National Intertribal Tax Alliance 20 th Annual Tax

National Intertribal Tax Alliance 20 th Annual Tax Conference Litigation Update Rachel B. Saimons rsaimons@kilpatricktownsend. com 1

U. S. Supreme Court, No. 17 -494 (June 21, 2018) South Dakota v. Wayfair, Inc. Facts: South Dakota law allowed State to collect sales taxes on out-of-state online retailers. State reported having collected about $1. 6 Million since enacting the 2016 law and estimated it could be missing out on up to $50 Million each year. Issue: Do businesses have to collect state sales taxes on online transactions, thereby affecting how consumers are charged on major e-commerce sites such as Wayfair and Amazon? Holding: In 5 -4 split, the Court held that physical presence is no longer required for a state to impose sales tax on retailers. This expressly overturned Quill Corp. v. North Dakota, in which the Court ruled remote sellers would have to collect state sales taxes only if they had a physical presence in a state, like a warehouse or office. Potential Impacts: • States and tribes will be able to require retailers to collect state sales taxes on transactions, regardless of physical presence • Billions of dollars in additional taxes for retailers and for governments collecting the taxes 2

188 Wn. 2 d 55, 392 P. 3 d 1014 (2017), cert. granted, 138 S. Ct. 2671 (2018) Washington State Department of Licensing v. Cougar Den, Inc. Facts: DOL assessed $3. 6 M in unpaid taxes, penalties, fees against Indian-owned fuel distributor Cougar Den. ALJ ruled bill impermissible under treaty, Director then reversed ALJ. Yakima County Superior Court reversed and ruled assessment violated right to travel under Yakama Treaty. Holding: State Supreme Court held that the treaty preempts the State from requiring Cougar Den to pay wholesale fuel taxes. Issue: Does a right to travel provision in the Yakama Treaty of 1855 preempts state taxes on off-reservation commercial activities that make use of public highways? Potential Impacts: • trade implications for state and U. S. • fuel tax revenue • treaty implications 3

881 F. 3 d 1226 (10 th Cir. 2018), U. S. Supreme Court No. 17 -1624 Citizen Potawatomi Nation v. Oklahoma Facts: In 2014 audit, Tribe asserted $27 M in tax exemptions for sales tax on alcoholic drinks served to nonmember casino patrons. State revoked alcohol permits and threatened to close casinos for failure to report sales tax collections. Tribe brought arbitration, then sued to enforce $27 million victory. District Court entered order enforcing award. State appealed, 10 th Circuit overturned. Issue: Whether the 10 th Circuit erred when it reversed the district court’s confirmation and enforcement of the arbitrator’s award pursuant to the Federal Arbitration Act. 10 th Cir. found agreement’s de novo review of award impermissibly exceeded the scope of the FAA. Tribe has pending cert. petition with Supreme Court Potential Impacts: • Many other tribal compacts with identical language; enforceability issues would have big impact 4

U. S. Court of Appeals for the Eleventh Circuit, No. 16 -17109 (June 24, 2018) United States v. Jim Facts: In 2001, Sally Jim, a member of the Miccosukee Tribe, received quarterly per capita payments for herself, her husband, and her children. She did not file a tax return nor pay federal income tax on the distributions. The U. S. the assessed tax, penalties, and interest. Issue: Is Tribal member Sally Jim responsible for federal taxes on Tribe’s distribution payments as taxable gaming income under IGRA? Holding: 11 th Cir. upheld decision by U. S. District Court finding distributions were not exempt from federal taxation as general welfare payments or income directly derived from the land Potential Impacts • Jim likely limited to its facts • Tribes should review their general welfare plans to ensure payments cannot be considered disguised “per capita” 5

U. S. Court of Appeals for the Ninth Circuit, No. 14 -36055 United States v. King Mountain Tobacco Company, Inc. Facts: Tribal member-owned company that manufactured cigarettes on trust lands allotments within the boundaries of the Yakama Nation stopped paying excise taxes. The U. S. sued to collect the taxes. Issue: Whether tribal manufacturer of tobacco products located on land held in trust by the United States is subject to the federal excise tax on all tobacco products “manufactured in. . . The United States. ” Holding: Neither the General Allotment Act nor the Treaty with the Yakamas expressly exempts King Mountain from the federal excise tax on manufactured tobacco products, so King Mountain was liable for payment of the tax and associated penalties and interest. Potential Impacts: Federal tax exemptions are unlikely to be found absent express Treaty or statutory language 6

U. S. Court of Appeals for the Eleventh Circuit, No. 18 -12094 Seminole Tribe of Florida v. Leon Biegalski Facts: Tribe filed suit, seeking injunctive relief and a declaratory judgment that Florida's utility tax, as applied to utilities services, “specifically electricity, ” used by the Tribe on its tribal land, is prohibited under federal law. Tribe previously sought relief from Florida's utility tax, so Defendant (Director of Department of Revenue) filed MTD, arguing claim preclusion. Court agreed with Biegalski and dismissed case. Issue: Tribe seeks to overturn lower court ruling that the Tribe must pay the state’s electricity tax for federally regulated activity, including gaming at its casinos, on Seminole land. Appeal filed May 16, 2018 to 11 th Cir. 7

U. S. D. C. Western District of Washington, No. 2: 15 -cv-00940 Tulalip Tribes v. State of Washington Facts: Tribes (and U. S. , as intervenor) challenge three taxes imposed by the State of Washington and Snohomish County on non-Indian businesses and their patrons within the boundaries of Quil Ceda Village • Retail sales and use taxes, RCW§§ 82. 08, 82. 12, 82. 14 • B & O taxes, RCW§ 82. 04 • Personal property taxes, Wash. Rev. Code § 84. Issue: Does federal law pre-empt the government from collecting sales tax at Quil Ceda Village? Potential Impacts: • Increase in revenue for Tribe/Loss of revenue for state ($40 -50 million/year) • Potential for additional revenue loss if decision applies to other Washington tribes • Impacts on Indian Country generally 8

U. S. D. C. South Dakota, Southern Division, No. 14 -4171 Flandreau Santee Sioux Tribe v. Andy Gerlach et al. Facts: Tribe sued state officials after state would not renew Casino's alcohol licenses when Tribe refused to remit sales tax. Tribe alleged that state was not entitled to collect use tax on non-gaming purchases by individuals that were not Tribal members at casino that was subject of compact pursuant to IGRA and related operations, as well as nearby convenience store. Issue: Can the state impose a use tax on money nontribal members spend at the Tribe’s casino on gaming, food, and other services? Holding: State cannot impose a use tax on nonmember purchases of goods and services as to the Casino's slots, table games, f&b services, hotel, RV park, live entertainment events, and gift shop. Potential Impacts: Implications for tribal-state gaming compacting and alcohol regulation in Indian country. 9

U. S. D. C. , Central District of California, No. 14 -00007 Agua Caliente Band of Cahuilla Indians v. Riverside Cty. Facts: Tribe filed suit in 2014, seeking ruling that possessory interest tax on Reservation trust land is unlawful under Section 465, Bracker balancing, Tribal Sovereignty principles. Issue: Whether the PIT is preempted under 25 U. S. C. § 465, Bracker, or general principles of Tribal Sovereignty. Holding: District Court initially found PIT was pre-empted but then reversed itself on summary judgment, finding no pre-emption on any basis. Tribe has appealed to Ninth Circuit. Potential Impacts: Impacts on Tribe’s ability to impose its own taxes, loss of revenue. 10

U. S. D. C. District of South Dakota, No. 4: 17 -cv-04055 Flandreau Santee Sioux Tribe v. Sattgast et al. Facts: Tribe filed suit against the state after the state rejected the Tribe’s contention that non-Tribal contractors working on a $24 million expansion of the Royal River Casino were not required to pay excise taxes. State law requires contractors to submit 2 percent of their gross receipts on construction projects, money that is used for the state’s general fund. Issue: Does the State have the authority to impose its contractor’s excise tax on the Tribe, and is the Tribe owed a refund? Holding: State can no longer impose an excise tax on a Native American tribe’s casino renovation project, but the Tribe cannot sue the state in federal court for a refund of the amount it was already forced to pay. 8 th Cir. Appeal filed by State. Potential Impacts: Broader implications in South Dakota and outside for casino construction 11

U. S. D. C. Western District of New York – Case No. 11 -cv-6004 Cayuga Indian Nation v. Seneca County Facts: After County initiated tax foreclosure proceedings, Tribe filed suit challenging County’s ability to impose and collect ad valorem property taxes on parcels of real estate owned by the Tribe. Issue: Tribe seeks both declaratory judgment that subject properties were located on Indian reservation for purposes of New York property tax law and Indian Country under federal law, and injunction prohibiting the county from making any further efforts to foreclose on, acquire, convey, or sell Nation-owned properties. Holding: Most recently, District Court dismissed with prejudice County’s counterclaim for declaratory relief that subject property was not located on an Indian Reservation or Indian Country on the basis that it failed to state an actionable claim. 12

U. S. D. C. Western District of New York, No. 16 -cv-495 Perkins v. U. S. A. Facts: Plaintiffs, one of whom is a member of the Seneca Nation, sought a refund for taxes paid on income from the sale of gravel removed from the Seneca Nation Allegany Territory and later sold. Plaintiffs allege that their income from the sale of gravel is not taxable under two treaties. Issue: Whether a treaty between the United States and Native Americans ensuring the free use and enjoyment of tribal land bars taxes on income derived directly from the land, here, the sale of gravel mined on the land. Holding: The United States moved to dismiss the amended complaint, but Court found plaintiffs had plausibly stated a claim for exemption from taxation for the sale of gravel. MTD denied. But, U. S. Tax Court held income earned from selling gravel to be taxable income not excluded by treaty or General Allotment Act. 13

U. S. D. C. Eastern District of California – Case No. 2: 18 -cv-01188 Big Sandy Rancheria Enterprises v. Xavier Becerra et al. Facts: Tribal tobacco purchaser and distributer sued the State of California after the state attempted to receive settlement payments from a 1998 agreement between states and big tobacco. Tribe alleged that the state did not have the power to impose the settlement or state law tax provisions on the tribal entities' distribution of tobacco products. Issue: Whether tax provisions and other laws aimed in part at raising the price of tobacco products apply to company handling tobacco products in Indian Country for the economic benefit of the tribe. Status: Lawsuit filed July 16, 2018; currently pending. 14

Arizona Tax Court, TX 2013 -000522 (May 16, 2018) South Point Energy Center, LLC v. Arizona Dep’t. of Revenue Facts: Power plant operator and owner of permanent improvements on the Fort Mojave Indian Reservation filed two actions in Arizona Tax Court, contesting the state’s assessment of property taxes against the Plant and alleging federal law preempted state and local taxation of the Plant. Issue: Whether property that is permanently attached to the land becomes part of the realty so that the exemption from taxation for trust land attaches to anything permanently erected on it. Holding: Court denied both parties’ MSJ, ordered hearing to develop Bracker analysis. Expressed skepticism of South Point’s argument. Potential Impacts: State Tax Court case, so implications are narrow, but could be indicative of future, farther-reaching challenges. 15

Court of Appeals Third District, California – Case No. C 080546 The People Ex Rel. Xavier Becerra v. Darren Paul Rose Facts: State brought action against Tribal member and smoke shop owner operating on trust land outside of the Reservation, who was selling cigarettes without state cigarette tax. State alleged violations of state excise tax laws, sought injunctive relief and civil penalties. Superior Court found for the and State imposed penalty and injunctive relief. Seller appealed. Issue: Whether State has jurisdiction to enforce its civil and regulatory laws for actions in Indian country; whether penalty was inequitable and erroneous. Holding: The appellate court affirmed, finding that State’s application of its laws to Rose’s activities was not prohibited or preempted by federal law or tribal sovereignty. Penalty upheld. Potential Impacts: State can regulate and enforce its laws regarding cigarette sales in Indian Country. 16