Amicus Curiae Brief — Wagnon v. Prairie Band Potawatomi Nation

No. 04-631

Jn the Supreme Court of the Gnited States

JOAN WAGNON, SECRETARY, KANSAS DEPARTMENT

OF REVENUE, PETITIONER

v.

PRAIRIE BAND POTAWATOMI NATION

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

SUPPORTING RESPONDENT

PAUL D. CLEMENT

Solicitor General

Counsel of Record

KELLY A. JOHNSON

Acting Assistant Attorney

General

EDWIN S. KNEEDLER

Deputy Solicitor General

JEFFREY P. MINEAR

Assistant to the Solicitor

General

M. ALICE THURSTON

DAVID C. SHILTON

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTION PRESENTED

Whether a state motor fuels tax that is “imposed on the

use, sale, or delivery” of motor fuel, Kan. Stat. Ann. § 79-

3408(a) (1997 & Supp. 2003), may be imposed on motor fuel

that a non-Indian, off-reservation distributor delivers and

sells directly to an Indian Tribe at its on-reservation service

station.

(I)

TABLE OF CONTENTS

Page

Interest of the United States ...............cccccccceeees 1

ii dicbtedbedeaddneeddenacetdckecoeseseecceees l

IID onccdocouenensensaseceéescoseeees 5

Argument:

The Kansas Motor Fuels Tax is preempted as

applied to sales to the Prairie Band Potawatomi

Nation within its Reservation ...................... 7

A. Under the Kansas Supreme Court’s decision

in Kaul, the tax is preempted because its

imcidemes fo om the Tribe .... ccc cccccccccccccccs 9

B. Even if the legal incidence of the tax is on the

distributor, the tax is preempted by the

Indian Trader Statutes because it is imposed

on the sale or delivery of fuel to the Tribe on

PEED ‘Koncncécendeobsadeesnadeedsece 20

ce. The court should continue to employ the

balancing of interests test in evaluating state

taxes that burden Indian tribes but whose legal

incidence does not rest on the tribes ........... 27

PEE Sccucoenededbcnceedesussdésbassnddeteususes 30

TABLE OF AUTHORITIES

Cases:

American Oil Co. v. Neill, 380 U.S. 451 (1965) ..... 10

Atkinson Trading Co. v. Shirley, 532 U.S. 645

ED Gbeéededbdncedddsneddsededsoeteunsetonss 16

California Bd. of Equalization v. Chemehuevi

Pee GRU esccsccécecesedcecs 9, 10, 18

Central Mach. Co. v. Arizona Tax Comm'n,

PAD seccdéevesanesieuasece 6, 20, 21, 23

Cases—Continued: Page

City of Detroit v. Murray Corp. of America,

355 U.S. 489 U.S. 492 (1958) ...... 0... cece eee eee 13

Coeur D’Alend Tribe of Idaho v. Hammond,

384 F.3d 674 (9th Cir. 2004), cert. denied, 125

PARDEE Kbdidheudcudckdsudsdokesdciace 13

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

SUED dnb vncusdcedncsicndscdsaéancccckes 25, 27

Department of Taxation and Finance v.

Mithelm Attea & Bros., 512 U.S. 61

SE Udkdbcincdddducdccdsnnsdedsocncess 22, 23, 24

Diamond Nat'l Corp. v. State Bd. of

Equalization, 425 U.S. 268(1975) —.. . .. oe ee ee 19

First Agric. Nat'l Bank v. State Tax Comm'n,

ET dé knsubadicdndédddébdeddkeete 13

Gurley v. Rhoden, 421 U.S. 200(1975) ... 10,11, 12,17

Kaul v. Kansas Dep't of Revenue, 970 P.2d

60 (Kan. 1998), cert. denied, 528 U.S. 812

SE . dénodenucédesesscder 3, 4, 6, 9, 11, 12, 16, 18, 19

Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110

DED Sdddvadssensadesocdadacedaleedmbeienéad 10

Merrion v. Jicarilla Apache Tribe, 455 U.S.

EEE Sededecncedsanetouseeodedsedecasenss 25

Moe v. Confederated Salish and Kootenai

Tribes, 425 U.S. 61 (1976) ............cccceeeeee 22

Montana v. Blackfeet Tribe, 471 U.S. 759

SD S6nndbbbebessnsedducesedadetdubedees 7, 8, 16

Oklahoma Tax Comm'n v. Chickasaw Nation,

Se IE ccnccoesccciseceeeousuaee passim

Cases—Continued: Page

Oklahoma Tax Com’n v. Citizen Band

Potawatomi Indian Tribe of Oklahoma, 498

GARE ucvecsccassecneensdecesesodéodes 28

Oklahoma Tax Comm'n v. Sac & Fox Nation,

GP ee SED oncccccccaccccedodsedunéec 10, 28

Ramah Navajo School Board, Inc. v. Bureau of

Revenue of New Mexico, 458 U.S. 832 (1982) ...... 28

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

(10th Cir. 2000), cert. denied, 531 U.S. 1144

GEE ocdedccceddudctesndccesans 5, 10, 17, 18, 21, 22

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

GND cccvcndntccccssedcsoucenesesinetdoncseenc 7

The New York Indians, 72 U.S. (5 Wall.) 761

GED ecoucvcddcdedévccevdcdésanséddddsecbonsens 7

United States v. Mississippi Tax Comm'n, 421

CGP OIUED Scccccocccesessccess 10, 13, 17, 18, 19

Warren Trading Post Co. v. Arizona Tax

Commission, 380 U.S. 685 (1965) ............. 20, 23

Washington v. Confederated Tribes of Colville

Reservation, 447 U.S. 134 (1980) .... 10, 23, 24, 25, 27

White Mountain Apache Tribe v. Bracker, 448

Sh TD csciddivudiinumedidhambeunl 7, 23, 27

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

Dt cézvendascadébsbacdaneneeanaddedseaen 20

U.S. Const. Art. I, § 8, Cl. 3 ( Indian Commerce

SED «« icnddadunedtaed heheh hensens aie 1, 20

Act of July 22, 1790, ch. 33, 1 Stat. 1387 .............. 20

SE UBC. BE 0G .....cccccccccccccccccces: 1, 6, 20

VI

Statutes and regulations—Continued: Page

SUEY “udidddnbobdntddcusdsedennduasueed 21

I i 2

Kansas Motor Fuel Tax Act, Kan. Stat. Ann.

$§ 79-3401 et seq. (1997 & Supp. 2008) .......... 2, 20

I i ea 11

DY vWicniddneatoddadsendas 2, 13, 14, 19, 20

§ 79-3408(c) (Supp. 2003) ........... 4, 11, 12, 13, 14

PED ctistscusiddtidhusaamenenannd 3, 16

ED eddie ghenccddiidi tiledddienadelas 3, 15

TT OS eR ee 14

TD shbgndindnidhedesadincunameeneus 15

Pe tdiinadetididdddbeddediidieei alice 15

DEED be dinédaedddtadsenidbknabbuaunae 15

ID bk dbcchiiis oid ea te 4

DT dtatihiddsbudawedbebmaddabeadn nn 12, 13

PUL dnnidutdididumidseddiccebnusieliensee 3

Kan. Stat. Ann

EEE ELS ee Ee Pee mea ie 11

Ee ae eee ae 21

I ita i i ie le a 21

Me UD. LABOR. GR OB on cccccccccccccccccccess 4

PPLE abuhdédbddésedéudedatndoetdanoes 26

IE a Mer oe 26

Miscellaneous:

Richard J. Ansson, Jr., State Taxation of Non-

Indians Whom Do Business With Indian

Tribes, 78 Or. L. Rev. 501(1999) ............000005 28

Vil

Miscellaneous: Page

Bureau of Indian Affairs, Transportation

Serving Native American Lands (May 2003) .....

GD Fed. Reg. 43,000 (2004) 2.0... .ccccccccccccccces

S. Rep. No. 406, 106th Cong., 2d Sess. (2000) ........

U.S. Dep’t of Transp., Fatal Motor Vehicle

Crashes on Indian Reservations 1975-2002,

Rep. No. DOT HS 809-727 (Apr. 2004) ...........

In the Supreme Court of the United States

No. 04-631

JOAN WAGNON, SECRETARY, KANSAS DEPARTMENT OF

REVENUE, PETITIONER

v.

PRAIRIE BAND POTAWATOMI NATION

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

SUPPORTING RESPONDENT

INTEREST OF THE UNITED STATES

Petitioner seeks to collect a tax on motor fuel that a non-

Indian, off-reservation distributor delivers to an Indian Tribe

at the Tribe’s on-reservation service station. The United

States has a substantial interest in this case by virtue of the

Indian Commerce Clause, U.S. Const. Art. I, § 8, Cl. 3, the

Indian Trader Statutes, 25 U.S.C. 261 et seq., and the govern-

ment’s trust relationship with Indian Tribes.

STATEMENT

1. Respondent Prairie Band Potawatomi Nation (the

Tribe) is a federally recognized Tribe with a 121-square mile

reservation in Jackson County, Kansas. J.A. 133. The Tribe’s

(1)

2

Reservation is located in a rural area some 25 miles north of

Topeka, Kansas. The Tribe’s chief source of income is a trib-

ally owned and operated on-reservation casino that generates

substantial non-Indian traffic onto the Reservation. Jbid.

The Tribe also owns and operates a retail gas station and con-

venience store adjacent to the casino that is known as the

Nation Station. /bid. The Tribe purchases gasoline and die-

sel fuel from an off-reservation, non-Indian distributor,

Davies Oil Company, which delivers the fuel to the Nation

Station. See J.A. 133.

The Nation Station sells fuel at the prevailing retail mar-

ket price. J.A. 133-134. The Tribe has historically included in

its market price a tribal tax, comparable to state motor fuel

taxes. The tax originally was imposed at a rate of 16 cents per

gallon for gasoline and 18 cents for diesel fuel, but those rates

were increased to 20 and 22 cents per gallon, respectively,

beginning January 2003. J.A. 48-50, 134. That tax has gener-

ated about $300,000 in revenues to the Tribe each year. J.A.

134. The Tribe, like other sovereigns, has employed those

revenues for building and maintaining roads, including main-

tenance on the approximately one-and-one-half mile tribal

road that connects the casino to United States Highway 75.

Ibid.

2. The State of Kansas, like the federal government (see

26 U.S.C. 4081(a)(2)), other States, and many Indian Tribes,

imposes a per-gallon tax on motor vehicle fuel. See Kansas

Motor Fuel Tax Act, Kan. Stat. Ann. §§ 79-3401 et seg. (1997

& Supp. 2003). That tax is “imposed on the use, sale or deliv-

ery of all motor vehicle fuels or special fuels which are used,

sold or delivered in [the] state for any purpose whatsoever.”

Id. § 79-3408(a) (1997 & Supp. 2003). Beginning July 1, 2003,

the state tax is imposed at a rate of 24 cents per gallon for

3

gasoline and 26 cents per gallon for special fuels, including

diesel. Jd. § 79-34,141 (1997 & Supp. 2003).'

In 1992, Kansas and the Tribe entered into an inter-gov-

ernmental agreement respecting excise taxes, including taxes

on motor fuel. See J.A. 20-26. That agreement, which had a

five-year, renewable term, sought “to eliminate problems

which result from tribal and state taxation and regulation of

the same event or transaction.” J.A. 21. At that time, Kansas

did not tax motor fuels delivered within Indian reservations.

See Kaul v. Kansas Dep't of Revenue, 970 P.2d 60, 63 (Kan.

1998), cert. denied, 528 U.S. 812 (1999); see J.A. 18-19. Under

the tribal-state agreement, the State “relinquishe[d] whatever

jurisdiction it may have had to impose” a motor fuel tax for

“any transaction with a non-Indian purchaser which occurs on

the Reservation,” subject to the conditions that the merchant

be authorized under tribal law to do business on the Reserva-

tion and the merchant pay a tax to the Tribe that is not less

than 60% of the prevailing state tax. J.A. 23-24.

In 1995, the Kansas legislature amended its motor fuel tax

provisions. See Kaul, 970 P.2d at 64, 65-66. The 1995 Act,

inter alia, amended the exception for the sale or delivery of

fuel to the United States and its tax-exempt agencies to pro-

vide that “this exemption shall not be allowed if the sale or

delivery of motor-vehicle fuel or special fuel is to a retail

. The Kansas statute provides, however, that “[nJo tax is hereby imposed

upon or with respect to” certain transactions, including “(t}he sale or delivery

of motor-vehicle fuel or special fuel for export from the state of Kansas to any

other state or territory or to any foreign country,” or “to the United States of

America and such of its agencies as are now or hereafter exempt by law from

liability to state taxation.” Kan. Stat. Ann. § 79-3408(d)(1) and (2) (1997 &

Supp. 2003). The Kansas statute provides no comparable express exemption

for motor fuel sold or delivered to an Indian Tribe.

4

dealer located on an Indian reservation in the state and such

motor-vehicle fuel or special fuel is sold or delivered to a non-

member of such reservation.” See Kan. Stat. Ann. § 79-

3408g(d)(2) (1997) (repealed July 1, 1998); Kaul, 970 P.2d at

65.

In 1997, the State declined to renew the 1992 tribal-state

agreement, thereby eliminating the contractual impediment

that the agreement placed to imposing a motor fuel tax on

sales to retailers operating on the reservation. And in 1998,

after this Court’s decision in Oklahoma Tax Commission v.

Chickasaw Nation, 515 U.S. 450, 459 (1995), the Kansas legis-

lature further amended its motor fuel tax provisions to state

that “the incidence of this tax is imposed on the distributor of

the first receipt of the motor fuel.” Kan. Stat. Ann. § 79-

3408(c) (Supp. 2003). See Kan. Sess. Laws ch. 96, § 2 (July 1,

1998).

3. The Tribe brought this suit to obtain declaratory and

injunctive relief preventing Kansas from imposing its fuel tax

on gasoline and diesel fuel delivered to the Tribe itself. See

J.A. 10-13 (amended complaint). Specifically, the Tribe

sought an order enjoining petitioner “from enforcing its state

motor fuel taxes, including those under K.S.A. 79-3408, and

from collecting such taxes from the Nation or its distributors

with respect to motor fuel transactions or events involving

motor fuel obtained by the Nation and sold by it at retail on

its reservation.” J.A. 13.

a. Petitioner moved for summary judgment, arguing

among other things that neither federal law nor the Tribe’s

right of self-government preempts the state tax. See J.A. 94,

111-120. The district court identified this Court’s decision in

Oklahoma Tax Commission v. Chickasaw Nation, supra, as

providing the guiding principle. The district court stated

nr

5

that, if “the legal incidence of the tax rests on non-Indians,”

then “no categorical bar prevents enforcement of the tax; if

the balance of federal, state, and tribal interests favors the

State, and the federal law is not to the contrary, the State

may impose its levy.” J.A. 112 (quoting Chickasaw Nation,

515 U.S. at 458). The district court recognized that the Tenth

Circuit had previously ruled, in a decision construing the

same Kansas Motor Fuel Tax Act, that “the legal incidence of

the Kansas motor fuel tax falls upon the distributors,” Sac

and Fox Nation v. Pierce, 213 F.3d 566, 580 (2000), cert. de-

nied, 531 U.S. 1144 (2001). See J.A. 117. The court granted

petitioner’s request for summary judgment, reasoning that

the balance of interests weighed in favor of allowing the tax.

J.A. 114; see J.A. 119-120.

b. The court of appeals reversed. J.A. 131-144. The court

of appeals followed its prior ruling in Sac and Fox Nation

that “[t]he Kansas legislature structured the tax so that its

legal incidence is placed on non-Indian distributors.” J.A.

135. It therefore concluded, in accordance with this Court’s

decision in Chickasaw Nation, that the State’s power to im-

pose the tax depends on “the balance of federal, state, and

tribal interests.” J.A. 136 (quoting 515 U.S. at 459). The court

of appeals concluded that “the Kansas tax, as applied here, is

preempted because it is incompatible with and outweighed by

the strong tribal and federal interests against the tax.” J.A.

137.

The court of appeals reasoned that, in this case, the

Tribe’s “fuel revenues are derived from value generated pri-

marily on its reservation,” J.A. 137, “because its fuel market-

ing is integral and essential to the gaming opportunity the

Nation provides.” J.A. 138. The court of appeals also con-

cluded that the Tribe’s “interests here are strengthened be-

6

cause of its need to raise fuel revenues to construct and main-

tain reservation roads, bridges, and related infrastructure

without state assistance,” J.A. 141, and “are aligned with

strong federal interests in promoting tribal economic develop-

ment, tribal self-sufficiency, and strong tribal governments.”

J.A. 142. By contrast, the court reasoned, the State had only

a generalized interest in raising revenue, which was insuffi-

cient to uphold application of the tax. J.A. 143-144.

SUMMARY OF ARGUMENT

This Court’s decision in Oklahoma Tax Commission v.

Chickasaw Nation, 515 U.S. 450 (1995), makes clear that a

State cannot impose the “legal incidence” of an excise tax,

such as a motor fuel sales tax, on an Indian Tribe. In this

case, the Kansas Supreme Court has determined in Kaul v.

Kansas Department of Revenue, 970 P.2d 60 (1998), cert. de-

nied, 528 U.S. 812 (1999), that Kansas does in fact tax retail-

ers like respondent. The state supreme court’s determination

rests on a reasonable construction of the state statute and

should be treated as conclusive on that matter. The Court

should therefore affirm the court of appeals’ judgment on that

alternative (and logically antecedent) basis.

If the Court nevertheless concludes that the legal inci-

dence of the tax is on the non-Indian distributor, that is not

the end of the inquiry. The delivery and sale of goods, includ-

ing gasoline, to an Indian Tribe on its reservation is subject

to the Indian Trader Statutes, 25 U.S.C. 261 et seq. This

Court held in Central Machinery Co. v. Arizona Tax Com-

mission, 448 U.S. 160 (1980), that the State of Arizona could

not impose its gross receipts tax on a non-Indian seller based

on the sales price of tractors sold and delivered to an Indian

Tribe on its reservation, even where the seller had no estab-

7

lished place of business on the reservation. Under Central

Machinery, the Kansas motor fuel tax is likewise preempted

insofar as it is imposed on the sale and delivery of motor fuel

to the Tribe, which imposes its own tax on sales of gasoline at

the service station and sells the gasoline at prevailing prices.

Finally, even if the Indian Trader Statutes of their own

force do not preempt the state tax here, then, as this Court

reaffirmed in Chickasaw Nation, 515 U.S. at 458-459, the

courts should conduct a balancing of the relevant tribal, fed-

eral, and state interests. See, e.g., White Mountain Apache

Tribe v. Bracker, 448 U.S. 136, 142-145 (1980). The Court

should reject the State’s extraordinary suggestion that the

Court abandon its firmly established balancing test, which

properly takes into account the interests of all the affected

sovereigns.

ARGUMENT

THE KANSAS MOTOR FUELS TAX IS PREEMPTED AS AP-

PLIED TO SALES TO THE PRAIRIE BAND POTAWATOMI

NATION WITHIN ITS RESERVATION

The Court’s decision in Oklahoma Tax Commission v.

Chickasaw Nation, 515 U.S. 450 (1995), “adhere[d] to settled

law” and reaffirmed the fundamental and longstanding princi-

ple that “Indian tribes and individuals generally are exempt

from state taxation within their own territory.” Jd. at 453, 455

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

(1985)). See The Kansas Indians, 72 U.S. (5 Wall.) 737 (1867);

The New York Indians, 72 U.S. (5 Wall.) 761 (1867). The

Court therefore stated, as a controlling principle, that “when

Congress does not instruct otherwise, a State’s excise tax is

unenforceable if its legal incidence falls on a Tribe or its mem-

bers for sales made within Indian Country.” Chickasaw Na-

nM PT

8

tion, 515 U.S. at 453. But even when the state tax is not im-

posed directly on Indians, it may be preempted if it

impermissibly intrudes upon the protected interests of the

Tribe or individual Indians or is inconsistent with particular

measures adopted for their benefit by the federal govern-

ment, which is vested by the Constitution with “exclusive au-

thority over relations with Indian tribes.” Blackfeet Tribe,

471 U.S. at 764.

These principles were synthesized by the Court in Chicka-

saw Nation, 515 U.S. at 457-460, which explained:

The initial and frequently dispositive question in Indian

tax cases * * * is who bears the legal incidence of a tax.

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

tribal members for sales made inside Indian country, the

tax cannot be enforced absent clear congressional authori-

zation. * * * But ifthe legal incidence of the tax rests on

non-Indians, no categorical bar prevents enforcement of

the tax; if the balance of federal, state, and tribal interests

favors the State, and federal law is not to the contrary, the

State may impose its levy * * * and may place on a tribe

or tribal members “minimal burdens” in collecting the toll.

Id. at 458-459 (citations omitted).”

. The Court noted that the “legal incidence” test, as opposed to a “more

venturesome approach” at the threshold, maintains the historic presumption

that federal law preempts state taxation of Indian Tribes, and thereby

preserves Congress’s lead role “in evaluating state taxation as it bears on

Indian tribes and tribal members.” Chickasaw Nation, 515 U.S. at 459. In

addition, the “legal incidence” test “accommodates the reality that tax ad-

ministration requires predictability.” /d. at 459-460. It also enables a State to

restructure its tax system to accomplish its revenue collection goals without

imposing inappropriate burdens on Indian Tribes by, for example, “declaring

the tax to fall on the consumer and directing the Tribe to collect and remit the

9

The Chickasaw Nation case, like this case, involved a

State’s attempt to impose a fuel excise tax on motor fuel that

the Tribe sold at retail stores on tribal trust land. See 515

U.S. at 452-453. The Court concluded, based on a “fair inter-

pretation of the taxing statute as written and applied,” that

the legal incidence of the State’s fuel tax in that case rested

on the Tribe. Chickasaw Nation, 515 U.S. at 461-462 (quoting

California Bd. of Equalization v. Chemehuevi Tribe, 474 U.S.

9, 11 (1985) (per curiam)). Federal law accordingly preempted

the state tax. /bid.

_ Under Chickasaw Nation, then, the first inquiry in this

case is whether the legal incidence of the tax “rests on the

Tribe (as retailer) or on some other transactors—here, the

wholesalers who sell to the Tribe or the consumers who buy

from the Tribe.” 515 U.S. at 459. As we explain below, in

light of the Kansas Supreme Court’s decision in Kaul v. Kan-

sas Department of Revenue, 970 P.2d 60 (1998), cert. denied,

528 U.S. 812 (1999), it appears that the legal incidence of the

Kansas tax is on the Tribe. But even if the Court concludes

that the incidence of the tax is on the non-Indian distributor,

the tax is preempted under the principles reaffirmed in Chick-

asaw Nation.

A. Under The Kansas Supreme Court’s Decision In Kaul,

The Tax Is Preempted Because Its Incidence Is On The

Tribe

This Court’s decisions provide concrete guidance on how

to determine where the “legal incidence” of the tax lies. The

Court has made clear that “the question is one of ‘fair inter-

pretation of the taxing statute.’” Chickasaw Nation, 515 U.S.

at 461 (quoting California Bd. of Equalization, 474 U.S. at

levy.” Jd. at 460 (quoting 94-771 Pet. for. Cert. at 17).

10

11). A court may take into account the existence—or not—of

any express “collection requirements” or “pass-through provi-

sions.” Chemehuevi Tribe, 474 U.S. at 11. In the end, how-

ever, the determination depends on the overall character of

the tax. /bid.*

“(T]he duty rests on this Court to decide for itself’”

where the legal incidence of the tax lies. United States v.

Mississippi Tax Comm'n, 421 U.S. 599, 609 n.7 (1975) (quot-

ing Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 121 (1954)).

But federal courts, of course, should not evaluate state taxing

statutes in a vacuum, and should consult the constructions

provided by state supreme courts. See Mississippi Tax

Comm'n, 421 U.S. at 609 n.7. “When a state court has made

its own definitive determination as to the operating incidence,

[the Court’s] task is simplified. [The Court] give[s] this find-

ing great weight in determining the natural effect of a statute,

and if it is consistent with the statute’s reasonable interpreta-

tion it will be deemed conclusive.” Gurley v. Rhoden, 421 U.S.

200, 208 (1975) (quoting American Oil Co. v. Neill, 380 U.S.

451, 455-456 (1965)).

In this case, the Tenth Circuit too readily assumed—based

on the holding in its earlier decision in Sac and Fox, 213 F.3d

at 580—that the legal incidence of the Kansas motor fuel tax

is on the distributor. See J.A. 117, 135. The Tenth Circuit in

Sac and Fox failed to give the weight this Court’s decisions

required it to give to the Kansas Supreme Court’s decision in

* See, e.9., Oklahoma Tax Comm'n v. Sac and For Nation, 508 U.S. 114,

126-128 (1993) (Oklahoma cannot avoid this Court's decisions “by avoiding the

name ‘personal property tax’ here any more than Washington could in

Colville”); Washington v. Confederated Tribes of the Colville Indian Reser-

vation, 447 U.S. 134, 164 (1980) (Washington cannot avoid this Court’s tax

immunity decisions through “mere nomenclature”).

11

Kaul. The Kansas Supreme Court’s decision in Kaul, al-

though not without some ambiguity, is best read as holding

that the incidence of the very tax at issue here is on the re-

tailer. As explained below, that decision is “consistent with

the statute’s reasonable interpretation”—even if it is not the

one this Court might adopt in the first instance—and it there-

fore should be “deemed conclusive.” Gurley, 421 U.S. at 208.‘

1. The Court’s task here, as in Chickasaw Nation, is to

determine where the legal incidence of the tax resides. See

515 U.S. at 461-462. The Kansas statute states, as a result of

the 1998 post-Chickasaw Nation amendment, that “the inci-

dence of this tax is imposed on the distributor of the first re-

ceipt of the motor fuel.” Kan. Stat. Ann. § 79-3408(c) (Supp.

2003) But that legislative statement is not dispositive in light

of the Kansas Supreme Court’s construction of the statute in

Kaul. The Kansas Supreme Court determined that, notwith-

standing that statement, the statute, read as a whole, mani-

fested a legislative intent that “[rjetailers are taxed.” 970

P.2d at 67.

The plaintiffs in Kau/—Indian retailers on the Prairie

Band Potawatomi Nation Reservation who were not members

of the Tribe—sought relief from imposition of the Kansas

motor fuels tax on sales made to them by an off-reservation

distributor. The Kansas Supreme Court recognized that the

1998 amendment to Kan. Stat. Ann. § 79-3408(c) newly pro-

vided that “the incidence of the tax falls on the distributor.”

970 P.2d at 67. But the court read that provision in conjunc-

* To the extent the Court ultimately determines that the Kansas Supreme

Court’s decision in Kau is insufficiently clear on the threshold issue of the legal

incidence of the tax, the Court may, of course, certify that question to the

Kansas Supreme Court, or remand the case to the Tenth Circuit with

instructions to do so. See Kan. Stat. Ann. § 60-3201 (1994).

12

tion with Kan. Stat. Ann. § 79-3409 (1997 & Supp. 2003), which

enables the distributor to collect the tax from the retailer.

The Kansas Supreme Court concluded:

The statute clearly states that the distributor is liable for

the payment of the tax, but the distributor may collect the

tax from the retailer as part of the selling price of the mo-

tor fuel.

970 P.2d at 67. The Kansas Supreme Court concluded that

the legislature intended distributors to collect the tax from

retailers and that, “[t)herefore, Retailers are taxed.” /bid.

Although the court reached that conclusion in evaluating the

retailers’ standing, it indicated that that conclusion has a

broader significance in the operation of the state statute. The

court concluded that the retailers were not entitled to immu-

nity from the tax only because they were not members of the

Tribe. Jd. at 68.°

2. The Kansas Supreme Court’s conclusion that, under

the Kansas scheme, “[(rJetailers are taxed” rests on a reason-

able construction of the state statute, and it therefore should

be treated as conclusive. Gurley, 421 U.S. at 208. A number

of features of the Kansas statute support the Kansas court’s

determination that the taxing statute, fairly interpreted “as

written and applied,” Chickasaw Nation, 515 U.S. at 461, im-

poses the legal incidence of the tax on the retailer, notwith-

The Kansas Supreme Court stated: “Under the circumstances, there has

been no showing by Retailers that payment of fuel tax to Kansas interferes

with the self-government of a Kansas tribe or a Kansas tribal member or the

tax impairs a specific right granted or reserved by federal law to the Kansas

Indians. Here, the legal incidence of the tax on motor fuel rests on nontribal

members |i¢., the nontribal member Retailers] and does not affect the

Potawatomi Indian reservation within the state of Kansas or the members of

that tribe.” 970 P.2d at 68.

13

standing the insertion made by the 1998 amendments stating

“the incidence of this tax is imposed on the distributor of the

first receipt of the motor fuel.” Kan. Stat. Ann. § 79-3408(c)

(Supp. 2003).°

The text and structure of the Kansas statute, both before

and after its 1998 amendment, clearly manifest the intent that

the tax is imposed on the use, sale, and delivery of motor fuel,

Kan. Stat. Ann. § 79-3408(a) (1997 & Supp. 2003), that the

relevant transaction is that between the distributor and the

retailer, and that the distributor is entitled to collect the tax

from the retailer, Kan. Stat. Ann. § 79-3409 (1997 & Supp.

2003). In these circumstances, the Kansas Supreme Court

could reasonably conclude that, in the end, “[(t}he distributor

‘is no more than a transmittal agent for the taxes imposed on

the retailer.’” Chickasaw Nation, 515 U.S. at 461-462."

° See Chickasaw Nation, 515 U.S. at 462 (“The import of the language

and structure of the fuel tax statutes is that the distributor collects the tax from

the retail purchaser of the fuel’; the ‘motor fuel taxes are legally imposed on the

retailer rather than on the distributor or the consumer.’ 31 F . 3d, at 971-972.”);

ef. Coeur D'Alene Tribe of Idaho v. Hammond, 384 F.3d 674, 685 (9th Cir.

2004), cert. denied, 125 S. Ct. 1397 (2005) (holding that a state legislature’s

statement that the incidence of a tax falls on a distributor is insufficient,

without more, to shift the legal incidence from the Tribe). |

” ‘The Court has “squarely rejected the proposition that the legal incidence

of a tax always falls upon the person legally liable for its payment.”

Mississippi Tax Comm'n, 421 U.S. at 607. See id. at 607-608 (quoting First

Agricultural National Bank v. State Tax Comm'n, 392 U.S. 339, 347-348

(1968)). Furthermore, States are not entitled to impose forbidden taxes

through a drafting sleight-of-hand in which a statute purports to impose a tax

on one entity, but in actual operation imposes it on another. This Court has

accordingly found that it “must look through form and behind labels to

substance.” City of Detroit v. Murray Corp. of America, 355 U.S. 489, 492

(1958).

14

The Kansas tax is expressly “imposed on the use, sale, or

delivery of all motor-vehicle fuels or special fuels which are

used, sold, or delivered in this state for any purpose whatso-

ever.” Kan. Stat. Ann. § 79-3408(a) (1997 & Supp. 2003). That

tax, like the Oklahoma tax in Chickasaw Nation, is by defini-

tion an excise or sales tax that is expressly levied on the use,

sale, or delivery of fuel. The provision that nominally places

the incidence of the tax on the distributor cannot be given

dispositive weight, even apart from the Kansas Supreme

Court’s decision in Kaul, because it is in tension with Section

79-3408(a)’s direction that the sales tax is imposed on any sale

“for any purpose whatsoever.” Indeed, that provision itself

suggests that the actual legal incidence falls on the retailer.

It goes on to provide a 2.5% exemption allowance for fuel that

the distributor receives but cannot sell on account of “physical

loss” while the distributor is handling the fuel. Kan. Stat.

Ann. § 79-3408(c) (Supp. 2003). That exemption (which itself

contains an exception for federal agencies “exempt by law

from liability to state taxation” (ibid.)) suggests that the rele-

vant transaction is the actual delivery and sale of the fuel to

the retailer—not the fuel in the possession of the distributor

before the transfer—and that the legislature intended the tax

to fall on the retailer who ultimately receives the fuel.

Furthermore, the statute as a whole reveals, in other re-

spects, that the State has targeted the sale and delivery of

fuel to retailers for imposition of the tax. For example, the

statute provides that the incidence of the tax “is imposed

on the distributor of the first receipt of the motor fuel and

such taxes shall be paid but once,” Kan. Stat. Ann. § 79-

3408(c) (Supp. 2003), but it exempts from taxation the first

sale or delivery of fuel “to a duly licensed distributor who

in turn resells to another duly licensed distributor,” id. § 79-

_

15

3408(d)(5) (1997 & Supp. 2003). That provision makes clear

that it is the distributor-retailer transactions, not the first

delivery of the fuel to a distributor, nor distributor-distributor

transactions, that trigger the tax. See Chickasaw Nation, 515

U.S. at 461 (noting that an exemption for “sales between dis-

tributors” supported the inference that “the tax obligation is

legally the retailer’s”).

Even more strikingly, the Kansas statute exempts from

the tax the “sale or delivery” of fuel in cireumstances—such

as the sale to the United States or its ageneies “now or here-

after exempt by law from liability to state taxation”—where

the Constitution or federal law would forbid the State from

imposing a sales tax on the purchaser. Kan. Stat. Ann. § 79-

3408(d)(2) (1997 & Supp. 2003). That exemption is highly in-

structive in evaluating the operating incidence of the Kansas

tax for present purposes. If the tax does not fall on the pur-

chaser/retailer, it would be strange to provide an exemption

based on the purchaser’s status.

The Kansas statute also provides that, if the State enacts

a tax increase, the retailer is liable for a tax or refund in the

amount of the increase with respect to any fuel in its existing

inventory. Kan. Stat. Ann. § 79-3408¢(a) and (b) (1997 &

Supp. 2003). Correspondingly, if the tax rate decreases, the

retailer is entitled to a refund with respect to any fuel in its

existing inventory. /d. § 79-3408c(b). At odds with the notion

that an on-reservation tribal retailer does not generally bear

the legal incidence of the tax, the Kansas statute expressly

exempts from those provisions any Native American retailer

whose place of business is on the retailer’s reservation. Jd.

§ 79-3408¢(c) (1997 & Supp. 2003).

Finally, the Kansas statute exempts from the tax the sale

or delivery of fuel “for export from the state of Kansas to any

16

other state or territory or to any foreign country.” Kan. Stat.

Ann. § 79-3408(d)(1) (1997 & Supp. 2003). The apparent ratio-

nale for that exemption is that the sellers of motor fuel in

another State or territory or in a foreign country are taxed by

their respective government to maintain the roads within that

jurisdiction. See Kaul, 970 P.2d at 66. Here, where the Tribe

imposes a fuel tax on the sales of motor fuel within its juris-

diction, the same rationale reinforces the basis for finding the

Kansas fuel tax inapplicable to sales or deliveries made to the

Tribe on its Reservation.°

Given these structural characteristics of the Kansas motor

fuel tax statute, the Kansas Supreme Court was certainly

reasonable in concluding, under a “fair interpretation of the

taxing statute as written and applied,” Chickasaw Nation, 515

U.S. at 461-462, that Kansas has placed the legal incidence of

the tax on the retailer.

3. In determining legal incidence, the court of appeals in

this case followed its earlier decision in Sac and Fox Nation,

which held that the Kansas taxing statute at issue here places

the legal incidence of the tax on the distributor. See J.A. 117,

135. The court of appeals’ analysis in Sac and Fox Nation,

however, was flawed because it failed to give sufficient weight

to the Kansas Supreme Court’s interpretation of state law.

The Tenth Circuit correctly recognized that “the legal

incidence of a tax does not always fall upon the entity legally

* Under this Court’s decisions beginning with Montana v. United States,

450 U.S. 544 (1981), a Tribe does not have plenary jurisdiction to tax within the

borders of its reservation. A Tribe may not, for example, tax the activities of

nonmembers on non-Indian fee land. See, e.g., Atkinson Trading Co. v.

Shirley, 532 U.S. 645 (2001). There is little doubt, however, that the Tribe here

may tax retail sales of gasoline made at its own service station on the

Reservation.

17

liable for payment of the tax” and that “the question is one of

‘fair interpretation of the taxing statute as written and ap-

plied.’” 213 F.3d at 578. It also understood the Kamsas Su-

preme Court in Kaul as “suggesting that the legal incidence

of the Kansas motor fuel tax fell on the retailers where the

distributors itemized the tax on retailers’ bills as money due

the State.” Jd. at 578-579. But the court refused to give any

consideration, beyond a “but see” citation, to the state su-

preme court’s interpretation of state law. [bid.

Instead, the Tenth Circuit concluded that the legal inci-

dence of the tax did not fall on the retailers because the Kan-

sas law’s pass-through provision is “permissive rather than

mandatory,” 213 F.3d at 579, noting that, “if the fuel tax law

required distributors to include the amount of the fuel tax in

their wholesale price, we would be justified in concluding that

the legal incidence of the tax falls upon the Tribes, id. at 580.

The court’s conclusion is mistaken in at least three basic re-

spects.

First, as explained above, the Kansas Supreme Court’s

determination respecting the operating incidence of the motor

fuel tax under the Kansas statute is, at the very least, “con-

sistent with the statute’s reasonable interpretation,” and

should therefore be “deemed conclusive.” Gurley v. Rhoden,

421 U.S. at 208. Yet the Tenth Circuit erred in failing even to

inquire whether the Kansas Supreme Court’s understanding

of the state statute was reasonable.

Second, this Court’s decisions do not hold that a State

must require the distributor to pass through the tax in order

to place the legal incidence on the retailer. Rather, Missis-

sippt Tax Commission provides that a mandatory pass-

through “establishes as a matter of law” that the legal inci-

dence rests with the retailer. 421 U.S. at 608. As Chickasaw

18

Nation itself indicates, a court may still determine—based on

a “fair interpretation of the taxing statute as written and ap-

plied” and without regard to that per se rule—that the legal

incidence rests on the retailer. 515 U.S. at 461. See

Chemehuevi Tribe, 474 U.S. at 11 (noting that the Court’s

cases do not suggest that the only test for whether the legal

incidence of such a tax falls on purchasers is whether the per-

son liable for remitting the tax is required to pass on the tax

to the purchaser).

Third, the court of appeals was in any event wrong in at-

taching the significance it did to its own perception that the

Kansas statute does not “require[] distributors to include the

amount of the fuel tax in their wholesale price.” 213 F.3d at

580. The ultimate inquiry under this Court’s cases is what the

State intended with respect to the operative incidence of the

tax. See Mississippi Tax Comm’n, 421 U.S. at 607-609. The

Kansas Supreme Court made clear in Kaul that the Kansas

legislature “intended that distributors pay the tax and include

the fuel tax in the sales price when delivering fuel to retailers

or collect the fuel tax from the retailers at the time the dis-

tributors deliver the motor fuel to the retailers. Therefore,

Retailers are taxed * * * .” 970 P.2d at 67 (emphasis

added).

In short, although the distributors are legally obligated to

pay the tax, and thus serve as the State’s “transmittal agent,”

Chickasaw Nation, 515 U.S. at 461-462, the Kansas Supreme

Court has reasonably determined, in accordance with Kan-

sas’s overall motor fuel taxing scheme, that “[rjetailers are

taxed.” 970 P.2d at 67. The Tribe, as a retailer, therefore

bears the “legal incidence” of the tax and, under Chickasaw

Nation, is entitled to immunity from that tax. 515 U.S. at 459.

19

4. As Chickasaw Nation made clear, Kansas remains

“free to amend its law to shift the tax’s legal incidence.” 515

U.S. at 460. But it must do it in a way that alters, as a matter

of substance and not merely as a matter of form or labels,

what this Court has identified as the actual legal incidence of

the tax. See Mississippi Tax Comm'n, 421 U.S. at 607-609.

Instead, the State must structure it levy so that the tax, as

“written and applied,” places the tax burden on the distribu-

tors. See Chickasaw Nation, 515 U.S. at 461 (emphasis

added). The State might do so by, for example, taxing the

receipt by the distributor alone rather than “the use, sale or

delivery * * * for any purpose whatsoever,” thereby remov-

ing any legal obligation for downstream retailers to pay the

tax or to reimburse the distributor for the tax. See Diamond

National Corp. v. State Board of Equalization, 425 U.S. 268,

272 (1975) (Stevens, J., dissenting). Or the State might chose

some other equally effective means. But at present, the fair

interpretation of the Kansas statute given it by the Kansas

Supreme Court indicates that “[rJetailers are taxed,” and that

the legal incidence of the tax therefore remains on the Indian

Tribe. See Kan. Stat. Ann. § 79-3408(a) (1997 & Supp. 2003);

Kaul, 970 P.2d at 67. The judgment of the court of appeals

should be affirmed on that logically antecedent ground.

B. Even If The Legal Incidence Of The Tax Is On The Dis-

tributor, The Tax Is Preempted By The Indian Trader

Statutes Because It Is Imposed On The Sale Or Delivery

Of Fuel To The Tribe On Its Reservation

If the Court concludes that the legal incidence of the Kan-

sas motor fuel tax does in fact fall on the non-Indian distribu-

tor, that does not end the inquiry. To the contrary, even if the

legal incidence for payment of the tax is on the distributor, it

20

remains the case that the tax is expressly imposed on the sale,

use, or delivery of the fuel. See Kan. Stat. Ann. § 79-3408(a)

(1997 & Supp. 2003). In this case, the non-Indian distributor

sells the fuel to the Tribe and delivers the fuel to the Tribe at

its on-reservation service station. That transaction between

the distributor and the Tribe is thus the subject matter to

which the tax is addressed. See pp. 12-16, supra. Imposition

of the state tax on the sale in these circumstances therefore

implicates the Indian Trader Statutes, 25 U.S.C. 261 et seq.,

which Congress enacted pursuant to its express constitutional

power to “regulate Commerce * * * with the Indian Tribes,”

U.S. Const. Ait. ', § 3, Cl. 8, see Wooster v. Georgia, 31 U.S.

(6 Pet.) 515 , 559, 561 (1832), and which trace back to 1790, Act

of July 22, 1790, ch. 33, 1 Stat. 137. Those statutes govern

trade between persons who sell goods to Indian Tribes or

their members, and they have been held to preempt certain

state taxes even where the legal incidence of the tax is on the

trader.

1. This Court unanimously held in Warren Trading Post

Co. v. Arizona Tax Commission, 380 U.S. 685 (1965), that the

Indian Trader Statutes and implementing regulations prohib-

ited the State of Arizona from imposing its gross proceeds tax

on the operator of a federally licensed retail trading post lo-

cated on the Navajo Reservation. The Court later ruled in

Central Machinery Co. v. Arizona Tax Commission, 448 U.S.

160 (1980), that, under Warren Trading Post, the Indian

Trader Statutes prohibited Arizona from imposing the same

tax on the sale of farm machinery to an Indian Tribe when the

sale took place on the reservation.

The Court in Central Machinery rejected the contention

that Warren Trading Post could be distinguished on the

ground that the non-Indian corporation that sold the farm

21

equipment did not reside on the reservation and had not been

issued a license to trade with Indians. The Court held that

“(t]he Indian trader statutes and their implementing regula-

tions apply no less to a nonresident person who sells goods to

Indians on a reservation than they do to a resident trader.”

448 U.S. at 165. The Court found it “irrelevant that [the

seller] is not a licensed Indian trader,” noting that the sale of

farm equipment at issue in that case “falls squarely within the

language of 25 U.S.C. 264, which makes it a criminal offense

for ‘[aJny person to introduce goods, or to trade’ without a

license ‘in the Indian country or on any Indian reservation.’”

448 U.S. at 164-165. It is the existence of the Indian trader

statutes, then, and not their administration,” the Court ex-

plained, “that preempts the field of transactions with Indians

occurring on reservations.” Jd. at 160 (footnote omitted).

Under the rule set out in Central Machinery, the state tax

here is similarly preempted insofar as it is imposed on the

delivery and sale of motor fuel to the Tribe on its Reservation,

even though (as we have been informed by the Department of

the Interior) the non-Indian distributor in this case does not

have a license to trade with the Tribe.’

The sale in this case would presumably be governed by the Uniform

Commercial Code, either as a matter of state law or tribal law. The Kansas

Uniform Commercial Code defines a “sale” as “the passing of title from the

seller to the buyer for a price” and provides that “(u)nless otherwise explicitly

agreed title passes to the buyer at the time and place at which the seller

completes his performance with reference to the physical delivery of the

goods.” Kan. Stat. Ann. §§ 84-2-106(1), 84-2-401(2) (1996). It appears in this

case that the sale of motor fuel by the distributor to respondent Tribe occurs

upon completion of the distributor’s obligation to tender delivery at the Tribe’s

service station on the Reservation. Under such an arrangement, the sale takes

place on the Reservation for purposes of the application of the Indian Trader

Statutes.

22

2. The Tenth Circuit, in its prior decision in Sac and Fox

Nation, appeared to recognize that application of the Kansas

motor fuel tax to sales to Indian Tribes on their reservations

was problematic under Warren Trading Post and Central

Machinery. See 213 F.3d at 581. The Tenth Circuit incor-

rectly concluded, however, that Central Machinery had been

undermined by this Court’s decision in Department of Taxa-

tion and Finance v. Milhelm Attea & Bros., 512 U.S. 61

(1994), which, the Tenth Circuit said, had “narrowed” the

interpretation of the Indian Trader Statutes. 213 F.3d at 582-

583.

In Milhelm Attea, the State of New York imposed what

the Court accepted as a valid tax on non-Indian consumers

who purchased cigarettes at tribally operated stores on In-

dian reservations in that State. The question was not the

validity of the tax vel non, but whether the Indian Trader

Statutes barred New York from imposing certain record-

keeping and other requirements on non-Indian wholesalers,

who were licensed Indian traders and who sold cigarettes to

the on-reservation tribal retailers, in order to prevent circum-

vention of the “concededly lawful” tax imposed on the ulti-

mate consumer. 512 U.S. at 75 (quoting Moe v. Confederated

Salish and Kootenai Tribes, 425 U.S. 61, 482-483 (1976)). The

Court held that the Indian Trader Statutes did not require

the facial invalidation of the state statutory provisions that

imposed those regulatory burdens on the non-Indian traders.

See 512 U.S. at 73-78. In the course of its analysis, the Court

recited the holdings in Warren Trading Post and Central

Machinery, without suggesting that either decision had lost

its precedential force. See id. at 70-71, 74-75.

This case, in contrast to Milkelm Attea, involves the ante-

cedent question whether the state tax, if imposed on the dis-

23

tributor with respect to its on-reservation sales to an Indian

Tribe, is lawful, or is instead preempted by the Indian Trader

Statutes. That question is analytically distinct from the ques-

tion whether the Indian Trader Statutes bar the imposition of

certain ancillary regulatory burdens on an Indian trader in

connection with the collection of a concededly lawful tax im-

posed on non-Indian customers of an Indian trader.

Indeed, the Court itself drew that very distinction in

Milhelm Attea. The Court explained that “[t)}he specific kind

of state tax obligation that New York’s regulations are de-

signed to enforce—which falls on non-Indian purchasers of

goods that are merely retailed on a reservati‘ .—stands on a

markedly different footing from a tax imposed directly on

Indian traders, on enrolled tribal members or tribal organiza-

tions, or on ‘value generated on the reservation by activities

involving the Tribes.’” 512 U.S. at 73 (quoting Washington v.

Confederated Tribes of Colville Reservation, 447 U.S. 134,

156-157 (1980))(emphasis added). Elsewhere in its opinion,

the Court reiterated that “[t]he state law [it] found pre-empt-

ed in Warren Trading Post was a tax directly ‘imposed upon

Indian traders for trading with Indians.’” 512 U.S. at 74

(quoting 380 U.S. at 691). It cited Central Machinery for the

same proposition. 512 U.S. at 74 (citing 448 U.S. at 164).

“That characterization,” the Court continued, “does not apply

to regulations designed to prevent circumvention of ‘con-

cededly lawful’ taxes owed by non-Indians.” /d. at 74-75.

If the Court concludes that the legal incidence of the Kan-

sas motor fuel tax is on the distributor, then this case, like

Warren Trading Post and Central Machinery, involves “a tax

directly imposed upon Indian traders for trading with Indi-

ans.” Milhelm Attea, 512 U.S. at 74 (internal quotation marks

omitted). To be sure, in this case, unlike Warren Trading

24

Post and Central Machinery, the sales are made to the Tribe

for subsequent sale of the gasoline at retail to customers who

include a significant percentage of non-Indians at the Tribe’s

service station. But the Court in Milhelm Attea did not ques-

tion the proposition that the Indian Trader Statutes apply to

non-Indian wholesalers who trade with Indians or Indian

Tribes."

This case would stand on a different footing if the Indian

retailer—whether a Tribe or a tribal member—that pur-

chased motor fuel from a non-Indian distributor merely

sought to take advantage of an immunity from state taxation

by selling the gasoline at retail at a greatly reduced price that

effectively marketed that immunity. In that situation, the

retailer, even if the Tribe itself, would not be advancing any

sovereign interest of the Tribe, but would merely be enabling

its customers to avoid the payment of the taxes of another

sovereign. There is no reason to extend the preemptive effect

of the Indian Trader Statutes to that situation, where the

Tribe or tribal member is merely “market({ing] an exemption

from state taxation.” Confederated Tribes of Colville Reser-

vation, 447 U.S. at 155; see id. at 155-157.

In this case, however, the Tribe, in its sovereign capacity,

imposes its own motor fuel tax on sales at the service station.

' Indeed, the Court specifically pointed out that the Interior Department

had issued Indian trader licenses to 64 wholesalers in the State of New York.

See 512 U.S. at 74.10. The Indian Trader Statutes are designed to protect the

Indians and Indian Tribes, and Warren Trading Post and Central Machinery

make clear that state taxes imposed on non- Indians for their trade with Indians

are preempted by those Statutes where they would unduly interfere with

distinct and substantial interests of the Indians. As explained in the text,

imp. sition of the state taxes at issue here have that effect and therefore are

preempted.

25

The fuel is sold at fair market price, the rate of the Tribe’s tax

is roughly comparable to the tax imposed by the State, and

the proceeds of the tax are dedicated to the building and

maintenance of roads on the Reservation in the same manner

as Kansas and other States, as well as the federal govern-

ment, collect and spend fuel taxes for such purposes. See J.A.

133-134, 141-143. If the State were permitted to impose its

motor fuel tax on sales to the Tribe, the Tribe would be effec-

tively deprived of the tax base that other sovereigns use to

fund important government activities. See J.A. 142. In these

circumstances, where the Tribe is not merely marketing an

exemption from state taxation, but has asserted a distinct and

substantial sovereign interest in the matter, the Indian

Trader Statutes, as construed in Warren Trading Post and

Central Machinery, preempt the state tax. Cf. Cotton Petro-

leum Corp. v. New Mexico, 490 U.S. 163, 186 (1989) (noting

that the state severance tax in that case did not “impose a

substantial burden on the Tribe”).

This Court held in Colville that “[t]he power to tax trans-

actions occurring on trust lands and significantly involving a

tribe or its members is a fundamental attribute of sovereignty

which the tribes retain unless divested of it by federal law or

necessary implication of their dependent status.” 447 U.S. at

152. The Court reiterated that holding in Merrion v. Jicarilla

Apache Tribe, 455 U.S. 130, 137 (1982), explaining that “[tJhe

power to tax is an essential attribute of Indian sovereignty

because it is a necessary instrument of self-government and

territorial management,” and “enables a tribal government to

raise money for essential services.” The essential services

here concern the building and maintenance of roads, which

are open to Indians and non-Indians alike.

26

Recent federal reports convincingly demonstrate the im-

portance of the tribal interest at stake. Indian reservation

roads are in very poor condition, which affects not only driv-

ing safety, but also the ability to furnish emergency medical,

fire, and police services on an expedited basis, transportation

to schools and jobs, and the advancement of economic activity

that is critical to tribal self-sufficiency.'’ To address those

problems, the Department of the Interior recently promul-

gated extensive regulations to implement the Indian Reserva-

tion Roads Program. See 69 Fed. Reg. 43,090 (2004); 25

C.F.R. Pt. 170. Those regulations are devoted to enhancing

the ability of tribal governments to address the condition of

roads on their reservations, the expenditure of federal funds

dedicated to that purpose, and the ability of Tribes to assume

responsibility for the expenditure of those funds under self-

determination contracts. The regulations also contemplate

that Tribes may supplement funds received from the federal

government with their own revenues, specifically including a

“tribal fuel tax.” 25 C.F.R. 170.932(d). The federal govern-

ment and the Tribe share an important and convincingly artic-

ulated interest in raising revenues to support reservation

roads. Indeed, the State of Kansas is a beneficiary of that

interest because the roads that the Tribe builds and maintains

through the use of its tax revenues are within the State as

'l The number of fatal motor vehicle crashes on Indian reservations has

increased 52.5% (one third involving non- Indians) during a period in which the

nationwide number has decreased 2.2%. See U.S. Dep't of Transp., Fatal

Motor Vehicle Crashes on Indian Reservations 1975-2002, Rep. No. DOT HS

809-727, at 3, 21 (April 2004). See generally Bureau of Indian Affairs,

Transportation Serving Native American Lands (May 2003); see also S. Rep.

No. 406, 106th Cong., 2d Sess. 1-6, 9, 11 (2000).

27

well as the Reservation, and they are open to the non-Indian

as well as the Indian citizens of the State.

C. The Court Should Continue To Employ The Balancing

Of Interests Test In Evaluating State Taxes That Bur-

den Indian Tribes But Whose Legal Incidence Does Not

Rest On The Tribes

This Court reaffirmed in Chickasaw Nation that, if the

legal incidence of a tax implicating Indian interests rests on

a non-Indian, then a court must weigh the respective federal,

state, and tribal interests to determine whether the State may

impose the levy. See 516 U.S. at 459. For the reasons already

explained, there is no need to apply that test in this case. If

the Court did undertake a balancing test, all the foregoing

considerations would weigh in the Tribe’s favor. But more

fundamentally, this Court certainly should not embrace peti-

tioner’s suggestion (Br. 21-33) that the Court jettison the

balancing-of-interests test, which provides a sensible and

settled approach to determining Indian tax immunity. See

White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 142-

145 (1980); Colville, 447 U.S. at 154-157.

Petitioner makes much of the notion that its proposed

bright-line rule—which would categorically allow any ostensi-

ble “off-reservation” tax on non-Indians regardless of its im-

pact on Indian Tribes so long as Congress has not expressly

preempted it—has the virtue of simplicity. But the Court

considered and rejected that approach in developing the

balancing-of-interests test. See Colville, 447 U.S. at 176-186

(Rehnquist, J., concurring and dissenting). And since that

time, the Court has decidedly found undesirable similar

bright-line rules in cases in which state taxes may potentially

impinge on tribal interests. See, e.g., Cotton Petroleum Corp.,

28

490 U.S. at 176 (Instead of a “mechanical or absolute test,”

the Court has “applied a flexible pre-emption analysis sensi-

tive to the particular facts and legislation involved. Each case

‘requires a particularized examination of the relevant state,

federal, and tribal interests.’”) (quoting Ramah Navajo

School Bd., Inc. v. Bureau of Revenue of New Mexico, 458

U.S. 832, 838 (1982)). This Court’s balancing-of-interests test

rightly recognizes that it is essential to consider, even when

the legal incidence of a state tax rests on non-Indians,

whether the tax nevertheless places an undue burden on the

Tribe.

Petitioner’s rule would also broadly disrupt, at a practical

level, the complex relationships that have developed between

the federal government, the States, and the Indian Tribes on

a wide variety of issues. Following this Court’s advice, States

and Indian Tribes have entered into intergovernmental tax

agreements addressing areas of mutual concern. See

Oklahoma Tax Comm’n v. Citizen Band Potawatomi Indian

Tribe of Oklahoma, 498 U.S. 505, 514 (1991)(“States may also

enter into agreements with the tribes to adopt a mutually

satisfactory regime for the collection of this sort of tax. See

48 Stat. 987, as amended, 25 U.S.C. § 476.”); see also Richard

J. Ansson, Jr., State Taxation of Non-Indians Whom Do

Business With Indian Tribes, 78 Or. L. Rev. 501, 546 (1999)

(noting that “[mJore than 200 Tribes in eighteen states have

resolved their taxation disputes by entering into intergovern-

mental agreements”). Many of those recent, post-Chickasaw

Nation agreements specifically address the issue of fuel taxes

and provide for an equitable allocation of reservation-gener-

ated revenues.”

- See ¢.g., Fort Peck - Montana Gasoline Tax Agreement (Mar. 24, 1992);

Tax Agreement Between the Little Traverse Bay Bands of Odawa Indians and

29

If the Court were to discard what it recently described as

“settled law,” Chickasaw Nation, 515 U.S. at 453, the founda-

tion for those constructive intergovernmental agreements

would be undermined. State and tribal governments have

undertaken serious cooperative efforts to address a matter of

vital interest to the federal, state and Indian governments

—the generation of revenue, through the traditional method

of motor fuel taxes, for construction and maintenance of In-

dian reservation roads. See J.A. 141-142; see note 12, supra.

If the Court were to jettison its established methodology for

evaluating the propriety of state taxes, the consequences for

intergovernmental cooperation in the case of fuel taxes—as

well as many other areas—could be far-reaching.

Ultimately, there is neither need nor warrant for the

Court to disrupt those cooperative efforts. The state tax at

issue here cannot be imposed on the Tribe for the same rea-

son that the state tax in Chickasaw Nation was impermissi-

ble—the State has improperly placed the legal incidence of

the motor fuel tax on the Tribe. In any event, the state tax at

issue here would be preempted by the Indian Trader Statutes.

The Court should affirm the court of appeals’ judgment on

that basis and leave it to the State to properly alter the legal

incidence of its tax, if it so desires, in accordance with this

the State of Michigan (Dec. 20, 2002); Motor Fuels Contract Between the State

of Oklahoma and the Seneca-Cayuga Tribe of Oklahoma (Feb. 10, 2004);

Agreement Concerning Taxation of Motor Vehicle Fuel and Special Fuel

Between the Nisqually Indian Tribe and the State of Washington (Sept. 18,

2001); Amended Agreement on Exchange of Tax Information Between the

Office of the Navajo Tax Commission and the New Mexico Taxation and

Revenue Department (Mar. 9, 2004); Agreement for the Collection and Dis-

semination of Motor Fuels Taxes Between the State of Nebraska and the

Winnebago Tribe of Nebraska ( Jan. 24, 2002).

30

Court’s decisions. Alternatively, of course, the State and the

Tribe remain free to resolve this and other tax issues by mu-

tual agreement, as they did in a formal agreement that was in

effect between 1992 and 1997.

CONCLUSION

The judgment of the court of appeals should be affirmed.

Respectfully submitted.

PAUL D. CLEMENT

Solicitor General

KELLY A. JOHNSON

Acting Assistant Attorney

General

EDWIN S. KNEEDLER

Deputy Solicitor General

JEFFREY P. MINEAR

Assistant to the Solicitor

General

M. ALICE THURSTON

DAVID C. SHILTON

Attorneys

JULY 2005