Tax-Free Inter-Tribal Commerce Upheld By U.S. District Court

On October 18, the U.S. District Court for the Southern District of California issued a preliminary injunction ruling that affirmed the tax-free distribution and discount sale of tribal fuel. A quick overview of the facts: -- The Torres-Martinez Tribe developed the Red Earth Travel Center on tribal trust lands; -- A Yakama-member-owned business, First American Petroleum, provides tax-free fuel to the Red Earth Travel Center; -- The Torres-Martinez Tribe has delegated certain fuel management authority to First American Petroleum for purpose of obtaining tax-free fuel for the Red Earth Travel Center; -- First American Petroleum transports tax-free fuel to Red Earth Travel Center; -- The Torres-Martinez Tribe "sells fuel and convenience stores items at the travel center to help support the tribal economy"; and -- Ultimately, state fuel or travel-related taxes are not imposed on the Torres-Martinez Tribe or First American Petroleum and those tax savings are passed on to non-Indian patrons of Red Earth Travel Center.

Not only did the District Court hold that fuel or travel-related taxes could not be assessed on First American Petroleum (at least preliminarily) but it acknowledged that the Torres-Martinez Tribe could not be sued for tax collection due to its sovereign immunity. In other words, any California right to collect excise taxes on the fuel sold at the Red Earth Travel Center cannot, as a practical matter, be collected.

The Southern District of California's decision currently stands as a wonderful affirmation of tax-free inter-tribal commerce.

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.

Gabe Galanda's "Attack on the Tribal Middle Class" Series Published by Indian Country Today

The Indian Country Today Media Network has published Part One of Gabe Galanda's three-part series, "Attack on the Tribal Middle Class."

No matter what the growing “Occupy Wall Street” movement seeks to accomplish, it has struck a nerve. Members of the American middle class are losing jobs, homes and savings because of the greed and carelessness of “too-big-to-fail” banks. Meanwhile “the country’s six largest financial institutions . . . now have amassed assets equal to more than 60% of our gross domestic product” (The Guardian). That wealth is not trickling down. According to a recent international study, the United States has the fourth highest income inequality rate per capita – trailing only Chile, Mexico and Turkey.

Make no mistake, the American middle class is hurting. Yet while the non-Indian middle class is at least being considered for U.S. governmental support, the tribal middle class – no stranger to the acute pains of economic recession or income inequality – faces rising attack by state and federal government.

Generally speaking, the middle class is comprised of persons with regular, formal employment, a salary and some benefits, and a reasonable amount of discretionary income – in other words, people who are not living hand-to-mouth. As one economist explains, the middle class are “people who are not resigned to a life of poverty, who are prepared to make sacrifices to create a better life for themselves but who have not started with life’s material problems solved because they have material assets to make their lives easy” (The Economist).

While innumerable Indians still live in abject poverty (despite Indian gaming), an increasing number of tribal citizens are now firmly part of the middle class as a result of hard work and sacrifice. This three-part series explores the tribal middle class, beginning below with a discussion of its genesis, which ironically was the result of federal policies that sought to destroy Indian America. Part Two will consider the emergence of a distinctly tribal middle class, including the tribal small business/private sector, as a consequence of Indian self-determination policy. Part Three will examine the rising national attack on the tribal middle class and how Indian Country might countervail that attack.

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.

Seattle Native American Attorney Gabe Galanda to Deliver Speech to University of Arizona Indigenous Law Students

Gabe Galanda will speak to the Indigenous Peoples Law and Policy Program at his alma mater, the University of Arizona College of Law on October 27. His speech is titled, "The Federal Indian Consultation Right: What's Old is New." 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.

How States' "Amazon" Tax Policy Impacts Indian Country Taxation

In a battle over sales tax collection between Amazon.com and California that could have had implications for Indian Country taxation, the online retailer backed down last month. Amazon cut a similar deal with Tennessee on Thursday.  For years, Amazon has refused to collect sales taxes in states where it claims it is not physically present. Amazon’s argument will have familiar elements for those of us in the tribal tax world.

In fact, the undergirding of Amazon’s argument is the 1992 Supreme Court decision Quill Corporation v. North Dakota, in which the Court held that states cannot require vendors to collect sales taxes if they do not have a physical presence in the state.

The case was recently relied upon in Red Earth LLC v. United States by the Second Circuit in striking down part of the PACT Act.

As predicted early and often here, states today (like all governments) are tax starved and leaving no stone unturned in their quest for novel revenue sources.

Amazon, like Tribal entrepreneurs, with billions of alleged uncollected sales taxes nationwide, stood right in states’ path.  For years, Amazon collected taxes in a few states, like Washington, where it’s based. Other states like California argued that Amazon was physically in those states through the presence of facilities and affiliates. Obviously, Amazon disagreed.  The case was headed for high places, and, if the Supreme Court got a hold of it, we could certainly have found ourselves with new rules about sales tax, due process, and taxing nexus.

Then, last month Amazon backed down and agreed that, in a year, it will start collecting sales tax in California.  The year grace period may give the company time to lobby for a federal fix. In the meantime, it has started the dominos elsewhere, including Tennessee’s deal with Amazon on Thursday. Tennesee’s deal starts in 2014.

States aren’t giving away revenue they believe they are entitled to for free.  Amazon has promised to add thousands of jobs and invest several hundred million dollars in the states with whom it has deals.  And for its part, Amazon is presumably spending less on jobs and investment than it would be on collecting sales taxes in California, for instance, in the near term.  The company is probably waiting to see whether federal legislation introduced by Senator Durbin (D-Ill.) will create a uniform national internet retail tax (state taxes, supported by big business, enforced by federal government – sound familiar?)

What’s should be most disturbing to Tribes is states’ willingness to forego tax collection in exchange for capital investment, jobs, and general economic development. When Tribes offer the same, and simply expect to be treated as a government, rather than a corporate entity, states often balk.  The argument for predictable Tribal-state (or -local) taxing agreements is at least as compelling as the case for Amazon’s deal with a growing number of states.

In addition, furthering the double standard of Indian Country taxation, Amazon has made it easy for many customers to not pay sales tax – even though sales tax is probably due – tribal members in Washington Indian Country have to go through a comparably intricate process to avoid paying taxes that are not due.

Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or anthony@galandabroadman.com, or or via galandabroadman.com.

Anthony Broadman Makes the Case for an Advisory Set of NIGC MICS

Anthony Broadman has published "At a Minimum: The Legal Case for Advisory MICS," in Casino Enterprise Magazine.

For Indian gaming attorneys, the CRIT decision evoked many questions that have yet to be answered. Earlier this year, Norman H. DesRosiers, Commissioner of the San Manuel Tribal Gaming Commission, brought some of these questions to the forefront in his article, A Closer Look at the NIGC’s Class III MICS, INDIAN GAMING, March 2011, at 28. Some of the gaps created by the CRIT opinion and exposed by Mr. DesRosiers deserve further exploration. In denying the NIGC the regulatory authority to issue binding regulations, the CRIT opinion struck the proper balance between tribal and federal regulatory powers. CRIT did not, however, render the NIGC MICS inoperable or unnecessary, nor did it strike down the authority of the NIGC to promulgate MICS pursuant to other administrative procedures. Indeed, CRIT revealed the appropriate place for the NIGC MICS: advisory regulations issued in order to provide a default template for tribal-state compact negotiation. In short, short of an intolerable intrusion of the NIGC into tribal regulatory authority, NIGC MICS are still permissible and potentially useful – if for no other reason than to keep states out of the tribal internal gaming control arena and Congress from seeking to amend the Indian Gaming Regulatory Act (IGRA).

Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or anthony@galandabroadman.com, or or via galandabroadman.com.

Galanda Broadman Tribal Lawyers in the News

Indian Gaming magazine features Gabe Galanda ("Galanda Named to Best Lawyers in America") and Anthony Broadman ("Indian Law Attorney Elected as Chair of Washington State Bar Administrative Law Section") in the publication's mega G2E edition. Galanda Broadman is a majority Indian-owned law firm that represents tribal governments, businesses and members in critical litigation, business and regulatory matters.

Extra, Extra! "Galanda Broadman Adds Ryan Dreveskracht to Growing Staff"

Read all about it. Galanda Broadman is a majority Indian-owned law firm that represents tribal governments, businesses and members in critical litigation, business and regulatory matters.

Tribal-County Payment In Lieu of Taxes Is Good Governance

An Idaho state official has expressed concern about a potential agreement between an Idaho county and neighboring tribal government for tribal payment of monies in lieu of property taxes. The official's concern is old hat. He needs a new hat. As Mark Trahant rightly observes, tribes and counties are better off working together than fighting each other over property taxation. That is especially true because any county effort to enforce property taxes against a tribal government presents a "rights without remedy" dilemma for the county, given the doctrine of tribal sovereign immunity. See Oklahoma Tax Commission v. Citizen Band of Potawatomi Tribe of Oklahoma, 498 U.S. 505, 515 (1991). In other words, property tax controversy with tribes is a zero sum game for county government.

Indeed, the better approach is for neighbor counties and tribal governments to negotiate (or at least consult and attempt to negotiate) some cash or in-kind payment in lieu of taxes to any inter-local property tax dispute. Such an outcome a win win situation.

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.

[Also tagged under "mixed metaphors."]

AUTO v. Washington: An Imminent Threat to Washington Tribes’ Sovereignty

Make no mistake, the lawsuit brought by the Washington Automotive United Trades Organization (AUTO) seeks to eviscerate Washington tribes’ intergovernmental sovereign immunity and expose Tribal governments to suit by third parties based on agreements Tribes have entered into with the state. This month, the Supreme Court of the State of Washington agreed to hear the appeal of AUTO v. Washington, or as AUTO calls it, “AUTO v. Governor Gregoire.” A more accurate title might be AUTO v. Washington Indian Country. AUTO is targeting state-Tribal compacts, presumably because Tribal fuel enterprises are competitors. AUTO argues that the state and Governor are violating the Washington Constitution by entering into the fuel compacts with Tribes and that the legislative system surrounding the compacts itself is illegal. Never mind that Washington’s approach to the tribal fuel tax conundrum is the state’s attempt to comply with binding federal law related to taxation in Indian Country.

The state Supreme Court accepted review of the Gray’s Harbor Superior Court order dismissing AUTO’s case based on the indispensability of several Washington Indian Tribes, who are necessary parties to the case. The procedural concept of indispensability requires a case to be dismissed if there is a party who should be a part of the case but cannot be joined due to, for instance, sovereign immunity. It can be a muddy procedural doctrine, but it’s one that often protects Tribal interests, since those interests should not be adjudicated unless Tribal sovereigns agree on the forum.

What can we expect? There are several reasons for Washington Indian Country (and Indian Country at large) to be concerned. First, the state Supreme Court decided to review the case. That decision itself can probably be accurately viewed as negative for Tribes since the trial court’s decision appears to have been correct under the Washington Civil Rules and cases interpreting them.

Second, the core of the anti-Tribal dissent in Wright v. CTEC, the last significant Washington Supreme Court on tribal sovereign immunity, remains on the Court. The Justices who will likely participate in AUTO and voted in Wright, are split 3-3 (Justices Chambers, C. Johnson, and J. Johnson against tribal interests v. Justices Madsen, Owens and Fairhurst for them). The addition of Justices Stephens, and Wiggins, possibly with Justice Alexander’s replacement, make this one tough to handicap.

Add the Court’s recent frenetic approach in State v. Eriksen to the mix (affirmation of conviction; reconsideration; withdrawal of opinion; affirmation of conviction; reconsideration; withdrawal of opinion; reversal) and things become even more muddled. Although Eriksen was not a sovereign immunity case, the Court was forced -- or chose -- to examine tribal sovereignty relative to the state in the criminal context. The Court was again well split, this time with Justices Owens, C. Johnson, and Chambers finding, correctly, that the Lummi Nation’s inherent authority justified the detention of a dangerously intoxicated non-Indian driver.

More recent arrivals Justices Stephens and Wiggins made a majority with Justices Fairhurst, Madsen, and J. Johnson, holding that the Lummi Nation could not stop and detain a drunk driver off the Reservation until non-Tribal cops could arrive. Again, Eriksen shares little with AUTO, but taking a simplistic pro- or anti-tribal snapshot of the court suggests that if Justice Alexander, set for mandatory retirement this year, does not participate in AUTO, the court could split as follows, depending on whether Wright or Eriksen describes the voting lines:

AUTO is far more analogous to Wright, as procedural issues of sovereign immunity are at play. And it’s certainly not fair or accurate at this point to cast any justice as anti- or pro-Tribal based on these two cases. Indeed, outside the Tribal bar Wright and AUTO might be viewed as cases more about civil procedure (Rule 19 for AUTO and the CR 12(b) standard for Wright) than Tribal sovereignty. At least the results of AUTO will provide court-watchers with more data for guessing at results.

Still, it’s clear what AUTO is targeting legally. As set forth clearly in its brief, AUTO argues that (1) it can join Tribes in the suit by suing tribal officials in their official capacity and (2) Tribes waived their sovereign immunity, apparently as to AUTO, by entering into the fuel compacts. While these claims seem patently wrong, they are the very type of procedural formalisms anti-Tribal jurists can hide behind in fashioning novel expansions of the law related to Tribal sovereign immunity. Stay tuned.

Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or anthony@galandabroadman.com, or or via galandabroadman.com.

PACT Act Provision Likely Unconstitutional

The Second Circuit Court of Appeals held today that a provision of the Prevent All Cigarette Trafficking (“PACT”) Act is likely unconstitutional and upheld an injunction halting enforcement of the new law against Red Earth.  The Second Circuit’s decision in Red Earth v. USA signals federal courts’ willingness to scrutinize the federal governments’ scorched-earth approach to tribal tobacco economies.  Critically, it was not a tribal tax rule that halted enforcement, but rather the most basic tenet of Constitutional law: due process.  Putting it even more simply, the PACT Act wasn’t fair. Red Earth d/b/a Seneca Smokeshop (“Red Earth”), a tribal-member owned tobacco retailer on Seneca’s Cattaraugus Indian Reservation in New York, prevailed against the United States at the trial court level earlier this year.  The U.S. District Court for the Western District of New York held in July that the PACT Act’s provision requiring out-of-state tobacco sellers to pay state excise taxes regardless of their contact with that state violated due process.  The court explained clearly, and not controversially, that due process requires an out-of-state seller to maintain minimum contacts with a state before the state can subject it to taxation.  This isn’t even basic Indian tax law, but basic tax law – even basic Constitutional law.  The district court found that the PACT Act’s mandate that delivery sellers pay state taxes without regard to their contact with that state effectively “legislate[d] the due process requirement out of the equation.”  Red Earth LLC v. United States, 728 F. Supp. 2d 238, 252 (W.D.N.Y. 2010).  Today, the Second Circuit agreed, noting that Congress does not have the power to authorize violations of the Due Process Clause of the U.S. Constitution.  If the case goes forward, expect it to hinge on whether a single sale into a taxing forum is sufficient to satisfy the requirements of due process.

Regrettably, the Second Circuit rejected Red Earth’s claims that the PACT Act was motivated by discriminatory animus toward Native Americans and that its application results in a discriminatory effect.  Red Earth’s claim was not a throwaway discrimination argument.  As the district court observed, the PACT Act would have a grossly disproportionate effect on Tribal business, which comprises at least 80 percent of delivery sellers targeted by the PACT Act. In addition, Red Earth has presented evidence that when a letter from the Seneca Nation was introduced into the PACT Act congressional record, there was laughter in the gallery.  The Second Circuit was nearly as dismissive, relying on the black letter of the law to find that “Congress’s intent in passing the PACT Act was to curtail what it believed to be improper assertions of Native American sovereignty, not to purposefully discriminate against Native Americans as a group.”  It’s difficult to discern the distinction.

In a portion of the Second Circuit’s decision that may have no role in the case itself, the court confirmed a potentially significant channel for challenging federal involvement in state taxes.  The trial court had rejected Red Earth’s argument that by attempting to levy state and local taxes, Congress is acting outside its enumerated powers in violation of the Tenth Amendment.  But while the case was pending, the U.S. Supreme Court made clear that an individual business can have standing to pursue a Tenth Amendment claim.  Again, although Tenth Amendment standing may play no role in the outcome of Red Earth, it remains absolutely critical as states and the federal government join forces to fight tribal economic development.  As cash-starved states know, they lack plenary taxing authority in Indian Country.  Their solution, all too often, is to come to Indian Country in sheep’s (federal) clothing, and take the taxes they believe they are owed through federal might.  Now, at least the Second Circuit will entertain challenges to this practice.  When tested Congress’s attempts to apply state and local taxes in Indian Country, especially without Tribal consultation and approval, should be rejected.

In all, Red Earth v. USA presents a significant if preliminary win for tribal sovereignty and the ability of tribal governments to sustain economic development absent state and federal interference.

Anthony Broadman is a partner at Galanda Broadman PLLC.  He can be reached at 206.321.2672, anthony@galandabroadman.com, or via www.galandabroadman.com.