Federal Laws of General Applicability

Ryan Dreveskracht's Paper on the VAWA Reauthorization and Oliphant Fix Accepted for Law Review Publication

Ryan Dreveskracht's paper, “House Republicans Add Insult to Native Womens’ Injury,” has been accepted for publication in the University of Miami Race and Social Justice Law Review. Turtle Talk has published his manuscript.

Ryan Dreveskracht is an Associate at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm. His practice focuses on representing businesses and tribal governments in public affairs, energy, gaming, taxation, and general economic development. He can be reached at 206.909.3842 or ryan@galandabroadman.com.

Tribal Regulation Immunizes Certain Tobacco Sales from Federal-State Interference

Cigarettes sold by a tribally licensed retailer and pursuant to a state-tribe cigarette agreement are not contraband for purposes of the federal Contraband Cigarette Trafficking Act (CCTA) – even if they are contraband under state law. United States v. Wilbur, 10-30185, 2012 WL 1139078 (9th Cir. Apr. 6, 2012). The Ninth Circuit ruled last week in Wilbur that even if cigarettes are transported in violation of state law, the CCTA only makes cigarettes “contraband” in this context if they “bear no evidence of the payment of applicable State or local cigarette taxes in the State or locality where such cigarettes are found.” 18 U.S.C. § 2341(2). The cigarettes at issue during one period of the Wilbur case were unstamped. But the defendants qualified as an Indian retailer under Washington state law, came partially within the constraints of a tribal tobacco tax compact, and therefore were not subject to state taxes – even though they were allegedly illegal under state cigarette transportation laws and were out of compliance with some tribal regulations.

At its core, for the period in which convictions were overturned, the decision implicitly recognized the legitimacy of tribal tobacco regulation. This could, by analogy or otherwise, undercut the interpretation of the PACT Act by federal agencies that suggests tribal tobacco entities must be licensed by the state to be considered “lawfully operating” under that federal law.

The Wilbur defendants’ convictions were upheld for other periods of the alleged conspiracy. And of more concern is the appearance of state officers acting in federal clothing. As the opinion observed, “a Lieutenant with the Washington State Liquor Control Board who was deputized as a Special Deputy U.S. Marshall, led the search” of the defendants’ retail facility. Although tribal law enforcement also participated in the raids, it is nonetheless noteworthy that reliance by federal statute on state law predicates is problematic in the face of “the right of reservation Indians to make their own laws and be ruled by them.” Williams v. Lee, 358 U.S. 217, 220 (1959).

The apparent ability for state officers to don federal clothing and enforce the state-federal hybrid criminal frameworks on reservations is an even more profound threat to that right. As explicitly contemplated by the Tribal Law and Order Act, if federally deputized non-federal officers are enforcing laws on the Reservation, it should be federally deputized tribal officers doing so. This concern is of course nothing new, as Indian Country braces for and resists the STOP Act, which would essentially import state and big-tobacco interests into Reservation economies under color of federal law. Wolves in sheep’s clothing; Trojan horse; pick your cliché.

Besides the clarity provided by Wilbur, and its limitation on the reach of the CCTA, in the end, a state was still able to enforce its laws on the Reservation, against Reservation Indians.

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.

Indian Country Must Stop the STOP Act!

Indian tribes are not engaged in illegal smuggling of tobacco.  Indian tribes oppose the STOP Act because it interferes with completely legal tobacco sales on Indian reservations, and with tribal government collection of tobacco taxes that fund critical governmental services. Tribal entrepreneurs, regulated and taxed by tribal governments, are able to sell their products at below-market prices because they are not part of the Big Tobacco market.  Big Tobacco has sought to monopolize and price-fix through state taxation and regulation, particularly through those provisions of state law that implement the Master Settlement Agreement.  The STOP Act would tip the scales towards Big Tobacco, via the states, through state tax collection and the standardization of tobacco prices before tobacco products ever reach Indian Reservations.  These revenue-controlling provisions of the STOP Act have nothing to do with public health or child welfare.

Further, the STOP Act will very likely violate U.S. Constitutionally protected Indian Treaties and upset tribal-state tax compacts; undermine the legal tribal manufacture of tobacco; and impermissibly sanction tribal commerce – exchange that is protected by the federal Constitution’s mandate that Congress regulate commerce “among the several states, and with the Indian tribes.”   It is time for Congress to stand up to its responsibilities and fully include Indian tribal regulatory and taxing authority in the laws that regulate commerce in tobacco.

Section 103(a) would require that every manufacturer or importer (including tribal governments) stamp each tobacco package with a “unique identification marker.”  Although 103(b) requires that the “unique identification marker” “not interfere” with state, local or Indian tax stamps, the marker would be designed to “facilitate collection of” all currently applicable state and federal taxes and to “facilitate the enforcement” of other federal laws against tribal manufacturers, wholesalers or distributors, such as the PACT Act.  The marker must provide the “value” of the marker, a tracking code, the name and address of the stamper, the date that it was stamped, and the name and address of the “first unrelated person purchasing or otherwise receiving” the product.  Although the “marker” is couched as a tracking device, rather than a tax stamp, the statute arguably leaves room for all forms taxation at the manufacturer level.  The fact that the stamp has a “value” is especially telling.

Section 105(a) would require that every tribal manufacturer, wholesaler or importer of tobacco obtain a permit from the Secretary of Treasury (presumably).  In order to obtain the permit, the applicant must be in compliance with the PACT Act, the Jenkins Act, and numerous other tobacco-specific laws and regulations.  The applicant must also be in compliance with “all other Federal, State, and Indian tribal laws relating to the taxation, manufacture, importation, exportation, distribution, marketing, sale, or transportation of tobacco products . . . .”  In other words, it forces tribal manufacturers, wholesalers, and importers to comply with state laws (even if not expressly subject to state taxation per Section 301).  Importantly, it also forces tribal manufacturers to comply with state laws that implement the Master Settlement Agreement, something that tribes had nothing to do with.

Section 108(b) would make it illegal to ship, transport, deliver, or receive any tobacco products that are unstamped.  It also makes it illegal to sell more than 3,000 cigarettes in a single transaction or a series of related transactions.  Considering how the Department of Justice has to date construed the PACT Act and its definitions of “inter-state commerce” and “delivery seller,” Section 108(b) likely interferes with certain Indian Treaty rights to travel for purpose of commerce, including tobacco commerce, unfettered from state and federal limitations.  See, e.g., The Treaty With the Yakama, 12 Stat. 951, Art. III (1859).

Section 301 says that “[n]othing in this Act or the amendments made by this Act shall be construed to amend, modify, or otherwise affect . . . any agreements, compacts, or other intergovernmental agreements . . . relating to the collection of taxes on tobacco products sold in Indian country.”  Of course, these agreements and compacts arose in a different climate, one where federal law did not sanction the collection of state taxes and otherwise subjecting tribal governments to local restrictions.  Under the STOP Act, states no longer have an incentive to stay in compliance with these agreements because the execution of otherwise non-enforceable state regulations can now be facilitated in Indian Country by the United States and its Treasury and Justice Departments.

Section 301 does contain the following disclaimer:

Nothing in this Act or the amendments made by this Act shall be construed to amend, modify, or otherwise affect . . . any limitations under Federal or State law, including Federal common law and treaties, on State, local, and tribal tax and regulatory authority with respect to the sale, use, or distribution of tobacco products or processed tobacco by or to Indian tribes, tribal members, tribal enterprises, or in Indian country; . . . any Federal law, including Federal common law and treaties, regarding State jurisdiction, or lack thereof, over any Indian tribe, tribal member, tribal enterprise, Indian reservations, or other land held by the United States in trust for one or more Indian tribes; or . . . any State or local government authority to bring enforcement actions against persons located in Indian country.

This savings clause is similar to that of Section 5 the PACT Act.  However, as we have seen with the PACT Act, such provisions are not enough to deter states and Big Tobacco from seeking to destroy inter-tribal tobacco commerce via state regulation and taxation and federal enforcement.  In order to be effective, the savings clause should specifically integrate tribal governments as appropriate regulatory and tax collection entities on the same basis as state governments, as well disclaim any application of state regulations to tribal tobacco businesses acting in Indian Country, especially in inter-tribal 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 gabe@galandabroadman.com.

The PACT Act Violates All Tribes’ Sovereignty

Yesterday, Washington, DC U.S. District Court Judge Royce Lamberth – who played an instrumental role in Cobell struck a blow to the PACT Act, by preliminarily enjoining federal enforcement of the Act. Judge Lamberth's decision is the second federal court ruling that the PACT Act is unconstitutional, in recent months. While the potentially positive implications of the decisions for Indian Country are still being sorted out, the PACT Act remains an imminent threat to the sovereignty of all Tribal governments, and to any notion of tax-free inter-tribal commerce and trade.

The PACT Act of 2010, as federal agencies no doubt still intend to implement it, violates the sovereignty of all Tribal governments – not only those involved in tobacco commerce. Tribal sovereignty, at its core, includes the right of Tribal Governments to be ruled by their own laws and govern their own economies. But the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), by inviting states and state law into Indian Country, has made clear its intent to enforce the Act in a way that will gut Tribes’ inherent right to self govern and chill Indian economic growth.

According to the U.S. Department of Justice (DOJ), the PACT Act requires Indian tobacco enterprises to comply with state tobacco laws – even within Indian Country. For two centuries, courts have generally barred states from applying their laws to Tribes and Indian businesses within Indian Country. But federal agency interpretation of the Act threatens to change the tribal-state status quo. It requires no close analysis of the law to see that the federal government is shepherding state tax agencies into Indian Country. Although today’s state-federal attacks focus on tobacco, DOJ is establishing a dangerous precedent; one under which the federal government will pass federal laws allowing states to extract previously unavailable value from Tribal economies and causing DOJ to become the states’ enforcement arm in Indian Country.

DOJ’s interpretation of the PACT Act is inconsistent with the law itself, which on its face prohibits the Act from being used to confer states regulatory authority over Indian Country commerce. As the DOJ and ATF read the law, however, the PACT Act widely opens an unprecedented avenue for states to regulate and tax Tribal and inter-Tribal commerce and trade.

The United States has stated that the Act’s definition of “interstate commerce” includes sales within or between Indian reservations. Legal nuances aside, DOJ’s application of the PACT Act’s “interstate commerce” to inter-Tribal tobacco trade – meaning trade between Tribes situated in different states – is a recipe for Tribal economic disaster. Tribes freely traded between and among themselves long before state governments or taxation existed. To now allow state taxation of inter-Tribal commerce and state regulation of the budding Tribal private sector, under color of federal law and law enforcement, threatens to set Tribal economies back nearly two centuries – to when states destroyed Indian Country’s original economies.

Again, the PACT Act expresses Congress’ clear intent that the law not adversely effect Tribal sovereignty. Indeed a pro-Tribal interpretation clause of the Act requires ambiguities in the new law to be resolved in favor of preserving Tribal sovereignty and immunity from state authority. Incredibly, though, the Executive Branch’s interpretations of the law have taken the very opposite approach, with the Act being construed to favor state regulation and taxation in Indian Country. States have already seized the DOJ’s written interpretation of the PACT Act to regulate and tax – the proverbial power to destroy – Tribal and inter-Tribal economies.

Notwithstanding yesterday's court ruling, all of Indian Country must stand together now, united in vocal opposition to the PACT Act.

Gabriel "Gabe" Galanda, a partner at Galanda Broadman PLLC, is an enrolled member of the Round Valley Indian Tribes of Covelo, California.

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. 

Tribal Employers Not Subject to Federal Unemployment Taxation

The Ninth Circuit held Thursday that a tribe or tribal business is excepted from paying Federal Unemployment (FUTA) taxes where services are performed “in the employ of an Indian tribe,” but only where a tribe or its instrumentality is a "common-law" employer of the worker performing the services. The court held that because the Tribe's employee leasing and temporary staffing business was a common-law, as opposed to statutory employer, the IRS had incorrectly failed to refund FUTA taxes paid. A common-law employer is an employer based on the law of agency, while a statutory employee for purposes of FUTA can simply be a paymaster. Although Blue Lake Rancheria had argued that even services provided by statutory employees were excepted from FUTA, it ended up not mattering to the Ninth Circuit, which found that the tribe's business was in fact a common-law employer.

Blue Lake will be required reading as tribal business form entities as the border of common-law employers. Any time a tribal business exercises less than total control over its employees, i.e. via staffing businesses, it should be sure to comply with the guidelines set forth in Blue Lake to ensure that FUTA exposure is minimized.

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.