# Amicus Curiae Brief — Wagnon v. Prairie Band Potawatomi Nation

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0052%3A17

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2005
- **Citation:** 546 U.S. 95

## Text

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0052%3A17. Public record. Not legal advice.