Five Tribes Join Mashantucket Appeal of Critical Tax Ruling

Gale Courey Toensing
September 12, 2013


Tribes from Florida and Oregon have joined the Mashantucket Pequot Tribal Nation’s request for a federal appeals court to review a ruling that the state and local governments can collect taxes on slot machines leased from non-tribal businesses.

The Seminole Tribe of Florida, the Coquille Indian Tribe of Oregon and the Confederated Tribes of the Umatilla Indian Reservation, which include the Cayuse, Umatilla and Walla Walla peoples, filed an amici curiae – “friends of the court” – brief on August 28 in support of the Mashantucket Pequot Tribal Nation’s (MPTN) August 21 petition to the 2nd Circuit Court of Appeals for an en banc, or full panel, re-hearing of a tax case. On July 15, a three-judge panel reversed a federal district court decision that said states and their subdivisions cannot tax property on Indian land regardless of who owns it.

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The three interveners – all federally recognized Indian nations that own and operate casinos on their reservations – noted that the case is critically important to Indian country. “Amici will bear the economic burden of the state taxes that will be imposed under this decision. Non-Indians own property and engage in activities on their reservations which, prior to this decision, were exempt from state taxation,” the amici’s attorneys write in the brief. “Amici have a substantial interest in the proper interpretation of this precedent because such interpretation has a direct impact on the taxation of the on-reservation property and activities of non-Indians. The Court's decision fundamentally changes the rules governing state taxation of property and activities of non-Indians in Indian country by removing limitations that have existed since the inception of the United States. It distinguishes activities and property that are integral to exempt activities and presumes that Congress intended to authorize state taxation of any property or activities of non-Indians that it did not expressly and specifically prohibit. … The implications of this decision extend far beyond personal property tax on slot machines.”

The case goes back to August 2006 and September 2008 when the Nation filed complaints against the Town of Ledyard, Connecticut, on behalf of two vendors – New Jersey-based Atlantic City Coin & Slot Co. and WMS Gaming – who lease slot machines to the tribe for use at Foxwoods Resort Casino. The Nation had argued that imposition of the tax by the town was preempted by the federal Indian Trader Statutes and the Indian Gaming Regulatory Act (IGRA) and cited White Mountain Apache Tribe v. Bracker, which balances federal, state and tribal interests. In March 2012, a federal district court Judge Warren W. Eginton upheld the Nation’s position and granted the Nation’s motion for summary. “Indian tribes are distinct sovereign entities that are ‘distinct, independent political communities retaining their original natural rights,’” Eginton wrote. “States do not have authority to regulate Indian tribes where a state law is preempted by federal law or infringes upon the ‘right of reservation Indians to make their own laws and be ruled by them.’”

But the three-judge panel of the appeals court said the federal court had erred and none of MPTN’s arguments bars the town from taxing a non-tribal entity. “[T]he tribe’s generalized interests in sovereignty and economic development are not significantly impeded by the state’s generally-applicable tax; neither are the federal interests protected in IGRA,” the ruling says. “[T]he affront to the state’s sovereignty on one hand approximates the affront to the tribe’s sovereignty on the other. The balance of equities here favors the town and state.”

In its petition for an en banc rehearing, the MPTN argues that the three-judge panel’s decision “squarely conflicts with Supreme Court precedent defining the scope of state power to tax non-Indians’ transactions with Indians occurring in Indian country,” first, by skewing the balance that Congress and the Supreme Court have “calibrated” between federal, tribal, and state interests, and second, by failing to find “preemption” [of the state’s authority to tax] in the federal interests and comprehensive regulatory scheme of the Indian Gaming Regulatory Act. The petition cites numerous Supreme Court and circuit court decisions finding those two factors sufficient to trigger preemption, the appeal document says.

The town spent more than $900,000 on legal fees in the case, according to The Day. The panel ruling noted that the slot machines leased by the two companies combined generate $20,000 in annual property taxes.

The MPTN spokesman could not be reached for comment. If the full appeals court upholds the three-judge panel’s ruling, the Nation has the option of petitioning the U.S. Supreme Court for review.