Prairie Band Potawatomi Nation v. Richards

• Decision Date: 11 August 2004
• Docket Number: No. 03-3218.,03-3218.
• Parties: PRAIRIE BAND POTAWATOMI NATION, Plaintiff-Appellant, v. Stephen S. RICHARDS, Secretary of the Kansas Department of Revenue, Defendant-Appellee, Winnebago Tribe of Nebraska, HCI Distribution, The Kickapoo Tribe of Indians of the Kickapoo Reservation in Kansas, The Iowa Tribe of Kansas and Nebraska, and The Sac and Fox Nation of Missouri, Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

379 F.3d 979

PRAIRIE BAND POTAWATOMI NATION, Plaintiff-Appellant, v. Stephen S. RICHARDS, Secretary of the Kansas Department of Revenue, Defendant-Appellee, Winnebago Tribe of Nebraska, HCI Distribution, The Kickapoo Tribe of Indians of the Kickapoo Reservation in Kansas, The Iowa Tribe of Kansas and Nebraska, and The Sac and Fox Nation of Missouri, Amici Curiae.

No. 03-3218.

United States Court of Appeals, Tenth Circuit.

August 11, 2004.

Appeal from the United States District Court for the District of Kansas, Julie A. Robinson, J David Prager, III, Tribal Attorney, Prairie Band Potawatomi Nation, Mayetta, KS, for Plaintiff-Appellant.

John Michael Hale, Special Assistant Attorney General, Kansas Department of Revenue, Topeka, KS, for Defendant-Appellee.

Vernle C. Durocher, Jr., Mary J. Streitz, and Christopher R. Duggan of Dorsey & Whitney LLP, Minneapolis, MN; Thomas E. Wright of Wright, Henson, Somers, Sebelius, Clark & Baker, LLP, Topeka, KS; and Mark Hubble, Tribal Attorney, Winnebago Tribe of Nebraska, Winnebago, NE, for Winnebago Tribe of Nebraska and HCI Distribution; Ilse L. Smith, P.C., Kansas City, MO, for Kickapoo Tribe of Indians of the Kickapoo Reservation in Kansas; Mark S. Gunnison of Payne & Jones, Chartered, Overland Park, KS, for Iowa Tribe of Kansas and Nebraska; and Thomas Weathers of Alexander, Berkey, Williams & Weathers LLP, Berkeley, CA, for the Sac and Fox Nation of Missouri in Kansas and Nebraska, submitted a brief for amici curiae.

Before LUCERO, McKAY, and HARTZ, Circuit Judges.

McKAY, Circuit Judge.

This case addresses whether federal law prohibits Kansas from collecting its state tax on fuel supplied to an Indian tribe by a non-Indian distributor. Prairie Band Potawatomi Nation (the "Nation") sought to invalidate the fuel tax on grounds that it is preempted by federal law and that it infringes on the Nation's rights of self-government. The district court granted summary judgment for the Secretary of the Kansas Department of Revenue (the "Secretary"), and the Nation brought this appeal.

Facts

The following facts are undisputed. The Nation is a federally-recognized Indian tribe whose reservation is on United States trust land in Jackson County, Kansas. Aplt.App., Vol. I, at 35. On its reservation, the Nation financed, constructed, and now owns and operates a $35 million casino. Id., Vol. II, at 70. By building this casino, the Nation increased the number of people who travel to this otherwise remote and rural area. Id. at 70-71. To accommodate casino patrons and other reservation-related traffic, the Nation financed and built a gas station (the "Nation Station") which is close to the casino and on the same federal trust land. In building the Station, the Nation incurred $1.5 million in construction costs, which included the purchase of a motor fuel handling system with tank storage and monitoring systems to make fuel available to customers. Id., Vol. III, at 22. The Nation Station is tribally-owned and operated, and, as of May 2000, eleven of its fifteen employees were Indians, with seven of those being Nation tribal members. Id. at 2-3.

The Nation submitted expert testimony, which the Secretary does not dispute, that "the `value marketed' by [the] Nation Station results from the business generated by the casino and from employees of the casino and [the Nation's] government and residents." Id., Vol. II, at 86. This conclusion is supported by the undisputed evidence that seventy-three percent of the Nation Station's fuel customers are casino patrons and casino employees and another eleven percent live or work elsewhere on the reservation. Id.; Id., Vol. V, at 46; Aple. Br. at 5. The Nation's expert also reported that the Station is a location-dependent business because, "[b]ut for the casino, there would not be enough traffic to support [it] in its current location." Aplt.App., Vol. II, at 86.

The Nation Station sells fuel at fair market prices. Therefore, it cannot and does not advertise an exemption from state fuel taxes. The Nation's expert concluded that "the Nation is not `marketing a tax exemption' because the price of fuel at the Nation Station is set above cost, including the Nation's tax, and within 2¢ per gallon of the price prevailing in the local market." Id. at 84. The Nation also submitted two affidavits — one from the Station's manager and one from the Nation's Treasurer and Tax Commissioner — that support this conclusion. Id. at 71; Id., Vol. III, at 161. The Secretary has not controverted the Nation's expert opinion or the Nation's affidavits and does not argue that the Nation sells fuel below market prices.

The Nation imposes a tax on the Station's fuel sales: 16 cents per gallon of gasoline and 18 cents per gallon of diesel (increased to 20 cents for gasoline and 22 cents for diesel in January 2003). Aplt.App., Vol. IV, at 207; Vol. V, at 169. The Station provides the Nation with its sole source of fuel revenue, which amounts to about $300,000 in tribal fuel taxes each year. Aplt.App., Vol. III, at 3. Pursuant to the Nation's Motor Fuel Tax law, this fuel revenue is used for "constructing and maintaining roads, bridges and rights-of-way located on or near the Reservation." Id., Vol. IV, at 208. This includes maintenance on the road that connects the United States Highway 75 to the Nation's casino. The Nation receives no financial assistance from Kansas to maintain this stretch of roadway.

Discussion

In this dispute, the Nation challenges the 1995 amendment to the Kansas Motor Fuel Tax Act. Kan. Stat. Ann. §§ 79-3401 to 79-3464f (1997). Pursuant to this amendment, the Kansas Department of Revenue began collecting, for the first time, a tax on motor fuel distributed to Indian lands. The Kansas legislature structured the tax so that its legal incidence is placed on non-Indian distributors. Kan. Stat. Ann. § 79-3408(c); Sac and Fox Nation of Missouri v. Pierce, 213 F.3d 566, 580 (10th Cir.2000). But, the distributors are allowed to pass the tax directly to retailers, like the Nation Station. Kan. Stat. Ann. § 79-3409 ("Every distributor paying such tax or being liable for the payment shall be entitled to charge and collect an amount, including the cost of doing business that could include such tax on motor vehicle-fuels... sold or delivered by such distributor, as part of the selling price.") The Nation brought suit to enjoin the Secretary from imposing the tax on the Nation's fuel, and the district court granted summary judgment for the Secretary. We review a district court's grant of summary judgment de novo to determine whether there is a genuine issue as to any material fact and whether a party is entitled to judgment as a matter of law. Gossett v. Oklahoma ex rel. Bd. of Regents for Langston Univ., 245 F.3d 1172, 1175 (10th Cir.2001); Sac and Fox, 213 F.3d at 583.

The Nation asks us to invalidate the tax as it applies to the Nation's fuel under two independent but related doctrines. First, the Nation argues that federal law preempts the tax because federal and tribal interests against state taxation outweigh Kansas' interests in imposing the tax. Second, the Nation argues that the tax is invalid because it impermissibly infringes on its rights of self-government. Either of these doctrines would be sufficient to invalidate the Kansas fuel tax as applied here. White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 143, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980).

We first address whether the tax is preempted by federal law. The constitutional source of federal preemption is Article I, Section 8, Clause 3, which provides: "The Congress shall have Power ... [t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." When preemption analysis is applied to Indian cases, we consider the unique origins of tribal sovereignty and how it differs from state sovereignty. Bracker, 448 U.S. at 143, 100 S.Ct. 2578. Specifically, "[a]mbiguities in federal law have been construed generously in order to comport with [the] traditional notions of sovereignty and with the federal policy of encouraging tribal independence." Id. at 143-44, 100 S.Ct. 2578 (citing McClanahan v. State Tax Comm'n of Arizona, 411 U.S. 164, 174-75, and n. 13, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973)). "State jurisdiction is preempted by the operation of federal law if it interferes or is incompatible with federal and tribal interests reflected in federal law, unless the State interests at stake are sufficient to justify the assertions of State authority." New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 334, 103 S.Ct. 2378, 76 L.Ed.2d 611 (1983).

In cases like this — where a tribe is challenging a state tax — "[t]he initial and frequently dispositive question ... is who bears the legal incidence of a tax." Oklahoma Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 458, 115 S.Ct. 2214, 132 L.Ed.2d 400 (1995). "If the legal incidence of an excise tax rests on a tribe or on tribal members for sales made inside Indian country, the tax cannot be enforced absent clear congressional authorization." Id. at 459, 115 S.Ct. 2214. However, where, as here, "the legal incidence of the tax rests on non-Indians, no categorical bar prevents enforcement of the tax; if the balance of federal, state, and tribal interests favors the State, and federal law is not to the contrary, the State may impose its levy...." Id.

Although the Secretary argues that the balancing of interests test should be abandoned, citing Justice (now Chief Justice) Rehnquist's partial dissent in Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 176-80, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980), circuit precedent requires us to use this balancing test. See Sac and Fox, 213 F.3d at 583. The balancing test is "not dependent on mechanical or absolute conceptions of state or tribal sovereignty, but has called for a particularized inquiry into the nature of the state, federal,...