.” See id. The primary issue here is whether the

30a

Plant is included within the federal government’s

ownership rights, and thus the Tribe’s beneficial rights, in

the land underlying the Plant. If it is, and § 5’s additional

requirements are satisfied, the Plant is tax exempt.

¶16

The Act itself does not delineate the rights included

in the federal government’s ownership of land under § 5.

According to the BIA, those rights include “any interests,

benefits, and rights inherent in the ownership of the real

property.” 25 C.F.R. § 150.2. As acknowledged in Calpine

Construction, such rights generally include ownership of

permanent improvements constructed by a tenant on

leased property. 221 Ariz. at 248 ¶ 16; see also Cutter

Aviation, Inc. v. Ariz. Dep’t of Revenue, 191 Ariz. 485, 492

(App. 1997) (recognizing that generally “a permanent

structure placed upon and attached to the realty by a

tenant is real property belonging to the lessor”). This

general rule does not apply when, as here, the lease

provides that the tenant owns the permanent

improvements. See Calpine Constr., 221 Ariz. at 248

¶¶ 16–17; Cutter Aviation, 191 Ariz. at 492. The BIA

recognizes this exception as applying to leases of land

owned by the federal government pursuant to § 5. 25

C.F.R. § 162.415(a) (“A business lease must specify who

will own any permanent improvements the lessee

constructs during the lease term and may specify under

what conditions, if any, permanent improvements the

lessee constructs may be conveyed to the Indian

landowners during the lease term.”).

¶17

It is settled that South Point, not the federal

government, owns the Plant. Calpine Constr., 221 Ariz. at

248 ¶ 17. Based on this fact alone, § 5 seemingly does not

exempt the Plant from the County’s property taxes

31a

because the land owned by the United States in trust for

the Tribe does not include the Plant. See § 5108. As South

Point notes, however, the Supreme Court expansively

applied § 5 in Mescalero Apache Tribe v. Jones, 411 U.S.

145 (1973), to exempt a state tax imposed on a tribal entity

for using permanent improvements it constructed and

owned on land leased from the federal government. In

doing so, the Court relied on United States v. Rickert, 188

U.S. 432, 441–43 (1903), a pre-Act case, which disallowed

a state property tax on permanent improvements

constructed by Indians on land held in trust for them by

the federal government. We therefore consider these

cases in determining whether § 5 broadly applies to

categorically exempt all permanent improvements affixed

to land owned by the federal government in trust for

Indians. See James v. City of Boise, 577 U.S. 306, 307

(2016) (concluding that state and federal courts are bound

by the Supreme Court’s interpretation of federal law);

Weatherford ex rel. Michael L. v. State, 206 Ariz. 529, 532

¶ 8 (2003) (acknowledging that a Supreme Court decision

on a substantive federal issue binds the state courts on

that issue).

¶18

The Court in Rickert addressed whether a South

Dakota county could assess and impose property taxes on

permanent improvements and personal property owned

by Indians and used in cultivating lands allotted them

under the now-defunct General Allotment (Dawes) Act of

1887, ch. 119, 24 Stat. 388 (codified as amended in

scattered sections of 25 U.S.C.). 188 U.S. at 432–33. That

act authorized the federal government to allot agricultural

and grazing lands on Indian reservations to individual

Indians. General Allotment Act, § 1. Upon allotment, the

land was owned by the government in trust for the sole

32a

use and benefit of allottee Indians for twenty-five years,

at which time the government would convey fee simple

title to them and discharge the trust. Id. § 5. After all

Indians were allotted reservation lands, any remaining

lands could be sold to the United States, which could then

open them to non-Indians for homesteading. Id. “[T]he

allotment process was designed to assimilate Indians into

the larger society,” the theory being that by the time they

took fee title to the lands, the Indians would have adapted

to the mainstream western agricultural economy. Philip

P. Frickey, A Common Law for Our Age of Colonialism:

The Judicial Divestiture of Indian Tribal Authority over

Nonmembers, 109 Yale L.J. 1, 14–15 (1999).

¶19

The Rickert Court first concluded that the South

Dakota county lacked authority “to assess and tax the

lands in question until at least the fee was conveyed to the

Indians.” 188 U.S. at 437. It characterized the allotted

trust lands as “an instrumentality employed by the United

States” to benefit Indians and reasoned that permitting

taxation would defeat the government’s statutory

obligation to convey the land in fee to allottees free of any

encumbrances, including tax liens. Id. at 437–38.

¶20

The Court applied similar reasoning in holding the

county could not assess and tax the Indians’ permanent

improvements or personal property (cattle, horses, and

the like), the latter having been purchased with federal

funds to fulfill the government’s goal of aiding the Indians

in successfully cultivating the allotted lands. See id. at

441–45. The Court stated that allotting lands to individual

Indians evidenced Congress’s expectation that those lands

“would be improved and cultivated by the allottee,” and

concluded “that object would be defeated if the

33a

improvements [and personal property] could be assessed

and sold for taxes.” Id. at 442. Responding to the county’s

suggestion that the government’s only interest was

conveying the allotted land free from encumbrance after

twenty-five years and not the improvements or

personalty, the Court explained that the government

owed a duty of “care and protection” to the Indians that

transcended its contractual obligation. Id. at 442–43.

“The government would not adequately discharge its duty

to these people if it placed its engagements with them

upon the basis merely of contract, and failed to exercise

any power it possessed to protect them in the possession

of such improvements and personal property as were

necessary to the enjoyment of the land held in trust for

them.” Id. at 443.

¶21

After Rickert, and by the 1920s, allotment proved

disastrous for Indian tribes and individual Indians. See

Frickey, supra, at 15 (describing the loss of “huge

amounts of Indian land . . . through sales and tax

foreclosures” after the Indians became fee owners of the

allotted lands); L. Scott Gould, The Consent Paradigm:

Tribal Sovereignty at the Millennium, 96 Colum. L. Rev.

809, 829 (1996) (“Although the [General Allotment Act]

was ostensibly intended to reduce poverty among Indians,

it had the opposite effect.”). Confronting this failure,

Congress passed the Act in 1934 “to rehabilitate the

Indian’s economic life and to give him a chance to develop

the initiative destroyed by a century of oppression and

paternalism” by giving Indian tribes and Indians control

of their own property and affairs. See Mescalero, 411 U.S.

at 152 (quoting H.R. Rep. No. 73-1804, at 6 (1934)). In

addition to authorizing the Secretary of the Interior to

acquire lands, water rights, or surface rights in trust for

34a

Indians, the Act discontinued the allotment program and

strengthened means for Indian tribes and Indians to selfgovern and perpetuate their cultures.

See Indian

Reorganization (Wheeler-Howard) Act, Pub. L. No. 73383, 48 Stat. 984 (1934) (codified as amended at 25 U.S.C.

§§ 461–479) (describing the Act as one “[t]o conserve and

develop Indian lands and resources; to extend to Indians

the right to form business and other organizations; to

establish a credit system for Indians; to grant certain

rights of home rule to Indians; to provide for vocational

education for Indians; and for other purposes”).

¶22

This brings us to Mescalero. The Mescalero

Apache Tribe owned and operated an off-reservation ski

resort in New Mexico, which the tribe developed under the

Act. Mescalero, 411 U.S. at 146. Specifically, the United

States Forest Service leased land to the tribe, and the

federal government loaned the tribe money to build and

equip the resort. 1 See id. New Mexico imposed both a

sales tax on the resort’s gross receipts and a use tax for

the tribe’s use of two ski lifts operating at the resort. See

id. at 146–47. In the tribe’s subsequent challenge under

§ 5 of the Act, then codified at 25 U.S.C. § 465, the Court

upheld the sales tax, reasoning that “[o]n its face, the

statute exempts land and rights in land, not income

derived from its use.” Id. at 155. The Court acknowledged

that an exemption for sales tax is arguably supported by

the context and purposes of § 5 but concluded that “absent

The Court acknowledged that “[t]he ski resort land was not

technically ‘acquired’ ‘in trust for the Indian tribe.’” Mescalero, 411

U.S. at 155 n.11. It nevertheless concluded that § 5 applied to the

tribe’s interest in the land as “it would have been meaningless for the

United States, which already had title to the forest, to convey title to

itself for the use of the Tribe.” Id.

35a

clear statutory guidance, courts ordinarily will not imply

tax exemptions.” Id. at 155–56; see also id. at 156 (stating

that a tax exemption affecting Indians “can not [sic] rest

on dubious inferences” but must be expressed by

Congress “in plain words” (quoting Okla. Tax Comm’n v.

United States, 319 U.S. 598, 607 (1943))).

¶23

The Court reached a contrary conclusion regarding

the use tax, which taxed the tribe’s use of the ski lifts and

was assessed based on the out-of-state purchase price for

the materials used to construct the lifts. See id. at 147,

158. The Court initially noted the ski lifts had been

permanently attached to the land and, citing Rickert,

concluded they “would certainly be immune from the

State’s ad valorem property tax.” Id. at 158. It found that

the same immunity extended to the use tax, reasoning that

use of land “is among the ‘bundle of privileges that make

up property or ownership’ of property and, in this sense,

at least, a tax upon ‘use’ is a tax upon the property itself.”

Id. (quoting Henneford v. Silas Mason Co., 300 U.S. 577,

582 (1937)).

And because “use of permanent

improvements upon land is so intimately connected with

use of the land itself,” the Court concluded that § 5’s

exemption applied to the use tax. Id.

¶24

South Point argues Mescalero categorically bars

the County’s assessment of property taxes on the Plant

under § 5 regardless of South Point’s ownership of the

facility. It asserts that, as with use of the ski lifts in

Mescalero, the Plant is included within the “bundle of

privileges” comprising the Tribe’s beneficial ownership of

the land underlying the Plant, and taxing the Plant

necessarily, and impermissibly, taxes that “bundle.” The

County counters Mescalero had “nothing to do with the

36a

taxation of non-Indian property,” and we should therefore

apply the plain language of § 5 to find it does not exempt

the Plant from the County’s tax.

¶25

We do not read Mescalero as applying § 5 to

exempt taxation of non-Indian-owned permanent

improvements.

First, the Court’s analysis solely

concerned tribal property and tribal activities. A tribalowned entity owned and used the ski lifts, and New

Mexico assessed the use taxes “against the [Mescalero

Apache] Tribe.” Id. at 147. The Court did not address

whether New Mexico could impose a use tax on nonIndians using property at the ski resort or whether it

could assess a property tax on non-Indian-owned property

affixed to the resort land.

¶26

Second, Rickert, which the Mescalero Court relied

on for its use-tax analysis, turned on the property owners’

status as Indians.

Specifically, Rickert prohibited

imposition of property taxes on Indian-owned permanent

improvements and personal property on allotted lands to

avoid taxing “an instrumentality” employed by the federal

government to benefit and protect allottee Indians in

improving and cultivating trust lands. 188 U.S. at 437,

442–44; cf. M’Culloch v. Maryland, 17 U.S. (4 Wheat.) 316,

436–37 (1819) (disallowing a state-levied tax on the

operations of a national bank that, in violation of the

Supremacy Clause, interfered with the federal

government’s execution of powers). Taxing permanent

improvements owned by non-Indians would not affect

those objectives. Thus, it does not necessarily follow that

Rickert, as applied in Mescalero to interpret § 5, exempts

non-Indian-owned property from state taxation.

37a

¶27

Third, before Mescalero, the Court had refused to

extend Rickert’s “federal instrumentality” analysis to

exempt state property taxes and state excise taxes for

non-Indian lessees of Indian lands if those taxes were

imposed on similarly situated persons. See Okla. Tax

Comm’n v. Tex. Co., 336 U.S. 342, 343, 366–67 (1949)

(holding that a non-Indian lessee of mineral rights on

lands allotted under the General Allotment Act was not

immunized by the Supremacy Clause from state taxes

levied against both the lessee’s property used in producing

petroleum and on the oil and gas produced in the tax year);

Taber v. Indian Territory Illuminating Oil Co., 300 U.S.

1, 3–5 (1937) (upholding a state’s non-discriminatory ad

valorem property taxes on dwelling, tool house, garage,

and equipment used by non-Indian lessee of restricted

Indian lands to produce oil and gas). The Court in

Oklahoma Tax Commission v. Texas Co. concluded that

“whether immunity shall be extended in situations like

these is essentially legislative in character,” and because

Congress had not created such immunity by affirmative

action, the taxes there were validly levied. 336 U.S. at

365–66.

¶28

The Mescalero Court recognized that Oklahoma

Tax Commission v. Texas Co. and other cases had “cut to

the bone the proposition that restricted Indian lands and

the proceeds from them were—as a matter of

constitutional law—automatically exempt from state

taxation.” 411 U.S. at 150. In determining § 5’s

applicability, the Court also relied on Oklahoma Tax

Commission v. Texas Co. in stating that “[l]essees of

otherwise exempt Indian lands are also subject to state

taxation.” Id. at 157. In light of this pronouncement, if the

Court had interpreted § 5 as also exempting permanent

38a

improvements owned by non-Indian lessees from state

and local taxation, we would expect the Court to have said

so rather than leaving confusion in its wake. It did not.

¶29

Fourth, applying Mescalero’s holding outside the

context of Indian-owned property would ignore § 5’s

requirement that the federal government own the “lands

or rights” in trust for an Indian tribe or for individual

Indians. See § 5108. Mescalero included permanent

improvements and their use as among the “bundle of

privileges” making up property or property ownership

because such improvements are “intimately connected

with use of the land itself.” 411 U.S. at 158. But when

ownership of permanent improvements is purposefully

plucked from that bundle, as occurred here, it loses that

intimate connection. In that circumstance, the Indian

beneficiary has no possessory or use interest in the

permanent improvements, and the federal government’s

“lands or rights” do not include those improvements.

¶30

Chehalis does not persuade us that Mescalero

interpreted § 5 as imposing the categorical bar urged by

South Point. There, the Ninth Circuit considered whether

§ 5 preempted a county tax on a resort, conference center,

and water park owned by a limited liability company and

built on land held in trust by the United States for the

Confederated Tribes of Chehalis Reservation. 724 F.3d at

1154–55. The tribe, which formed the company and owned

an undivided 51% interest in it, leased the land to the

company for twenty-five years. Id. at 1154. Per the lease,

the tribe would take ownership of all buildings and other

improvements at the end of the leasehold term. Id. at

1154–55.

39a

¶31

The Ninth Circuit found Mescalero dispositive and

held the county was barred from taxing the company’s

permanent improvements. See id. at 1157–58. In its

concluding paragraph, the court stated, “Mescalero sets

forth the simple rule that [§ 5] preempts state and local

taxes on permanent improvements built on nonreservation land owned by the United States and held in

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

ownership of the improvements.” Id. at 1159 (emphasis

added). In isolation, this statement supports South

Point’s view of Mescalero. But the body of the opinion

clarifies that § 5 preemption applies to permanent

improvements regardless of the ownership vehicle a tribe

uses to own the improvements. Specifically, the court

rejected the county’s argument that Mescalero was

distinguishable because a private company rather than

the Confederated Tribes of Chehalis Reservation itself

owned the permanent improvements. See id. at 1157. The

court characterized Mescalero as instructing that “the

question of tax immunity cannot be made to turn on the

particular form in which the [t]ribe chooses to conduct its

business.” Id. at 1156 (quoting Mescalero, 411 U.S. at 157

n.13). The court then concluded that “the [t]ribe’s decision

to give ownership of the [permanent improvements] to its

limited liability company for the duration of the lease” was

irrelevant. Id. at 1157. Chehalis, therefore, does not

support applying Mescalero to exempt the tax against the

Plant. Alternately, if the Ninth Circuit indeed intended

the broader reading of Mescalero urged by South Point,

we reject that reading for the reasons previously

explained. See supra ¶¶ 25–29.

¶32

We are also unpersuaded that other federal

authorities cited by South Point establish that § 5

40a

preempts the County’s tax on the Plant. In Seminole

Tribe of Florida v. Stranburg, 799 F.3d 1324, 1326 (11th

Cir. 2015), one issue was whether § 5 exempted a state tax

on rents paid by a non-Indian lessee of food-court

operations inside two Indian-owned casinos. Under

Florida law, the tax was imposed for the “privilege [of

engaging] in the business of renting, leasing, letting, or

granting a license for the use of any real property,”

assessed against the lessee and collected by the landlord,

which remitted the tax to the state. Id. (alteration in

original) (quoting Fla. Stat. § 212.031(1)(a)). Relying

heavily on Mescalero, the Eleventh Circuit concluded that

§ 5 preempted the rental tax. Id. at 1328–32. The court

described Mescalero as “stand[ing] for the proposition

that [§ 5] precludes state taxation of that ‘bundle of

privileges that make up property or ownership of

property.’” Id. at 1330 (quoting Mescalero, 411 U.S. at

158). After concluding that leasing property “is a

fundamental privilege of property ownership,” the court

found that Florida’s tax on that privilege was tantamount

to the use tax at issue in Mescalero and similarly

preempted. Id.

¶33

Stranburg did not apply Mescalero’s holding to

taxing non-Indian-owned permanent improvements

because the case did not involve taxing such

improvements. Nevertheless, South Point seizes on

Stranburg’s description of Mescalero as meaning § 5

preempts state and local taxes on privileges attending

Indians’ beneficial ownership of property, asserts the

Tribe’s ownership privileges include benefitting from

South Point’s “use of the land and any permanent

improvements,” and argues the tax here infringes those

privileges and are therefore preempted under § 5. This is

41a

a leap too far. The County’s property tax is not imposed

on South Point’s rental payments, so the tax does not

burden the Tribe’s use of its land as was the case in

Stranburg. And as previously explained, the Tribe has no

ownership interest in the Plant, so the tax could not

infringe on it. Cf. Okla. Tax Comm’n, 336 U.S. at 353

(stating that the taxes there raised no issues regarding the

immunity of Indian lands because “[t]here is no possibility

that ultimate liability for the taxes may fall upon the

owner of the land”). Thus, because the Tribe derives no

benefit from the Plant, the tax cannot infringe on it.

¶34

South Point also asks us to give weight to a

Department of Interior regulation concerning Indian land

leases. See Wade v. Ariz. State Ret. Sys., 241 Ariz. 559,

563 (2017) (acknowledging that absent legislative

direction, the court will give weight to an agency’s

construction of the system it administers). Title 25,

§ 162.017(a) of the Code of Federal Regulations states that

“[s]ubject 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.”

¶35

The regulation does not persuade us to interpret

§ 5 differently. First, the regulation itself cannot preempt

the County’s tax. See Kansas v. Garcia, 140 S. Ct. 791,

801 (2020) (stating preemption can arise only from “the

Constitution itself or a valid statute enacted by

Congress”). Second, Congress has provided direction on

the exemption at issue by enacting § 5. We can ascertain

that provision’s meaning by applying interpretive

principles, and we have no need to defer to the

42a

Department of Interior’s interpretation. See Wade, 241

Ariz. at 563 (recognizing the judiciary has final authority

in interpreting statutes).

Third, the regulation is

“[s]ubject . . . to applicable Federal law,” which includes

§ 5, the cases interpreting it, and Bracker. § 162.017(a).

The Department of Interior has taken the position in other

cases that “§ 162.017 has no legal effect at all,” and the

department is “agnostic” on whether any specific state tax

is preempted. Desert Water Agency v. U.S. Dep’t of the

Interior, 849 F.3d 1250, 1254 (9th Cir. 2017). Instead, the

regulation merely reflects the agency’s view that when a

Bracker analysis is conducted, “the federal and tribal

interests at stake are strong enough to have a preemptive

effect in the generality of cases.” See id.; see also

Stranburg, 799 F.3d at 1337–38 (declining to defer to

§ 162.017 and describing the preamble to the regulations

as “outlin[ing] the Bracker balancing test and then

appl[ying] it generally”).

¶36

In sum, § 5 preempts state and local taxes imposed

on land and rights acquired by the Secretary of the

Interior and titled in the name of the United States in

trust for Indian tribes or individual Indians. Ownership

rights in land generally include permanent improvements

affixed to that land by a lessee but not if the parties agree

that the lessee owns those improvements. When that

lessee is a non-Indian, § 5 does not preempt a state or

locality from taxing the improvements.

Neither

Mescalero nor other federal authorities provides

otherwise.

¶37

Here, South Point indisputably owns the Plant, and

the property taxes fall solely on it and not the Tribe’s land.

Consequently, § 5 does not exempt the Plant from

43a

taxation, and the court of appeals erred by holding

otherwise. Considering our decision, we need not address

the County’s additional argument that exemption does not

apply because the Secretary of the Interior did not acquire

the land underlying the Plant pursuant to § 5. Because

the court of appeals did not address whether the tax court

correctly ruled that the Plant is also not impliedly exempt

from the County’s tax under Bracker, we remand to the

court of appeals to decide that issue. See S. Point Energy

Ctr., 251 Ariz. at 268 ¶ 24.

CONCLUSION

¶38

For the foregoing reasons, we vacate the court of

appeals’ opinion ¶¶ 9–24 and the first sentence in ¶ 30. We

remand to the court of appeals to decide the remaining

issue left undecided by that court.

44a

APPENDIX D

IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

__________________________________

SOUTH POINT ENERGY CENTER LLC,

Plaintiff/Appellant,

ARIZONA DEPARTMENT OF REVENUE, et al.,

Defendants/Appellees.

No. 1 CA-TX 20-0004

FILED 4-27-2021

__________________________________

Appeal from the Arizona Tax Court

No. TX2013-000522

TX2014-000451

TX2015-000850

TX2016-001228

TX2017-001744

TX2018-000019

TX2019-000086

(Consolidated)

The Honorable Christopher T. Whitten, Judge

VACATED AND REMANDED

__________________________________

COUNSEL

Lewis Roca Rothgerber Christie LLP, Phoenix

By Patrick Derdenger, Karen M. Jurichko Lowell

Counsel for Plaintiff/Appellant

45a

Dickinson Wright PLLC, Phoenix

By Bennett Evan Cooper, Vail C. Cloar

Co-Counsel for Plaintiff/Appellant

Arizona Attorney General’s Office, Phoenix

By Kimberly J. Cygan

Counsel for Defendant/Appellee Arizona Department of

Revenue

Arizona Attorney General’s Office, Phoenix

By Jerry A. Fries

Counsel for Defendant/Appellee Mohave County

__________________________________

OPINION

Judge Cynthia J. Bailey delivered the opinion of the

Court, in which Presiding Judge Paul J. McMurdie and

Judge Lawrence F. Winthrop joined.

__________________________________

B A I L E Y, Judge:

¶1

In these consolidated actions challenging the state

and county’s power to tax property on tribal land, South

Point Energy Center, LLC (“Taxpayer”) appeals the tax

court’s grant of summary judgment to the Arizona

Department of Revenue and Mohave County (collectively,

“ADOR”). For the following reasons, we vacate the

judgment and remand to the tax court for further

proceedings.

FACTS AND PROCEDURAL HISTORY

¶2

Taxpayer is a non-Indian entity that owns and

operates an electrical generating plant (“Facility”) in

46a

Mohave County on land it leases from the Fort Mojave

Indian Tribe (“Tribe”). 1 Under the lease (“Lease”),

Taxpayer owns “[t]he Facility and all Improvements,” but

at the end of the term, it will have to “remove any and all

above ground Improvements and personal property from

the Leased Land,” except for certain roads, foundations,

and underground piping and equipment.

¶3

In 2013 and 2014, Taxpayer sued ADOR to recover

property taxes paid on the Facility for the property tax

years 2010-2013. ADOR moved to dismiss, arguing issue

preclusion barred Taxpayer from relitigating the tax’s

legality and that Taxpayer was not entitled to errorcorrection relief, and the court entered judgment for

ADOR. See Ariz. R. Civ. P. 12(d). After Taxpayer

appealed, this court vacated the judgment and remanded

for further proceedings. See S. Point Energy Ctr., LLC v.

Ariz. Dep’t of Revenue, 241 Ariz. 11, 13, ¶¶ 1-2 (App. 2016).

¶4

On remand, the tax court ultimately consolidated

the cases with five other lawsuits in which Taxpayer

challenged property taxes it had paid on the Facility for

years 2014-2018. The court denied the parties’ crossmotions for partial summary judgment on whether 25

U.S.C. § 5108 per se preempts property taxes levied on the

Facility. On a second set of cross-motions, the court then

Taxpayer and its predecessor-in-interest have been involved in

earlier actions in this court relating to property taxes on the Facility.

See Calpine Constr. Fin. Co. v. Ariz. Dep’t of Revenue, 221 Ariz. 244,

248-49, ¶¶ 17, 22 (App. 2009) (holding Taxpayer’s predecessor-ininterest, not the Tribe, owned the improvements and personal

property that comprise the Facility and that the predecessor-ininterest was liable for property taxes); Ariz. Dep’t of Revenue v. S.

Point Energy Ctr., LLC, 228 Ariz. 436, 441, ¶ 20 (App. 2011) (holding

the Arizona Department of Revenue did not err within the meaning

of the error-correction statutes in valuing the Facility).

47a

ruled the Facility is not a permanent improvement exempt

under § 5108 because the Lease requires Taxpayer to

remove the above-ground improvements at the conclusion

of the term. The court granted summary judgment to

ADOR, holding that under White Mountain Apache Tribe

v. Bracker, 448 U.S. 136, 151 (1980), tribal sovereignty

does not preempt taxation of the Facility.

¶5

Taxpayer timely appealed, and we have

jurisdiction pursuant to Article 6, Section 9, of the Arizona

Constitution and A.R.S. §§ 12-120.21, -170(C) and

- 2101(A)(1).

DISCUSSION

¶6

Taxpayer argues the tax court erred by (1)

rejecting its contention that 25 U.S.C. § 5108 categorically

preempts state and local property taxes on permanent

improvements on leased tribal land; (2) ruling based on

state law, and without briefing or hearing evidence, that

the entirety of the Facility is personal property rather

than permanent improvements; and (3) erroneously

applying the Bracker interest-balancing analysis to the

Facility.

¶7

We conclude the tax court erred by disregarding

§ 5108 and categorizing the Facility as personal property

without conducting the proper analysis. We therefore

vacate the judgment and remand for further proceedings

consistent with this Opinion.

Standard of Review

¶8

We review a grant of summary judgment de novo.

Jackson v. Eagle KMC L.L.C., 245 Ariz. 544, 545, ¶ 7

(2019). In doing so, we view the evidence and reasonable

inferences in the light most favorable to the nonmoving

48a

party. Harianto v. State, 249 Ariz. 563, 565, ¶ 7 (App.

2020).

II.

Whether the tax court erred by granting summary

judgment to ADOR.

A. Whether the tax court erred by failing to apply 25

U.S.C. § 5108 to the Facility.

¶9

Taxpayer argues the tax court erred by failing to

rule the Facility is exempt from taxes under § 5108, which,

in relevant part, states that “lands or rights” taken in the

name of the United States in trust for an Indian tribe

“shall be exempt from State and local taxation.” Under

the statute, taxation of such property is per se preempted.

¶10

To support its argument, Taxpayer cites four

cases: United States v. Rickert, 188 U.S. 432 (1903),

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

Confederated Tribes of the Chehalis Rsrv. v. Thurston

Cnty. Bd. of Equalization, 724 F.3d 1153 (9th Cir. 2013),

and Seminole Tribe of Florida v. Stranburg, 799 F.3d

1324 (11th Cir. 2015). Of course, United States Supreme

Court cases bind Arizona courts on issues of federal

preemption. See Weatherford ex rel. Michael L. v. State,

206 Ariz. 529, 532-33, ¶¶ 8-9 (2003). As Taxpayer

recognizes, federal circuit decisions are not binding on

Arizona courts. See Plan. Grp. of Scottsdale, L.L.C. v.

Lake Mathews Mineral Props., Ltd., 226 Ariz. 262, 267,

¶ 22 (2011). They may be persuasive, however, id.,

especially when they are “consistent and well-reasoned,”

Filer v. Tohono O’Odham Nation Gaming Ent., 212 Ariz.

167, 174, ¶ 28 (App. 2006).

¶11

Rickert is the first Supreme Court case addressing

state and local taxation of permanent improvements on

land held in trust by the United States. 188 U.S. at 432.

49a

In that case, two tribal members owned improvements

that were built on allotted land held in trust. Id. Although

Rickert was decided before Congress enacted § 5108, it

established that a state may not tax land held in trust by

the United States and 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” on such land. Id. at 437-38,

442.

¶12

Congress enacted § 5108 in 1934 to codify Rickert’s

holding. See 25 U.S.C. § 5108; Club One Casino, Inc. v.

United States Dep’t of the Interior, 328 F. Supp. 3d 1033,

1045 (E.D. Cal. 2018) (“Under Ninth Circuit authority,

this Court should treat land placed in trust for a tribe

pursuant to [§ 5108] . . . in the same manner as land held

in trust for tribes prior to enactment of the [Indian

Reorganization Act] in 1934.”), aff’d sub nom. Club One

Casino, Inc. v. Bernhardt, 959 F.3d 1142 (9th Cir. 2020),

cert. pending (Dec. 23, 2020).

¶13

Mescalero then addressed whether New Mexico

could impose a use tax on permanent improvements

owned by an Indian entity on trust land. 411 U.S. at 146.

Applying § 5108, the Supreme Court held that the

improvements, being permanently attached to the land,

were “certainly . . . immune from the State’s ad valorem

property tax” because “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.

¶14

In Chehalis, the Ninth Circuit built upon Rickert

and Mescalero. 724 F.3d at 1155-56. The tribe in question

was not the sole owner of the improvements, but the court

50a

held § 5108 applies to all permanent improvements on

trust land, regardless of whether they are tribal-owned.

Id. at 1157, 1159. The court also held that federal law

governs whether the property at issue is a permanent

improvement subject to § 5109. Id. at 1157-58.

¶15

Finally, two years later, the Eleventh Circuit in

Seminole Tribe of Florida v. Stranburg addressed

Florida’s attempt to tax rent that a non-Indian entity paid

to do business on trust land. 799 F.3d at 1326. The court

concluded that § 5108 barred the rental tax because the

leasehold was “so connected to the land that the tax

amounted to a tax on the land itself.” Id. at 1329. The

court held in the alternative that, although § 5108

precluded the tax, it also would be precluded under

Bracker. Id. at 1335.

¶16

ADOR argues Rickert, Mescalero, and Chehalis

are inapplicable to this case because the permanent

improvements in those cases were owned by Indians,

while Taxpayer is a non-Indian entity. See Rickert, 188

U.S. at 433; Mescalero, 411 U.S. at 146; Chehalis, 724 F.3d

at 1154. Contrary to ADOR’s contention, the cited cases

do not hold that the exemption applies only to Indianowned improvements. See Rickert, 188 U.S. at 442-43;

Mescalero, 411 U.S at 158; Chehalis, 724 F.3d at 1159.

Indeed, as noted, Chehalis expressly held that § 5108

categorically bars a state tax on permanent improvements

on trust land regardless of whether those improvements

are owned by Indians.

¶17

As Stranburg explained at length, § 5108 forecloses

taxes on “the bundle of privileges that make up property

or ownership of property.” 799 F.3d at 1330 (quoting

Mescalero, 411 U.S. at 157). The court reasoned that the

rental tax was effectively a tax on the tribal land subject

51a

to the lease because “[t]he ability to lease property is a

fundamental privilege of property ownership.” 799 F.3d

at 1330. Further, viewed from the other side of the lease

transaction, the rent the lessee paid to the tribe secured

its “possessory interest in the land for the duration of the

lease.” Id. at 1331 (stating that “payment under a lease is

intimately and indistinguishably connected to the leasing

of the land itself”). It did not matter that the lessee that

paid the tax was a non-Indian entity; the tax was barred

because it amounted to a tax on the tribe’s exercise of one

of the privileges of owning the land. Id. 2

¶18

Section 5108’s text supports the conclusion that

permanent improvements on trust land are exempt

regardless of ownership. The statute states that “lands

and rights” taken by the federal government in trust for a

tribe are “exempt from State and local taxation,” and,

contrary to ADOR’s assertions, no statutory language

limits that exemption to Indian-owned improvements.

Ownership of permanent improvements on “lands” taken

in trust, accordingly, is immaterial.

¶19

In sum, applying the text of § 5108 and the

reasoning of the several federal cases applying the

statute, we conclude that a tax on any permanent

improvements subject to the Lease is effectively a tax on

one of the privileges of the Tribe’s ownership of trust land,

and therefore is barred by § 5108.

ADOR argues the lease in Stranburg did not require the non-Indian

tenant to remove improvements at the end of the lease term. That is

beside the point. To the extent that the improvements at the Facility

are permanent, Stranburg and Chehalis teach that § 5108 bars ADOR

from collecting taxes on those improvements.

52a

¶20

ADOR nevertheless argues that whether the tax is

preempted is controlled not by § 5108 but instead by

Bracker, a case that addressed a challenge to fuel taxes

and motor vehicle licensing fees imposed on a non-Indian

company doing business on trust land. But Bracker has

nothing to say about property that is categorically exempt

from taxation under § 5108. 3 As Bracker itself explained,

there are “two independent but related barriers to the

assertion of state regulatory authority over tribal

reservations and members.” 448 U.S. at 142. The first

barrier is preemption by “federal law.” Id. The second is

unlawful infringement “on the right of reservation Indians

to make their own laws and be ruled by them.” Id.

(quoting Williams v. Lee, 358 U.S. 217, 220 (1959)).

“[E]ither [barrier], standing alone, can be a sufficient

basis for holding state law inapplicable to activity

undertaken on the reservation or by tribal members.” Id.

at 143; see Stranburg, 799 F.3d at 1335 (after holding the

rental tax violated § 5108, but before addressing Bracker,

noting that “[w]e could, of course, stop our analysis

regarding the Rental Tax at this point”).

¶21

ADOR cites a rule issued by the Bureau of Indian

Affairs that it contends supports its assertion that

Bracker applies to permanent improvements owned by

non-Indians on leased land. 25 C.F.R. § 162.017; see

Residential, Business, and Wind and Solar Resource

Leases on Indian Land, 77 Fed. Reg. 72,439 (Dec. 5, 2012).

Neither Bracker nor any of the cases ADOR cites applying Bracker

discuss § 5108 or address permanent improvements on land held in

trust by the United States. See, e.g., Bracker, 448 U.S. at 137;

Oklahoma Tax Comm’n v. Chickasaw Nation, 515 U.S. 450, 457-58

(1995) (motor fuels excise tax); Cotton Petroleum Corp. v. New

Mexico, 490 U.S. 163, 187-89 (1989) (severance tax on the production

of oil and gas).

53a

However, neither § 162.017 nor the Bureau’s explanation

of it supports ADOR’s argument. Section 162.017

provides:

(a) 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.

(b) Subject only to applicable Federal law,

activities under a lease conducted on the leased

premises are not subject to any fee, tax,

assessment, levy, or other charge (e.g., business

use, privilege, public utility, excise, gross revenue

taxes) imposed by any State or political

subdivision of a State. Activities may be subject

to taxation by the Indian tribe with jurisdiction.

leasehold or possessory interest is not subject to

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

imposed by any State or political subdivision of a

State. Leasehold or possessory interests may be

subject to taxation by the Indian tribe with

jurisdiction.

(Emphasis added.)

¶22

ADOR contends that the “subject only to

applicable Federal law” language refers to Bracker.

Although we agree that Bracker constitutes “federal law,”

“federal law” also includes § 5108 and the cases applying

54a

that statute, including Rickert, Mescalero, Chehalis, and

Stranburg.

¶23

The rest of the regulation’s language also supports

our interpretation. The regulation unambiguously says,

“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.”

25 C.F.R. § 162.017(a). Because federal law—including

Rickert, Mescalero, Chehalis, and Stranburg—does not

conflict with this language, the regulation’s language

supports our interpretation of § 5108. The Bureau of

Indian Affairs’s explanation of the rule also supports our

interpretation of § 162.017(a). See 77 Fed. Reg. at 72,448

(stating that because permanent improvements are

“affixed to the land,” “a property tax on the improvements

burdens the land, particularly if a State or local

government were to attempt to place a lien on the

improvement,” and “State and local taxation of

improvements undermine Federal and tribal regulation of

improvements”).

¶24

Because we have concluded that § 5108

categorically exempts any permanent improvements

subject to the Lease, we need not determine whether

taxes imposed on those permanent improvements also

would be barred under a Bracker analysis. We next

examine whether the tax court erred by ruling that the

entirety of the Facility is personal property, not

permanent improvements to which § 5108 would apply.

55a

B. Whether the tax court erred by ruling the

entirety of the improvements are non-permanent

and not subject to 25 U.S.C. § 5108.

¶25

Taxpayer argues the tax court erred by concluding

without the benefit of briefing or evidence that the

entirety of the Facility is personal property not subject to

§ 5108. It contends this ruling violated “the principle of

party presentation.”

¶26

“In our adversary system, in both civil and criminal

cases, in the first instance and on appeal, we follow the

principle of party presentation.” Greenlaw v. United

States, 554 U.S. 237, 243 (2008). “That is, we rely on the

parties to frame the issues for decision and assign to

courts the role of neutral arbiter of matters the parties

present.” Id. Although the principle of party presentation

is “supple, not ironclad,” United States v. SinenengSmith, 140 S. Ct. 1575, 1579 (2020), “as a general rule,

‘[o]ur adversary system is designed around the premise

that the parties know what is best for them, and are

responsible for advancing the facts and arguments

entitling them to relief,’” Greenlaw, 554 U.S. at 244

(quoting Castro v. United States, 540 U.S. 375, 386 (2003)

(Scalia, J., concurring in part and concurring in

judgment)). Although violation of this principle does not

constitute reversible error, the rationale behind the

principle is particularly applicable here. See SinenengSmith, 140 S. Ct. at 1579, 1581 (“[A] court is not hidebound

by the precise arguments of counsel.”).

¶27

During the second round of summary judgment

briefing, the parties agreed that the Facility contained

both personal property and permanent improvements.

The tax court nevertheless concluded the Facility was

entirely personal property, based upon the Lease

56a

provision that requires Taxpayer to remove all aboveground improvements at the end of the term. As the court

reasoned, “[i]f [Taxpayer] retain[ed] the right to remove

an improvement, that improvement is by definition not a

permanent improvement.”

In making this ruling,

however, the tax court disregarded the principle that

federal law, not state law, determines whether specific

property is a permanent improvement exempt from

taxation under § 5108. See Drye v. United States, 528 U.S.

49, 52 (1999) (holding that what constitutes “property

[and] rights to property” for purposes of a federal tax

statute is determined by federal law, not state law);

Chehalis, 724 F.3d at 1158 (stating “it is irrelevant

whether permanent improvements constitute personal

property under [state] law”). Under federal tax law,

whether an asset is a permanent improvement or personal

property turns on six factors set out in Whiteco Indus.,

Inc. v. Comm’r, 65 T.C. 664 (1975). See PPL Corp. v.

Comm’r, 135 T.C. 176, 193 (2010); see also Trentadue v.

Comm’r, 128 T.C. 91, 99 (2007).

¶28

The Whiteco factors primarily focus on “the

permanence of depreciable property and the damage

caused to it or to realty upon removal of the depreciable

property.” Trentadue, 128 T.C. at 99. The factors are: (1)

“Is the property capable of being moved, and has it in fact

been moved?”; (2) “Is the property designed or

constructed to remain permanently in place?”; (3) “Are

there circumstances which tend to show the expected or

intended length of affixation, i.e., are there circumstances

which show that the property may or will have to be

moved?”; (4) “How substantial a job is removal of the

property and how time-consuming is it? Is it ‘readily

removable’?”; (5) “How much damage will the property

57a

sustain upon its removal?”; and (6) “What is the manner of

affixation of the property to the land?” Whiteco, 65 T.C.

at 672-73.

¶29

Under Whiteco, although the existence of a

contract requiring removal of the property is relevant, it

is not determinative. See id. (considering contract term

under factors (2) and (3)). The tax court accordingly erred

by concluding the Facility was “by definition” not a

permanent structure without conducting a Whiteco

analysis.

CONCLUSION

¶30

Because we conclude that 25 U.S.C. § 5108

establishes a categorical exemption for permanent

improvements on Indian land held in trust by the United

States, and that the tax court erred by concluding the

Facility was entirely personal property without

conducting the proper analysis, we vacate the court’s

grant of summary judgment to ADOR. We remand this

case to the tax court to conduct a Whiteco analysis to

determine which, if any, of the assets that make up the

Facility are permanent improvements that therefore are

exempt from taxation under § 5108. The court then should

consider whether property taxes on the assets that are not

permanent improvements are preempted under Bracker.

See Mashantucket Pequot Tribe v. Town of Ledyard, 722

F.3d 457, 459-60 (2nd Cir. 2013) (applying Bracker

analysis to state personal property tax).

58a

APPENDIX E

THE SUPERIOR COURT OF THE STATE OF

ARIZONA IN THE ARIZONA TAX COURT

TX 2013-000522

02/04/2020

HONORABLE

CHRISTOPHER

WHITTEN

CLERK OF THE

COURT

D. Tapia

Deputy

SOUTH POINT ENERGY

CENTER L L C

ARIZONA

DEPARTMENT OF

REVENUE, et al.

PATRICK DERDENGER

KENNETH J LOVE

MINUTE ENTRY

The Court has Plaintiff’s Motion for Summary

Judgment in Bracker Phase of Litigation, filed September

17, 2019 and Defendants’ Cross Motion for Summary

Judgment on that same subject, filed October 18, 2019.

Briefing on the motions was completed on January 17,

2020.

The Court benefited from very helpful oral argument

on the competing motions on January 31, 2020.

Certainly, there is no explicit Congressional

authorization for preemption here, though that is not

required for preemption to exist. White Mtn. Apache

Tribe v. Bracker, 448 U.S. 136, 144 (1980). But preemption

is not to be presumed lightly. See, e.g., Washington v.

59a

Confederated Tribes of Colville Indian Reservation, 447

U.S. 134, 155-56 (1980).

Bracker therefore imposes a balancing test.

“Resolution of conflicts of this kind does not depend on

rigid rules or on mechanical or absolute conceptions of

state or tribal sovereignty, but instead on a particularized

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

interests at stake, an inquiry designed to determine

whether, in the specific context, the exercise of state

authority would violate federal law.” Department of

Taxation and Finance of New York v. Milhelm Attea &

Bros., Inc., 512 U.S. 61, 73 (1994), quoting Bracker, supra

at 145.

At issue here is the imposition of Arizona’s personal

property tax on South Point, and to analyze that the Court

turns to the Second Amended Lease. Notable in it is

paragraph 9.1, which gives South Point the option to

“remove, repair, replace, modify or otherwise alter” the

Facility or any part of it. If South Point retains the right

to remove an improvement, that improvement is by

definition not a permanent improvement, which becomes

part of the realty. The land itself is not a factor in the tax.

Neither is South Point’s leasehold interest in the land. In

Arizona, leasehold interests are taxed to the fee owner.

Since land owned by the Tribe (or, technically, BIA) is

exempt from state property taxes, no portion of the fee

interest, including South Point’s leasehold interest, is

taxed. 1 Contrast Seminole Tribe of Florida v. Stranburg,

A.R.S. Const. Art. IX § 2(1). This also answers South Point’s

argument that, should the personal property tax not be paid, the State

could impose a tax lien on the underlying real property, damaging the

Tribe. But a tax lien cannot be imposed on property that is exempt

from taxation. In addition, A.R.S. § 42-17153 allows a lien only on the

60a

799 F.3d 1324, 1331-32 (11th Cir. 2015) (rejecting tax on “a

right in land”).

The pervasiveness of federal regulation of tribal

leases is thus immaterial because no aspect of the lease is

subject to tax. Federal regulation of power plants applies

to all power plants regardless of their location.

Preemption would have to be all or nothing; if state

taxation of power plants on reservations is preempted,

then so must be state taxation on every power plant in the

country. There is no basis for the argument that a

regulatory scheme founded upon a Congressional power

other than the Indian Commerce Clause is material to the

Bracker analysis. See Bracker, supra at 141-43.

South Point next makes the general argument that

the federal government’s interest in economic

development on reservations is affected by the possibility

of double taxation, making the business less profitable.

This is addressed in Cotton Petroleum Corp. v. New

Mexico, 490 U.S. 163, 190-91 (1989):

It is, of course, reasonable to infer that the

existence of the state tax imposes some limit on

the profitability of Indian oil and gas leases—just

as it no doubt imposes a limit on the profitability

of off-reservation leasing arrangements—but

that is precisely the same indirect burden that we

rejected as a basis for granting non-Indian

contractors an immunity from state taxation in

(five cited opinions).

“assessed property.” As seen, by the terms of the Second Amended

Lease, South Point’s property never becomes part of the land, so the

land is not part of the assessed property.

61a

That South Point demands few services from the

State is of little consequence. “Nothing is more familiar in

taxation than the imposition of a tax upon a class or upon

individuals who enjoy no direct benefit from its

expenditure, and who are not responsible for the condition

to be remedied. A tax is not an assessment of benefits. It

is, as we have said, a means of distributing the burden of

the cost of government.”

Id. at 190, quoting

Commonwealth Edison Co. v. Montana, 453 U.S. 609,

622-23 (1981).

South Point finally alleges that, although the tax is

plainly targeted at its personal property, its incidence

actually falls on the Tribe. The Tribe voluntarily agreed

to reimburse South Point for taxes it is required to pay the

State. South Point claims that as a result, the State is

directly taxing the Tribe, something unquestionably

forbidden.

Few legal principles are more firmly established than

that an indemnitor stands in the shoes of the indemnitee

and is entitled to only those defenses that the indemnitee

has. Obviously, South Point has no sovereign immunity to

invoke. The indemnity clause purports to cloak South

Point in the Tribe’s sovereignty, making a debt lawfully

and enforceably owed by South Point into an invalid and

unenforceable debt against the Tribe.

The Supreme Court has, in many of its opinions

interpreting Indian law, given only fuzzy guidance to

lower courts obliged to pick largely undirected through

the historical debris that still guides federal policy toward

Native Americans. Occasionally, however, a bright line is

drawn. “We do not believe that principles of federal

Indian law, whether stated in terms of pre-emption, tribal

self-government, or otherwise, authorize Indian tribes

62a

thus to market an exemption from state taxation to

persons who would normally do their business elsewhere.”

Colville, supra at 155; see also, e.g., Wagnon v. Prairie

Band Potawatomi Nation, 546 U.S. 95, 113-15 (2005).

The cases brought forward by South Point, chiefly

Seminole Tribe of Florida, supra, are distinguishable.

Seminole Tribe addressed a state tax on leaseholds,

holding that leases are so connected to the land that their

taxation amounts to taxation of the land itself. 799 F.3d at

1329. Amended Lease, protected from becoming part of

the realty, so it is not an interest in land. Similarly,

Confederated Tribes of Chihalis Reservation v. Thurston

County Bd. Of Supervisors, 724 F.3d 1153 (9th Cir. 2013)

bars based on statute law property taxes against Indian

trust lands. Ramah Navajo School Bd., Inc. v. Bureau of

Revenue of New Mexico, 458 U.S. 832 (1982), concerned

taxes for schools; the Interior Department had a detailed

regulatory plan for Indian schooling, which the state had

largely washed its hands of. Here, there are no permanent

improvements or affixed property treated as tribal land;

nothing about the federal regulation of power plants is

more intensive when the plant is on tribal land.

ACCORDINGLY, Defendants’ Cross Motion for

Summary Judgment is granted and Plaintiff’s Motion for

Summary Judgment is denied.

63a

APPENDIX F

THE SUPERIOR COURT OF THE STATE OF

ARIZONA IN THE ARIZONA TAX COURT

TX 2013-000522

05/16/2018

HONORABLE

CHRISTOPHER

WHITTEN

CLERK OF THE

COURT

T. Cooley

Deputy

SOUTH POINT ENERGY

CENTER L L C

ARIZONA

DEPARTMENT OF

REVENUE, et al.

PATRICK DERDENGER

KENNETH J LOVE

MINUTE ENTRY

The Court has considered Defendants’ Motion for

Partial Summary Judgment, filed December 4, 2017,

Plaintiff’s Response and Cross-Motion for Partial

Summary Judgment Based on Categorical Preemption of

Taxes on Permanent Improvements, filed January 18,

2018, Defendants’ Reply and Response filed March 5, 2018

and Plaintiff’s reply, filed on April 12, 2018. The Court

benefited from oral argument on the competing motions

on April 30, 3018.

The Statute and Supreme Court opinions

25 U.S.C. § 5108 states in relevant part:

Title to any lands or rights acquired pursuant to

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

64a

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.

The Supreme Court has on several occasions

interpreted this statute. In Mescalero Apache Tribe v.

Jones, 411 U.S. 145 (1973) the Court upheld a state tax

imposed on a tribal-owned and -operated enterprise, a ski

resort, located off the reservation. Id. at 146, 149-50. At

the same time, it struck down a state use tax on

improvements built on tax-exempt land. Id. at 158. In so

doing, it found unproblematic the Tribe’s use of a

corporation to conduct the ski operation, concluding, “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.5.

Cass County, Minn. v. Leech Lake Band of Chippewa

Indians, 524 U.S. 103 (1998), deals with the alienation of

tribal land. The important holding is that land taken in

trust under § 5108 can be alienated with Congressional

approval and is thenceforward fully taxable by state and

local governments unless a contrary intent is clearly

manifested. Id. at 112-13.

There is another line of Supreme Court precedent

addressing the use of tribal immunity from state and local

taxation granted under other statutes by or for the benefit

of non-tribal entities. These cases are generally critical of

the practice. See, for instance, Oklahoma Tax Comm. v.

Chickasaw Nation, 515 U.S. 450, 459 (1995); Washington

v. Confederated Tribes of Colville Indian Reservation, 447

U.S. 134 (1980). In Colville in particular, the Court was

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sharply critical of the tribe’s use of its immunity to benefit

non-Indians:

It is painfully apparent that the value marketed

by the smokeshops to persons coming from

outside is not generated on the reservations by

activities in which the Tribes have a significant

interest. What the smokeshops offer these

customers, and what is not available elsewhere, is

solely an exemption from state taxation. The

Tribes assert the power to create such

exemptions by imposing their own taxes or

otherwise earning revenues by participating in

the reservation enterprises. If this assertion

were accepted, the Tribes could impose a nominal

tax and open chains of discount stores at

reservation borders, selling goods of all

descriptions at deep discounts and drawing

custom from surrounding areas. We do not

believe that principles of federal Indian law,

whether stated in terms of pre-emption, tribal

self-government, or otherwise, authorize Indian

tribes thus to market an exemption from state

taxation to persons who would normally do their

business elsewhere.

Id. at 155 (internal citations omitted).

Similar concern is expressed in Mescalero. Quoting

from Congressional hearings on the what is now § 5108,

the Court wrote, “These provisions were designed to

encourage tribal enterprises ‘to enter the white world on

a footing of equal competition.’ In this context, we will not

imply an expansive immunity from ordinary income taxes

that businesses throughout the State are subject to.” 411

66a

U.S. at 157-58 (quoting 78 Cong. Rec. 11732; internal

citation omitted).

Although no case in this line has directly addressed

Section 5108, each of them evidences the Supreme Court’s

reluctance to a statutory construction broad enough to

allow tribes to sell their tax immunity for the benefit of

non-Indian businesses. There is no reason to believe it has

any less concern for property tax immunity.

Beyond Mescalero: Confederated Tribes of Chehalis

Reservation

The key case underlying Plaintiff’s argument for

categorical pre-emption is Confederated Tribes of

Chehalis Reservation v. Thurston County Bd. of

Equalization, 724 F.3d 1153 (9th Cir. 2013). In that case,

the Tribe joined with a non-Indian corporation to form

CTGW, LLC. The Tribe retained a controlling majority

interest in CTGW, LLC. The Tribe then entered into a

25-year lease agreement with CTGW under which it would

erect permanent improvements for a water park and

convention center. Title to the improvements was held by

CTGW for the lease term, but reverted to the Tribe at its

conclusion. Id. at 1154-55. The court, citing Mescalero as

its principal authority, held that the improvements owned

by CTGW were exempt under § 5108 from state and local

property taxation. Id. at 1156. 1

The Chihalis court dealt with the BIA regulations cited by

Plaintiff in a footnote, concluding that they merely “clarif[y] and

confirm[]” the substance of the statute and so declined to address

their applicability or the level of deference afforded to them. Id. at

1157 n.6. This Court agrees that, despite its expansive language, the

limitation “subject only to applicable Federal law” confines the

regulation to the four walls of the statute.

67a

Under the facts in Chihalis, the Ninth Circuit’s

reasoning indeed follows from Mescalero: CTGW was a

tribal business, and that the Tribe chose this particular

corporate form to conduct its business is immaterial to its

tax immunity. But in its conclusion, the Ninth Circuit

went beyond its facts to enunciate a more sweeping

doctrine: “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.” Id. at 1159. With great respect, the

holding in Mescalero is not so broad. 2

The Supreme Court, in the passage relied on by the

Ninth Circuit and quoted above, held that “the question of

tax immunity cannot be made to turn on the particular

form in which the Tribe chooses to conduct its business.”

The humble stature of the possessive pronoun its belies

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