dissenting.
I respectfully dissent from the majority’s opinion. The gross receipts tax imposed by the State upon Tiffany is impermissible because the field of road construction and maintenance on Indian Reservations has been preempted by the federal government and, even if it has not been completely preempted, this tax infringes upon the Navajo Tribe’s right to. govern themselves by entering into private contracts with foreign corporations and by building tribal roads. Consideration of the doctrines of preemption and infringement is clearly within the United States Supreme Court mandate that the present case be reconsidered in light of White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980) and Central Machinery Co. v. Arizona State Tax Com’n, 448 U.S. 160, 100 S.Ct. 2592, 65 L.Ed.2d 684 (1980).
Whenever the State attempts to exercise regulatory jurisdiction over the activities of non-Indians on Indian lands, careful consideration of the rights and interests of the parties is mandated.
This inquiry is not dependent on mechanical or absolute conceptions of State or tribal sovereignty, but has called for a particularized inquiry into the nature of the State, Federal, and tribal interests at stake, an inquiry designed to determine whether, in the specific context, the exercise of state authority would violate federal law.
White Mountain Apache Tribe v. Bracker, supra, 100 S.Ct. at 2584.
Chief Justice Marshall’s view of tribal sovereignty that the laws of a state can have no force within reservation boundaries, Worcester v. Georgia, 6 Pet. 515, 8 L.Ed. 483 (1832), has now given way to the notion that the tribes are in
a semi-independent position . . . not as States, not as nations, not as possessed of the full attributes of sovereignty, but as a separate people, with the power of regulating their internal and social relations, and thus far not brought under the laws of the Union or of the State within whose limits they resided.
White Mountain Apache, supra, 100 S.Ct. at 2583, quoting McClanahan v. Arizona State Tax Comm’n, 411 U.S. 164, 173, 93 S.Ct. 1257, 1262, 36 L.Ed.2d 129 (1973) and United States v. Kagama, 118 U.S. 375, 381-82, 6 S.Ct. 1109, 1112-13, 30 L.Ed. 228 (1886).
The semi-independent status of the tribes, combined with the Commerce Clause, has given rise to two independent but related barriers to the assertion of state regulatory authority: the federal preemption doctrine and the doctrine of infringement upon the Indians’ right to self-government.
The first such barrier is the federal preemption doctrine, which was developed in Warren Trading Post v. Arizona Tax Comm’n, 380 U.S. 685, 85 S.Ct. 1242, 14 L.Ed.2d 165 (1965). In that case, the Supreme Court struck down a gross receipts tax levied by the State of Arizona against a licensed non-Indian trader on his income from trading with Navajo Reservation Indians. The United States Supreme Court held that comprehensive federal regulation of Indian traders preempted that area of taxation. If the federal government has preempted the field, then any interest which the State may have in taxation of this corporation, no matter how compelling or enormous that interest may be, must give way to the federal interest. The incidence of the tax is also irrelevant under a preemption analysis.
The rule expressed in Warren has now been expanded by Central Machinery Co. v. Arizona State Tax Com’n, supra, where the United States Supreme Court found that the Arizona gross receipts tax could not be assessed against a non-licensed, non-Indian vendor who sold tractors on the Gila River Reservation in Arizona. The Court, in Central Machinery, held that the transaction was clearly covered by the Indian trader statutes, 25 U.S.C. §§ 261-264 (1977). The Court also seemed to be saying that preemption occurs under these statutes regardless of where the burden of the tax falls, even though it took care to point out that the economic burden of the taxes would fall upon the Indian tribe. 100 S.Ct. at 2595, n. 3.
In White Mountain Apache Tribe, supra, the Court held that Arizona could not assess its motor-carrier license (assessed on the basis of gross receipts) and use fuel taxes (assessed on the basis of road use) against non-Indian logging corporations operating solely on the Fort Apache Reservation. The federal government’s regulation of the harvesting of Indian timber and of Bureau of Indian Affairs roads was found to be so comprehensive as to preempt state taxation. The majority opinion in the present case attempts to distinguish White Mountain Apache on the basis of a “comprehensive federal regulatory scheme governing] the harvesting and sale of the tribal timber.” The opinion, however, fails to recognize that the United States Supreme Court also found the Arizona tax preempted by the extensive federal regulations governing roads developed by the Bureau of Indian Affairs. 100 S.Ct. at 2586. This is involved in our case.
The Secretary [of Interior] has also promulgated regulations governing the roads developed by the Bureau of Indian Affairs. 25 CFR Part 162. Bureau roads are open to “[f]ree public use.” § 162.8. Their administration and maintenance are funded by the Federal Government, with contributions from the Indian tribes. §§ 162.6-162.6a.
Id. We have in the instant case the identical federal regulations detailing the construction of the road by Tiffany on the Navajo Reservation. The existence of these federal regulations indicates a strong federal interest in the area of road construction on tribal lands sufficient to justify preemption of the State’s tax on Tiffany’s gross receipts derived from this project. This is so despite the implication by the majority’s opinion in this case that Congress has not specifically preempted this field. As was stated in White Mountain Apache, 100 S.Ct. at 2587, “a claim that [the State] may assess taxes on non-Indians engaged in commerce on the reservation whenever there is no express congressional statement to the contrary ... is simply not the law.”
If the regulations are not so pervasive as to preempt the field completely, then we must balance the interests to determine whether the State’s interest is sufficient to overcome the federal interest. We find that in this case it is not. The imposition of a gross receipts tax on a foreign corporation not licensed to do business in this State, whose employees traveled and worked exclusively within the Navajo Reservation pursuant to a contract with BIA and the Tribe is not such an overriding State interest. Contrary to the majority opinion in this case, Tiffany receives very little benefit from the State when compared with the strong federal policy of recognizing Indian sovereignty.
[T]his 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. Nor have respondents been able to identify a legitimate regulatory interest served by the taxes they seek to impose. They refer to a general desire to raise revenue, but we are unable to discern a responsibility or service that justifies the assertion of taxes imposed for on-reservation operations conducted solely on tribal and Bureau of Indian Affairs roads.
White Mountain Apache, supra, at 2587.
The second barrier to state regulatory authority is that a state cannot infringe upon Indian sovereignty. Thus in Williams v. Lee, 358 U.S. 217, 220, 79 S.Ct. 269, 270, 3 L.Ed.2d 251 (1959), the test became “whether the state action infringe[s] on the right of reservation Indians to make their own laws and be ruled by them.” Analysis of the infringement doctrine involves a balancing of the State’s interest in taxation against the right of Indians to govern themselves. I disagree with the majority opinion in the present case that the gross receipts tax imposed upon this corporation does not infringe upon the Navajo Tribe’s right to self-government. The majority failed to recognize the rather tenuous connection between the State’s benefits and Tiffany. Had they done so, the State’s interest would have been subordinated to the overwhelming interest of the Navajo Tribe in performing its governmental function of contracting for the construction of tribal roads. Tiffany was not a New Mexico corporation nor was it licensed to do business in this State. Its employees were Arizona residents who lived at the construction site on the Reservation during the construction of the road. All of the materials for the construction were purchased in Arizona or from the Tribe and were brought to the construction site by way of roads located entirely within the Reservation. The argument made by the majority that Tiffany benefitted from New Mexico’s air pollution control regulations and its employees were protected generally by the laws of this State is superficial and ignores the fact that citizens from other states also enjoy the benefit of our clean air traveling over their states without being subject to our taxation. The benefits to Tiffany were incidental arising only from the mere fact that the portion of the Reservation containing the construction site happens to lie within the territorial boundaries of New Mexico. This insufficient nexus between Tiffany and the State cannot justify imposition of the tax.
I also disagree with the majority opinion which attempts to apply Mescalero Apache Tribe v. O’Cheskey, 625 F.2d 967 (10th Cir. 1980), cert. denied,-U.S.-, 101 S.Ct. 1417, 67 L.Ed.2d 383 (1981) to this case. The Mescalero case is easily distinguished from the case at hand. There the contractors for the Inn of the Mountain Gods located on the Mescalero Apache Reservation were New Mexico contractors licensed to do business in the State; they traveled onto the Reservation by way of State owned and maintained roads; their employees paid New Mexico income tax; the contractors paid New Mexico unemployment compensation and workmen’s compensation taxes. These contractors truly received State benefits. None of these factors apply to Tiffany.
The majority here upholds the State tax because it is a tax which falls directly upon the contractor and only indirectly upon the Tribe. They cite Mescalero for the proposition that an indirect tax on Indians is permissible, but fail to recognize that the indirect tax in Mescalero could be “passed on as the Tribe engages in its resort and other business” (625 F.2d at 972), whereas the tax in this case cannot be passed on to anyone except the Tribe itself. This, then, is the key distinction between the Mescalero case and this case since the Tenth Circuit Court of Appeals repeatedly emphasized the fact that the tax could be passed on to the consumer. In addition, the construction of a resort complex is in the nature of a proprietary project of the Tribe for tourist consumption, whereas a road is in the nature of a public or governmental function which provides an essential service to the Tribe.
Imposition of the gross receipts tax on the proceeds of the contract between Tiffany and BIA and the Navajo Tribe is unsupported by the law. Under the doctrines of federal preemption and infringement, we should reverse the Court of Appeals and remand this case to the district court for entry of judgment consistent with this opinion.