Amicus Curiae Brief — Wagnon v. Prairie Band Potawatomi Nation

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No. 04-631 - | a

In The

Supreme Court of the United States

STEPHEN RICHARDS,

in his official capacity as Secretary,

Kansas Department of Revenue,

Petitioner,

Vv.

PRAIRIE BAND POTAWATOMI NATION,

Respondent,

On Petition for Writ of Certiorari

to the United States Court of Appeals

For the Tenth Circuit

BRIEF AMICUS CURIAE OF MULTISTATE TAX

COMMISSION IN SUPPORT OF PETITIONER

FRANK D. KATZ, General Counsel

(Counsel of Record)

MULTISTATE TAX COMMISSION

444 No. Capitol Street, N.W. #425

Washington, D.C. 20001

(202) 624-8699

I.

II.

Ill.

CONCLUSION

TABLE OF CONTENTS

APPLYING THE WHITE MOUNTAIN

APACHE TRIBE BALANCING-OF-

INTERESTS TEST TO OFF-RESERVA-

TION TRANSACTIONS IS CONTRARY

TO THIS COURT'S FIRM PRECEDENT...

THE UNCERTAINTY FROM APPLYING

THE BALANCING TEST OFF

RESERVATION THREATENS STATE

TAX ADMINISTRATION, STATE TAX

REVENUES AND _— STATE-TRIBAL

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THE PRESENT CASE, ALONG WITH

THE CASE OF HAMMOND V. COEUR

D'ALENE TRIBE, PRESENT THE

COURT WITH AN OPPORTUNITY TO

BRING CLARITY AND CERTAINTY

WITH REGARD TO INDIAN TAXATION

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TABLE OF AUTHORITIES Page

Cases:

Cotton Petroleum Co. v. New Mexico,

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Hammond v. Coeur d'Alene Tribe, U.S. Sup. Ct.

Pe. BEGG. cccccccocccncccctecesedsucessieunaaan 10, 11

McClanahan v. Arizona Tax Comm'n, 411 U.S.

BBS CH Ue cocecoccccodsoseisindsensacsseameianaaaan 2, 5, 6, 7

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

TEDW Gil ccccccccsccosccsccssosesonsennseusesuanademanias 3, 5, 7

Oklahoma Tax Comm'n v. Chickasaw Nation,

SRS US, GE Ce ceccecccevecesacisssecnnmnenian 4,5,9

Oklahoma Tax Comm'n v. United States,

SAD CB. GD COs cccccccccsdscdanisensnendadieaneenmnn 5

Oregon Dep't of Fish & Wildlife v. Klamath Indian

Tribe, 473 U.S. 753 (1GGB5) ...ccccccccccccccccccccccsecs 9

Rodey, Dickason, Sloan, Akin & Robb, P.A. v.

Revenue Division, 107 N.M. 399, 759 P.2d 186

TG ccoccocccsccoccsseccuconsedestebsasneennsenaaniaianananal 5

Sac and Fox Nation v. Pierce, 213 F.3d 566

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The Kansas Indians, 72 U.S. (5 Wall.)

TEE CRETE cocecececcesscossesncssonieaseamennsaauaiaaaindl 5

Trotter v. Tennessee, 290 U.S. 354 (1933) ......... 5

United States Steel Corp. v. Multistate Tax

Comm'n, 434 U.S. 452 (1978).......ccccceceeeeeeeees 1

iii

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

SBO U.S. GES (1LGSB) ...ccccccvceccccccccscscccscscccccecees 6

Washington v. Confederated Tribes of Colville

Indian Reservation, 447 U.S. 134 (1980)......... 9

White Mountain Apache Tribe v. Bracker,

448 U.S. 136 (1980) ............008 3, 4, 6, 7, 8, 10

Worcester v. Georgia, 31 U.S..(6 Pet.) 515

SIE acccunsdnescesdenceseccecseccecccesesencveceosoeccoccccoeces 2

Statutes and Legislative Material:

MULTISTATE TAX COMPACT, RIA ALL STATES TAX

GUIDE 4 701 et seq., p. 657 (2001) .............. 1,2

TITLE II of Pus. L. No. 86-272, 73 Stat. 555, 556

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BRIEF AMICUS CURIAE OF MULTISTATE TAX

COMMISSION IN SUPPORT OF PETITIONER!

INTEREST OF AMICUS CURIAE

The Multistate Tax Commission is the adminis-

trative agency of the MULTISTATE Tax Compact. See

RIA ALL STATES TAX GUIDE @ 701 et seq., p. 657

(2001). Twenty-one States have legislatively estab-

lished full membership in the Compact. In addition,

five States are sovereignty members, eighteen States

are associate members and three states are project

members.? This Court upheld the validity of the

Compact in United States Steel Corp. v. Multistate

Tax Comm'n, 434 U.S. 452 (1978).

Historically, the Compact evolved out of concern

of the States and multistate taxpayers about pro-

posed federal legislation to regulate state tax sys-

‘No counsel for any party authored this brief in whole or

in part. Only Amicus Multistate Tax Commission and its

member States through the payment of their membership

fees made any monetary contribution to the preparation or

submission of this brief. This brief is filed by the Commis-

sion, not on behalf of any particular member State. Finally,

this brief is filed pursuant to the consent of the parties.

2 The COMPACT parties are Alabama, Alaska, Arkansas,

California, Colorado, District of Columbia, Hawaii, Idaho,

Kansas, Maine, Michigan, Minnesota, Missouri, Montana,

New Mexico, North Dakota, Oregon, South Dakota, Texas,

Utah and Washington. The Sovereignty members are Flor-

ida, Kentucky, Louisiana, New Jersey and Wyoming. The

Associate members are Arizona, Connecticut, Georgia, IIli-

nois, Maryland, Massachusetts, Mississippi, New Hamp-

shire, New York, North Carolina, Ohio, Oklahoma, Pennsyl-

vania, South Carolina, Tennessee, Vermont, West Virginia

and Wisconsin. Project members are lowa, Nebraska and

Rhode Island.

2

tems that followed recommendations of the Willis

Committee. The States’ initial interest in forming

the ComPACT was to safeguard state taxing author-

ity—an essential governmental power for States to

fulfill their constitutional role—from federal en-

croachment.

Preserving state taxing sovereignty under our vi-

brant federalism remains a key purpose of the

Commission. When States seek to tax transactions

on Indian lands, tribes are a third concentric sover-

cign whose interests must properly be considered.

Sorting out which sovereign has authority to impose

tax on what transactions inevitably requires line

drawing. The brighter the lines, the more adminis-

trable the tax, the fewer the conflicts and the lower

compliance burdens on taxpayers and tax agencies.

The territorial component of sovereignty has

been a key factor in forging bright-line rules. For

over 170 years, the Court has imposed a bright-line

standard that States have no jurisdiction over Indi-

ans on their sovereign lands unless Congress ex-

pressly authorizes it.4 With regard to off-reservation

transactions, the Court has likewise relied on a

clear demarcation—that tribal sovereignty ends at

the reservation boundary. “Absent express federal

law to the contrary, Indians going beyond reserva-

5 The Willis Committee, a congressional study of State

taxation of interstate commerce sanctioned by TiTLe II of

PuB. L. 86-272, 73 Stat. 555, 556 (1959), made extensive

recommendations as to how Congress could regulate State

taxation of interstate and foreign commerce.

* E.g. McClanahan v. Arizona Tax Commission, 411 U.S.

164, 168-69 (1973); Worcester v. Georgia, 31 U.S. (6 Pet.)

515, 557 (1832).

tt

——

I

3

tion boundaries have generally been held subject to

nondiscriminatory state law otherwise applicable to

all citizens of the State.” Mescalero Apache Tribe v.

Jones, 411 U.S. 145, 148-149 (1973).

State authority to tax non-Indians for transac-

tions with Indians on tribal reservations raises more

difficult issues. The non-Indian taxpayer is within

the State and under state authority. Yet the trans-

actions are with Indians on tribal lands, and there-

fore implicate tribal sovereignty. With sensitivity to

both sovereigns, the Court has developed a complex

and nuanced balancing test to determine whether

States may impose tax in these cases. The analysis

calls for a “particularized inquiry into the nature of

the state, federal, and tribal interests at stake... ."

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

136, 145 (1980).

In the instant case, Kansas sought to impose fuel

tax on non-Indian distributors for receiving gasoline

off the reservation. The bright-line rule from Mesca-

lero Apache Tribe should have controlled. The Tenth

Circuit's erroneous use of the uncertain balancing

test of White Mountain clouds this bright line and

impacts the Commission's interest in protecting

state sovereignty in two ways.

First, the Tenth Circuit's holding jeopardizes the

unambiguous rules that define state authority with

regard to reservations. Bright-line rules allow good

relations to flourish between States and tribes and

pretermit disputes and litigation between them.

This strong preference for bright-line rules has

been pursued by the States in this Court even against

the immediate interests of other States. In Oklahoma

4

Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 460

(1995), this Court noted that eleven States urged the

retention of the “legal incidence’ test” with regard to

taxation that impacts Indians and Indian tribes in In-

dian country, even though another State had urged

adoption of more uncertain “economic reality” rule

which might have furthered its cause in that litigation.

The Court noted that the eleven States had favored the

test because it “provide[s}] a reasonably bright-line

standard which, from a tax administration perspective,

responds to the need for substantial certainty as to the

permissible scope of state taxation authority.” Id.

Second, the holding jeopardizes state authority

to tax off-reservation transactions. States depend

upon tax revenues to run their governments. Sub-

jecting off-reservation transactions that may subse-

quently impact Indian tribes to the inexact balanc-

ing test will substantially impair States’ ability to

impose taxes. The decision below deprived Kansas of

tax revenue it rightfully expected from a tax imposed

on a non-Indian distributor receiving fuel off the

reservation merely because the gasoline was later

sold to a tribal retailer.

ARGUMENT

I

APPLYING THE WHITE MOUNTAIN

APACHE TRIBE BALANCING-OF-

INTERESTS TEST TO OFF-RESERVA-

TION TRANSACTIONS IS CONTRARY

TO THIS COURT'S FIRM PRECEDENT.

This Court's jurisprudence governing state au-

thority to tax Indians and activities on Indian lands

may fairly be divided into three areas, two of which

5

are pillars of certainty controlled by bright-line rules

modifiable only by explicit congressional action. The

third area is governed by the flexible and indefinite

balancing-of-interests test.

States have long been barred from taxing Indians

for on-reservation activity absent explicit permission

from Congress. Chickasaw Nation; McClanahan; The

Kansas Indians, 72 U.S. (5 Wall.) 737, 757 (1866).

States have long been permitted to tax off-

reservation activity, whether conducted by Indians

or others, absent express preemption by Congress.

Long-standing precedent holds that tax exemptions

are not granted by implication in recognition of the

crucial importance of taxation to the very existence

of each governmental entity. Oklahoma Tax Comm'n

v. United States, 319 U.S. 598, 606 (1938); Trotter v.

Tennessee, 290 U.S. 354, 356 (1933). States may

tax activities off-reservation, even if they involve or

affect Indians, “[aJbsent express federal law to the

contrary.” Mescalero Apache Tribe, 411 U.S. at 145.

See also Rodey, Dickason, Sloan, Akin & Robb, P.A.

v. Revenue Division, 107 N.M. 399, 759 P.2d 186

(1988), appeal dismissed, 490 U.S 1043 (1989) (pre-

emption by implication doctrine inapplicable to tax

on legal services performed off reservation for tribe). —

These two per-se rules, one barring state taxa-

tion and the other permitting it in the absence of

express congressional action, provide a certainty

that furthers state tax administrability.

When States seek to tax non-Indians on reserva-

tion transactions with Indians, however, competing

interests of three concentric sovereigns are in-

6

volved.5 The State is asserting jurisdiction over its

citizens for activity in its territory. The tribe is as-

serting jurisdiction over its territory and has legiti-

mate concerns about the economic affect on its

members. And all are subject to the supreme sover-

eignty of the federal government and Congress's ex-

pansive authority under the Indian Commerce

Clause. Recognizing that three competing sover-

eignty interests must be weighed in allocating gov-

ernmental authority in these cases, the Court aban-

doned an absolutist approach in favor of a more

flexible implied-preemption standard in Warren

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

685 (1965) and McClanahan, 411 U.S. at 172. The

Court further transformed this implied-preemption

analysis into a malleable balancing-of-interests test

in White Mountain. Under this approach the Court

examine|s] the language of the relevant fed-

eral treaties and statutes in terms of both

the broad policies that underlie them and

the notions of sovereignty that have devel-

oped from historical traditions of tribal in-

dependence. This inquiry is not dependent

on mechanical or absolute conceptions of

state or tribal sovereignty, but has called for

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.

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

163, 188 (1989) (“There are, therefore, three different gov-

ernmental entities, each of which has taxing jurisdiction

over all of the non-Indian [on-reservation] wells.”)

7

White Mountain, 448 U.S. at 144-45.

The implied-preemption balancing test has been

confined exclusively to reservation activities consis-

tent with the territorial limits of tribal sovereignty. In

McClanahan, the Court referenced “Indian sover-

eignty” as “a backdrop against which the applicable

treaties and federal statutes must be read.” 411

U.S. at 172. In White Mountain, the Court noted the

“unique historical origins of tribal sovereignty” as

the reason for using an adaptable, implied-pre-

emption standard in these cases, 448 U.S. at 143,

and affirmed that geography matters.

The Court has repeatedly emphasized that

there is a significant geographical compo-

nent to tribal sovereignty, a component

which remains highly relevant to the pre-

emption inquiry.

Id. at 151. Significantly, the Court in White Moun-

tain reaffirmed the Mescalero Apache Tribe bright

line that off the reservation and outside the bounda-

ries of tribal sovereignty an express congressional

statement of tax exemption is required. 448 U.S. at

144, n. 11. In each case, tribal sovereignty, which

exists only over tribal territory, has been the con-

ceptual basis for the implied preemption analysis.

Applying the balancing test to off-reservation

transactions also makes no practical sense. The

State's interest should virtually always predominate

with regard to any off-reservation transaction. The

erroneous application of the balancing test below

highlights this fact. The Tenth Circuit improperly

focused on an activity the State did not tax—the re-

tail sale on the reservation—rather than on the ac-

8

tivity it did tax—the receipt of gasoline by the dis-

tributor in Troy, Kansas. State roads radiating out

from Troy include the very state roads that carried

the distributor's gasoline, along with many of the

tribal casino’s customers, to the reservation. The

State’s interest in obtaining road fund revenues for

its 60 mile portion of this trip formidably predomi-

nates over tribal interest in funding the 1% mile

reservation portion.

The Tenth Circuit's decision below flouts this

Court's firm precedent by applying the implied-

preemption balancing test to off-reservation activity.

THE UNCERTAINTY FROM APPLYING THE

BALANCING TEST OFF RESERVATION

THREATENS STATE TAX # £=ADMINI-

STRATION, STATE TAX REVENUES AND

STATE-TRIBAL RELATIONS.

The Tenth Circuit decision, if left unchecked,

threatens dire consequences for state tax admini-

stration. By applying the vagaries of the balancing

test where it should not have—to a transaction that

occurred off the reservation where the gasoline dis-

tributor received the gasoline—the decision greatly

expands uncertainty about state taxing authority.

Any tax imposed on a transaction that may ulti-

mately have an economic consequence on a reserva-

tion will be subject to challenge. How can taxpayers

know whether items on which they have paid tax

will subsequently be resold or used on a reserva-

tion? Under the Tenth Circuit’s ruling, does the

creation of a tribal casino insulate from taxation any

off-reservation purchase for the casino, or for any

——_

9

related enterprise, or for any enterprise which can

claim a benefit from the casino? Will state tax im-

posed on all off-reservation purchases by tribal enti-

ties be subject to defeasance?

The unpredictability of the balancing test is well

reflected by comparing the Tenth Circuit’s decision

below, balancing state and tribal interests in the

tribe’s favor, with its earlier decision in Sac and Fox

Nation v. Pierce, 213 F.3d 566 (10% Cir 2000), cert.

denied, 531 U.S. 1144 (2001), balancing seemingly

indistinguishable interests in the State’s favor.

Moreover, the manner in which the Tenth Circuit

applied the balancing test will acerbate uncertainty.

It balanced interests without reference to a single

federal law that might—even by implication—

preempt state authority to tax. This would leave

every decision to the unfettered judgment of each

trial court, unhinged from federal law. This Court

has explicitly rejected such generalized use of con-

gressional acts that advance tribal sovereignty and

promote economic development as an all-purpose

justification for preempting any state action that

might have an adverse economic affect on tribes.

Cotton Petroleum, 490 U.S. at 183, n. 14; Washing-

ton v. Confederated Tribes of Colville Indian Reserva-

tion, 447 U.S. 134, 155 (1980).

Additionally, this extension of the balancing test

will impact state regulatory authority. The “particu-

larized inquiry” of White Mountain applies to state

regulatory, as well as state tax, authority. Chicka-

saw Nation, 515 U.S. at 458 (“We have balanced

federal, state and tribal interests in diverse contexts,

notably in assessing state regulation that does not

involve taxation.”) See also Oregon Dep't of Fish &

10

Wildlife v. Klamath Indian Tribe, 473 U.S. 753, 765

(1985). States impose many regulations on the off-

reservation manufacture of goods and provision of

services. A tribe, employing the Tenth Circuit's rea-

soning, can presumably challenge a regulation un-

der White Mountain balancing standards to the ex-

tent that it has what the tribe perceives as an unto-

ward impact on tribal interests.

Judging tax authority based on balancing inter-

ests can provide needed flexibility when demands of

three conflicting sovereigns must be satisfied. The

unprecedented and unwarranted extension of that

test to State tax authority over off-reservation activi-

ties subject only to federal and state sovereignty,

however, will cause great uncertainty and turmoil.

THE PRESENT CASE, ALONG WITH THE

CASE OF HAMMOND V. COEUR D'ALENE

TRIBE, PRESENT THE COURT WITH AN

OPPORTUNITY TO BRING CLARITY AND

CERTAINTY WITH REGARD TO INDIAN

TAXATION MATTERS.

Your amicus respectfully suggests that Idaho's

pending petition for certiorari in Hammond v. Coeur

d'Alene Tribe, No. 04-624, provides the court with

an opportunity to reinforce the two pillars of cer-

tainty in Indian taxation matters. The instant case

is properly controlled by the requirement of express

congressional preemption, clearly lacking here. The

Hammond case is properly controlled by express

congressional permission, there provided by the

Hayden-Cartwright Act which authorizes state taxa-

tion of “licensed traders” on "United States military

ll

or other reservations,” a combined terminology that

uniquely refers to Indian reservations. Hammond

also implicates the off-reservation bright-line stan-

dard in the first issue presented: whether a federal

court may, despite an express allocation by the state

legislature of the legal incidence of the motor fuels

tax to a distributor, nonetheless deem the incidence

of the tax to be borne by the retailers.

Hammond serves as a suitable companion to the

present case, and consideration and resolution of

the cases together would be of benefit to the States,

to the tribes, and to the public.

CONCLUSION

The decision below radically departs from this

Court's jurisprudence governing state authority to

tax off-reservation activity. It threatens the ability of

States to raise revenues. It reduces certainty in

state tax administration and stability in state-tribal

relations. Let stand, the decision will permit contra-

dictory lower court decisions, which will serve to en-

courage litigation. Your amicus respectfully requests

that the Court grant the Petition and issue a writ of

certiorari to the Court of Appeals for the Tenth Cir-

cuit.

Respectfully submitted,

Frank D. Katz, General Counsel

Counsel of Record

MULTISTATE TAX COMMISSION

444 No. Capitol Street, N.W., #425

Washington, D.C. 20001

(202) 624-8699

November 24, 2004