Amicus Curiae Brief — Arizona Dept. of Revenue v. Blaze Constr. Co.

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No. 97-1536

IN THE

Supreme Court ofthe Waited Stato C

OCTOBER TERM, 1997

STATE OF ARIZONA EX REL. ARIZONA

DEPARTMENT OF REVENUE,

- Petitioner,

BLAZE CONSTRUCTION COMPANY, INC.,

Respondent.

On Writ of Certiorari to the

Arizona Court of Appeals,

Division One

BRIEF OF THE NATIONAL CONFERENCE OF

STATE LEGISLATURES, COUNCIL OF STATE

GOVERNMENTS, NATIONAL GOVERNORS’

ASSOCIATION, U.S. CONFERENCE OF MAYORS,

NATIONAL LEAGUE OF CITIES, NATIONAL

ASSOCIATION OF COUNTIES, INTERNATIONAL

CITY/COUNTY MANAGEMENT ASSOCIATION, AND

INTERNATIONAL MUNICIPAL LAWYERS

ASSOCIATION AS AMICI CURIAE

IN SUPPORT OF PETITIONER

RICHARD RUDA *

Chief Counsel

JAMES I. CROWLEY

STATE AND LOCAL LEGAL CENTER

444 North Capitol Street, N.W.

Suite 345

Washington, D.C. 20001

(202) 434-4850

* Counsel of Record for the

Amici Curiae

WILSON - Eres Printine Co.. Inc. - 789-0096 - WasHincTon. D.C. 20001

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TABLE OF CONTENTS

Page

QUESTION PRESENTED ...... imancied _ i

TABLE OF AUTHORITIES iv

INTEREST OF THE AMICI CURIAE .................. 1

IEEE te iecirnnitaetniniareinsccqusvoocsinectntsieseummemectesnecenecenees 3

SUMMARY OF ARGUMENT ..... 5

ARGUMENT 7

THE ARIZONA COURT OF APPEALS ERRED

IN HOLDING THAT TAXATION OF THE

GROSS RECEIPTS OF A FEDERAL CONTRAC-

TOR IS PREEMPTED BY FEDERAL INDIAN

BE cetnreiatcdpenaaatsestaaptremmnmansnececancmnespamanmageeemmmmntacneess 7

A. Arizona’s Assessment Of Transaction Privilege

Tax On Blaze Does Not Violate Intergovern-

mental Tax Immunity Principles ...................... x

B. The Arizona Court Of Appeals Erred In Apply-

ing Indian Sovereignty Principles To Hold Ari-

zona’s Transaction Privilege Tax Preempted... 11

(iii)

iv

TABLE OF AUTHORITIES

Cases Page

Aetna Life Ins. Co. v. Haworth, 300 U.S. 227

STE ES REE SS Re ae oe 19

California v. Cabazon Band of Mission Indians,

EC ee 6, 12, 18, 19

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

ERENCE SENT TATE PRET ROPES eee 10, 20

County of Yakima v. ‘Confederated Tribes and

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

SF OR OR ES. 7,12, 13

James v. Dravo Contracting Co., 302 U.S. 134

Se eee wT P passim

Maricopa & P. R.R. v. Territory of Arizona, 156

- } &: a er eeee ES 14

Mescalero Apache Tribe v. Jones, 411 U.S. 145

(1973) passim

Metcalf & Eddy v. Mitchell, 269 U.S. 514 (1926). 9

Moe v. Salish & Kootenai Tribes, 425 U.S. 463

ROE ee TY a ae 20

Montana Catholic Missions v. Missoula County,

bis: fF eee ee ree ee 13, 15

Montana v. United States, 450 U.S. 544 (1981)... 13

Oklahoma Tax Comm'n v. Chickasaw Nation, 115

I 12, 17, 20

Oklahoma Tax Comm'n v. Texas Co., 336 U.S. 342

a eS 15

Oklahoma Tax Comm’n v. United States, 319 U.S.

ff EE ERLE be ee ae ee 16

Oliphant v. Suquamish Tribe, 485 U.S. 191

ET CERES or “ 18

Standard Oil Co. v. Johnson, 316 U.S. 481 (1942) .. 9

Strate v. A-1 Contractors, 117 S.Ct. 1404 (1997)... 12,13

Thomas v. Gay, 169 U.S. 264 (1897) _........... 13, 14, 14-15

United States v. Boyd, 378 U.S. 39 (1964) —...... 10

United States v. New Mezxico, 455 U.S. 720

CRD eremtrecsenens 8, 9,10

Utah & Northern Ry. v. Fisher, 116 U.S. 28

AES RET SEES | SEN. sas rena 18, 13-14

Wagoner v. Evans, 170 U.S. 588 (1898) 18, 15

Vv

TABLE OF AUTHORITIES—Continued

Warren Trading Post Co. v. Arizona Tax Comm'n,

CE SED cintnstrintintaetiicindisdiinainsmmaptinendiinnsen

Washington v. Confederated Tribes of the Colville

Page

19

Indian Reserv., 447 U.S. 134 (1980) .......12, 20, 20-21

White Mountain Apache Tribe v. Bracker, 448

U.S. 186 (1980)

Other Authorities

Budget Of The United States Government: Fiscal

Year 1999 (U.S. G.P.O. 1998) —..........................

Federal Highway Administration & Bureau of In-

dian Affairs, Indian Reservation Roads Pro-

gram Stewardship Plan (July 1996) —.............

Indian Health Service, Department of Health and

Human Services, Fiscal Year 1999 Justification

Regulations and Statutes

BT ccsirnsncinshidnsttiocicienenemnanbinapiiancansieatens

ek

CO SSS seanaetoeupstions

oo ee see ,

EEE ean

SST SES Ee Comoe eee

Ariz. Rev. Stat. § 42-1306 00.

Aris. Rev. Stat. § 48-1817 ................................-.

18, 19

4,5

IN THE

Supreme Court © the United States

OCTOBER TERM, 1997

No. 97-1536

STATE OF ARIZONA EX REL. ARIZONA

DEPARTMENT OF REVENUE,

9. Petitioner,

BLAZE CONSTRUCTION COMPANY, INC.,

Respondent.

On Writ of Certiorari to the

Arizona Court of Appeals,

Division One

BRIEF OF THE NATIONAL CONFERENCE OF

STATE LEGISLATURES, COUNCIL OF STATE

GOVERNMENTS, NATIONAL GOVERNORS’

ASSOCIATION, U.S. CONFERENCE OF MAYORS,

NATIONAL LEAGUE OF CITIES, NATIONAL

ASSOCIATION OF COUNTIES, INTERNATIONAL

CITY/COUNTY MANAGEMENT ASSOCIATION, AND

INTERNATIONAL MUNICIPAL LAWYERS

ASSOCIATION AS AMICI CURIAE

IN SUPPORT OF PETITIONER

INTEREST OF THE AMICI CURIAE

Amici, organizations whose members include state,

county, and municipal governments and officials

throughout the United States, have a vital interest in

2

legal issues that affect state and local governments.’

Of obvious concern to amici and their members is the

preservation of state taxing authority, including the

collection of taxes from federal contractors who en-

gage in commercial activities on Indian reservations.

The issue in this case, whether Arizona can impose

a non-discriminatory transaction privilege tax on a

federal contractor engaged in construction activity

on a reservation, is of particular importance to amici.

For more than sixty years, it has been the rule that

a state gross receipts tax on a federal contractor

does not violate intergovernmental tax immunity.

See James v. Dravo Contracting Co., 302 U.S. 134,

161 (1937). The Arizona Court of Appeals disre-

garded this clear rule and instead applied the multi-

factor balancing approach of Indian law preemption

analysis to invalidate the tax. It did so notwithstand-

ing that no Tribe was a party to the contract.

The lower court’s approach marks an unwarranted

expansion of Indian law preemption analysis and

interjects great uncertainty into an area where clear

rules are necessary for effective fiscal planning. It

calls into question the State’s authority to enforce

both tax laws and other non-discriminatory measures.

1 Pursuant to Rule 37.8 of the Rules of this Court, the

parties have consented to the filing of this brief amicus curiae.

Their letters of consent have been filed with the Clerk of the

Court.

Pursuant to Rule 87.6 of the Rules of this Court, amici

state that no counsel for a party has authored this brief in

whole or in part, and that no person or entity, other than

amici, their members, or their counsel, has made a monetary

contribution to the preparation or submission of this brief.

3

Because of the importance of this issue to state

and local governments, amici submit this brief to

assist the Court in its resolution of the case.

STATEMENT

This case arises out of Arizona’s attempt to enforce

its transaction privilege tax on Blaze Construction

Co., which contracted with the United States to build

roads on various Indian reservations located in the

State. The transaction privilege tax is a form of gross

receipts tax, see Ariz. Rev. Stat. § 42-1306, which the

State imposes on a wide variety of businesses, includ-

ing prime contractors. See id. § 42-1317. The tax

does not discriminate against federal] contractors.

Under the Federal Lands Highway Program, 23

U.S.C. § 204, the United States Bureau of Indian

Affairs (BIA) receives Federal Highway Adminis-

tration (FHWA) funds for road improvement proj-

ects on Indian reservations. Each year, the FHWA

advises the BIA’s Branch of Roads as to the approxi-

mate amount of funds it w.~ receive under the pro-

gram. Pet. App. 3a. Tribes submit project requests

to the Branch of Roads, which decides the scope of

the project and the amount to be spent. Jd. at 3a. The

Branch of Roads issues a specification package for

each project and BIA’s Design Section solicits bids.

Id. at 4a. After the FHWA authorizes funding for

a particular project, BIA awards the contract. /d.

BIA awarded Blaze contracts to construct roads

and bridges on six Indian reservations located in

Arizona. Id. at 2a-4a. While Blaze is incorporated

under the laws of the Blackfeet Tribe of Oregon, see

id, at 2a, it is not owned by a member of any of the

Arizona Tribes upon whose reservations it performed

4

the contracts. Blaze was paid entirely by the Federal

Government.

Each year the Federal Government, through sev-

eral agencies, enters into substantial contracts to carry

out its programs for Indian tribes. The exact amount

of these contracts is not easily ascertainable for vari-

ous reasons.2 The amount of budgetary authority for

these programs does, however, provide some indication

of the size of the Federal Government’s contracting on

behalf of Tribes. For example, in Fiscal Year 1997,

the Indian Reservation Roads program had an au-

thorized funding level of $191 million. See Indian

Reservation Roads Program, at 3. In Fiscal Year

1997, BIA incurred obligations of $49 million for edu-

cation construction, $3 million for public safety and

justice construction, $51 million for resource manage-

ment construction, and $16 million for improvements

and repairs to various Bureau facilities and systems.

See Appendix, Budget Of The United States Govern-

ment: Fiscal Year 1999 547 (U.S. G.P.O. 1998).

The Indian Health Service, an agency of the De-

partment of Health and Human Services, received

$373,375,000 in Fiscal Year 1998 budgetary author-

2 Overhead and administrative costs are frequently not

readily ascertainable. Moreover, some programs such as the

roads program are funded under appropriations made to both

the Departments of the Interior and Transportation. See

Federal Highway Administration & Bureau of Indian Affairs,

Indian Reservation Roads Program Stewardship Plan 4 (July

1996).

3 These amounts include administrative costs and are thus

greater than actual contract amounts. The data is, however,

helpful in demonstrating the magnitude of the Federal Gov-

ernment’s contracting on behalf of Tribes and the potential

revenue loss to the States.

5

ity for its Contract Health Services, which purchases

“hospital care, physician services, outpatient care, lab-

oratory, dental, radiology, pharmacy, and patient

transportation.” Indian Health Service, Department

Of Health and Human Services, Fiscal Year 1999

Justification of Estimates for Appropriations Com-

mittees, 64. The Indian Health Service also contracts

with “managed care and health maintenance activ-

ities . . . plac[ing] a high priority on developing con-

tracts and rate agreements with private sector pro-

viders.” Jd. at 65. In addition, the Indian Health

Service received $262 million in Fiscal Year 1997

budgetary authority to “support[] construction, re-

pair and improvement, equipment, and environmental

health and facilities.” Appendix, Budget Of The

United States: FY 1999, at 404-05. As the data indi-

cate, the Federa! Government makes substantial ex-

penditures for goods and services that are furnished

by federal contractors on reservations and large

amounts of state tax revenue are therefore at stake

in this case.

SUMMARY OF ARGUMENT

1, This Court has long held that a non-discrim-

inatory state tax on the gross receipts of a federal

contractor does not violate intergovernmental tax im-

munity even though the Federal Government should-

ers the economic burden of the levy. James v. Dravo

Contracting Co., 302 U.S. 134, 161 (1937). The

Court has further limited the scope of the immunity

to prohibit a state tax only when it falls on the United

States, its agencies or instrumentalities. Thus, unless

the entity subject to tax is an integral part of, or an

arm of, the Federal Government, it is not entitled to

intergovernmental immunity in the absence of Con-

gressional legislation granting it immunity.

Applying these clear principles demonstrates that

Blaze is not entitled to immunity from Arizona’s tax.

Blaze is not an arm or instrumentality of the United

States. Rather, it is a corporation organized under

the laws of the Blackfeet Tribe of Oregon whose pur-

pose is to engage in commercial activity for profit.

Moreover, Congress has not enacted legislation im-

munizing Blaze and other federal construction con-

tractors from state taxation. Blaze is therefore sub-

ject to Arizona’s transaction privilege tax.

2. The Arizona Court of Appeals failed to give

controlling weight to this Court’s intergovernmental

tax immunity cases. Instead, it took the unprece-

dented step of applying the multi-factor balancing

approach of Indian preemption analysis notwith-

standing that the taxable transaction did not involve

a Tribe or its members.

The Court has employed a categorical approach in

evaluating state taxation of Tribes and their mem-

bers on the reservation, imposing a per se rule pro-

hibiting such taxes absent Congressional authoriza-

tion or “cession of jurisdiction.” California v. Cabazon

Band of Mission Indians, 480 U.S. 202, 215 n.17

(1987). In these circumstances, the Court has ex-

plained that balancing is not necessary because “the

federal tradition of Indian immunity from state taxa-

tion” of Tribes and their members on the reservation

“is very strong and .. . the state interest in taxation

is correspondingly weak.” Id.

This reasoning applies with equal force when a

State asserts taxing authority over a transaction on

7

a reservation that does not involve a Tribe or its

members. As the Court has explained, its “more

recent cases have recognized the rights of States,

absent a congressional prohibition, to exercise crim-

inal (and, implicitly, civil) jurisdiction over non-

Indians located on reservation lands.” County of

Yakima v. Confederated Tribes and Bands of the

Yakima Indian Nation, 502 U.S. 251, 257-58 (1992).

A long line of cases further establishes that in such

circumstances, the State’s authority to tax is very

strong and the federal and tribal interests are corres-

pondingly weak. In these instances, there is no need

for the judiciary to rebalance the various interests

and usurp Congress’ authority in the area. The tax

is presumptively valid in the absence of Congressional

legislation prohibiting it.

Arizona seeks to tax a transaction which does not

involve a Tribe or Tribal members doing business on

their home reservation. Such taxation imposes no

burden on Tribal interests. Moreover, no provision

of Federal law immunizes Blaze’s activities from state

taxation. In the absence of such legislation, Arizona

can lawfully assess its transaction privilege tax

against Blaze.

ARGUMENT

THE ARIZONA COURT OF APPEALS ERRED IN

HOLDING THAT TAXATION OF THE GROSS RE-

CEIPTS OF A FEDERAL CONTRACTOR IS PRE-

EMPTED BY FEDERAL INDIAN LAW

The Arizona Court of Appeals held that the State

could not impose its transaction privilege tax, a non-

discriminatory gross receipts tax, on Blaze Construc-

tion Co. for work it performed pursuant to con-

tracts it entered into with the Bureau of Indian

Affairs to build roads on six Indian reservations in

Arizona. The court held so notwithstanding that Blaze

is not owned by a member of a Tribe whose reserva-

tion is located in Arizona (and that Blaze performed

no work on its owners’ home reservation) and that

it contracted not with any Tribe but with a Federal

agency.

As explained below, the status of the parties to this

contract demonstrates that the legality of Arizona’s

transaction privilege tax is governed for federal law

purposes by intergovernmental tax immunity. See

United States v. New Mewico, 455 U.S. 720 (1982).

The Arizona Court of Appeals, however, disregarded

the clear rules of the intergovernmental tax immunity

doctrine, which require that the tax be upheld, and

instead applied Federal Indian law preemption analy-

sis to invalidate the tax. The holding below misreads

this Court’s cases and marks an unwarranted expan-

sion of Federal Indian law preemption analysis. If

affirmed, the decision would threaten the States’ au-

thority to enforce a wide range of generally appli-

cable state taxes and regulations on any contractor

doing business with the Bureau of Indian Affairs. The

judgment of the Arizona Court of Appeals should

therefore be reversed.

A. Arizona’s Assessment Of Transaction Privilege Tax

On Blaze Does Not Violate Intergovernmental Tax

Immunity Principles

1. More than sixty years ago, this Court made

clear that a state tax on the gross receipts of a con-

tractor that provides services to the Federal Govern-

ment does not violate the intergovernmental tax im-

munity doctrine. See Dravo Contracting, 302 U.S. at

9

161. As the Court explained, “a nondiscriminatory

tax upon the earnings of an independent contractor

derived from services rendered to the government

[can]not be said to be ‘imposed upon an agency of

government in any technical sense,’ and [can]not ‘be

deemed to be an interference with government, or an

impairment of the efficiency of its agencies in any

substantial way.’” Jd. at 157 (quoting Metcalf &

Eddy v. Mitchell, 269 U.S. 514, 524-25 (1926)).

In United States v. New Mexico, the Court subse-

quently explained that the immunity “may not be

conferred simply because the tax has an effect on the

United States, or even because the Federal Govern-

ment shoulders the entire economic burden of the

levy.” 455 U.S. at 734. Moreover, “immunity can-

not be conferred simply because the state tax falls

on the earnings of a contractor providing services to

the Government.” Jd. (citing Dravo Contracting, 302

U.S. at 154).

Judicial recognition of the immunity is thus “ap-

propriate in only one circumstance: when the levy

falls on the United States itself, or on an agency or

instrumentality so closely connected to the Govern-

ment that the two cannot realistically be viewed as

separate entities.” Jd. at 735. The Court’s cases thus

reject the notion that a contractor is entitled to the

immunity because it is a “federal agent.” Jd. at 736.

Rather, contracting entities are not immune from

state taxation unless they are “ ‘integral parts of [a

governmental department],’ and ‘arms of the Govern-

ment deemed by it essential for the performance of

governmental functions.’” Jd. at 737 (quoting Stand-

ard Oil Co. v. Johnson, 316 U.S. 481, 485 (1942) ).

As the Court has explained, the reason for the

narrow scope of intergovernmental tax immunity is

10

that Congress can provide a federal contractor with

immunity by either “expressly providing as respects

contracts in a particular form, or contracts under

particular programs.” United States v. New Mexico,

455 U.S. at 737; cf. Cotton Petroleum Corp. v. New

Mexico, 490 U.S. 168, 175-76 (1989); Mescalero

Apache Tribe v. Jones, 411 U.S. 145, 150 (19738).

Whether a federal contractor is entitled to the im-

munity is thus a question of Congressional intent.

See United States v. New Mewico, 455 U.S. at 737-38.

2. Application of these principles demonstrates

that Blaze Construction is not entitled to immunity

from Arizona’s transaction privilege tax. Blaze is

not an agency or instrumentality of the United States.

Rather, it is a corporation organized under the laws

of the Blackfleet Tribe of Oregon, see Pet. App. 2a,

which was created and exists for the purpose of en-

gaging in “ ‘commercial activities carried on for

profit.’” United States v. New Mewico, 455 U.S. at

734-35 (quoting United States v. Boyd, 378 U.S. 39,

44 (1964)); see also J.A. 12a. Congress has demon-

strated no intent to “ ‘incorporate[] [Blaze] into the

government structure as to become [an] instrumen-

talit[y] of the United States and thus enjoy govern-

mental immunity.’” United States v. New Mezico,

455 U.S. at 736 (quoting Boyd, 378 U.S. at 48).

Blaze thus stands on the same footing as the Federal

contractors whose assertions of entitlement to inter-

governmental tax immunity were rejected in United

States v. New Mewxico, see 455 U.S. at 739-43, Boyd,

see 378 U.S. at 48, and Dravo Contracting. See 302

U.S. at 149, 161.

Nor has Congress chosen to provide Blaze with

immunity from Arizona’s tax. Congress has not en-

acted a statute exempting contracts of the type Blaze

entered into—a fixed fee contract—from state taxa-

Act (25 U.S.C. § 47)

the Indian Self-Determination and Education

Assistance Act (25 U.S.C. § 450e(b)), which Section

204 makes applicable to the Indian Reservation Roads

program, demonstrate either expressly or implicitly a

Danantenl intent to immunize Blaze from state

taxation. Congress is, of course, aware of this Court’s

decisions regarding the scope of intergovernmental

tax immunity and its power to immunize federal con-

tractors. Its failure to immunize Blaze from Ari-

zona’s transaction privilege tax ought to be the be-

ginning and end of this case.

B. The Arizona Court Of Appeals Erred In Applying

Indian Sovereignty Principles To Hold Arizona’s

Transaction Privilege Tax Preempted

1. The Arizona Court of Appeals gave no explana-

tion as to why this Court’s decision in United States

v. New Mezico is not controlling. See Pet. App. 6a-

7a. Instead, it , ~oceeded to apply principles of Indian

law preemption analysis to invalidate Arizona’s tax.

The court’s application of the Indian preemption doc-

trine to a tax on a transaction that did not involve

a Tribe or Tribal members has no support in this

Court’s cases and is a troublesome development for

state tax and regulatory authority.

To the best of amici’s knowledge, this Court has

never applied the balancing test of Indian law pre-

emption analysis to an assertion of state authority

over a transaction which did not involve a Tribe or

its members. This is for good reason, as protecting

12

Tribal self-government is a principal purpose of the

doctrine. See, e.g., Washington v. Confederated Tribes

of the Colville Indian Reserv., 447 U.S. 134, 161

(1980). Where, as here, a State ane ses a tax on a

transaction which does not involve a Tribe or its

members, the tax does not interfere with tribal

sovereignty.

The Court has thus explained that its “more recent

cases have recognized the rights of States, absent a

congressional prohibition, to exercise criminal (and,

implicitly, civil) jurisdiction over non-Indians located

on reservation lands.” County of Yakima v. Confeder-

ated Tribes and Bands of the Yakima Indian Nation,

502 U.S. 251, 257-58 (1992); see also Strate v. A-1

Contractors, 117 S.Ct. 1404, 1409 (1997) (rejecting

tribal court jurisdiction over auto accident on reser-

vation involving non-tribal members). Cf. Mescalero

Apache Tribe v. Jones, 411 U.S. 145, 148-49 (1973)

(“Absent express federal law to the contrary, Indians

going beyond reservation boundaries have generally

been held subject to non-discriminatory state law

otherwise applicable to all citizens of the State.”) ;

Oklahoma Tax Comm’n v. Chickasaw Nation, 115

S.Ct. 2214, 2222-24 (1995) (upholding state income

tax on members of Chickasaw Nation who worked for

Tribe but reside off reservation).

The Court has further explained that “[i]n the

special area of state taxation of Indian tribes and

tribal members, we have adopted a per se rule” which

prohibits state taxation “‘absent cession of juris-

diction or other federal statutes permitting it.’”

California v. Cabazon Band of Mission Indians, 480

U.S. 202, 215 n.17 (1987) (quoting Mescalero Apache

Tribe, 411 U.S. at 148). The Court’s “categorical

approach,” County of Yakima, 502 U.S. at 258, is

ity to tax is “very strong” and the Federal and Tribal

interests are “correspondingly weak.” See Montana

Catholic Missions v. Missoula County, 200 U.S. 118

(1906); Wagoner v. Evans, 170 U.S. 588 (1898);

Thomas v. Gay, 169 U.S. 264 (1897); Utah & North-

ern Ry. v. Fisher, 116 U.S. 28 (1885); ef. Strate,

117 S.Ct. 1404; Montana v. United States, 450 U.S.

544 (1981); Oliphant v. Suquamish Tribe, 435 U.S.

191 (1978). In such cases, there is no need for the

judiciary to rebalance the various interests and usurp

Congress’ authority in the area.

In the earliest case, Utah & Northern Railway, a

corporation challenged a territorial tax on its prop-

erty located within the boundaries of an Indian reser-

vation. The taxpayer contended that the tax inter-

fered with the provisions of the treaty creating the

reservation, asserting in essence a claim that the

treaty preempted the territory’s exercise of general

jurisdiction. See 116 U.S. at 31. The Court rejected

the argument, noting that “[t]he authority of the

Tribes to lease “their unoccupied lands for grazing

purposes” and that the tax “interfere[d] with...a

lawful commercial intercourse with the Indians, over

which Congress has absolute control.” Id.

The Court also rejected this argument, explaining

that:

[t]he unlimited power of Congress to deal with

the Indians, their property and commercial trans-

actions, so long as they keep up their tribal or-

ganizations, may be conceded; but it is not per-

too remote and indirect to be as an

interference with the legislative power of Con-

gress.

Id. at 274-75.4 See also Montana Catholic Missions,

200 U.S. at 128-29 (rejecting claim of immunity

from state property tax by charitable organizations

which used property for benefit of Indians) ; Wagoner

v. Evans, 170 U.S. 588 (1898).

As these authorities make clear, where a State does

not impose a tax on the commercial relationship be-

tween a Tribe and non-Indians, taxation of the activi-

ties and property of non-Indians (and non-Tribal

members) imposes at most an insubstantial burden on

Tribal interests. Because the burden on Tribal and

Federal interests is so insubstantial where a Tribe

or its members are not taxed, there is no need for

judicial reweighing of the relevant interests. The tax

is valid in the absence of Congressional legislation

prohibiting it.

The Court has also used a categorical approach in

cases involving the closely related issue of a State’s

*The Court has since made clear that non-Indian lessees

of Indian lands are subject to non-discriminatory state taxa-

tion of gross production and to production excise taxes. See

Oklahoma Taz Comm’n v. Texas Co., 336 U.S. 342 (1949).

16

authority to impose taxes on Tribes and Indians off

the reservation. In Oklahoma Tax Comm'n v. United

States, 319 U.S. 598 (1943), the Court addressed the

validity of state inheritance taxes imposed on the

transfer of the estates of deceased members of the

Five Civilized Tribes. The Tribes had “no effective

tribal autonomy” and their members held their lands

in fee. Id. at 603. Notwithstanding that the Indians

were wards of the United States, the Court refused

to exempt them from non-discriminatory state taxes

in the absence of express Congressional action grant-

ing them an exemption from estate taxes. See id. at

603-10. As the Court observed, “This Court has re-

peatedly said that tax exemptions are not granted by

implication” and that this rule applies “to taxing acts

affecting Indians as to all others.” Jd. at 606. The

Court further explained that “[i]f Congress intends

to prevent the State of Oklahoma from levying a gen-

eral non-discriminatory estate tax applying alike to

all its citizens, it should say so in plain words.” Id.

at 607.

To similar effect is Mescalero Apache Tribe. In

Mescalero, the Court upheld New Mexico’s authority

to impose a gross receipts tax on a ski resort which

the Tribe operated off the reservation. The Court

reasoned that “[a]bsent express federal law to the

contrary, Indians going beyond reservation bounda-

ries have generally been held subject to non-discrimi-

natory state law otherwise applicable to all citizens

of the State.” 411 U.S. at 148-49. In so holding, the

Court rejected the Tribe’s claim that the Indian Re-

organization Act, which encouraged Tribes “to re-

vitalize their self-government through the adoption of

constitutions and bylaws and through the creation of

chartered corporations, with power to conduct the

business and economic affairs of the tribe,” id. at 151,

17

conferred intergovernmental tax immunity on the

Tribe’s enterprise. See id. at 151-55.

it is derived, or its other is itself exempt from

tax.” 411 U.S. at 156. See also Chickasaw Nation,

115 S.Ct. at 2222-24 (upholding Oklahoma’s income

18

proach of Thomas and Utah & Northern Railway.

And where, as here, a tax falls on a federal con-

tractor, there is no reason for discarding the clear

principles of this Court’s intergovernmental tax im-

munity cases in favor of the multi-factor balancing

approach of Indian preemption analysis.

2. As authority for applying the balancing ap-

proach of Indian preemption law, the Arizona Court

of Appeals relied on White Mountain Apache Tribe v.

Bracker, 448 U.S. 136 (1980). In particular, the

lower court relied on this Court’s statement that

where “‘a State asserts authority over the conduct

of non-Indians engaging in activity on the reserva-

tion,’ ” the

“inquiry is not dependent on mechanical or abso-

lute conceptions of state or tribal sovereignty,

but has called for a particularized inquiry into

the nature of the state, federal, and tribal in-

terests at stake, an inquiry designed to determine

whether, in the specific context, the exercise of

state authority would violate federal law.”

Pet. App. 6a (quoting 448 U.S. at 144-45). Accord-

ing to the court of appeals, “[tjhis formulation

neither suggests nor implies that Indian law pre-

emption analysis is inapplicable when the on-reserva-

tion activities of non-Indians over which the state

seeks to exercise authority do not arise out of direct

commercial relations with the tribe or a tribal en-

tity.” Id. at 7a. The lower court further reasoned

that “nothing in the Court’s application of that analy-

sis in White Mountain suggests that it implicitly

follows any such limitation. The identity of the nomi-

nal contracting party in fact played no part in the

inquiry.” Id.

19

The court’s reasoning begs the question of why

White Mountain would contain such a limitation when

the tax was levied on a contractor which did business

with a Tribal entity and its ultimate incidence fell on

the Tribe. See 448 U.S. at 139, 151.5 This Court

decides cases and controversies based on the legal re-

lations of the parties before it and not “upon a hypo-

thetical state of facts.” Aetna Life Ins. Co. v.

Haworth, 300 U.S. 227, 241 (1937). It is thus no

surprise that White Mountain does not address

whether Indian law preemption principles apply to a

tax on the gross receipts of a federal contractor.

Indeed, while White Mountain articulated as a rule

of decision the above-described balancing test, at bot-

tom the case was no more than an implied preemption

case. As the Court made clear, “[o]ur decision today

is based on the pre-emptive effect of the comprehen-

sive federal regulatory scheme, which . . . leaves no

room for the additional burdens sought to be imposed

by state law.” 448 U.S. at 151 n.15 (citing Warren

Trading Post Co. v. Arizona Tax Comm’n, 380 U.S.

685 (1965)). In short, the Court would have come

to the same result in White Mountain simply by ap-

plying traditional preemption principles.

This Court’s other cases demonstrate that the White

Mountain balancing approach exists for the middle

ground of cases which fall between the per se prohibi-

tion of taxation of Indian Tribes and their members

when on their reservations, see Cabazon Band, 480

U.S. at 215 n.17, and the categorical rule allowing

5 The Court signalled its awareness of this feature of the

case when it indicated that the case presented “the question

whether a particular state law may be applied to an Indian

reservation or to tribal members.” 448 U.S. at 142.

20

States to apply non-discriminatory taxes to “Indians

going beyond reservation boundaries.” Mescalero

Apache Tribe, 411 U.S. at 148. The balancing ap-

proach is appropriate where it is not clear at the out-

set whether state or Tribal interests should prevail.

But where, as here, a transaction does not involve an

Indian tribe or Tribal members doing business on their

home reservation, it is clear that state interests pre-

dominate in the absence of Congressional legislation

to the contrary. See id.; see also Chickasaw Nation,

115 S. Ct. at 2222-246

6 The Court’s cases have frequently recognized that state

interests prevail over Tribal interests even where a State

seeks to tax a transaction involving a Tribal enterprise. For

example, in Cotton Petroleum the Court upheld the imposi-

tion of an eight percent oil and gas severance tax on lessees

of Indian lands. It noted that while it is

reasonable to infer that the New Mexico taxes have at

least a marginal effect on the demand for on-reservation

leases, the value to the Tribe of those leases, and the

ability of the Tribe to increase its tax rate[,] [a]ny

impairment to the federal policy favoring the exploita-

tion of on-reservation oi] and gas resources by Indian

tribes that might be caused by these effects . . . is simply

too indirect and too insubstantial to support Cotton’s

claim of pre-emption.

490 U.S. at 186-87.

To similar effect are Colville and Moe v. Confederated

Salish & Kootenai Tribes, 425 U.S. 463 (1976). In Moe, the

Court upheld the application of state sales taxes to on-

the-reservation transactions between Indian retailers and

non-Indian customers. See 425 U.S. at 482. In Colville, the

Court held that a State can impose tax on sales to Indians

resident on the reservation who were not enrolled in the

Tribe. See 447 U.S. at 160-61. As the Court noted in Colville:

Nor would the imposition of Washington’s tax on

these purchasers contravene the principle of tribal self-

government, for the simple reason that nonmembers are

21

lf state taxation of BIA’s contractors unduly inter-

feres with the administration of the agency’s pro-

grams, it can seek legislation from Congress preempt-

ing such taxes. Cf. 25 U.S.C. § 465 (exempting lands

acquired by the Secretary of the Interior for Tribes

from state and local taxation).? For more than sixty

years, however, the Federal Government has managed

to function notwithstanding that its contractors must

pay state gross receipts taxes. See Dravo Contract-

ing, 302 U.S. at 161. That Congress has not pro-

not constituents of the governing Tribe. For most prac-

tical purposes those Indians stand on the same footing

as non-Indians resident on the reservation. There is no

evidence that nonmembers have a say in tribal affairs or

significantly share in tribal disbursements. We find,

therefore, that the State’s interest in taxing these pur-

chasers outweighs any tribal interest that may exist in

preventing the State from imposing its taxes.

Id. at 161.

7 While Tribal interests are not relevant in assessing the

validity of Arizona’s assessment of Blaze, the Arizona Court

of Appeals apparently accepted Blaze’s contention that be-

cause Tribal contractors are immune from state tax, taxation

of BIA contractors conflicts with BIA’s regulations because

it “attaches an undesirable consequence to a tribe’s decision

not to seek to administer construction programs in the BIA’s

place by effectively reducing the road-improvement services

that the tribes can receive in return for the available federal

funding.” Pet. App. 13a (citing 25 C.F.R. § 271.4(d) & (e)).

The same, however, could be said for numerous other non-

discriminatory state laws which, under Indian sovereignty

principles, might be unenforceable when a Tribe itself con-

tracts. That requiring federal contractors to comply with

other state laws might make Tribal contracting more advan-

tageous does not justify holding them preempted. Tribes,

after all, retain the choice as to whether to contract directly

or through the offices of the authorized federal agency.

should be reversed.