Barona Band of Mission Indians v. Yee

• Decision Date: 18 June 2008
• Docket Number: No. 06-55918.,06-55918.
• Citation: 528 F.3d 1184
• Parties: BARONA BAND OF MISSION INDIANS, also known as Barona Group of Capitan Grande Band of Mission Indians; Barona Tribal Gaming Authority, Plaintiffs-Appellees, v. Betty T. YEE; Bill Leonard; Claude Parrish; John Chiang; Steve Westly, each in his or her official capacity as a member of the California State Board of Equalization, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

528 F.3d 1184

BARONA BAND OF MISSION INDIANS, also known as Barona Group of Capitan Grande Band of Mission Indians; Barona Tribal Gaming Authority, Plaintiffs-Appellees, v. Betty T. YEE; Bill Leonard; Claude Parrish; John Chiang; Steve Westly, each in his or her official capacity as a member of the California State Board of Equalization, Defendants-Appellants.

No. 06-55918.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 7, 2008.

Filed June 18, 2008.

Bill Lockyer, W. Dean Freeman, Domini Pham, Leslie B. Smith, Randall A. Pinal, San Diego, CA, for the appellants.

Art Bunce, Kathryn Clenney, Law Offices of Art Bunce, Escondido, CA, for the appellees.

Appeal from the United States District Court for the Southern District of California, Dana M. Sabraw, District Judge, Presiding. D.C. No. CV-05-00257-DMS.

Before: HARRY PREGERSON, GLENN L. ARCHER, JR.,^* and KIM McLANE WARDLAW, Circuit Judges.

WARDLAW, Circuit Judge:

We must decide whether a non-Indian contractor who purchases construction materials from non-Indian vendors, which are later delivered to a construction site on Indian land, is exempt from state sales taxes. The California State Board of Equalization (the "Board") appeals the grant of summary judgment in favor of the Barona Band of Mission Indians (the "Tribe") in which the district court determined that the balancing test set forth in White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980), preempted a state sales tax levied against a non-Indian subcontractor performing electrical work on the Tribe's multi-million dollar casino expansion. Because the Tribe, as part of its highly lucrative gambling enterprise, merely marketed a sales tax exemption to non-Indians as part of a calculated business strategy, we conclude that its strategic effort to receive construction services from non-Indians at a competitive discount by circumventing the state sales tax does not outweigh California's interest in raising general funds for its treasury. The district court had jurisdiction under 28 U.S.C. § 1362, and we have jurisdiction pursuant to 28 U.S.C. § 1291.¹ We reverse and remand to the district court for further proceedings consistent with this opinion.

I. BACKGROUND

After nearly two centuries of displacement of the Barona Band of Mission Indians by European and then American encroachment, the United States enacted legislation to provide a tract of land in rural San Diego County to serve as a reservation for the Tribe. Until the early 1990s, however, the Tribe suffered from deep structural economic difficulties. Following the nationwide trend of Native Americans seeking to infuse economic life into depressed reservations, the Tribe opened up a casino in 1996: the Barona Valley Ranch Resort & Casino — "Where The Real Players Play, and Win."

By 2001, enough of these real players had played and lost for the Tribe to plan a $75 million expansion to the casino floor and hotel, replete with a new wedding chapel, parking structure and other resort amenities. The Tribe entered into a lump sum contract with a general contractor, Hensel Phelps Construction Co. (the "prime contract") to construct the expansion. Under California law, a lump sum contract "means a contract under which the contractor for a stated lump sum agrees to furnish and install materials or fixtures, or both." CAL. ADMIN. CODE tit. 18, § 1521(a)(8). Under the prime contract's terms, Hensel Phelps entered into a series of subcontracts with contractors in the various trades to complete discrete tasks. To that end, Hensel Phelps subcontracted with Helix Electric, Inc. to perform the expansion's electrical work.

As part of the prime contract terms, the Tribe touted a method it had devised to circumvent state sales tax, which would otherwise fall on the contractor, by scheduling deliveries to occur on tribal lands. Section 3.6.2 of the prime contract reads: "[Barona Band] is a federally recognized Indian Tribe and is therefore qualified for an exemption from California state sales and use tax on the purchase of tangible personal property if certain criteria are met. This Project is being structured, in accordance with Attachment O, to take advantage of the tax-exempt status of the [Tribe]." Attachment "O" to the prime contract carefully details the steps necessary for Hensel Phelps and its subcontractors to enjoy sales tax-free construction work. Under Attachment "O," Hensel Phelps and any subcontractor are designated as the Tribe's "purchasing agent for the procurement of Construction Supplies." The contractual language next provides a blueprint for the parties to follow in order to avoid state sales taxes. In bold lettering, Attachment "O" requires that any purchase made by Hensel Phelps and its subcontractors should only become officially consummated, with title transferring, on the Tribe's property.² All "shipping orders and delivery receipts," according to the contract, must include the following language:

THIS SALE IS NOT COMPLETE, AND TITLE DOES NOT PASS, UNTIL DELIVERY IS ACCEPTED BY THE BUYER ON THE BARONA INDIAN RESERVATION.

In a further effort to shield subcontractors from California state sales tax, the prime contract directs that the "Contractor shall not make advance payments to suppliers for materials or equipment which have not been delivered or stored at this site." Provided that Hensel Phelps and its subcontractors properly follow these steps, the Tribe promises to indemnify and defend them against any assessment of tax liability.

Under these terms, Helix Electric performed nearly four million dollars worth of sales-tax-free electrical work on the casino expansion. A Board-conducted audit concluded that Helix Electric owed slightly over $200,000 in sales and use tax emanating from purchases of construction materials—with title purporting to transfer on Tribe territory—from non-Indian vendors for use on the casino expansion. The Board issued a formal Notice of Determination to Helix demanding that it pay sales taxes in that amount. Helix Electric then sought indemnification from Hensel Phelps, which in turn sought reimbursement from the Tribe. The Tribe sued individual members of the Board in their official capacity in the United States District Court for the Southern District of California, seeking declaratory relief. The Tribe sought a judicial determination that the California state sales tax was invalid (1) per se as a direct tax on the Tribe; (2) under the Bracker balancing test as a tax leveled against non-Indians on Indian territory; or (3) as preempted by the Indian Gaming Regulatory Act, 25 U.S.C. §§ 2701, et seq. ("IGRA"). The parties filed cross-motions for summary judgment and submitted a Joint Statement of Undisputed Material Facts.

While the district court disagreed that the tax was a per se improper tax levied against the Tribe, it did agree that the tax failed the Bracker balancing test and granted the Tribe's motion for summary judgment. The Board timely appeals.

II. DISCUSSION

A. Per Se Invalidity

Historically, the United States Supreme Court treated reservations as places where, in Chief Justice Marshall's words, the "laws of [a State] can have no force." Worcester v. Georgia, 6 Pet. 515, 561, 8 L.Ed. 483 (1832). This viewpoint, however, has softened over time, and the modern Court has "acknowledged certain limitations on tribal sovereignty." New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 331, 103 S.Ct. 2378, 76 L.Ed.2d 611 (1983); see also COHEN'S HANDBOOK OF FEDERAL INDIAN LAW §§ 6.01-6.03 (2005) (outlining shift from traditional view of Indian sovereignty). Thus, Indian tribes and their possessions are akin to legal hybrids, "unique aggregations possessing attributes of sovereignty over both their members and their territory ... retain[ing] any aspect of their historical sovereignty not `inconsistent with the overriding interests of the National Government.'" Mescalero, 462 U.S. at 332, 103 S.Ct. 2378 (citing Washington v. Confederated Tribes, 447 U.S. 134, 153, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980)).

The historically entrenched idea of tribal autonomy, however, remains central to our reasoning when confronted with the application of state laws on tribal territory. "[T]raditional notions of Indian self-government are so deeply engrained in our jurisprudence that they have provided an important `backdrop' against which vague or ambiguous federal enactments must always be measured." Bracker, 448 U.S. at 143, 100 S.Ct. 2578 (internal citation omitted). A doctrine comparable, yet not identical, to federal preemption developed to protect tribes from State encroachment. Id. ("Tribal reservations are not States, and the differences in the form and nature of their sovereignty make it treacherous to import to one notions of preemption that are properly applied to the other."). Unlike traditional preemption, two conceptual barriers have been erected to block State law from regulating Indian behavior: federal enactments and Indian sovereignty. See Ramah Navajo School Bd., Inc. v. Bureau of Revenue of New Mexico, 458 U.S. 832, 837, 102 S.Ct. 3394, 73 L.Ed.2d 1174 (1982). Thus, "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 assertion of State authority." Mescalero, 462 U.S. at 334, 103 S.Ct. 2378.

This legal framework has often required us to undertake careful balancing of various interests. See Bracker, 448 U.S. at 142, 100 S.Ct. 2578 ("[T]here is no rigid rule by which to resolve the question whether a particular state law may be applied to an Indian reservation or to tribal members."). Not so with state taxation of Indian tribes. "In the special area of state taxation of Indian tribes and tribal members, we have adopted a per se rule." California v. Cabazon Band...