United States Court of Appeals
For the Eighth Circuit
___________________________
No. 18-1271
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Flandreau Santee Sioux Tribe, a federally-recognized Indian Tribe
lllllllllllllllllllllPlaintiff - Appellee
v.
Kristi Noem, Governor of the State of South Dakota, et al.*
lllllllllllllllllllllDefendants - Appellants
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Appeal from United States District Court
for the District of South Dakota - Sioux Falls
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Submitted: February 13, 2019
Filed: September 6, 2019
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Before LOKEN, COLLOTON, and KELLY, Circuit Judges.
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LOKEN, Circuit Judge.
The Flandreau Santee Sioux Tribe is a federally recognized tribe that owns and
operates the Royal River Casino & Hotel (the “Casino”) and the First American Mart
(the “Store”) on the Flandreau Indian Reservation in Moody County, South Dakota.
*
We grant the State’s motion to substitute Governor Kristi Noem and Secretary
of Revenue James Terwilliger, in their official capacities, in place of former Governor
Dennis Daugaard and former Secretary of Revenue Andy Gerlach.
The majority of patrons at the Casino and the Store are not members of the Tribe. The
State of South Dakota (the “State”) imposes a use tax on goods and services purchased
within the State. See S.D.C.L. 10-46-2. When the Tribe failed to remit the use tax on
goods and services sold to nonmembers at the Casino and at the Store, the State’s
Department of Revenue denied the Tribe renewals of alcoholic beverage licenses
issued to the Casino and the Store.1 The South Dakota Office of Hearing Examiners
upheld the Department’s decision.
The Tribe filed this action in the district court in November 2014, alleging, inter
alia, (i) that imposing the use tax on purchases by nonmembers on reservation land
is preempted by the Indian Gaming Regulatory Act (“IGRA”) because all activity
under the Royal River Casino name is “gaming activity”; (ii) that the use tax
remittance requirement infringes inherent tribal sovereignty and violates federal
common law; and (iii) that conditioning renewal of the Tribe’s alcohol licenses on use
tax remittance violates 18 U.S.C. § 1161. The parties stipulated that the State would
treat the alcohol licenses as valid pending a decision on the merits.
Ruling on cross-motions for summary judgment, the district court held that
IGRA expressly preempts imposing the use tax on nonmember purchases throughout
the Casino, but does not preempt imposing the tax on nonmember purchases of goods
and services at the Store. However, the court concluded, the State may not condition
renewal of alcohol beverage licenses on the Tribe’s remittance of use taxes imposed
on nonmember purchases at the Store. The State appeals, arguing (i) federal law does
not preempt imposition of its use tax on nonmember purchases at the Casino of goods
1
See S.D.C.L. 35-2-24 (“No license under this title may be reissued to an Indian
tribe operating in Indian country . . . until the Indian tribe or enrolled tribal member
remits to the Department of Revenue all use tax incurred by nonmembers as a result
of the operation of the licensed premises.”).
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and services the parties rather vaguely define as non-gaming “amenities,”2 and (ii) the
State may condition renewal of alcoholic beverage licenses on the Tribe’s failure to
remit validly imposed use taxes. Reviewing the grant of summary judgment de novo,
and the facts in the light most favorable to the State, we disagree with the first
contention but agree with the second. Accordingly, we affirm in part, reverse in part,
and remand for determination of the appropriate remedy. See Casino Res. Corp. v.
Harrah’s Entm’t, Inc., 243 F.3d 435, 437 (8th Cir. 2001) (standard of review).
I. The State Tax Preemption Issue.
A. Absent a federal statute permitting it, “a State is without power to tax
reservation lands and reservation Indians.” Okla. Tax Comm’n v. Chickasaw Nation,
515 U.S. 450, 458 (1995) (quotation omitted). If the legal incidence of a state tax falls
on a Tribe or its members for sales made within Indian country, like the state motor
fuels excise tax at issue in Chickasaw Nation, the tax is categorically unenforceable,
without regard to its “economic realities.” Id. at 458-60. In this case, however, it is
undisputed that the legal incidence of South Dakota’s use tax falls on nonmember
purchasers of goods and services at the Casino and at the Store.3 Thus, the per se rule
against state taxation of reservation Indians does not apply.
When a State seeks to impose a nondiscriminatory tax on the actions of
nonmembers on tribal land, its authority is not categorically limited. Instead, the
Supreme Court applies a flexible analysis to determine whether state taxation of
nonmembers on Indian land is proper, often called the “Bracker balancing test,” a
2
The parties define Casino amenities as including food and beverage services,
the Casino’s hotel and RV park, live entertainment events, and a gift shop.
3
The complementary use tax applies only to transactions not subjected to the
State’s sales tax, the incidence of which falls on the seller. See Black Hills Truck and
Trailer, Inc. v. S.D. Dep’t of Revenue, 881 N.W.2d 669, 674 (S.D. 2016).
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reference to the Court’s decision in White Mountain Apache Tribe v. Bracker, 448
U.S. 136 (1980). Each case “requires a particularized examination of the relevant
state, federal, and tribal interests.” Ramah Navajo School Bd., Inc. v. Bureau of
Revenue of N.M., 458 U.S. 832, 838 (1982). In most cases, because Indian tribes are
dependent sovereigns, the issue turns on whether federal legislation has preempted
state taxation of nonmember activity on Indian land, which is “primarily an exercise
in examining congressional intent.” Cotton Petroleum Corp. v. New Mexico, 490
U.S. 163, 176 (1989). However, because of the long-recognized importance of tribal
sovereignty, “questions of pre-emption in this area are not resolved by reference to
standards of pre-emption that have developed in other areas of the law, and are not
controlled by ‘mechanical or absolute conceptions of state or tribal sovereignty.’”
Cotton, 490 U.S. at 176, quoting Bracker, 448 U.S. at 145. Instead, Indian tax
immunity jurisprudence relies heavily on the “significant geographical component of
tribal sovereignty,” which “provides a backdrop against which the applicable treaties
and federal statutes must be read.” Wagnon v. Prairie Band Potawatomi Nation, 546
U.S. 95, 112 (2005) (cleaned up). Federal preemption is not limited to cases in which
Congress has expressly preempted the state tax. Cotton, 490 U.S. at 176-77.
Generally, “a State seeking to impose a tax on a transaction between a tribe and
nonmembers must point to more than its general interest in raising revenues.” New
Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 336 (1983).
Applying these principles, the Supreme Court has upheld some state taxes on
nonmembers engaging in commercial activities on Indian lands, and held that other
taxes were preempted. In Bracker, for example, the Court held that a State’s use fuel
tax on a nonmember’s logging activity on tribal land was preempted by federal
statutes and programs comprehensively encouraging and regulating logging on federal
lands held in trust for Indians. In Ramah, the Court held that a State’s gross receipts
tax on a nonmember’s activity in building a reservation school was preempted by the
comprehensive federal regulation and financing of Indian education -- the tax was
based on a general desire to increase state revenues and provided no specific offsetting
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benefit to Indian education. By contrast, in Cotton, the Court upheld a State’s
severance tax on oil and gas produced by nonmember lessees from wells on
reservation land because state regulation provided substantial services to the tribe and
the lessees, no economic burden fell on the tribe, federal regulation was extensive but
not exclusive, and there was no evidence the tax affected the tribe’s ability to attract
lessees. And in Washington v. Confederated Tribes of Colville Indian Reservation,
447 U.S. 134 (1980), the Court upheld both the tribe’s sovereign power to tax
cigarette sales to nonmembers on the reservation, and a state excise tax on vendors
who provided cigarettes for on-reservation sales to nonmembers. The value of Indian
sales to nonmembers was not generated by tribal activities, the Court explained, only
by the exemption of such sales from state tax; neither principles of federal Indian law
nor any federal statute preempted the State from taxing this “artificial competitive
advantage over all other businesses in a State.” Id. at 155.
B. In this case, the federal legislation most relevant to the use tax at issue is the
Indian Gaming Regulatory Act, 25 U.S.C. §§ 2701 et seq. In California v. Cabazon
Band of Mission Indians, 480 U.S. 202 (1987), the Supreme Court held that a
California law limiting bingo could not be applied to high stakes tribal bingo and card
games played predominantly by nonmembers at reservation facilities.4 The facilities
were financed and the gaming approved by the Secretary of the Interior to promote
tribal economic development. The Court concluded that the federal and tribal interests
in promoting Indian gaming outweighed the State’s interest in preventing organized
crime. 480 U.S. at 207-22. In response, States sought federal legislation permitting
state regulation of tribal gaming. Congress passed IGRA the next year “to provide a
statutory basis for the operation of gaming by Indian tribes as a means of promoting
tribal economic development, self-sufficiency, and strong tribal governments,” and
to establish an “independent Federal regulatory authority for gaming on Indian lands,
4
The state laws at issue in Cabazon were regulatory, rather than state taxes
imposed on nonmember commercial activities on a reservation.
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[and] Federal standards for gaming on Indian lands.” 25 U.S.C. § 2702(1), (3). IGRA
sought to balance the competing federal, state, and tribal interests by giving each
sovereign a role in the regulatory regime.
IGRA divides gaming into three classes of increasing regulatory significance.
Class I games -- social games and traditional forms of Indian gaming -- are left to the
exclusive jurisdiction of the Indian tribes. See 25 U.S.C. §§ 2703(6), 2710 (a)(1).
Tribes may engage in Class II games -- most forms of bingo and card games -- if they
are authorized by and played in conformity with state law, subject to federal licensing
and extensive regulation by the National Indian Gaming Commission. See 25 U.S.C.
§§ 2703(7), 2710 (b)-(c). All other forms of gaming are Class III games, which
include casino table games and slot machines, the forms primarily involved in this
case. See § 2703(8). A tribe may conduct Class III gaming on Indian lands only
pursuant to, and in compliance with, a federally approved compact that the tribe has
negotiated with the surrounding State. See § 2710(d)(1)(C); Michigan v. Bay Mills
Indian Cmty., 572 U.S. 782, 785 (2014).
A State receiving a request to negotiate a tribal-state compact governing Class
III gaming activity “shall negotiate with the Indian tribe in good faith to enter into
such a compact.” 25 U.S.C. § 2710(d)(3)(A). A tribal-state compact negotiated under
subparagraph (A) “may include” provisions relating to six specific subjects, including
two relating to State and tribal fees and taxation:
(iii) the assessment by the State of such [gaming] activities in
such amounts as are necessary to defray the costs of regulating
such activity;
(iv) taxation by the Indian tribe of such activity in amounts
comparable to amounts assessed by the State for comparable
activities.
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25 U.S.C. § 2710(d)(3)(C). IGRA contains no provision authorizing State taxation
of Class III gaming. Thus, it provides no legislative exception to the per se rule
against state taxation of tribes and their members. Subsection (d)(4) made clear that
no such exception was intended:
(4) Except for any assessments that may be agreed to under
paragraph (3)(C)(iii) of this subsection, nothing in this section shall be
interpreted as conferring upon a State or any of its political subdivisions
authority to impose any tax, fee, charge, or other assessment upon an
Indian tribe or upon any other person or entity authorized by an Indian
tribe to engage in a class III activity.
Here, the Tribe and the State entered into and maintain a gaming compact
governed by IGRA, which provides the terms under which the Tribe is authorized to
conduct gaming activities on the Reservation. The compact allows for the operation
of Class III gaming activity at the Casino and provides guidance for various facets of
the Tribe’s gaming operations. It does not address whether the State may impose its
use tax on nonmember purchases of goods and services at the Casino and the Store.
In concluding that IGRA expressly preempts the use tax, the district court
reasoned that the prohibition on state taxation in 25 U.S.C. § 2710(d)(4) “applies to
nonmembers on the Casino floor authorized to gamble, which includes the costs of
associated activities, i.e., gamblers and what they spend on gambling, alcohol, food,
rooms, and other merchandise from the Casino” (the amenities). But subsection (d)(4)
is a lack of authorization, not a prohibition. Here, the State seeks to exercise its
authority under prior Supreme Court cases to collect use taxes on nonmembers for
their purchases of amenities at the Casino, not for their Class III gaming activity that
is authorized by IGRA and by the federally approved compact, which is silent on the
subject of state taxation. In Bay Mills, the Supreme Court noted that “‘class III
gaming activity’” is “what goes on in a casino -- each roll of the dice and spin of the
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wheel.” 572 U.S. at 792. Thus, subsection (d)(4) does not preempt state taxation of
nonmember activity, other than “what goes on in a casino.”
The Tribe further argued, and the district court agreed, that the State’s
imposition of its use tax on nonmember purchasers of amenities at the Casino is a
subject that may be included in a tribal state compact because it falls within subsection
(d)(3)(C)’s “catchall” provision, “any other subjects that are directly related to the
operation of gaming activities.” 25 U.S.C. § 2710(d)(3)(C)(vii). The Tribe argues
that the Casino’s gift shop, hotel, RV park, food and beverage services, and live
entertainment events would not exist but for the Casino, nor could the Casino operate
without the existence of these amenities. Therefore, the amenities “are directly related
to the operation of gaming activities,” and the use tax at issue is expressly preempted
by IGRA because it was not authorized by the Tribe’s compact with South Dakota.
We reject this interpretation of the statute for related textual reasons. First, and
most obviously, amenities such as a gift shop, hotel, and RV park are not directly
related to Class III gaming activity as defined by the Supreme Court in Bay Mills --
“what goes on in a casino -- each roll of the dice and spin of the wheel.” “Directly
related to the operation of gaming activity” is narrower than “directly related to the
operation of the Casino.” We agree with the Tenth Circuit’s interpretation of Bay
Mills: “Class III gaming activity relates only to activities actually involved in the
playing of the game, and not activities occurring in proximity to, but not inextricably
intertwined with, the betting of chips, the folding of a hand, or suchlike.” Navajo
Nation v. Dalley, 896 F.3d 1196, 1207 (10th Cir. 2018).
Second, § 2710(d)(3)(C) lists subjects that a tribal-state compact authorizing
Class III gaming may include. But it does not address the legal effect of non-
inclusion. It is not surprising that the Tribe and South Dakota did not address in their
gaming compact whether the State may impose its use tax on nonmembers for non-
gaming activities at the Casino and the Store. That issue was not relevant to
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regulating the Casino’s Class III gaming. And even if the Tribe agreed, a provision
that the Tribe would collect and remit a non-gaming state tax on nonmembers would
risk disapproval of the compact by the Secretary of the Interior based on “[t]he very
real concern . . . that a state may use its leverage over Class III gaming to exact a
favorable resolution of issues unrelated to Class III gaming.” Kevin Washburn,
Recurring Issues in Indian Gaming Compact Approval, 20 Gaming L. Rev. & Econ.
388, 392 (2016). Both parties could sensibly conclude that state taxation of
nonmembers should be left to existing federal law governing this issue, as it may be
impacted by IGRA. Thus, the absence of a compact provision addressing the State’s
non-gaming use tax does not, standing alone, reflect that IGRA has expressly
preempted the tax.
C. For these reasons, we conclude that the question of federal preemption in
this case must be determined by conducting the analysis mandated by Bracker to
determine whether the State’s interests in imposing the tax outweigh the relevant
federal and Tribal interests. Accord Mashantucket Pequot Tribe v. Town of Ledyard,
722 F.3d 457, 469-71 (2d Cir. 2013); Barona Band of Mission Indians v. Yee, 528
F.3d 1184, 1193 (9th Cir. 2008). “Salient factors include the extent of federal
regulation and control, the regulatory and revenue-raising interests of states and tribes,
and the provision of state or tribal services.” Felix S. Cohen, Handbook of Federal
Indian Law 707 (2012), citing Cotton, 490 U.S. at 176-77, 186-90; Cent. Mach. Co.
v. Ariz. State Tax Comm’n, 448 U.S. 160, 161-63 (1980); and Bracker, 448 U.S. at
150-51. Of great relevance are the broad policies that underlie IGRA and the history
of tribal independence in the operation of gaming and gaming facilities. See Cotton,
490 U.S. at 176. “State jurisdiction is preempted by the operation of federal law if it
interferes or is incompatible with federal and tribal interests reflected in federal law,
unless the state interests at stake are sufficient to justify the assertion of state
authority.” Mescalero Apache Tribe, 462 U.S. at 334; see Harrah’s Entm’t, 243 F.3d
at 437.
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The history of tribal sovereignty over a subject “serves as a necessary
backdrop” to the preemption question. Cotton, 490 U.S. at 176. As the Supreme
Court explained in Cabazon, there is a long history of tribal resistance to state
regulation of their independent operation of gaming activities. Before Congress
enacted IGRA in 1988, Cabazon confirmed that tribes were free from non-criminal
state regulation of tribal gaming on reservations. IGRA endorsed substantial tribal
independence and protected tribes from state interference in the operation of gaming
activity, except for limited state regulation through Class III gaming compacts. The
stated purposes of IGRA include “promoting tribal economic development, self-
sufficiency, and strong tribal governments . . . ensur[ing] that the Indian tribe is the
primary beneficiary of the gaming operation [and] protect[ing] such gaming as a
means of generating tribal revenue.” 25 U.S.C. § 2702.
Even if the amenities at issue are not “directly related to the operation of
gaming activities” within the meaning of § 2710(d)(3)(C)(vii), the summary judgment
record established that the amenities contribute significantly to the economic success
of the Tribe’s Class III gaming at the Casino. The Tribe submitted evidence that over
90% of its sales tax revenues are generated by the 6% sales tax on transactions at the
Casino and the Store. Casino departments offering the amenities operate at a loss,
suggesting that goods and services are sold below cost to attract patrons and
encourage gaming. The Tribe provided evidence that increases in patronage at one
amenity is directly tied to increases in gaming activity itself. The Tribe also submitted
evidence of the Casino’s significance in promoting tribal economic development and
self-sufficiency. Of the net revenues generated from the Casino and the Store, 40%
is distributed by individual per capita payments; 35% of the remainder goes toward
Tribal economic development, 15% toward Tribal government operations, 5% into a
minors trust fund, 4% into a community assistance fund, and 1% into a local
government revenue sharing fund.
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The State’s taxation of the Casino amenities would raise their cost to
nonmember patrons or reduce tribal revenues from these sales. Even if gaming was
not thereby reduced, the impact would be contrary to IGRA’s broad policies of
increasing tribal revenues through gaming and ensuring that tribes are the primary
beneficiary of their gaming operations to promote economic development, self-
sufficiency, and strong tribal governments. The State argues that any negative impact
on the Tribe’s finances is insufficient to preempt the tax, citing Cotton and Colville.
We disagree.
In Cotton, the trial court found that the State regulated aspects of the on-
reservation oil and gas development at issue and provided substantial services to the
tribe and its lessee, and that “no economic burden falls on the tribe by virtue of the
state taxes.” 490 U.S. at 185-87 (cleaned up). The Court concluded that this indirect
impairment of the federal policy favoring on-reservation oil and gas production “is
simply too indirect and too insubstantial to support [the] claim of pre-emption.” Id.
at 187. Similarly, in Colville, no federally regulated tribal activity was involved, and
the only benefit provided nonmembers by the tribe was a state tax exemption for their
on-reservation cigarettes purchases. 447 U.S. at 154-59. Here, nonmembers benefit
from the Casino’s federally regulated gaming activities operated by the Tribe, and
from amenities provided by tribal facilities such as the hotel, RV park, and gift shop.
We conclude the Tribe’s on-reservation Class III gaming activity is analogous
to the nonmember logging activity on tribal land at issue in Bracker, and to the
nonmember activity in building a reservation school at issue in Ramah. In both cases,
the Court held that state taxes whose economic burden fell on the tribes were
preempted by federal statutes and programs comprehensively encouraging and
regulating the nonmember activities, where the States did not have a “specific,
legitimate regulatory interest” in the activity taxed, Ramah, 458 U.S. at 843, only a
“generalized interest in raising revenue” that is insufficient to permit “intrusion into
the federal regulatory scheme,” Bracker, 448 U.S. at 150. The State’s interest in
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raising revenues to provide government services throughout South Dakota does not
outweigh the federal and tribal interests in Class III gaming reflected in IGRA and the
history of tribal independence in gaming recognized in Cabazon. As in Bracker, “this
is not a case in which the State seeks to assess taxes in return for governmental
functions it performs for those on whom the taxes fall.” 448 U.S. at 150.
Accordingly, we affirm the district court’s conclusion that imposition of the South
Dakota use tax on nonmember purchases of amenities at the Casino is preempted by
federal law.
II. The Conditional Liquor Licensing Issue.
The district court held that the South Dakota use tax may be imposed on
nonmember purchases at the Store, and that the State “can require the Tribe to collect
and remit such tax.” See Okla. Tax Comm’n v. Potawatomi Indian Tribe, 498 U.S.
505, 513 (1991) (“the doctrine of tribal sovereign immunity does not prevent a State
from requiring Indian retailers doing business on tribal reservations to collect a state-
imposed . . . tax on their sales to nonmembers”), citing Moe v. Confederated Salish
and Kootenai Tribes, 425 U.S. 463 (1976), and Colville, 447 U.S. at 134. The Tribe
did not appeal those rulings.
When the Tribe failed to remit the use tax on goods and services sold to
nonmembers, the State denied the Tribe renewals of alcoholic beverage licenses issued
to the Casino and the Store because the use tax was not paid. See S.D.C.L § 35-2-24.
This issue is not moot as to use taxes validly imposed on nonmember purchases at the
Store. The district court held that the “imposition of a condition that the tribe remit
all outstanding taxes on the renewal of an alcohol license” was not “reasonably
necessary” to the assessment or collection of lawful state taxes. The court’s Amended
Judgment precluded the State from enforcing § 35-2-24 for the collection and
remittance of a use tax on nonmember consumer purchases. The State appeals that
ruling.
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“Congress has divested the Indians of any inherent power to regulate” the use
and distribution of alcoholic beverages in Indian country. Rice v. Rehner, 463 U.S.
713, 724 (1983). In enacting 18 U.S.C. § 1161, “Congress contemplated that its
absolute but not exclusive power to regulate Indian liquor transactions would be
delegated to the tribes themselves, and to the States.” Id. at 728. Accordingly, the
Court held in Rehner that a State may require a federally licensed Indian trader
operating a general store on a reservation to obtain a state license to sell liquor for off-
premises consumption. The State argues that conditioning liquor license renewals is
well within its traditional police power as extended to the regulation of on-reservation
liquor transactions by § 1161 and Rehner.
Like the district court, we conclude the issue is not that simple. Section 1161
provides the State with authority to regulate liquor on the reservation, just as the
district court concluded it has authority to tax nonmember purchases of goods and
services at the Store. But the question is whether the State’s remedy for the Tribe’s
failure to collect and remit valid use taxes -- non-renewal of its liquor licenses -- is
preempted by federal law. In resolving this issue, the Supreme Court applies the
Bracker balancing test. See Dep’t of Taxation & Fin. of N.Y. v. Milhelm Attea &
Bros., Inc., 512 U.S. 61, 73 (1994), citing Cotton, 490 U.S. at 176.
In Potawatomi, the Supreme Court held that tribal sovereignty barred Oklahoma
from suing the tribe to enforce its valid tax on reservation cigarette sales to
nonmembers, which would be “the most efficient remedy,” but tribal sovereignty
“does not excuse a tribe from all obligations to assist in the collection of validly
imposed state sales taxes.” 498 U.S. at 512, 514. The Court suggested five alternative
remedies: (1) imposing liability on individual agents of tribes for failing to collect the
taxes; (2) seizing untaxed goods in shipment to reservations; (3) collecting taxes from
wholesalers off reservations; (4) entering into collection agreements with tribes; and
(5) seeking congressional legislation. 498 U.S. at 514.
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In Colville, tribes challenged detailed recordkeeping requirements imposed by
the State to separate on-reservation cigarette sales to nonmembers, which were subject
to state excise tax, from nontaxable sales to tribal members; the Court held the
requirements “valid in toto” because “the Tribes have failed to demonstrate that the
State’s recordkeeping requirements for exempt sales are not reasonably necessary as
a means of preventing fraudulent transactions.” 447 U.S. at 160. In a subsequent
case, wholesalers federally licensed to sell cigarettes to reservation Indians facially
challenged New York’s “probable demand” mechanism imposing a quota on their tax-
exempt cigarette sales; the Court upheld the State restrictions on reservation retailers
as “reasonably necessary” to curb the illicit flow of tax-free cigarettes. Milhelm
Attea, 512 U.S. at 75-76. The Court has not applied its “reasonably necessary”
standard in other contexts.
Here, the district court concluded that the State’s licensing renewal condition
was not reasonably necessary because “conditioning an alcohol license on taxes
entirely unrelated to alcohol and its potential for substantial impact does not further
the State’s recognized interest” in § 1161 and in Rehner. But that is not the state
interest at issue. The alternatives the Court suggested in Potawatomi are alternative
remedies to “produce the [tax] revenues to which [the States] are entitled.” 498 U.S.
at 514. That the remedy may impose a burden that goes beyond collection of the tax
does not mean it is not reasonably necessary to the State’s interest in collecting the
tax. Rather, the issue to be addressed under Bracker balancing is whether the remedy
“will unduly interfere with Indian trading,” or, in this case, with the Tribe’s Class III
gaming activity. Milhelm Attea, 512 U.S. at 76. On its face, the State’s remedy
seems no more burdensome than some alternatives suggested in Potawatomi --
imposing liability on tribal agents who fail to collect the taxes and seizing untaxed
goods in shipment to the reservation. In either case, the tribal retailer is unable to
continue its reservation business until it complies with the valid obligation to collect
and remit State tax on nonmember purchases.
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In the district court and on appeal, the Tribe did not address this issue, arguing
only that SDCL § 35-2-24 “exceeds the authority delegated to the State [by 18 U.S.C.
§ 1161] because the tax remittance condition is not reasonably related to the State’s
interests in controlling the impacts of alcohol within its borders.” As that assertion,
even if true, does not address the “reasonably necessary” issue under Bracker, the
Tribe has failed to meet its burden to demonstrate that the State alcohol license
requirement is not reasonably necessary to further its interest in collecting valid state
taxes. Colville, 447 U.S. at 160. Accordingly, Paragraph 3 of the district court’s
Amended Judgment declaring that the State “cannot condition renewal of any
alcoholic beverage license issued to the Tribe on the collection and remittance of a use
tax on nonmember consumer purchases” is reversed.
III. Conclusion.
For the foregoing reasons, the Amended Judgment of the district court is
affirmed in part and reversed in part. The case is remanded for further proceedings
not inconsistent with this opinion.
COLLOTON, Circuit Judge, concurring in part and dissenting in part.
The Indian Gaming Regulatory Act does not expressly preempt South Dakota’s
use tax on purchases of non-gaming amenities at the Royal River Casino & Hotel by
those who are not members of the Flandreau Santee Sioux Tribe. On this much, I
agree with the court. The court proceeds, however, to affirm the district court’s
preemption ruling on an alternative ground—namely, that “the State’s interests in
imposing the tax” do not “outweigh the relevant federal and Tribal interests.” I
conclude that federal law does not preempt the South Dakota use tax on the purchase
of non-gaming amenities by nonmembers, so I would reverse the judgment.
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The Supreme Court last addressed the subject of state taxation of nonmembers
for activity on an Indian reservation thirty years ago. The Court explained that
“questions of pre-emption in this area are not resolved by reference to standards of
pre-emption that have developed in other areas of the law.” Cotton Petroleum Corp.
v. New Mexico, 490 U.S. 163, 176 (1989). What governs instead is “a flexible pre-
emption analysis sensitive to the particular facts and legislation involved.” Id.
The court here concludes that South Dakota’s use tax on nonmember purchases
of amenities is preempted because the case is analogous to White Mountain Apache
Tribe v. Bracker, 448 U.S. 136 (1980), and Ramah Navajo School Board, Inc. v.
Bureau of Revenue of New Mexico, 458 U.S. 832 (1982). Those decisions held that
particular state taxes on nonmember activities undertaken on tribal land were
preempted. The analogy to this case, however, is wanting.
Bracker involved a motor carrier license tax and use fuel tax that a State applied
to a non-Indian logging company that operated on an Indian reservation. The Tribe
had agreed to reimburse the company for any tax incurred as a result of its on-
reservation business activity, so it was “undisputed that the economic burden of the
asserted taxes [would] ultimately fall on the Tribe.” 448 U.S. at 151. The Supreme
Court held that the state taxes were preempted. The opinion cited a “pervasive” and
“comprehensive” federal regulatory scheme governing tribal timber that left “no room
for these taxes,” as well as a failure of the State to “identify any regulatory function
or service performed by the State that would justify the assessment of taxes.” Id. at
148-49.
Ramah concerned a state tax imposed on gross receipts that a non-Indian
construction company received from a tribal school board for the construction of a
school on the reservation. Under standard industry practice, the school board
reimbursed the construction company for all taxes due, so the ultimate burden of the
gross receipts tax fell on the tribal organization. 458 U.S. at 835, 844. The Supreme
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Court found the case indistinguishable from Bracker and declared the state tax
preempted. The Court cited a “detailed regulatory scheme governing the construction
of autonomous Indian educational facilities [that was] at least as comprehensive as”
the scheme governing timber in Bracker, id. at 841, and emphasized that the State did
“not seek to assess its tax in return for the governmental functions it provides to those
who must bear the burden of paying [the] tax.” Id. at 843.
The Court’s next decision, however, cabined Bracker and Ramah. Cotton
Petroleum considered a state severance tax on the production of oil and gas by non-
Indian lessees of wells located on a reservation. In urging federal preemption of the
state tax, the Tribe cited the Indian Mineral Leasing Act of 1938 and a congressional
purpose to provide tribes with a profitable source of revenue from oil and gas leases.
But the Court refused to find preemption of state taxation based on the indirect
burdens that the state taxes imposed on this broad congressional purpose. Without
“some special factor such as those present” in Bracker and Ramah, the indirect
burdens were insufficient to justify invalidating the state taxes. 490 U.S. at 187. The
Court expressed concern that a preemption ruling would mean a return to the
“thoroughly repudiated doctrine” of intergovernmental tax immunity. Id.
In distinguishing Bracker and Ramah, the Court in Cotton Petroleum
highlighted that the prior cases both “involved complete abdication or noninvolvement
of the State in the on-reservation activity.” Id. at 185. Bracker and Ramah also
involved “exclusive” federal and tribal regulation of the nonmember activity, whereas
the federal and tribal regulations in Cotton Petroleum were “extensive,” but not
“exclusive.” Id. at 186. And Cotton Petroleum did not involve “an unusually large
state tax” that “imposed a substantial burden on the Tribe.” Id.
The situation here does not share the “special” characteristics that led the Court
to find preemption in Bracker and Ramah. This is not a case of “complete abdication
or noninvolvement of the State in the on-reservation activity.” The State provides a
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range of services for the Casino: law enforcement operations, R. Doc. 80-7, at 34; R.
Doc. 119-11, at 7-13; R. Doc. 125-23, at 4-5; roads that facilitate the Casino’s fifty-
mile shuttle service for patrons, R. Doc. 80-7, at 16, 21, 28-29; R. Doc. 119-15, at 50;
job training for a Casino employee from the State’s Department of Human Services,
R. Doc. 81-14, at 3-5; and inspection of Casino equipment by the State Fire Marshal,
R. Doc. 119-21, at 7-8. Nor is federal and tribal regulation of the amenities
“exclusive.” The State issues an alcohol license to the Casino and regulates the
service of alcoholic beverages, R. Doc. 32, at 14 (¶ 56); R. Doc. 80-10, at 13-14; the
State’s Department of Health licenses vendors who sell food products to the Casino,
R. Doc. 80-10, at 4, 15-16; R. Doc. 82-4, at 4-6; and the Tribe purchases water from
the City of Flandreau, whose water system operators are certified by the State’s
Department of Environment and Natural Resources, R. Doc. 80-2, at 8-9; R. Doc. 132-
21, at 5-7. Although the state tax revenue derived from the sales of amenities would
not equal the cost of the state services provided on the reservation, “[n]either Bracker,
nor Ramah . . . imposes such a proportionality requirement on the States.” Cotton
Petroleum, 490 U.S. at 185.
Bracker and Ramah emphasized the existence of a comprehensive federal
regulatory scheme of the activity taxed—logging operations and the construction of
Indian schools, respectively. The Bureau of Indian Affairs exercised authority over
the details of logging operations and school construction, and thereby placed
administrative and economic burdens on both the Tribes and the non-Indian
companies enlisted to help with the regulated activities. The federal regulation was
so pervasive as to preclude an additional burden that state taxes would impose. Here,
the absence of a comprehensive federal regulatory scheme that encompasses the
provision of non-gaming amenities distinguishes Bracker and Ramah and leaves room
for the State to apply its use tax.
The court concludes that the potential negative impact of the state tax on the
Tribe’s finances is sufficient reason to declare the state tax preempted. Even if
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gaming is not reduced, the court believes, a reduction in tribal revenues from sales of
non-gaming amenities would be contrary to the “broad policies” of the Indian Gaming
Regulatory Act. To my eye, that submission is akin to the argument rejected in Cotton
Petroleum, where the Court declined to accept that “[a]ny adverse effect on the
Tribe’s finances caused by the taxation of a private party contracting with the Tribe
would be ground to strike the state tax.” Id. at 187. Even though it was “reasonable
to infer that the [state] taxes have at least a marginal effect on the demand for on-
reservation leases, the value to the Tribe of those leases, and the ability of the Tribe
to increase its tax rate,” those indirect effects on a “broad” congressional purpose were
insufficient to strike the state taxes without “more explicit guidance from Congress.”
Id. at 186-87. So too here. As in Cotton Petroleum, the “primary burden of the state
taxation falls on the non-Indian taxpayers,” id. at 187 n.18, and the indirect effects of
state taxation on tribal finances do not justify a finding of preemption.
For these reasons, I would reverse the judgment of the district court declaring
preemption of the state use tax on non-gaming amenities. I concur in the court’s
reversal of the district court’s judgment concerning the State’s authority to condition
renewal of the Tribe’s alcoholic beverage license on the Tribe’s remittance of use
taxes that it was required to collect.
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