Keweenaw Bay Indian Community v. Rising

• Citation: 569 F.3d 589
• Decision Date: 26 June 2009
• Docket Number: No. 08-1585.,08-1585.
• Parties: KEWEENAW BAY INDIAN COMMUNITY, Plaintiff-Appellant, v. Jay RISING, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

569 F.3d 589

KEWEENAW BAY INDIAN COMMUNITY, Plaintiff-Appellant, v. Jay RISING, et al., Defendants-Appellees.

No. 08-1585.

United States Court of Appeals, Sixth Circuit.

Argued: April 30, 2009.

Decided and Filed: June 26, 2009.

ARGUED:

Vernle Charles Durocher, Jr., Dorsey & Whitney LLP, Minneapolis, Minnesota, for Appellant. Kevin Joseph Moody, Miller, Canfield, Paddock & Stone, P.L.C., Lansing, Michigan, for Appellees.

ON BRIEF:

Vernle Charles Durocher, Jr., Dorsey & Whitney LLP, Minneapolis, Minnesota, for Appellant. Kevin Joseph Moody, Jaclyn S. Levine, Miller, Canfield, Paddock & Stone, P.L.C., Lansing, Michigan, B. Eric Restuccia, Office of the Michigan Attorney General, Lansing, Michigan, for Appellees.

Before MERRITT, GRIFFIN, and KETHLEDGE, Circuit Judges.

OPINION

MERRITT, Circuit Judge.

The body of federal law governing Indian immunity from state taxation arises from the Commerce Clause, which grants to Congress the power "to regulate commerce with foreign Nations, and among the several States, and with the Indian Tribes," and laws passed pursuant thereto. Under the Declaratory Judgment Act, 28 U.S.C. § 2201 (a federal court may "declare the rights" of the parties only in "a case of actual controversy"), the Keweenaw Bay Indian Community seeks (1) a broad declaration concerning its tax immunities under federal law, and (2) injunctive relief from Michigan's policy of taxing transactions involving the Community and from Michigan's reliance on an informal refund process to sort those immunities out on a case-by-case, transaction-by-transaction basis. Because the questions presented cover a myriad of hypothetical transactions and are too broad, too abstract, and unsupported by specific facts, the relief requested cannot be granted at this time. Lacking a specific factual context, the questions are not justiciable. The Community also appeals the District Court's conclusion that the Community does not qualify as a "person" within the meaning of 42 U.S.C. § 1983 for purposes of its suit against members of the State Treasury department. Further factual development of the record is necessary before this issue can be fully resolved, and we remand the case for further proceedings on this issue.

I. Background

The Keweenaw Bay Indian Community is a federally recognized Indian tribe and the successor in interest to the L'Anse and Ontonagon bands of Chippewa Indians. The Community exercises powers of self-governance and sovereign jurisdiction over the L'Anse Indian Reservation in the Upper Peninsula of Michigan, as well as over extensive lands held in trust by the United States outside the reservation in the western half of the Upper Peninsula. The reservation itself, not counting the trust lands, comprises nearly 60,000 acres, upon which reside roughly 893 of the 3,339 enrolled members of the Community.¹

In 1977, Michigan and the Community entered into a comprehensive tax agreement governing payment and collection of sales and use taxes for transactions involving the Community or its members. In 1994, the parties began renegotiating this agreement, but failed to reach accord. In 1997, Michigan terminated its tax agreements with the twelve federally recognized tribes in the State, as part of an effort to achieve uniformity in its agreements with the tribes. Although the State has reached agreement with most of the Michigan tribes, it has failed to reach agreement with the Community. In the absence of any such agreement, Michigan has apparently adopted a policy of taxing transactions involving the Community or its members, while permitting them to apply to the Treasury for an exemption or refund on a case-by-case basis. The State claims that the Community has flouted this policy and refused to pay many of its taxes. Not surprisingly, the parties have repeatedly disputed the amount of taxes the Community owes to the State, and each has withheld funds that the other party claims it is owed. Most notably for our purposes, in 2005 the State withheld $34,166.31 in federal funds owed to the Community, which the State offset from the back taxes that it maintained the Community owed.

In 2006, the Community filed this lawsuit, primarily seeking declaratory and injunctive relief from the State's collection of sales and use taxes on transactions involving the Community or its members. Defendants are four Michigan officials, who are sued in both their individual and official capacities.² The Community also seeks damages under 42 U.S.C. § 1983, alleging that the 2005 offset of federal funds violated various 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 presents us with three questions, which we quote from its opening brief and will address in turn:

(1) Whether the district court erred in failing to hold that federal law categorically prohibits imposition of Michigan's sales and use taxes with respect to the Community's and its members' purchase and use of property and services within the Community's reservations and trust lands.

(2) Whether the district court erred in dismissing the Community's claims based on the 1842 Treaty seeking declaratory and injunctive relief regarding imposition of Michigan's sales and use taxes with respect to the Community's and its members purchase and use of property and services in the area ceded under that treaty.

(3) Whether the district court erred in holding that the federal rights underlying the Community's claim based on 42 U.S.C. § 1983 are rights that emanate from the Community's sovereign status, rather than rights equally available to any person.

II. The "Categorical" Prohibition on Michigan Sales and Use Taxes

The Michigan Sales Tax Act, M.C.L. §§ 205.51-205.78, imposes a 6% tax on the gross proceeds from retail sales of tangible personal property in Michigan. The parties agree that the legal incidence of the tax falls on the retailer under M.C.L. § 205.52(1) and Sims v. Firestone Tire & Rubber Co., 397 Mich. 469, 245 N.W.2d 13, 15 (1976). The Michigan Use Tax Act, M.C.L. §§ 205.91-205.111, imposes a one-time tax "for the privilege of using, storing, or consuming tangible personal property in [Michigan] at a rate equal to 6% of the price of the property or services." M.C.L. § 205.93(1). The tax is imposed only on transactions not subject to the sales tax, and the parties agree that the purchaser bears the legal incidence of the use tax under M.C.L. § 205.97.

The Community first asks us to explicate, as a part of a formal declaration, the relevant Supreme Court holdings on state taxation of Indians. This body of federal law is concededly "intricate" and "vexing." Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 138, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980). And it is not surprising, therefore, that Michigan's briefs and statements at oral argument may misstate the law in certain respects, such as the preemptive effect of the Indian trader statutes, 25 U.S.C. §§ 261-264, or the necessity of apportioning the use tax under certain circumstances. But, as the District Court noted, the Community has not pointed to a single example of the State refusing to refund a tax that it is prohibited by federal law from collecting. Until it does so, our attempted clarification of the relevant law and the exposition of a "categorical" legislative-type set of rules would be purely academic. We assume that the parties are fully capable of reading and synthesizing the body of federal law governing state taxation of Indians. Until we see some evidence that one party has erred in doing so and put that mistaken belief into practice, we have no inclination—and probably no jurisdiction—to issue a formal declaration on the subject. If the Community files, and the State denies, a request for an exemption or refund based on a transaction occurring within Indian country and involving a member of the Community, the courthouse doors will be open to an appropriate challenge.

The Community also asks us to declare invalid the State's purported policy of taxing all transactions in the first instance and using the Informal Process to determine which taxes can validly be collected. The absence of factual development in the record prevents us from doing so. There may be certain types of sales for which the Informal Process is invalid because it is "not reasonably necessary as a means of preventing fraudulent transactions." Colville, 447 U.S. at 160, 100 S.Ct. 2069. For example, parts of the record suggest that the State may require even Indian retailers located on the reservation to collect sales tax from Indian consumers, even though these transactions are clearly nontaxable absent congressional authorization, since the legal incidence of the sales tax falls on the Indian retailer. See Okla. Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 459, 115 S.Ct. 2214, 132 L.Ed.2d 400 (1995) (explaining that if a sales tax is imposed on an Indian retailer for sales within Indian country, "the tax cannot be enforced absent clear congressional authorization"). But the record does not clearly indicate whether the State does in fact require collection for such transactions, and we will not issue a declaration concerning a practice that may not be occurring. Furthermore, if the State seeks to impose the use tax on products sold by Indian retailers to non-Indian consumers (a fact that we again do not know), the relevant minimal-burdens analysis might come out differently.

It is perhaps possible that a purported, comprehensive policy of tax-it-all-and-let-treasury-sort-it-out is invalid because it exceeds the minimal burdens that federal law allows the State to place on Indians or Indian tribes. But we do not have before us enough facts to reach that...