Pot Capitas: Distributing The Fruits Of Tribal Land

By Anthony Broadman

Assuming the bottom does not drop out of the legal weed market, and that Tribes are able to begin regulating and selling marijuana within their jurisdictions, how will pot farming revenue be spent? If marijuana is a viable business for Tribes, Tribal governments can expect calls for profits to be “per capped” through per-member distributions. Whether per capitas are good governance is a question for Tribes and their constituents.  But the particular treatment of pot per capitas raises new questions about federal trust assets, federal taxation, and whether distributions can provide a new non-taxable trust resource for Tribes and their members.

A profitable tribal pot economy requires several leaps of faith and what would formerly have been some wild assumptions. But presuming the reservation market takes shape, Tribes will likely use the revenue from pot cultivation, like all economic development initiatives, to provide essential governmental services to their members. We should expect tribal pot revenue to offset the burdens of legal pot, to be allocated to education, law enforcement, marijuana regulation, anti-drug initiatives, public health efforts, and the other sorts of programs Tribes have long provided within and beyond their territory. But with profits often come calls for per capita distributions.

The general rule is that every cent of your wealth, whether you are a member of an Indian tribe or not, is taxable by the United States. Section 61(a) of the Internal Revenue Code provides that, except as otherwise provided by law, gross income means all income from whatever source derived.  Under Section 61, Congress is allowed to tax every “accession[] to wealth.”   Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). Indians are citizens subject to the payment of these income taxes. Squire v. Capoeman, 351 U.S. 1, 6 (1956).

One narrow exception to this rule is that per capita distributions made from funds the Secretary of the Interior holds in a Trust Account for the benefit of a tribe are generally excluded from the gross income of the members receiving the distributions.

Practically, proceeds from trust assets or trust resources are deposited into a tribal Trust Account for a tribe and that tribe subsequently makes a per capita distribution using funds from that Trust Account. Again, those payments are generally not taxable to members. This is different than the treatment of gaming per capitas. The per capita distribution of gaming revenue is taxable to each recipient.

Could trust assets or resources include marijuana grown by a Tribe on Tribal land? Trust resources means any element or matter directly derived from Indian trust property. 25 C.F.R. § 115.002. In fact, it may not be optional for the United States to accept the revenue from tribal pot cultivation into trust. According to federal trust regulations, the Secretary of the Interior “must accept proceed on behalf of tribes or individuals from the following sources . . . [m]oney directly derived from the . . . use of trust lands.” 25 C.F.R. § 115.702. The IRS has wavered on whether trust per capitas are taxable in the last few years. But after Tribal resistance, provided clarity last year in Notice 2014-17.

The IRS often rejects as trust resources that revenue which may be derived from land but is really mischaracterized business profits. But as for marijuana grown on tribal trust land, which is then harvested and sold by the Tribe in the first instance, the resulting revenue is almost certainly money directly derived from the use of tribal trust land. Indeed, there is no difference between pot and timber except that pot is an illegal schedule I controlled substance.

Whether the Secretary can or would accept proceeds from the sale of marijuana grown on Tribal lands – like it does timber – into trust is a different question. Marijuana remains illegal under federal law and even though the DOJ may not be enforcing marijuana laws, participating in what would effectively be the banking of illegal drug revenue feels like a bridge too far. After all, if they won’t let banks easily accept pot profits, how could the feds themselves deposit such funds? Still, the potential for distribution of pot profits could provide tribes with a new source of non-taxable distribution income for members. That, given the stagnating gaming per capita landscape, is a potential novel benefit as Tribes balance the harms and benefits of the marijuana economy.

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. Marijuana is illegal under federal law.

Jared Miller Joins Galanda Broadman

Galanda Broadman has grown again, by adding Jared Miller, who previously served as a law clerk for the Wyoming District Court andShoshone & Arapaho Tribal Court.

“Jared is a consummate self-starter,” said Gabe Galanda, the firm’s managing partner.  “He brings a breadth of tribal court experience to our team, which we are really excited about.”

Jared’s practice focuses on tribal court litigation and representing businesses and tribal governments in public affairs. He is licensed to practice law in more than a dozen tribal jurisdictions, where he litigates civil matters. A former newspaper reporter, Jared helps tribal organizations in responding to public and private crises.

Jared is a graduate of University of Wyoming College of Law, and the University of Montana School of Journalism.

Galanda Broadman was recently named to the 2015 Edition of U.S. News – Best Lawyers “Best Law Firms,” in the arena of Native American Law.  The seven-lawyer firm, which styles itself  “An Indian Country Law Firm,” is dedicated to advancing tribal legal rights and Indian business interests.

With offices in Seattle, Washington and Bend, Oregon, the firm represents tribal governments, businesses and members in critical litigation, business and regulatory matters, especially in matters of Indian Treaty rights, tribal sovereignty and taxation.

Anthony Broadman on Tribal Marijuana Law

Anthony Broadman has quickly become recognized nationally for his insight regarding commercial marijuana legalization in Indian Country.

Having represented tribal clients in the medicinal marijuana space for a good while, Anthony blogged on the federal, state and tribal legalities associated with commercial pot several years ago, and since, meaning well before the DOJ memo issued in December 2014 and the ensuing tribal pot "gold rush."

He has since been quoted or featured on the subject by the AP, Time, VICE News, and NPR (audio).  Here's Anthony's latest blog.

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-State Marijuana Compacts Make Good Neighbors

By Anthony Broadman

As Washington’s legal marijuana landscape evolves, certainty has been evasive. So for Tribes who are considering wading into the pot economy, knowing that the state will not interfere in or try to tax new pot ventures would be exceedingly valuable. As we’ve noted before, good Tribal-State agreements make good neighbors. And that will certainly be true for marijuana tax compacts like those being contemplated Monday by the House Committee on Finance.

Just as critical as the inter-local peace that pot compacts would bring, is the acknowledgement from all sides that legal marijuana, grown on the reservation, is not subject to state taxation. It’s important for pot. But it’s more important for whatever sustainable economic ventures come next for Indian Country, whether it be agricultural like pot, or manufacturing microchips or aerospace parts—whatever value Tribes generate within their jurisdictions. The proposed legislation recognizes what a federal court almost certainly would, that “tribes [are exempt] from state sales, excise, and use taxes with respect to tribal commercial activities involving marijuana[.]”

And the certainty of that statement alone is worth supporting HB 2000 and Senate companion SB 5848.

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.

Gabe Galanda Delivers Scholarship Address to Arizona College of Law

Galanda Broadman Native Law Student Scholarship Giving In The News

The Green Buffalo: Is Marijuana The Next Tobacco For Indian Country?

By Anthony Broadman

The tribal tobacco industry has long represented a significant segment of many tribes’ economic development efforts. In the tribal tobacco hotbed of New York State, for instance, tribes sold 10 million cartons in the first half of 2011.  

The numbers are difficult to nail down exactly, but we can presume safely that, even if tobacco doesn’t rival the $30 billion Indian gaming industry, it is economically significant for many of those tribes and member businesses involved in selling cigarettes. But this behemoth was born out of struggle—struggle so contentious that state-tribal cigarette tax disputes are often characterized as “war,” and marked with actual physical conflict, complete with burning tires and injured cops.

These struggles are creatures of federal court decisions that attempt to fit the square peg of Indian commerce into the round holes of state tax interests. Very roughly, most sales of major brand cigarettes by tribes to non-Indians are subject to state taxes. One exception to this rule (and the relevant one for tribes who hope to sell pot) is that when a tribe generates otherwise taxable value on its reservation, the state may not tax it. So if a tribe imports Marlboros to its reservation, and sells them, federal law allows a state to tax sales to non-Indians. But if a tribe or tribal member business makes a cigarette on its reservation, it can sell that cigarette to a non-Indian without paying state taxes. This is not new. The U.S. Department of Justice noted 15 years ago that “reservation sales of products based on such value to non-Indians would then be exempt from state taxation.”

In Washington State, as throughout Indian Country, federal law generally bars taxes on products that incorporate “value generated on the reservation,” sold to Indians or non-Indians, per W.A.C. § 458-20-192(c). Even normally tax-hungry attorneys general acknowledge that a state “may not tax the value created by the Tribe's on-Reservation manufacture and sale of its cigarettes.” See Nebraska AGO Opinion 98005. In other words, if a tribe adds value to a product and sells it on the reservation, it shouldn’t be taxed. Until marijuana is grown and manufactured on a large commercial scale like, e.g., Marlboros, it fits exactly the value-generated model. And even more critically, the huge state pot tax rates are going to build in the kind of margins that can make fuel, tobacco, and liquor meaningfully profitable economies of scale on Indian reservations.

Nothing is guaranteed, especially as long as the United States considers pot to be illegal, but as we wrote in October 2013:

Now if tribes wish to take another tack and legalize the drug (and the federal blind eye to Washington and Colorado legalization might arguably prevent them from treating reservations any differently), Washington should be barred from asserting pot taxes on such “value generated on the reservation,” whether sold to Indians or non-Indians. See WAC 458-20-192(c). Untaxed on-Reservation sales could undercut off-reservation sales, which will carry a 25% tax three times over. In addition, all the other regulatory constraints on pot sales included in the new rules (e.g. the one hundred mg THC limit) are clearly civil regulatory and have no place on the reservation. Decisions about how and whether to sell reservation pot are for Tribes.

The Wilkinson Memo has certainly made the whole approach substantially more practical. But nothing about the potential tax benefits for tribes has changed. Marijuana remains a potentially viable source of novel tax revenue for tribes. As with all drugs and harmful substances, if cohesive regulation can make the pot economy otherwise socially and governmentally acceptable, tribal sales of tribal marijuana could be more incrementally lucrative than tobacco.

Let’s end with some meaningful disclaimers since generalizations in the tribal marijuana world have become treacherous: Marijuana is illegal. Every government should decide for itself whether and how drugs, alcohol, tobacco, and other substances should be regulated within their jurisdictions. In general, the damage that, for instance, alcohol and tobacco have wreaked on all Americans can’t be remedied or prevented by tax revenue or even the most thorough regulation. But we know that tribes have been selling cigarettes (which are bad) and liquor (which is bad) for decades. For all of the good that gaming has brought to tribes since the 1980s, it has many profound effects, the full extent of which we cannot fathom and may not be uniformly positive. One near certainty is that marijuana is going to be sold and taxed in Oregon, Washington, and Colorado. California will be next in 2016. If tribes elect not to prohibit marijuana sales in their jurisdictions, the hard work of choosing to regulate those sales must take into account the potentially enormous tax benefits of doing so.

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.

Gabe Galanda to Reprise "Finding a Cure" to Disenrollment Lecture in Tucson

Gabe Galanda will reprise his lecture, "The American Indian Disenrollment Epidemic: Finding a Cure," in Tucson this Friday, January 30 at 2:30 PM, as a part of the Arizona Law Indigenous Peoples Law and Policy Program's "Practicing Law in Indian Country" speaker series.

Gabe will speak from a similarly titled forthcoming  Arizona Law Review article, whereby he and Ryan Dreveskracht explain that over the last two centuries of American Indian policy:

• Federal ideas of membership and exclusion have supplanted inherent indigenous values of kinship and inclusion, by design for colonialist purposes.
• Tribal enrollment, and in turn disenrollment, have been designed and perpetuated by the United States to further the dispossession of Indian lands and resources—to advance Manifest Destiny.
• Removing Indians from federal or tribal rolls has closely correlated to the pro rata or per capita distribution of tribal communally held lands, monies and other assets, as a mode of Indian assimilation and tribal termination.
• Indian disenrollment—which must be distinguished from the sovereign power to set limits on citizenship—is not a matter of inherent tribal sovereignty; disenrollment is instead a federal plenary power that has been delegated to tribes.

Gabe recently foreshadowed the paper, and otherwise decried disenrollment as a colonial and wholly non-indigenous construct, in an Indian Country Today column.

Gabriel “Gabe” Galanda is the Managing Partner at Galanda Broadman. He is a citizen of the Round Valley Indian Tribes. Gabe can be reached at 206.300.7801 or gabe@galandabroadman.com.

Tribal Per Capita Poverty--How About Disenrollment Bankruptcy?

“In November, a [Las Vegas] Review-Journal reporter and photographer encountered one of the disenrolled, 52-year-old Darla Hatcher, sleeping with her meager belongings in front of an upholstery shop in the homeless corridor.

By way of introduction, she gestured toward nearby tribal land and said: “I am a disenrolled Paiute.’”

Thanks to some wonderful scholarship by Seattle lawyer Greg Guedel about the socioeconomic impacts of tribal per capita monies, The Economist has cast a bright light on the topic.  Guedel's research found that:

From 2000-2010, gaming Tribes in the Pacific Northwest that did not issue per capita payments to their members did better in reducing poverty rates than the gaming Tribes that issued per capita payments.

In other words, tribal per capita monies are not alleviating Indian poverty; they are exacerbating it.

Indeed, the apportionment of tribal communal assets and distribution of those assets to individual tribal members is, by the United States' design, a mode of tribal termination and Indian assimilation. See Tribal Per Capitas and Self-Termination ("Tribal per capita payments are a creature of the United States and its Indian termination policies.").  This dynamic dates back to the mid-1800s, although we as American indigenous people act oblivious to that genocidal reality.

To be sure, tribal per capita distributions are presently catalyzing the most severe form of Indian poverty: Disenrollment and exile from one's tribal community--and at epidemic levels.

As Professor David Wilkins explains:

Disenrollment takes an obvious financial toll . . . But it also can psychologically devastate former members.

“’It leaves them in a tenuous place of being betwixt and between,’ he says. ’They know they still are what they are claimed not to be. I just feel for them.’”

Surely other Indians feel for their brothers and sisters who have been spiritually, financially and otherwise bankrupt through disenrollment.  Right?

Gabriel “Gabe” Galanda is the Managing Partner at Galanda Broadman. He is a citizen of the Round Valley Indian Tribes. Gabe can be reached at 206.300.7801 or gabe@galandabroadman.com.

Hopi Challenges EPA’s Approval of Navajo Coal-Fired Power Plant

By Amber Penn-Roco

On August 8, 2014, the Environmental Protection Agency (EPA) approved an Air Quality Implementation Plan, allowing the Navajo Generating Station, a coal-fired power plant located on the Navajo Reservation, to continue operating until 2044. The Plan required the Station to either close one of its three generators, or reduce output by an equivalent amount, by 2019. The Plan would not require the installation of any other emission controls until 2030.

EPA’s approval is controversial for several reasons. First, the Station “is the largest coal-fired power plant on the Colorado Plateau and one of the ten biggest polluters in the country.” Second, the public is concerned by the Station’s proximity to the Grand Canyon—it is located only 12 miles away—and because the Station “impacts visibility at 10 other national parks and wilderness areas.” Finally, many believe the EPA’s approval of the Plan was premature and allows for operations extending too far into the future—potentially until 2044. (Although, the Station site lease with the Navajo Nation is set to expire in 2019, the renewal of which will require the completion of an Environmental Impact Statement (EIS) that will look closely at the potential impacts of the Station and surely ignite even more controversy.)

EPA’s approval set off a flurry of litigation. Four separate Petitions have been filed with the Ninth Circuit Court of Appeals, requesting that the court review the Plan, pursuant to the Clean Air Act. The Petitions were filed by the Hopi Tribe, a collection of environmental groups, including the National Parks Conservation Association, the Sierra Club, the Grand Canyon Trust, the National Resources Defense Council, the Black Mesa Water Coalition and the Diné Citizens Against Ruining the Environment and two private individuals. The Navajo Nation has intervened in the proceedings. Last month, the cases were consolidated.

This litigation will pit conflicting tribal interests against each other. On one side, the Navajo Nation, which has obvious financial interest in the success in the Station. Both the Station and the Kayenta Mine, which supplies the Station, are located on the Navajo Reservation, providing jobs, lease income, royalties and taxes to the Navajo Nation. On the other hand, you have the Hopi Tribe, which is protecting its environmental interests. During the public comment process, the Hopi expressed concerned with the air quality and visibility on the Hopi Reservation and indicated that the EPA should have provided more detail on the specific emission controls that the Station will be required to use. It is particularly interesting that the Hopi has filed a Petition for Review, even though the Hopi also has an economic interest in matter; the Kayenta Mine is actually located on the reservation lands of both the Navajo Nation and the Hopi, providing the Hopi with similar forms of revenue that are enjoyed by the Navajo Nation.

Which tribal or environmental interests will prevail? The opening briefs, which are due at the end of the month, should shed some light on the interests and arguments of the parties.

Amber Penn-Roco’s practice focuses on tribal sovereignty issues, including environmental issues, economic development, and complex Indian Country litigation. Her experience also includes work on transactional matters, including entity formation, environmental compliance and permitting.  She is an enrolled member of the Chehalis Tribe.