458 U.S. 832 (1982), 80-2162, Ramah Navajo School Board, Inc. v. Bureau of Revenue

Docket Nº:No. 80-2162
Citation:458 U.S. 832, 102 S.Ct. 3394, 73 L.Ed.2d 1174
Party Name:Ramah Navajo School Board, Inc. v. Bureau of Revenue
Case Date:July 02, 1982
Court:United States Supreme Court

Page 832

458 U.S. 832 (1982)

102 S.Ct. 3394, 73 L.Ed.2d 1174

Ramah Navajo School Board, Inc.


Bureau of Revenue

No. 80-2162

United States Supreme Court

July 2, 1982

Argued April 28, 1982



Held: Federal law preempts New Mexico's tax imposed on the gross receipts that appellant non-Indian construction company received from appellant tribal school board for the construction of a school for Indian children on the reservation. White Mountain Apache Tribe v. Bracker, 448 U.S. 136, controlling. Pp. 836-847.

(a) In view of the federal and tribal interests arising from Congress' broad power to regulate tribal affairs under the Indian Commerce Clause, Art. I, § 8, cl. 3, and from the semi-autonomous status of Indian tribes, the exercise of state authority over commercial activity on an Indian reservation may be preempted by federal law, or it may interfere with the tribe's ability to exercise its sovereign functions. Traditional notions of tribal sovereignty, and the recognition and encouragement of such sovereignty in congressional Acts promoting tribal independence and economic development, inform the preemption analysis. Ambiguities in federal law should be construed generously, and federal preemption is not limited to those situations where Congress has explicitly announced an intention to preempt state activity. Pp. 837-839.

(b) Federal statutes (particularly the Indian Self-Determination and Education Assistance Act) reflect the federal policy of encouraging the development of Indian-controlled institutions on the reservation, and, under detailed regulations governing school construction, the Bureau of Indian Affairs has wide-ranging authority to monitor and review subcontracting agreements between the Indian organization, which is viewed as the general contractor, and the non-Indian firm that actually constructs the facilities. The direction and supervision provided by the comprehensive federal regulatory scheme for the construction of Indian schools leave no room for the additional burden sought to be imposed by New Mexico. There is no merit to the contention that the state tax is not preempted merely because the federal statutes and regulations do not specifically express the intention to preempt this exercise of state authority. The interest asserted by the State relating to its providing services to the non-Indian contractor for its activities off the reservation is not a legitimate justification for a tax whose ultimate burden falls on the tribal organization. Nor is the State's purpose in imposing the tax pursuant to a general desire to increase revenues sufficient to justify the additional burdens thereby imposed on the comprehensive federal

Page 833

scheme regulating the creation and maintenance of educational opportunities for Indian children and on the express federal policy of encouraging Indian self-sufficiency in the area of education. Pp. 839-845.

(c) Preemption analysis in this area need not be modified by applying a new approach relying on the Indian Commerce Clause. Existing preemption analysis governing this type of case provides sufficient guidance to state courts, and also allows for more flexible consideration of the federal, state, and tribal interests at issue. Pp. 845-846.

95 N.M. 708, 625 P.2d 1225, reversed and remanded.

MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, BLACKMUN, POWELL, and O'CONNOR, JJ., joined. REHNQUIST, J., filed a dissenting opinion, in which WHITE and STEVENS, JJ., joined, post, p. 847.

Page 834

MARSHALL, J., lead opinion

JUSTICE MARSHALL delivered the opinion of the Court.

In this case, we address the question whether federal law preempts a state tax imposed on the gross receipts that a non-Indian construction company receives from a tribal school board for the construction of a school for Indian children on the reservation. The New Mexico Court of Appeals held that the gross receipts tax imposed by the State of New Mexico was permissible. Because the decision below is inconsistent with White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980) (White Mountain), we reverse.


Approximately 2,000 members of the Ramah Navajo Chapter of the Navajo Indian Tribe live on tribal trust and allotment lands located in west central New Mexico. Ramah Navajo children attended a small public high school near the reservation until the State closed this facility in 1968. Because there were no other public high schools reasonably close to the reservation, the Ramah Navajo children were forced either to abandon their high school education or to attend federal Indian boarding schools far from the reservation. In 1970, the Ramah Navajo Chapter exercised its [102 S.Ct. 3397] authority under Navajo Tribal Code, Title 10, § 51 (1969), and established its own school board in order to remedy this situation. Appellant Ramah Navajo School Board, Inc. (the Board), was organized as a nonprofit corporation to be operated exclusively by members of the Ramah Navajo Chapter. The Board is a Navajo "tribal organization" within the meaning of 25 U.S.C. § 450b(c), 88 Stat. 2204. With funds provided by the federal Bureau of Indian Affairs (BIA) and the Navajo Indian Tribe, the Board operated a school in the abandoned public school facility, thus creating the first independent Indian school in modern times.1

Page 835

In 1972, the Board successfully solicited from Congress funds for the design of new school facilities. Pub.L. 9269, 86 Stat. 510. The Board then contracted with the BIA for the design of the new school and hired an architect. In 1974, the Board contracted with the BIA for the actual construction of the new school to be built on reservation land. Funding for the construction of this facility was provided by a series of congressional appropriations specifically earmarked for this purpose.2 The contract specified that the Board was the design and building contractor for the project, but that the Board could subcontract the actual construction work to third parties. The contract further provided that any subcontracting agreement would have to include certain clauses governing pricing, wages, bonding, and the like, and that it must be approved by the BIA.

The Board then solicited bids from area building contractors for the construction of the school, and received bids from two non-Indian firms. Each firm included the state gross receipts tax as a cost of construction in their bids, although the tax was not itemized separately. Appellant Lembke Construction Co. (Lembke) was the low bidder, and was awarded the contract. The contract between the Board and Lembke provides that Lembke is to pay all "taxes required by law." Lembke began construction of the school facilities in 1974, and continued this work for over five years. During that time, Lembke paid the gross receipts tax and, pursuant to standard industry practice, was reimbursed by the Board for the full amount paid. Before the second contract between Lembke and the Board was executed in 1977, a clause was inserted into the contract recognizing that the Board could

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litigate the validity of this tax and was entitled to any refund. Both Lembke and the Board protested the imposition of the gross receipts tax. In 1978, after exhausting administrative remedies, they filed this refund action against appellee New Mexico Bureau of Revenue in the New Mexico District Court. At the time of trial, the parties stipulated that the Board had reimbursed Lembke for tax payments of $232,264.38, and that the Board would receive any refund that might be awarded.

The trial court entered judgment for the State Bureau of Revenue. After noting that the "legal incidence" of the tax fell on the non-Indian construction firm, the court rejected appellants' arguments that the tax was preempted by comprehensive federal regulation and that it imposed an impermissible burden on tribal sovereignty. The Court of Appeals for the State of New Mexico affirmed. 95 N.M. 708, 625 P.2d 1225 (1980). Although acknowledging that the economic burden of the tax fell on the Board, the Court of Appeals concluded that the tax was not preempted by federal law and that it did not unlawfully burden tribal [102 S.Ct. 3398] sovereignty. The Board filed a petition for rehearing in light of this Court's intervening decisions in White Mountain, supra, and Central Machinery Co. v. Arizona State Tax Comm'n, 448 U.S. 160 (1980). The Court of Appeals denied the petition, stating only that this case did not involve either "a comprehensive or pervasive scheme of federal regulation" or "federal regulation similar to the Indian trader statutes." App. to Juris.Statement 36. After initially granting discretionary review, the New Mexico Supreme Court quashed the writ as improvidently granted. 96 N.M. 17, 627 P.2d 412 (1981). We noted probable jurisdiction. 454 U.S. 1079 (1981).


In recent years, this Court has often confronted the difficult problem of reconciling

the plenary power of the States over residents within their borders with the semi-autonomous

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status of Indians living on tribal reservations.

McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164, 165 (1973). Although there is no definitive formula for resolving the question whether a State may exercise its authority over tribal members or reservation activities, we have recently identified the relevant federal, tribal, and state interests to be considered in determining whether a particular exercise of state authority violates federal law. See White Mountain, 448 U.S. at 141-145.


In White Mountain, we recognized that the federal and tribal interests arise from the broad power of Congress to...

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