Keweenaw Bay Indian Community v. Kleine
| Decision Date | 27 March 2008 |
| Docket Number | No. 2:05-CV-224.,2:05-CV-224. |
| Citation | 546 F.Supp.2d 509 |
| Parties | KEWEENAW BAY INDIAN COMMNITY, a federally-recognized indian tribe, on its own behalf and as parens patriae for its members, Plaintiff, v. Robert J. KLEINE, Treasurer of the State of Michigan; Jay Rising, former treasurer of the State of Michigan; Michael Reynolds, Administrator of the Collection Division of the Michigan Department of Treasury; Walter A. Fratzke, Native American Affairs Specialist of the Michigan Department of Treasury; and Terri Lynn Land, Secretary of State of Michigan, Defendants. |
| Court | U.S. District Court — Western District of Michigan |
Mary J. Streitz, Vernle (Skip) Durocher, Amy Christine Hertel, Dorsey & Whitney LLP, Minneapolis, MN, Stephen D. Turner, Gregory N. Longworth, Clark Hill PLC, Grand Rapids, MI, John R. Baker, Keweenaw Bay Indian Community, Baraga, MI, for Plaintiff.
Heidi Lee Johnson-Mehney, Ross H. Bishop, Todd B. Adams, MI Dept Attorney General, Jaclyn Shoshana Levine, James R. Lancaster, Kevin J. Moody, Louis B. Reinwasser, Miller Canfield Paddock & Stone PLC, Lansing, MI, for Defendants.
Plaintiff, Keweenaw Bay Indian Community ("Community"), brought this claim against Defendants, Robert J. Kleine, Treasurer of the State of Michigan; Jay Rising, former Treasurer of the State of Michigan; Michael Reynolds, Administrator of the Collection Division of the Michigan Department of Treasury; Walter A. Fratzke, Native American Affairs Specialist of the Michigan Department of Treasury; and Terri Lynn Land, Secretary of State of Michigan. The Community alleges that the State of Michigan ("State") has illegally enforced the Michigan Sales Tax Act, M.C.L. §§ 205.51-205.78, and the Michigan Use Tax Act, M.C.L. §§ 205.91-205.111, against Community members and those who sell tangible personal property to Community members. The parties filed various motions for summary judgment, and the Court has heard oral argument. For the following reasons, the Court will grant summary judgment for Defendants on all counts.
The facts upon which this decision is rendered are undisputed. The Community is a federally-recognized Indian tribe located in the Upper Peninsula of Michigan. The Community exercises powers of self-governance and sovereign jurisdiction over the L'Anse Indian Reservation and other lands held in trust for the Community by the United States outside the Reservation. Defendant Robert Kleine is the Treasurer of the State of Michigan, replacing Defendant Jay Rising on April 6, 2006. Kleine oversees the Michigan Department of Treasury ("Treasury"), the State agency that administers and enforces the Sales and Use Tax Acts. Defendant Michael Reynolds is the Administrator of the Collections Division of the Department's Financial Services Bureau. Defendant Walter Fratzke is the Department's Native American affairs specialist, and he oversees the administration of the State's tax laws with respect to Michigan Indian tribes and tribal members. Defendant Terri Lynn Land is the Secretary of State of Michigan, and she administers various programs and services, including motor vehicle registration, licensing, and the collection of certain taxes and fees.
In 1977, the State and the Community entered into an agreement concerning taxes for the Community and its members. The agreement terminated in 1997. Prior to its termination, the State began negotiating with all federally-recognized Native American tribes in the State to enter into comprehensive tax agreements covering all relevant tax issues. Although the State has entered into agreements with a majority of tribes, the Community and the State have thus far failed to reach an agreement.
In 1995, Treasury audited the Community's sales and use taxes for the 1993 and 1994 fiscal years. Treasury determined that the Community owed $186,277. In 1996, Treasury offset $87,839 of the Community's tax liability from funds owed to the Community by the State pursuant to the 1977 tax agreement. At the Community's request, an informal conference to dispute the tax assessments was held on May 14, 2002, but a Community representative was not present. The Community claims that its representative attempted to participate by telephone but that when he called, no one was able to connect him to the proceedings. Treasury Hearing Referee Mark Meyer issued an Informal Conference Recommendation in which he determined that the taxes were lawfully owed under the 1977 tax agreement. On September 20, 2002, Treasury issued a Decision and Order of Determination accepting Referee Meyer's recommendation and ordered that the taxes be assessed.
In November 2002, the State Treasurer's Accounts Receivable ("STAR") computer system automatically offset federal and state funds owed to the Community as a credit against the Community's tax liability. This offset occurred without warning to the Community. The Community contacted Defendant Fratzke to contest the offset, and Defendant Reynolds reversed the offset and refunded the money to the Community. Defendant Reynolds placed the Community's account on manual bypass status, which was supposed to prevent similar offsets in the future.
In May and June of 2005, the STAR computer system once again offset money owed to the Community as a credit against the Community's tax liability. The STAR computer system took this action without input from any Defendant, and it is unclear what caused the computer system to disregard the Community's "bypass" status. The offset deprived the Community of federal funds it otherwise would have received. Specifically, STAR offset $4,157.61 payable to the Community for purposes of the Federal Medicaid Program, 42 U.S.C. § 1396, $28,670.42 payable for the Federal Women, Infant, and Children Program, 42 U.S.C. § 1786, $410.00 payable for the Federal Safe and Stable Families Program, 42 U.S.C. § 629, and $928.28 payable for the Federal Child Day Care Program, 42 U.S.C. § 618. The remaining amount was offset from State funds owed to the Community. This offset satisfied the Community's tax liability for the 1993 and 1994 assessments. The Community again contested the offsets. At this same time, the Community notified Defendants that it intended to recoup the amount of the 2005 offsets by withholding a portion of the 8% gambling net win payments it was obligated to make to the Michigan Economic Development Corporation under the terms of a 2001 Consent Judgment. As Defendants were deciding whether to refund any portion of the 2005 offsets, the Community filed this lawsuit.
In addition to contesting the validity of the 1993 and 1994 tax assessments and the resulting offsets, the Community also contends that the State's current taxation scheme for sales and use tax is illegal as applied to the Community and its members. The Sales Tax Act, M.C.L. §§ 205.51-205.78, imposes a tax "upon all persons engaged in the business of making sales at retail, by which ownership of tangible personal property is transferred for consideration...." M.C.L. § 205.52. The Use Tax Act, M.C.L. §§ 205.91-205.111, imposes a tax "on the privilege of using, storing, or consuming tangible personal property in this state...." M.C.L. § 205.93(1). The use tax does not apply to property for which sales tax has been paid. M.C.L. § 205.94(1).
For tribes that do not have a tax agreement with the State, Treasury uses a case-by-case analysis to determine if the transaction at issue is subject to tax. Treasury instructs all retailers to charge the applicable tax (unless there is another, generally applicable exemption). If the retailer or purchaser believes the transaction is tax-exempt under federal law governing taxation of Indians, that person may submit a written request for an exemption to Treasury. Treasury requires any person claiming an exemption based on tribal sovereignty to provide information that includes, among other things: whether the party making the request is a federally recognized Indian tribe, a tribal entity, or a member of a federally recognized Indian tribe; if the applicant is a federally recognized Indian tribe, a description of the unit purchasing the item, such as the police department or a commercial enterprise owned by the tribe; the item being purchased and the location of the retailer's business; the place where each component of the sale will take place (e.g. place of solicitation, contract signing, payment, and delivery); and where the item is intended to be used (i.e. exclusively within Indian country or both inside and outside of Indian country). A retailer or purchaser may obtain approval prior to the transaction or may pay the applicable tax and then seek a refund.
In this 33-count lawsuit, the Community sued Defendants in their official and individual capacities alleging various violations of federal law that can be grouped into four broad categories. First, the Community claims in counts I-V, VII-VIII, and XXVII-XXX that the 1993 and 1994 tax assessments, as well as the resulting 2005 tax offsets, were unlawful for various reasons. The Community seeks a declaration that the assessments and offsets were unlawful, restoration of the offsets, and a declaration that any future offsets (or other attempts to collect the 1993 and 1994 tax assessments) would be unlawful. Second, in counts VI and XXXIII, the Community asserts a 42 U.S.C. § 1983 claim, as well as a claim for attorney's fees, against Defendants for their actions relating to the 2005 offsets. The Community claims that by offsetting federal funds owed to it, Defendants violated various constitutional and statutory rights. Third, the Community alleges in counts IX-XXVI that Defendants' enforcement of the Sales and Use Tax Acts violates federal law. Finally, in count XXXI, the Community seeks a declaration that its own offset of funds is lawful. Both parties...
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Keweenaw Bay Indian Cmty. v. Khouri
...standing to challenge the enforcement of the sales and use taxes as a violation of federal law. Id. , Keweenaw Bay Indian Cmty. v. Kleine , 546 F.Supp.2d 509, 520-21 (W.D. Mich. 2008). Judge Quist explained that the enforcement scheme for the sales and use taxes was similar to the enforceme......
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Brown Bark I, L.P. v. Traverse City Light & Power Dept.
...TIA for Indian tribes which bring federal suit to challenge ongoing state-taxation schemes, see Keweenaw Bay Indian Cmty. v. Kleine, 546 F.Supp.2d 509, 523 (W.D.Mich.2008) (Quist, J.), judgment aff'd in part and vac'd in part on other grounds, 569 F.3d 589 (6th Cir.2009), and Indian tribes ......
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Keweenaw Bay Indian Cmty. v. Khouri
...Gordon Quist held that KBIC had standing to challenge the enforcement of the sales and use taxes as a violation of federal law. Id., 546 F.Supp.2d 509, 520-21 (W.D. Mich. 2008). Judge Quist explained that the enforcement scheme for the sales and use taxes was similar to the enforcement sche......
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Keweenaw Bay Indian Community v. Rising
...constitutional and statutory rights. The District Court granted judgment for the State on all issues, see Keweenaw Bay Indian Cmty. v. Kleine, 546 F.Supp.2d 509 (W.D.Mich. 2008), some of which, based on Eleventh Amendment immunity and other grounds, have not been appealed. The Community now......