F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
MAY 30 2000
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
SAC AND FOX NATION OF
MISSOURI; IOWA TRIBE OF KANSAS
AND NEBRASKA; KICKAPOO TRIBE
OF INDIANS, of the Kickapoo
Reservation in Kansas,
Plaintiffs-Appellees,
v. No. 99-3019
KARLA PIERCE, Secretary, Kansas
Department of Revenue,
Defendant-Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. No. 95-CV-4152)
(31 F. Supp. 2d 1298 & 45 F. Supp. 2d 859)
John R. Shordike of Alexander & Karshmer (Stephen D. McGiffert and Mark S.
Gunnison of Payne & Jones, Chartered, Overland Park, Kansas; Paul Alexander of
Alexander & Karshmer, Washington, D.C.; and Mario Gonzalez, Horton, Kansas,
with him on the brief), Berkeley, California, for Plaintiffs-Appellees.
John Michael Hale, Special Assistant Attorney General, Legal Services Bureau,
Kansas Department of Revenue, Topeka, Kansas, for Defendant-Appellant.
Before BALDOCK, BRORBY, and LUCERO, Circuit Judges.
BALDOCK, Circuit Judge.
The State of Kansas imposes a tax, subject to enumerated exceptions, on
the distribution of motor fuel to retailers within the State. Kan. Stat. Ann. § 79-3408(a)
(1999 Supp.). The distributor, rather than the retailer, is responsible for remitting the
tax. Id. § 79-3408(c). When the Kansas Department of Revenue announced its intention
to begin collecting tax on motor fuel distributions to retail gasoline stations on Indian
lands within the State, three federally-recognized Indian Tribes, the Sac and Fox Nation
of Missouri; the Iowa Tribe of Kansas and Nebraska; and the Kickapoo Tribe of Indians
of the Kickapoo Reservation in Kansas (the Tribes), filed suit in federal district court
to enjoin the State from collecting its tax on fuel distributed to the Tribes’ retail
stations. The principal issue before us is whether the State of Kansas may impose
its motor fuel tax as currently designed on fuel distributed to these retail stations
on Indian lands within the State.
I.
The facts underlying this case are not in dispute. The Tribes are the beneficial
owners of trust lands within the State of Kansas. The United States holds legal title to the
lands in trust for the benefit of the Tribes. Each of the Tribes own and operate
retail gasoline stations on these lands. The stations are located along or near Kansas
state highways. Prior to May 1995, the Kansas Department of Revenue took
the position that the motor fuel tax law as written did not permit the State to tax
2
motor fuel distributed on Indian lands. After the Kansas legislature amended the
Kansas Motor Fuel Tax Act in 1995, see Kan. Stat. Ann. §§ 79-3401 to 79-3464f
(1997), however, the department reversed its position and this litigation ensued.
In their complaint, the Tribes sought declaratory and injunctive relief against
the State based upon both federal and state law. The Tribes invoked the district court’s
jurisdiction under U.S. Const. art. I, § 8, cl. 3 and 28 U.S.C. §§ 1331, 1362, 1367. The
Tribes claimed that (1) federal law preempted the motor fuel tax law as applied to the
Tribes, (2) the motor fuel tax law as properly construed did not apply to fuel distributed to
the Tribes, and (3) imposing the motor fuel tax on the Tribes would irreparably harm their
economic viability.
The district court issued both a temporary restraining order, Sac and Fox Nation
v. LaFaver, 905 F. Supp. 904 (D. Kan. 1995), and a preliminary injunction, Sac and Fox
Nation v. LaFaver, 946 F. Supp. 884 (D. Kan. 1996), against the State. The district
court next denied both the State’s motion to dismiss the Tribes’ complaint based on
sovereign immunity, Sac and Fox Nation v. LaFaver, 979 F. Supp. 1350 (D. Kan.
1997), and its motion to reconsider, Sac and Fox Nation v. LaFaver, 993 F. Supp.
1374 (D. Kan. 1998). On cross motions for summary judgment, the court
entered judgment for the Tribes and permanently enjoined the State from
enforcing its motor fuel tax law against the Tribes. Sac and Fox Nation
v. LaFaver, 31 F. Supp. 2d 1298 (D. Kan. 1998).
3
Addressing a myriad of legal issues, the district court first held the Tribes had
standing to pursue their claims against the State. Id. at 1302. Turning to the merits, the
court held that (1) tax compacts between the Tribes and State did not prohibit the State
from imposing its fuel tax on fuel distributed to the Tribes, id. at 1302-03, (2) the fuel
tax exemption for fuel sold or delivered to the United States and its agencies, Kan. Stat.
Ann. § 79-3408(d)(2) (1999 Supp.), did not encompass the Tribes, Sac and Fox Nation,
31 F. Supp. 2d at 1303-04,1 but (3) the fuel tax exemption for fuel exported from the
State to territories outside the State did encompass Indian lands:
The statute [Kan. Stat. Ann. § 79-3408(d)(1) (1999 Supp.)] exempts any
fuel transactions where the fuel is exported “to any other state or territory or
to any foreign country.” From this reading, the court can only conclude that
the intent of the Kansas legislature was to exempt any transaction where the
fuel was to be sold outside the boundaries of the State of Kansas. As the
Act for Admission of Kansas into the Union [Ch. XX, § 1, 12 Stat. 126
(1861)] . . . clearly exclude[s] the Indian reservations from the boundaries
of the State of Kansas, it is only reasonable that § 79-3408(d)(1) provides
for an exemption to the transactions involved in this case where fuel is sold
to tribal retailers on the recognized reservations.
Sac and Fox Nation, 31 F. Supp. 2d at 1304.
As an alternative basis for issuing a permanent injunction against the State, the
court relied on Oklahoma Tax Comm’n v. Chickasaw Nation, 515 U.S. 450 (1995), to
hold that although the legal incidence of the fuel tax fell on the distributors rather than the
1
On appeal, the Tribes do not challenge the district court’s conclusions that (1)
their tax compacts with the State of Kansas have expired and are no longer of any legal
force, and (2) the fuel tax exemption for fuel sold or delivered to the United States and
its agencies does not encompass Indian tribes.
4
Tribes, the balance of tribal and state interests weighed in favor of the Tribes, thus
requiring the court to invalidate the tax as applied to the Tribes. Sac and Fox Nation,
31 F. Supp. 2d at 1304-08. The district court subsequently denied the State’s motion to
alter the judgment, Sac and Fox Nation v. Pierce, 45 F. Supp. 2d 859 (D. Kan. 1999), and
the State appealed. Our jurisdiction arises under 28 U.S.C. § 1291. We address each of
the State’s several challenges to the district court’s judgment in turn. We reverse the
judgment of the district court and remand for further proceedings.
II.
As a preliminary matter, we address the district court’s power to adjudicate this
case on the merits. The State contends the district court had no jurisdiction over this
controversy because (1) the doctrine of sovereign immunity bars the Tribes’ suit, and (2)
the Tribes’ have no standing to maintain their suit. The district court’s determination of
subject matter jurisdiction is a question of law which we review de novo. Rosette Inc. v.
United States, 141 F.3d 1394, 1395 (10th Cir. 1998). Applying this standard, we reject
the State’s jurisdictional contentions, and conclude the district court properly exercised
jurisdiction over this cause.
A.
In the district court, the Tribes alleged jurisdiction under U.S. Const. art. I,
§ 8, cl. 3 and 28 U.S.C. § 1362, as well as under the general federal question and
supplemental jurisdiction statutes, 28 U.S.C. §§ 1331, 1367. The Tribes rely on
5
Article I’s Indian Commerce Clause which gives Congress the power “[t]o regulate
Commerce . . . with the Indian Tribes.” Meanwhile, § 1362 is a specific grant of
jurisdiction to the district court in matters involving Indian tribes: “The district courts
shall have original jurisdiction of all civil actions, brought by any Indian tribe . . . wherein
the matter in controversy arises under the Constitution, law, or treaties of the United
States.” The State asserts that neither of these provisions is sufficient to overcome the
State’s sovereign immunity under the Eleventh Amendment, U.S. Const. amend. XI.
The Eleventh Amendment, as construed by the Supreme Court, generally
proscribes federal jurisdiction over suits against nonconsenting states unless Congress has
abrogated the states’ sovereign immunity in a clear and unequivocal manner pursuant to a
valid exercise of its power. Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 54-55 (1996)
(holding that Congress lacks power under Article I to abrogate a state’s sovereign
immunity from suits brought by private parties.). In Blatchford v. Native Village of
Noatak, 501 U.S. 775 (1991), the Supreme Court rejected the notion that the Eleventh
Amendment “only restricts suits by individuals against sovereigns, not by sovereigns
against sovereigns.” Id. at 780 (emphasis in original). The Court likewise rejected the
notion that the states waived their immunity against Indian tribes when they adopted the
Constitution: “We have hitherto found a surrender of immunity against particular
litigants [inherent in the constitutional compact] in only two contexts: suits by sister
States and suits by the United States.” Id. at 781-82 (internal citation omitted).
6
Accordingly, the Court held that the Eleventh Amendment barred an Indian tribe’s suit
under a state revenue sharing plan against an Alaskan state official, despite the
tribe’s sovereign status. In so holding, the Court also rejected the notion that 28 U.S.C. §
1362 operated as a general waiver of a state’s sovereign immunity. Paramount to our
analysis, however, was the Court’s recognition that in Moe v. Confederated Salish and
Kootenai Tribes, 425 U.S. 463 (1976), a case involving an Indian tribe’s access to federal
court “for the purpose of obtaining injunctive relief from state taxation,” the Court had
reached a different conclusion. Blatchford, 501 U.S. at 784.
In Moe, the Court upheld an Indian tribe’s right to seek injunctive relief
from state taxation in federal court. Moe involved, among other things, an attack
on Montana’s cigarette sales tax as applied to cigarette sales to both Indians and non-
Indians on Indian lands. Before reaching the merits, the Court addressed the district
court’s jurisdiction to entertain the tribe’s suit against a Montana sheriff responsible for
enforcing the tax. Moe, 425 U.S. at 470-475. The Court held that § 1362 proscribed
application of the Tax Injunction Act, 28 U.S.C. § 1341, to the tribe’s suit.2 The Court
first noted that § 1341 did not apply to suits “brought by the United States ‘to protect
itself and its instrumentalities from unconstitutional state exactions.’” Moe, 425 U.S.
2
The Tax Injunction Act provides that federal “district courts shall not enjoin,
suspend or restrain the assessment, levy or collection of any tax under State law
where a plain, speedy and efficient remedy may be had in the courts of such state.”
28 U.S.C. § 1341.
7
at 470 (quoting Department of Employment v. United States, 385 U.S. 355, 358 (1966)).
From this principle, the Court reasoned:
Looking to the legislative history of § 1362 . . . we find an indication of
congressional purpose to open the federal courts to the kind of claims that
could have been brought by the United States as trustee, but for whatever
reason were not so brought. Section 1362 is characterized by the reporting
House Judicial Committee as providing “the means whereby the tribes are
assured of the same judicial determination whether the action is brought in
their behalf by the Government or by their own attorneys.” [H.R. Rep.
No. 2040, 89th Cong., 2d Sess., 2-3 (1966)]. While this is hardly an
unequivocal statement of intent to allow such litigation to proceed
irrespective of other explicit jurisdictional limitations, such as § 1341,
it would appear that Congress contemplated that a tribe’s access to federal
court to litigate a matter arising “under the Constitution, laws, or treaties”
would be at least in some respects as broad as that of the United States
suing as the tribe’s trustee.
Id. at 472-73. See also United States v. Rickert, 188 U.S. 432 (1903) (upholding
Government’s right to seek injunctive relief against county taxation directed at
improvements on and tools used to cultivate Sioux Indian lands).
In Moe, the Court concluded that because § 1341 would not bar the United
States from seeking to enjoin enforcement of the state tax law on the tribe’s behalf,
the tribe itself could maintain its suit against the state. Moe, 425 U.S. at 474-75. The
Court emphasized that its decision “‘rested upon a broader foundation than the mere
holding of a legal title to land in trust, and embraced the recognition of the interest of the
United States in securing immunity to the Indians from taxation conflicting with the
measures it had adopted for their protection.’” Moe, 425 U.S. at 473 (quoting Heckman
v. United States, 224 U.S. 413, 441 (1912)).
8
Moe leads us to conclude that we have jurisdiction under 28 U.S.C. § 1362 to
reach the merits of this case. Surely if an Indian tribe may maintain suit on its own behalf
in federal court to enjoin collection of a state’s cigarette sales tax, it may maintain a
similar suit on its own behalf to enjoin collection of a state’s motor fuel distribution tax.
Neither the Tax Injunction Act nor the Eleventh Amendment bars the Tribes’ suit in this
case. Undoubtedly after Seminole Tribe, the Eleventh Amendment generally
bars an Indian tribe’s suit in federal court against a state where the tribe’s claim rests
solely on Article I’s Indian Commerce Clause. As the Supreme Court stated in
both Blatchford and Moe, however, an Indian tribe’s suit for injunctive relief against state
taxation occurring on trust lands is another matter. Blatchford expressly recognized what
Moe necessarily inferred from § 1362. Blatchford explained that in Moe, the Court found
in § 1362–
an implication that a tribe’s access to federal court to litigate federal-
question cases would be at least in some respects as broad as that of the
United States suing as the tribe’s trustee. The “respect” at issue in Moe was
access to federal court for the purpose of obtaining injunctive relief from
state taxation.
Blatchford, 501 U.S. at 784 (emphasis in original) (internal citations, quotations,
and brackets omitted). Accordingly, we conclude that the Eleventh Amendment
does not bar the Tribes’ suit against the State to enjoin enforcement of the Kansas
9
motor fuel tax law.3
B.
We next turn to the question of the Tribes’ standing to maintain their suit
against the State. The State argues that because the district court determined the legal
incidence of the motor fuel tax fell on the distributors rather than on the tribal retailers,
Sac and Fox Nation, 31 F. Supp. 2d at 1304-07, the Tribes lack standing to challenge
the motor fuel tax. According to the State, the law does not confer standing upon the
Tribes merely because they either must absorb the overhead cost of the fuel distributed
to them or pass the cost along to their consumers.
The standing inquiry requires us to consider “both constitutional limitations on
federal-court jurisdiction and prudential limitations on its exercise.” Warth v. Seldin, 422
U.S. 490, 498 (1975). The constitutional standing question is “whether the plaintiff has
‘alleged such a personal stake in the outcome of the controversy’ as to warrant [its]
invocation of federal-court jurisdiction and to justify exercise of the court’s remedial
powers on [its] behalf.” Id. at 498-99 (quoting Baker v. Carr, 369 U.S. 186, 204 (1962)).
3
The district court relied on the legal fiction established in Ex Parte Young, 209
U.S. 123 (1908), to overcome the State’s claim of sovereign immunity. Sac and Fox
Nation, 979 F. Supp. at 1352-54. Under the Ex Parte Young legal fiction, when an
official of a state agency is sued in her official capacity for prospective equitable relief,
she is generally not regarded as “the state” for purposes of the Eleventh Amendment,
and the case may proceed in federal court. See ANR Pipeline Co. v. LaFaver, 150
F.3d 1178, 1188 (10th Cir. 1998). Because we conclude that we have jurisdiction
to reach the merits of this case under 28 U.S.C. § 1362, we decline to address the question
of Ex Parte Young’s application to matters of state taxation affecting Indian tribes.
10
The Supreme Court has identified three constitutional standing requirements. A plaintiff
must allege (1) a concrete and particularized actual or imminent injury, (2) which is fairly
traceable to defendant’s conduct, and (3) which a favorable court decision will redress.
Northeastern Fla. Chapter of the Associated Gen. Contractors of America v.
City of Jacksonville, 508 U.S. 656, 663-64 (1993).
Additionally, the Supreme Court has identified three prudential standing
principles. First, a plaintiff generally must assert its own rights, rather than those
belonging to third parties. Warth, 422 U.S. at 499. Second, “a generalized grievance”
shared by a large class of citizens normally does not warrant a federal court’s exercise
of jurisdiction. Id.4 Third, the interests which a plaintiff seeks to protect must
“arguably [be] within the zone of interests to be protected by the statute or
constitutional guarantee.” Association of Data Processing Serv. Orgs., Inc.
v. Camp, 397 U.S. 150, 153 (1970).
We have little difficulty concluding that the Tribes in this case have
constitutional standing to maintain their suit against the State. First, the Tribes
have alleged particularized imminent economic injury if the State imposes its motor
fuel tax on fuel distributed to the Tribes’ retail stations. The Tribes’ uncontroverted
4
In Warth, 422 U.S. at 499, the Supreme Court indicated that the standing
principle against generalized grievances of citizen groups, which implicitly includes
taxpayer groups, was prudential rather than constitutional. In Lujan v. Defenders of
Wildlife, 504 U.S. 555, 559-62 (1992), however, the Court treated the bar on such
lawsuits as constitutional.
11
affidavits, albeit conclusory, support their allegations of injury. See Warth, 422 U.S.
at 501 (plaintiff may submit affidavits to particularize allegations of fact in support of
its standing). Second, the Tribes’ alleged injury is directly traceable to the State’s desire
to tax these distributions. Finally, a decision in favor of the Tribes enjoining the State
from enforcing the motor fuel tax against their distributors would likely redress the
Tribes’ alleged injury since most assuredly the distributors responsible for remitting
the tax pass the cost of the tax along to the Tribes. See Kan. Stat. Ann. § 79-3409
(1999 Supp.) (expressly permitting the distributor to include the cost of the motor
fuel tax in its selling price).
We likewise conclude that prudential standing principles do not bar our exercise of
jurisdiction in this case. Certainly the Tribes assert their own rights under both federal
and state law to be free from the cost of the motor fuel tax, though any decision in their
favor undoubtedly will benefit their distributors and consumers as well. Thus, we do
not agree with the State’s argument that because the district court determined the legal
incidence of the motor fuel tax falls upon the distributors rather than the retailers,
see id. § 79-3408(c) (expressly stating that the incidence of the motor fuel tax is on
the distributor), the Tribes’ claims amount to little more than a “generalized grievance”
shared by all retailers to whom the distributors pass the cost of the tax.
In resolving challenges to state taxation affecting tribal businesses on Indian
lands, the Supreme Court has addressed the legal incidence of a tax as a question
12
intertwined with the merits of the case. E.g., California State Bd. of Equalization v.
Chemehuevi Indian Tribe, 474 U.S. 9, 10-12 (1985) (per curiam) (holding that because
the legal incidence of the state’s cigarette sales tax fell on non-Indian consumers, the state
could require the tribe to collect the tax on the state’s behalf); Moe, 425 U.S. at 481-83
(same). In Chickasaw Nation, 515 U.S. at 459, the Court recognized that where the legal
incidence of a tax falls on non-Indians, the tribe may still be entitled to injunctive relief if
federal law preempts state law or the balance of federal, state, and tribal interests favors
the tribe. Chickasaw Nation’s balancing requirement implicitly embraces our conclusion
that regardless of where the legal incidence of the motor fuel tax falls, the Tribes at the
very least have a particularized claim of injury, rather than a “generalized grievance,”
with respect to the tax sufficient to confer standing upon them. See Moe 425 U.S. at 468
n.7.
Finally, the alleged economic interests of the Tribes in this case are arguably
within the zone of interests which federal law seeks to protect. Consistent with the long
standing recognition of Indian tribes as “domestic dependent nations,” Cherokee Nation
v. Georgia, 30 U.S. 1, 17 (1831), the federal government has sought to protect tribal self-
government from state interference, including state taxation. McClanahan v. Arizona
State Tax Comm’n, 411 U.S. 164, 170-71 (1973). See also 25 U.S.C. §1322(b) (refusing
to extend state’s general civil jurisdiction over Indians to matters of taxation). The
Supreme Court has repeatedly recognized the United States’ interest in securing immunity
13
to the Indians from state taxation which threatens Indian tribes’ unique status. Moe, 425
U.S. at 473. Absent congressional consent through statute or treaty, states have no power
to directly tax tribal commerce on tribal lands. Mescalero Apache Tribe v. Jones,
411 U.S. 145, 148 (1973).5 See also California v. Cabazon Band of Mission Indians,
480 U.S. 202, 214-15 & n.17 (1987) (noting per se rule precluding state jurisdiction
absent congressional consent over tribes and tribal members in the “special area of
state taxation”). The Indian Commerce Clause gives Congress the power to regulate
commerce with Indian tribes. McClanahan, 411 U.S. at 172 n. 7. Surely
the economic interests which the Tribes seek to protect by enjoining application of the
State’s motor fuel tax are “arguably within the zone of interests to be protected by th[at] .
. . constitutional guarantee.” Camp, 397 U.S. at 153 (emphasis added). Whether
the Kansas motor fuel tax as applied interferes with that guarantee is a matter for
5
In Rice v. Rehner, 463 U.S. 713, 713, 718-19 (1983), the Court explained:
Congressional authority and the semi-independent position of Indian tribes
are two independent but related barriers to the assertion of state regulatory
authority over tribal reservations and members. Although the right of tribal
self-government is ultimately dependent on and subject to the broad power
of Congress, we still employ the tradition of Indian sovereignty as a
backdrop against which the applicable treaties and federal statutes
must be read in our pre-emption analysis.
(internal quotations, citations, brackets and elipses omitted). Of course, in addition to
treaties and statutes, stare decisis requires us to look to Supreme Court and Tenth Circuit
decisions to define the limits of state jurisdiction in matters of taxation affecting Indian
tribes.
14
legitimate judicial inquiry. To that question, we now turn.
III.
A.
At the outset, the State argues that Congress, through passage of the
Hayden-Cartwright Act, 4 U.S.C. § 104, has consented to the state’s taxing power
in this instance. According to the State, § 104 cedes taxing jurisdiction to the states
on motor fuel distributed on Indian lands. Section 104(a) provides in relevant part:
All taxes levied by any State . . . upon, with respect to, or measured by,
sales, purchases, storage, or use of gasoline or other motor vehicle fuels
may be levied, in the same manner and to the same extent, with respect to
such fuels when sold by or through post exchanges, ship stores, ship service
stores, commissaries, filling stations, licensed traders, and other similar
agencies, located on United States military or other reservations, when such
fuels are not for the exclusive use of the United States. Such taxes, so
levied, shall be paid to the proper taxing authorities of the State
. . . within whose borders the reservation affected may be located.
Id. § 104(a). The State construes the phrase “located on United States military or other
reservations” as including Indian lands. See State v. Keeley, 126 F.2d 863, 864-65 (8th
Cir. 1942) (discussing the history surrounding the enactment of § 104). We decline to
address the State’s § 104(a) argument, however, because the State did not properly
present the question of § 104(a)’s applicability vis-a-vis the Kansas motor fuel tax
to the district court, and thus the district court had no opportunity to consider or
decide the question.
A federal appeals court generally will not consider an issue raised but not
15
argued in the district court. Rademacher v. Colorado Assoc. of Soil Conserv.
Dist. Medical Benefit Plan, 11 F.3d 1567, 1571 (10th Cir. 1993). “The matter of
what questions may be taken up and resolved for the first time on appeal is one left
primarily to the discretion of the courts of appeals.” Singleton v. Wulff, 428 U.S.
106, 121 (1976). Where the question is one of law, we may relax the general rule if
the proper resolution is beyond doubt or injustice might otherwise result. Id. Accord
Cavic v. Pioneer Astro Indus., Inc., 825 F.2d 1421, 1425 (10th Cir. 1987). But we need
not decide an issue otherwise waived simply because it may be “outcome determinative.”
First Alabama Bank v. First State Ins. Co., 899 F.2d 1045, 1060 n. 8 (11th Cir. 1990)
(appeals court will decide waived issues “only in instances where strict application of
the rule would result in patently unjust results”).
In this case, the State raised the § 104(a) defense in its answer to the Tribes’
complaint, both which were filed in 1995. Never again did the State raise the issue
with the district court although it had ample opportunity to do so by way of both its
motion to dismiss and its motion for summary judgment, as well as its subsequent
motions to reconsider. See Lazzara v. Howard A. Esser, Inc., 802 F.2d 260, 269 (7th Cir.
1986) (“A contention included in an answer, but not pressed before the district court, may
not be presented on appeal as ground for reversal.”).6 Suffice it to say that we are loath to
6
The State’s sole reference to § 104 in the district court read as follows:
(continued...)
16
resolve the § 104 issue for the first time on appeal. Neither the Supreme Court nor any of
the circuit courts of appeals, nor any court as far as we can discern, has addressed the
difficult question of whether Congress intended 4 U.S.C. § 104(a) to encompass Indian
lands. This being so, injustice would more likely result than not by us deciding the issue
without the Tribes having an opportunity first to be heard on the merits in the district
court. See Singleton, 428 U.S. at 121.
B.
The district court relied on a combination of federal and state law to justify its
issuance of a permanent injunction against the State. First, the court concluded that
under the Act for Admission of Kansas into the Union, Ch. XX, § 1, 12 Stat. 126 (1861),
Indian lands were not within the boundaries of the State of Kansas. The Act, the court
reasoned, “make[s] it very clear . . . that the Indian reservations are not to be considered
part of the State of Kansas in any way.” Sac and Fox Nation, 31 F. Supp. 2d at 1304.
The court then concluded that because Indian lands were not within the State, the
distributors’ motor fuel tax exemption for fuel exported from Kansas “to any other state
6
(...continued)
If this court determines that the incidence of motor fuel tax under Kansas
law is at the retail level and such incidence is determined by this court to
fall on plaintiffs, the defendant affirmatively asserts that he is authorized by
federal law, 4 U.S.C. § 104, to impose Kansas motor fuel tax on plaintiffs.
Aplt’s App. at 97 (emphasis added). Presumably because the district court held the legal
incidence of the motor fuel tax fell on the distributors rather than on the Tribes, the State
felt no need to press its “conditional” § 104 defense.
17
or territory,” Kan. Stat. Ann. § 79-3408(d)(1) (1999 Supp.), applied to fuel distributed
on Indian lands. Sac and Fox Nation, 31 F. Supp. 2d at 1304. Thus, the district court
enjoined the State from taxing such distributions. We review the district court’s
construction of federal and state law de novo. United States v. LaHue, 170 F.3d
1026, 1028 (10th Cir. 1999). Applying this standard, we believe the district court
misconstrued the 1861 Act for Admission, and thus misapplied the statutory exemption to
the Kansas motor fuel tax.
The 1861 Act for Admission of Kansas into the Union provides–
[N]othing contained in the said constitution respecting the boundary of
said State shall be construed . . . to include any territory which, by treaty
with such Indian tribe, is not, without the consent of said tribe, to be
included within the territorial limits or jurisdiction of any State or
Territory; but all such territory shall be excepted out of the
boundaries, and constitute no part of the State of Kansas.
12 Stat. 127 (emphasis added).7 To our knowledge, the only federal decision construing
the applicable provision of the 1861 Act is United States v. Ward, 28 F. Cas. 397 (C.C.D.
Kan. 1863) (No. 16,639). Ward involved the question of the United States’ criminal
jurisdiction over the murder trial of a non-Indian defendant whose victim was also non-
Indian. The murder occurred on lands of the Kansas Tribe of Indians within the external
7
The Organic Act of 1854, Ch. LIX, § 19, 10 Stat. 284, which established the
Territory of Kansas, contains nearly identical language. We need not consider in detail
the Organic Act because our construction of the Act for Admission controls our
construction of the Organic Act. See United States v. Ward, 28 F. Cas. 397,
398 (C.C.D. Kan. 1863) (No. 16,639).
18
boundaries of the State of Kansas. Holding the State of Kansas, not the United States,
had jurisdiction over the matter, Supreme Court Justice Miller, riding circuit, reasoned
that under the Act, all territory not previously exempted from the boundaries of the State
of Kansas by treaty between the United States and an Indian tribe “was included
within the state, within its jurisdiction and within its territory; and this irrevocably,
unqualifiedly, and exclusively.” Id. at 399.
We agree with Justice Miller’s able construction of the 1861 Act for it is consistent
with the Act’s plain language. The Act for Admission excludes from the boundaries of
the State of Kansas only those lands which Indian tribes reserved unto themselves “by
treaty” with the United States. The Tribes fail to identify any language in any of the
treaties provided us which we might construe as excluding their lands from the
boundaries of the State. See Aplt’s App. at 176-200. The Tribes argue, however, that
the question is not whether the Indian lands at issue in this case are independent territories
separate from the State for all purposes. Instead, the contend “[t]he question is whether
Indian country is excluded from the legal territory of Kansas for purposes of motor fuel
taxation.” Aples’ Br. at 26 (emphasis in original).
In a decision apparently overlooked by both the State and the Tribes, the
Kansas Supreme Court resolved this very question in Kaul v. State Dept. of Revenue, 970
P.2d 60 (Kan. 1998), cert. denied, 120 S. Ct. 46 (1999). In Kaul, fuel retailers with
businesses located on Indian lands claimed an exemption from the motor fuel tax under
19
§ 79-3408(d)(1), which provides: “No tax is hereby imposed upon or with respect to the
. . . sale or delivery of motor-vehicle fuel . . . for export from the state of Kansas to any
other state or territory . . . .” Kan. Stat. Ann. § 79-3408(d)(1) (1999 Supp.). The retailers
made precisely the same argument as do the Tribes in this case. The Kansas Supreme
Court rejected the argument, holding that “the exemption from taxation provided by
K.S.A. § 79-3408(d)(1) did not apply to the retailers because Indian reservations within
the boundaries of the State are not included as territories outside the boundaries of
Kansas.” Kaul, 970 P.2d at 66-67. Of course, absent some conflict with federal
law or overriding federal interest, the Kansas Supreme Court’s interpretation of
§ 79-3408(d)(1) is binding on us. See Wainwright v. Goode, 464 U.S. 78, 84 (1983).
We conclude that neither the Act for Admission of Kansas into the Union, nor the
statutory exemption contained in § 79-3408(d)(1), lends any support to the Tribes’
challenge to the Kansas motor fuel tax law.
C.
As an alternative basis for issuing a permanent injunction against the State, the
district court applied the balancing of interests test endorsed in Chickasaw Nation, 515
U.S. at 459: “[I]f the 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.” Before
balancing the parties’ respective interest, however, the district court concluded that the
20
legal incidence of the Kansas motor fuel tax fell on the distributors rather than on the
Tribes. Sac and Fox Nation, 31 F. Supp. 2d at 1304-07. As the district court recognized,
if the legal incidence of the fuel tax falls on the Tribes for sales made on Indian lands, the
fuel tax is unenforceable absent congressional consent:
[W]hen a State attempts to levy a tax directly on an Indian tribe or its
members inside Indian country, rather than on non-Indians, we have
employed, instead of a balancing inquiry, “a more categorical approach:
Absent cession of jurisdiction or other federal statutes permitting it, we
have held a State is without power to tax reservation lands and reservation
Indians.”
Chickasaw Nation, 515 U.S. at 458 (internal brackets and quotations omitted)
(quoting County of Yakima v. Confederated Tribes and Bands of Yakima Indian Nation,
502 U.S. 251, 258 (1992)). See also Cabazon Band, 480 U.S. at 215 n.17 (noting that
where the legal incidence of a tax falls upon the tribe or its members, rebalancing the
state and tribal interests in every case is unnecessary because “the federal tradition of
Indian immunity from state taxation is very strong and the state interest in taxation is
correspondingly weak”). Accordingly, we now turn to the question of who bears the
motor fuel tax law’s legal incidence.
1.
For our purposes, the question of where the legal incidence of the Kansas motor
fuel tax rests is one of federal law. See United States v. Mississippi Tax Comm’n, 421
U.S. 599, 609 n. 7 (1975); Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 121 -122
(1954). Otherwise, “a state court might interpret its tax statute so as to throw tax
21
liability where it chose, even though it arbitrarily eliminated an exempt sovereign.”
Kern-Limerick, 347 U.S. at 121. But see Mescalero Apache Tribe v. O’Cheskey,
625, F.2d 967. 968-69 (10th Cir. 1980) (en banc) (citing Kern-Limerick for the
proposition that in federal court, “[t]he holding of a state court as to the incidence of
a [state] tax is generally determinative” of the issue) (emphasis added). Federal courts
are duty bound to decide for themselves “facts and constructions” upon which federal
issues turn. Kern-Limerick, 347 U.S. at 121. To determine whether the motor fuel
tax transgresses federal law, we first “look through form and behind labels to [the]
substance” of state law. City of Detroit v. Murray Corp., 355 U.S. 489, 492 (1958).
Mindful of how the tax operates under state law, we then apply federal standards
to determine where the legal incidence of the tax rests. See Kerr-Limerick,
347 U.S. at 121-22.
According to the Supreme Court, the legal incidence of a tax does not always
fall upon the entity legally liable for payment of the tax. Mississippi Tax Comm’n, 421
U.S. at 607-10. Rather, the legal incidence of a tax falls upon the entity or individual
necessarily responsible for paying the tax under the taxing statutes. Id. In the absence
of dispositive language indicating upon whom the legal incidence of a tax rests, “the
question is one of ‘fair interpretation of the taxing statute as written and applied.’”
Chickasaw Nation, 515 U.S. at 461 (quoting Chemehuevi Tribe, 474 U.S. at 11)).
Applying these principles, we agree with the district court that the legal incidence of
22
the tax law as presently written falls on the fuel distributors rather than on the Tribes.8
But see Kaul, 970 P.2d 67-69 (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).
The Kansas Motor Fuel Tax Act provides that “[a] tax per gallon or fraction
thereof, at a rate computed as prescribed . . . is hereby imposed on the use, sale or
delivery of all motor vehicle fuels . . . which are used, sold or delivered in this
state for any purpose whatsoever.” Kan. Stat. Ann. § 79-3408(a) (1999 Supp.).
Section 79-3408c appears to place a fuel tax upon both licensed distributors and retailers:
“A tax is hereby imposed on the use, sale or delivery of all motor vehicle fuel . . . by any
licensed distributor or licensed retailer . . . .” Id. § 79-3408c(a). Notably, however,
subsection (c) of § 79-3408c excludes the Tribes from the retail tax: “The provisions
of this section shall not apply to any licensed retailer who is native American whose
licensed place of business or businesses are located on such retailer’s reservation nor to
8
The State makes no counterclaim against the Tribes for taxes past due under the
Kansas Motor Fuel Tax Act, nor could it because the legal incidence, and thus liability for
payment of the tax, falls on the distributors. Even if the legal incidence of the tax fell on
the Tribes, no such action would lie because the doctrine of sovereign immunity bars the
State from seeking recourse against the Tribes. See Oklahoma Tax Comm’n v. Citizen
Band Potawatomi Indian Tribe, 498 U.S. 505, 509-14 (1991) (absent clear waiver
or congressional authorization, the sovereign immunity doctrine bars suits
against Indian tribes). Accordingly, we express no opinion on the legal incidence of
the fuel tax prior to the 1998 amendments to the Act. See Kan. Stat. Ann. §§ 79-3401
to 79-3464f (1997).
23
any native American tribes having licensed places of business or businesses located on
such tribe’s reservation.” Id. § 79-3408c(c). Perhaps most importantly, subsection
79-3408(b) provides that “the incidence of this [motor fuel] tax is imposed on the
distributor of the first receipt of the motor fuel and such taxes shall be paid but once.”
Id. § 79-3408(b).
Despite their lack of legal liability for payment of the motor fuel tax, the Tribes
argue the legal incidence of the tax falls upon them because the distributors simply pass
on the cost of the tax to the Tribes in the wholesale price. To be sure, the motor fuel tax
law presumes distributors will include the cost of the tax in their wholesale price to the
Tribes. Section 79-3409 provides: “Every distributor paying such tax or being liable
for the payment shall be entitled to charge and collect an amount, including the cost of
doing business that could include such tax on motor vehicle-fuels . . . sold or delivered by
such distributor, as a part of the selling price.” Id. § 79-3409 (emphasis added). But § 79-
3409 also presumes that retailers will pass the cost of the tax along to their consumers:
“When the price of motor vehicle fuels or special fuels . . . posted on a price sign does not
include the state and federal tax which such retail dealer’s distributor paid or for which
the distributor was liable, the total of the taxes must be shown in numbers the same size
as the price of the motor fuel.” Id.
Significantly, the law’s pass-through provision about which the Tribes complain
is permissive rather than mandatory. Compare Kern-Limerick, 347 U.S. at 111 (holding
24
unconstitutional, as applied to sales to the United States, a state sales tax statute which
purported to tax the seller, but provided that the seller “shall collect the tax levied hereby
from the purchaser”). Section 79-3409 does not require distributors to pass the cost of the
motor fuel tax to retailers; it simply permits them to do so by stating the obvious. Even
in the absence of § 79-3409, distributors could (and most assuredly would) pass along
the cost of the fuel tax to retailers; but it is not necessary that they do so. As we said of an
Oklahoma beer tax imposed on wholesalers who sold beer to tribal retailers
on tribal lands:
Even if it were true that the economic burden of the tax falls on the Tribe
because the wholesalers simply incorporate the tax into the wholesale cost,
this would not be determinative of the question of the legal incidence of the
tax. Just as a nondiscriminatory tax imposed on a private entity that does
business with the United States and that passes the cost of that tax on to the
United States does not violate federal sovereign immunity, so a
nondiscriminatory tax imposed on non-exempt private entities that do
business with Indian tribes and that pass the cost of those taxes on to
the tribes does not violate tribal sovereign immunity.
Chickasaw Nation v. Oklahoma Tax Comm’n, 31 F.3d 964, 970 (10th Cir. 1994)
(emphasis added) (internal citations omitted), aff’d in part, rev’d in part on other grounds,
515 U.S. 450 (1995).
The Tribes ask us to substitute economic assumptions for the language of the
Kansas statutes. But “[t]he question of who bears the ultimate economic burden of
the tax is distinct from the question of on whom the tax has been imposed.” Id.
at 972. “[F]ocus on a tax’s legal incidence accommodates the reality that tax
25
administration requires predictability.” Chickasaw Nation, 515 U.S. at 459-60.
“[I]f a State is unable to enforce a tax because the legal incidence of the impost is
on Indians or Indian tribes, the State generally is free to amend its law to shift the
tax’s legal incidence.” Id. at 460.
Certainly, 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. See Chickasaw Nation, 31 F.3d at 971.9
But the law does not require distributors to charge retailers the cost of the tax. Kansas
law expressly states that the legal incidence of the motor fuel tax is upon the distributors
and they are responsible for remitting the tax. Kan. Stat Ann. § 79-3408(c) (1999 Supp.).
See Moe, 425 U.S. at 482. Moreover, the law expressly exempts the Tribes from
the requirements of any retail fuel tax. Id. § 79-3408c(c). We conclude a fair reading
of the motor fuel tax law supports the district court’s determination that as applied in
this case the legal incidence of the motor fuel tax falls upon the distributors.
2.
In the alternative, the Tribes argue that even if the legal incidence of Kansas’
9
In Chickasaw Nation, we held that the legal incidence of an Oklahoma
motor fuel tax fell on the tribal retailers because the governing statutes indicated that
the distributors remitted the fuel tax “on behalf of” licensed retailers. 31 F.3d at 971-72.
The Supreme Court agreed with our construction of the Oklahoma statutes. Chickasaw
Nation, 515 U.S. at 461-62. Contrary to the Tribes’ assertions, we cannot reasonably
construe the Kansas statutes as requiring distributors to collect and remit the motor
fuel tax “on behalf of” the tribal retailers.
26
motor fuel tax falls upon the distributors, the Indian Trader Statutes, 25 U.S.C.
§§ 261-264, constitute a comprehensive federal statutory scheme which preempts the
State’s fuel tax law. See Chickasaw Nation, 515 U.S. at 459 (if the legal incidence of
a tax falls on non-Indians, a state may assess the tax if the balance of interests weighs
in favor of the state “and federal law is not to the contrary”) (emphasis added).
Although the Tribes raised and argued the trader statutes’ applicability in the district
court, the court appears to have referred to the issue only cursorily. Sac and Fox Nation,
946 F. Supp. at 889 (order granting preliminary injunction). While the question of the
trader statutes’ applicability is not wholly separate from the balancing inquiry, see
Department of Taxation and Finance v. Milhelm Attea & Bros., 512 U.S. 61, 73 (1994),
we address this issue before we proceed to our discussion of the balancing of interests.10
We review federal statutes de novo. Ben Ezra, Weinstein, and Co. v. America Online,
Inc., 206 F.3d 980, 984 (10th Cir. 2000). We conclude that the Kansas motor fuel tax law
10
In Milhem Attea, the Court explained:
Resolution of conflicts of this kind [a challenge to state regulations
allegedly preempted by the trader statutes] does not depend on rigid rules or
on mechanical or absolute conceptions of state or tribal sovereignty, but
instead on 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.
512 U.S. at 73 (internal brackets and quotations omitted).
27
is not inconsistent with the Indian Trader Statutes.11
Consistent with its power under the Indian Commerce Clause, U.S. Const.
art. I, § 8, cl. 3, Congress enacted the Indian Trader Statutes “to prevent fraud and
other abuses by persons trading with Indians.” Milhelm Attea, 512 U.S. at 70.
The statutes give the Commissioner of Indian Affairs seemingly broad power to
regulate trade with Indian tribes. Specifically, 25 U.S.C. § 261 states:
The Commissioner of Indian Affairs shall have the sole power and
authority to appoint traders to the Indian tribes and to make such rules
11
As a preliminary matter, we note that the actual Indian traders subject to the
motor fuel tax, i.e., the wholesale fuel distributors, are not parties to this suit. Thus, the
question of their joinder necessarily arises, see Fed. R. Civ. P. 19, and we address it sua
sponte. While it might have been preferable to join the distributors as parties in the
district court (at least for purposes of adjudicating the question of the traders statutes’
applicability), neither the State nor the Tribes ever raised that possibility over the course
of four years of district court litigation. Nor did the distributors, who surely are apprised
of this litigation, seek to intervene. While the distributors appear to be necessary parties
under Rule 19(a), they technically are not indispensable parties under Rule 19(b)
because their joinder appears feasible, that is to say the distributors may be joined without
destroying our subject matter jurisdiction over this cause. See Provident Tradesman
Bank v. Patterson, 390 U.S. 102, 118-119 & n.15 (1968).
Nevertheless, at this late date we are unwilling to require the distributors’
joinder because pragmatic considerations dictate otherwise. See id. at 106-107. First, the
State is foreclosed from asserting the non-joinder issue for the first time on appeal and
cannot now be heard to complain of possible relitigation with the distributors or possible
inconsistent obligations. See id. at 110; Martin v. Wilks, 490 U.S. 755, 765 (1989)
(burden is on the parties to a lawsuit to join necessary additional parties). Second, any
judgment we render regarding the trading statutes is nonbinding as to the distributors in
the context of res judicata. See Provident Tradesman, 390 U.S. at 110. Third, the
preference for joinder in the district court on efficiency grounds has all but disappeared
at this late date. See id. at 116. We simply find no compelling reason to set aside the
district court’s judgment in this case on the basis of the distributors’ non-joinder “just
because [the judgment] did not theoretically settle the whole controversy.” Id.
28
and regulations as he may deem just and proper specifying the kind and
quantity of goods and the prices at which such goods shall be sold to the
Indians.
In Warren Trading Post v. Arizona Tax Comm’n, 380 U.S. 685 (1965), the
Court interpreted the trader statutes to bar state taxation of federally licensed retail
Indian traders “on their sales to reservation Indians on a reservation.” Id. at 690
(emphasis added). See also Central Machinery Co. v. Arizona Tax Comm’n, 448
U.S. 160, 161-66 (1980) (barring the state from taxing unlicensed retailer’s sale of
farm machinery to the tribe on its reservation). Subsequently, in White Mountain Apache
Tribe v. Bracker, 448 U.S. 136 (1980), the Court held that a comprehensive federal
regulatory scheme (unrelated to the trader statutes) governing the harvest of Indian timber
preempted Arizona’s “use fuel” tax law as applied to a logging contractor operating
exclusively on federal and tribal roads within the reservation. Id. at 145-53.
Balancing the parties’ respective interests, the Court concluded:
The roads at issue have been built, maintained, and policed exclusively by
the Federal Government, the Tribe, and its contractors. We do not believe
that [the State’s] generalized interest in raising revenue is in this context
sufficient to permit its proposed intrusion into the federal regulatory scheme
with respect to the harvesting and sale of tribal timber.
Id. at 150.
More recently, in Milhelm Attea, the Court narrowed its interpretation of the
trader statutes. In that case, the Court upheld a state regulatory scheme that imposed
recordkeeping requirements and quantity limitations on cigarette wholesalers who
29
sold untaxed cigarettes to reservation Indians. The Court relied on its decisions in
Moe, 425 U.S. at 463, and Washington v. Confederated Tribes of the Colville Indian
Reservation, 447 U.S. 134 (1980), to reject “the submission that 25 U.S.C. § 261 bars any
and all state-imposed burdens on Indian traders.” Milhelm Attea, 512 U.S. at 74. In Moe,
425 U.S. at 481-83, the Court upheld Montana’s requirement that tribal retailers collect
a cigarette sales tax validly imposed on non-Indian consumers. In Colville, 447 U.S.
at 150-161, the Court upheld the State of Washington’s similar but more detailed
tobacco sales tax against a tribal challenge. From these decisions, the Court reasoned that
“[i]t would be anomalous to hold that a State could impose tax collection and
bookkeeping burdens on reservation retailers who are themselves enrolled tribal
members, including stores operated by the tribes themselves, but that similar burdens
could not be imposed on wholesalers who often . . . are not.” Milhelm Attea, 512 U.S.
at 74.12
12
In Oklahoma Tax Comm’n v. Citizen Band Potawaatomi Indian Tribe, 498 U.S.
505 (1991), the Court held that sovereign immunity barred the State of Oklahoma’s suit
against a tribe to recover cigarette taxes owed for sales to non-Indians at the tribe’s
convenience store located on the reservation. In addressing alternative remedies for the
State, the Court stated:
[U]nder today’s decision, States may of course collect the sales tax
from cigarette wholesalers, either by seizing unstamped cigarettes off
the reservation, Colville, supra, at 161-162, or by assessing wholesalers
who supplied unstamped cigarettes to the tribal stores, City Vending of
Muskogee, Inc. v. Oklahoma Tax Comm’n, 898 F.2d 122 (CA10 1990).
(continued...)
30
Our en banc decision in O’Cheskey, 625 F.2d at 967, decided after Warren
Trading and Central Machinery, is consistent with the Supreme Court’s narrowing of
the Indian Trader Statutes in Milhelm Attea. In O’Cheskey, the State of New Mexico
imposed its gross receipts tax on contractors who had done construction work for the
Mescalero Apache Tribe on reservation lands. We upheld the tax on the contractors
despite the presence of an indemnity agreement under which the tribe agreed to indemnify
the contractors for the tax. O’Cheskey, 625 F.2d at 969. Rejecting the tribe’s argument
that the Indian Trader Statutes preempted the state tax, id. at 990-91, we noted
that nothing in the record indicated the contractors performed all their work on the
reservation. Id. at 968. We reasoned that the legal incidence of the tax was on
the contractors, and concluded:
An indirect burden obviously is initially on the one for whom the services
are performed–thus on the Tribe or the Government. However, it is equally
apparent that this indirect burden is again passed on to the users of the
resort and again by them. The tax becomes dispersed. There is no way of
telling where the ultimate economic burden falls. This is the reason why
the initial incidence of the tax must be the determinative factor. It is the
only significant matter for our consideration.
O’Cheskey, 625 F.3d at 970.
Unlike Warren Trading and its progeny, the Kansas motor fuel tax law does not
impose a tax upon retail traders for trading with Indians. Milhelm Attea, 512 U.S.
(...continued)
12
Citizen Band, 498 U.S. at 514 (emphasis added).
31
at 74. Unlike White Mountain Apache Tribe, no comprehensive federal regulatory
scheme governs the wholesale distribution of motor fuel to Indian tribes. Rather,
the Kansas motor fuel tax law imposes a non-discriminatory tax on all wholesale fuel
distributors for fuel distributions to retailers within the State of Kansas–Indian or
otherwise. Nothing in the record indicates the Tribes’ distributors distribute all their
fuel, or even a significant portion of it, to the Tribes. See O’Cheskey, 625 F.2d at 968.
Thus, the threat of the distributors perpetrating fraud or abuse upon the Tribes appears
negligible. See Milhelm Attea, 512 U.S. at 70. Based upon the foregoing authorities,
we conclude that the Indian Trader Statutes do not so pervade the field that they preempt
the Kansas motor fuel tax, the legal incidence of which falls upon the distributors and
which imposes only an indirect burden on the Tribes. The only remaining question in this
case then is whether the indirect economic burden of the motor fuel tax constitutes such
an interference with the Tribes’ internal affairs as to be unlawful under Chickasaw
Nation’s balancing of interests test.
3.
The district court concluded that the balance of tribal and state interests weighed in
favor of the Tribes because (1) the State “would clearly not suffer a great deal of harm if
it were enjoined from collecting the tax” on fuel distributed to the tribal retailers, but (2)
if imposed, the tax “will have a real and direct impact on the tribes’ incomes.” Sac and
Fox Nation, 31 F. Supp. 2d at 1307. Accordingly, the court granted the Tribes’ motion
32
for summary judgment and invalidated the motor fuel tax “as it relates to transactions
involving tribal retailers.” Id. at 1308. We review the grant of summary judgment de
novo. Seamons v. Snow, 206 F.3d 1021, 1026 (10th Cir. 2000). We conclude the district
court overlooked the dictates of Supreme Court precedent and thus failed to adequately
develop the factual record before balancing the parties’ respective interests.
The Tribes’ primary argument in this case is economic. See Aples’ App.
at 20-49 (affidavits of tribal members). The Tribes assert that the motor fuel tax
jeopardizes their retail fuel sales and other revenues generated by those sales at their
convenience stores located on tribal lands which support essential tribal services to
their members. Both the Sac and Fox and Kickapoo Tribes also impose a tribal tax on
their retail sale of fuel, generating still further revenues. According to the Tribes, if the
State is allowed to tax the Tribes’ fuel distributors, the wholesale cost of fuel to the Tribes
will necessarily increase and the revenues from their retail stores will correspondingly
decrease, interfering with their sovereign right to self-government.
This is largely the same argument the Supreme Court addressed and rejected
in Colville, 447 U.S. at 154-59, where the State of Washington sought to impose a
cigarette sales tax on on-reservation purchases by nonmembers of the Tribes. In Colville,
the Court phrased the issue as “whether an Indian tribe ousts a State from any power to
tax on-reservation purchases by nonmembers of the tribe by imposing its own tax on the
transactions or by otherwise earning revenues from the tribal business.”
33
Colville, 447 U.S. at 138. The Court phrased the Tribes’ argument as follows:
If the State is permitted to impose its taxes, the Tribes will no longer
enjoy any competitive advantage vis-a-vis businesses in surrounding areas.
Indeed, because the Tribes themselves impose a tax on the transaction, if
the state tax is also collected the price charged will necessarily be higher
and the Tribes will be placed at a competitive disadvantage as compared to
businesses elsewhere. Tribal smokeshops will lose a large percentage of
their cigarette sales and the Tribes will forfeit substantial revenues. Because
of this economic impact, it is argued, the state taxes are (1) pre-empted by
federal statutes regulating Indian affairs; (2) inconsistent with the principle
of tribal self-government; and (3) invalid under “negative implications of
the Indian Commerce Clause.
Id. at 154 (emphasis in original). The Court was unpersuaded:
It is painfully apparent that the value marketed by the smokeshops to
persons coming from outside is not generated on the reservations by
activities in which the tribes have a significant interest. What the
smokeshops offer these customers, and what is not available elsewhere,
is solely an exemption from state taxation. The Tribes assert the power to
create such exemptions by imposing their own taxes or otherwise earning
revenues by participating in the reservation enterprises. If this assertion
were accepted, the Tribes could impose a nominal tax and open chains of
discount stores at reservations borders, selling goods of all descriptions at
deep discounts and drawing customers from surrounding areas. We do
not believe that principles of federal Indian law, whether stated in terms of
pre-emption, tribal self-government, or otherwise, authorize Indian tribes
thus to market an exemption from state taxation to persons who would
normally do their business elsewhere.
Id. at 155.
We are well aware that the tax at issue in Colville was a sales tax imposed down
stream on purchases made by non-tribal consumers only. Because the legal incidence
of the tax in Colville fell on the purchaser, the state had no power to tax tribal members
making purchases on the reservation. See Chickasaw Nation, 515 U.S. at 453. In our
34
case, the legal incidence of the motor fuel tax is imposed up stream on the wholesale
distributor and no exemption is allowed for retail fuel sales to tribal members.13 Important
similarities, however, also exist between Colville and this case–(1) a tax the legal
incidence of which falls on non-Indians and (2) tribal complaints based on the realities of
the marketplace. In both cases, the ultimate economic burden of the tax most assuredly
falls on the consumer.
We acknowledge that Kansas’ motor fuel tax law as presently applied might sweep
too broadly. In other words, if a substantial portion of the Tribes’ retail fuel sales are to
tribal members, the Tribes’ argument that the indirect burden of the fuel tax improperly
interferes with their internal affairs would not be without force. Based on the record
before us, however, we are unable to discern what portion of tribal fuel sales are to tribal
members as opposed to consumers traveling from outside Indian land.14 Compare
13
A prior version of the motor fuel tax law exempted from the tax–
The sale or delivery of motor-vehicle fuel . . . to the United States of
America and such of its agencies as are not or hereafter exempt by law from
liability to state taxation, except that this exemption shall not be allowed if
the sale or delivery of motor-vehicle fuel . . . is to a retail dealer located on
an Indian reservation in the state and such motor-vehicle fuel . . . is sold or
delivered to a nonmember of such reservation.
Kan. Stat. Ann. § 79-3408g(d)(2) (1997) (repealed).
14
In his affidavit, Corbin Shuckahosse, Chairperson of the Sac and Fox Nation,
states:
[T]he pricing of the [Tribe’s] fuel draws customers into the Trad’N Post,
(continued...)
35
Colville, 447 U.S. at 145 (noting that Indian tobacco dealers made a “large majority”
of their reservation sales to non-Indians seeking to take advantage of the claimed tribal
exemption from the state’s cigarette sales tax).
While we are not unsympathetic to the Tribes’ quandary, the Supreme Court
has never “gone so far as to grant tribal enterprises selling goods to nonmembers an
artificial competitive advantage over all other businesses.” Colville, 447 U.S. at 155.
In fact, a tax on non-Indians “may be valid even if it seriously disadvantages or eliminates
the Indian retailer’s business with non-Indians.” Id. at 151 “[T]he Tribes have no vested
right to a certain volume of sales to non-Indians, or indeed to any such sales at all.”
Id. at 151 n.27.
To be sure, the Tribes have an interest in raising revenues to support essential
tribal services to benefit their members. “That interest is strongest when the revenues
14
(...continued)
as the sale of other miscellaneous items at the Trad’N Post . . . is also
attributable to the fuel sales. Without the draw of the lost-cost fuel,
customers would no longer bring their business to the Trad’N Post,
and the additional revenue would be lost to the Nation.
Aples’ App. at 21. Similarly, Nancy Bear, Chairperson of the Kickapoo tribe, attests–
[T]he sale of [fuel and oil] products draws customers and creates business
that also generates the sale of other miscellaneous items . . . . Without the
draw of the sale of fuel at a competitive price, customers would no longer
bring their business to the Kickapoo Tribe Trading Post and the additional
revenues from the trading post would be lost to the Tribe.
Id. at 25.
36
are derived from value generated on the reservation by activities involving the Tribes
and when the taxpayer is the recipient of tribal services.” Id. at 156-57. At the same
time, “Congress has made it clear in no uncertain terms that a state has a special and
fundamental interest in its tax collection system.” ANR Pipeline Co. v. LaFaver,
150 F.3d 1178, 1193 (10th Cir. 1998). A state’s interest is “strongest when the tax
is directed at off-reservation value and when the taxpayer is the recipient of state
services.” Colville, 447 U.S. at 157.15
Like the tribe’s cigarette sales in Colville, in this case the revenues resulting
from the Tribes’ retail fuel sales to non-Indian consumers traveling from outside Indian
lands is not derived from value “generated on the reservations by activities in which the
Tribes have a significant interest.” Id. at 155. Although the result of the motor fuel tax
may be to lessen, or even eliminate, tribal commerce with non-members, that market
exists only because of the Tribes’ claimed exemption from the fuel tax. See id. at 157.
15
The express purpose of the motor fuel tax appears to benefit all who use the
public highways in the State of Kansas–wholesalers who deliver the fuel over state
highways, retailers whose businesses are located on or near state highways, and
consumers who drive on state highways:
Purpose of tax. The tax imposed by this act is levied for the purpose of
producing revenue to be used by the state of Kansas to defray in whole, or
in part, the cost of constructing, widening, purchasing of right-of-way,
reconstructing, maintaining, surfacing, resurfacing and repairing the public
highways . . . and for no other purpose whatever.
Kan. Stat. Ann. § 79-3402 (1999 Supp.).
37
However, until the Tribes provide us with verifiable projections based upon historic
statistics indicating what portion of the Tribes’ retail fuel sales is made to tribal members
as compared to the general public, see Oklahoma Tax Comm’n v. Sac and Fox Nation,
508 U.S. 114, 128 (1993) (remanding for a determination of “whether the tribal members
on whom Oklahoma attempts to impose its income and motor vehicle fuel taxes live in
Indian country”), and what the precise economic realities of the situation are both in the
presence and absence of the motor fuel tax, we cannot adequately balance the federal,
tribal, and state interests as Supreme Court authority at this point requires. 16 But see
Colville, 447 U.S. at 176-181 (Rehnquist, J., dissenting in part) (criticizing the balance
of interests test as too fact specific and endorsing an inquiry based solely on
congressional intent). In this regard, we note that on remand the burden is on
the Tribes to show whether and to what extent the motor fuel tax would burden commerce
derived from value generated on Indian lands. See id at 157-58 (placing burden on the
tribe to show that absent a credit for tribal taxes paid, business at the smokeshops would
be significantly reduced).
16
Because the district court considered only the enforceability of the Kansas
motor fuel tax on its face, we do not address the question of whether the tax, even if it
survives Chickasaw Nation’s balancing test generally, is invalid insofar as it is applied
to fuel sold by the Tribes to customers who are tribal members and reservation residents.
See Moe, 425 U.S. at 480-81. We leave consideration of that question in the first
instance to the district court on remand.
38
Accordingly, the judgment of the district court is REVERSED and this cause
REMANDED for further proceedings consistent with this opinion.
39
SAC and Fox Nation v. Pierce
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