2011 Gaming Industry Forecast: Year of the ‘New Normal’

Gabe Galanda is featured in Casino Enterprise Magazine's 2011 Gaming Industry Forecast.

Indian Country, be warned: the state tax man cometh in 2011.

In the coming year, state and local government will aggressively attempt to tax tribal governmental gaming proceeds. The states are facing a $112 billion budget deficit maelstrom, and desperately looking for novel revenue sources. Offices of state governors, treasurers and revenue agents and local tax assessors, not to mention state legislators and county officials, are already looking to the tribal gaming industry to replenish state coffers.

Congress has declared that Indian gaming activities cannot be taxed. Period. States must remember that the United States Constitution vests the Federal Government with authority over tribal “commerce,” in recognition of the inherent sovereignty of tribal governments, and as such, Indian tribes and tribal members are exempt from state taxation within tribal territory. Period.

For these reasons, the federal appellate courts have time and again foreclosed efforts of states like California that demand a percentage of a tribe’s net gaming revenues, most recently saying that such a revenue-sharing demand constitutes not only bad faith, but an illegal tax on Indian gaming.

Still, as log as tribal governmental gaming is profitable, “rational actors” in state and local government will attempt to impose “fees” on tribal gaming manufacturers, distributors and service suppliers. To be clear, “fees” that resemble taxes on Indian gaming proceeds have also been struck down by the federal circuit courts. But that will not stop states from assessing fees and forcing the issue of whether the fees are illegal taxes into a state or federal – meaning non-tribal ¬ court. They will tax now, and sort out the illegalities later.

State and local tax collectors will also look for any opportunity to tax those net gaming revenues that tribes use for economic development (as expressly intended by IGRA) in partnership with private industry. Whether the subject of state or local taxation is tribal cigarettes, hotel rooms, concessions, or even property, the state tax man cometh.

Accordingly, tribal governments and their gaming enterprises and business partners must redouble their efforts to prevent taxation of the tribal treasury. Indian gaming leaders should re-evaluate the terms of their business partnerships, and related federal, state and tribal tax law, to make sure the deal is bulletproof regarding non-tribal taxation. If necessary to prevent against the possibility of non-tribal tax assessment, deals should be restructured. Do so now rather than wait for the inevitable attack.

Tribal leaders should legislate what matters are, and are not, taxable, as a matter of tribal law. The tribe may desire to impose excise taxes on the on-reservation sales of various commodities, such as cigarettes, fuel or lodging; yet explicitly bar any taxation of certain business activities or of any form of property on tribal lands. In this way, the tribe will help exclude state and local taxation of reservation-based transactions.

Tribes and their gaming business partners must also be vigilant in attacking any state legislation or administrative rulemaking that seeks to impose taxes or “fees” against tribal gaming vendors.

Will your tribe and tribal gaming enterprise be ready when the state tax man cometh in 2011?

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  He can be reached at 206.691.3631 or gabe@galandabroadman.com, or via galandabroadman.com.