Connecticut District Court Resucsitates Bracker Balancing and Tax-Free Native-to-Native Commerce

On March 27, 2012, the U.S. District Court for the District of Connecticut ruled that a local government could not assess personal property taxes against Class III slot machines. The decision in Mashantucket Pequot Tribe v. Town of Leydard is here and related news coverage quoting Gabe Galanda is here. Beyond the court's specific holding, which represents a scarce tax win for Indian Country of late, the decision stands to rebuff an increasingly common arguments by states in justification of state taxation of Native-to-Native or Reservation-to-Reservation commerce. Due to Congress' preemption of the Indian gaming field and clear prohibition on state taxation of Indian gaming, per IGRA, the decision affirmed what was widely believed to be the law: that is, that states and local governments cannot assess personal property taxes against Class II or III gaming devices. Of broader significance, the Connecticut District Court's decision in Leydard stands to defeat arguments increasingly advanced by state tax assessors that to the extent Indians traverse state-funded highways in trading goods or engaging in commerce from Reservation to Reservation, states can tax those activities.

Last year, the Tenth Circuit Court of Appeals ruled that state roads traversed by non-Indian extraction companies while taking oil and gas to market represented a “substantial” state interest. That interest ultimately tipped the Bracker balancing away from tax preemption, in favor of the state, and gave more state tax collectors even more reason to argue that state roads represent a so-called state burden that justifies state taxation of Reservation-to-Reservation commerce.

But in Leydard, the District Court rejected such an argument on the part of the township:

The maintenance of the roads to the Reservation has some connection to the taxed activity because the leased gaming equipment was brought onto the Reservation by way of the roads and the individuals who use the gaming equipment also use the roads to the Reservation. However, even if the Tribe did not lease the gaming equipment, the Town would need to maintain roads to provide access to the Reservation for individuals living on and off the Reservation. Thus, the State and Town’s interest in taxing the leased equipment fails to justify the economic burden on the Tribe that compromises substantial federal and Tribal interests in tribal self-determination and self-government pursuant to comprehensive federal regulation. The tax is preempted pursuant to Bracker balancing.

In all, the Leydard decision helps tip the Bracker scale back in favor of Indian Country, especially as to tax-free Native-to-Native or Reservation-to-Reservation commerce.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  Gabe helps tribes and Indian small businesses with economic diversification efforts, with an emphasis on minimizing state interference or taxation. Gabe can be reached at 206.691.3631 or