Pala Band of Mission Indians v. Maduros
| Decision Date | 15 April 2021 |
| Docket Number | Case No.: 3:20-cv-01767-AJB-JLB |
| Citation | 549 F.Supp.3d 1184 |
| Parties | PALA BAND OF MISSION INDIANS, Plaintiff v. Nicholas MADUROS, in his official capacity as the Director of the California Department of Tax and Fee Administration ; The California Department of Tax and Fee Administration, Defendants. |
| Court | U.S. District Court — Southern District of California |
Dale Ellis Motley, Ogden & Motley, Los Angeles, CA, for Plaintiff.
Douglas J. Beteta, California Attorney General's Office Business & Tax Section, Los Angeles, CA, Kara D. Siegel, California Department of Justice Office of the Attorney General, San Diego, CA, for Defendants.
ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS PLAINTIFF'S SECOND AMENDED COMPLAINT
Before the Court is Defendants Nicholas Maduros and the California Department of Tax and Fee Administration's ("CDTFA") (collectively "Defendants") motion to dismiss the Second Amended Complaint ("SAC") filed by the Pala Band of Mission Indians ("Plaintiff"). (Doc. No. 16.) For the reasons set forth below, the Court GRANTS Defendants’ motion to dismiss.
Plaintiff is a federally recognized Indian tribe, which maintains sovereign rights to land held in trust by the United States for Plaintiff's benefit ("Reservation"). (Doc. No. 15 at ¶ 3.) Plaintiff owns a retail gasoline station located on the Reservation at 11154 Highway 76, Pala, California 92059. (Id. at ¶ 15.) Since 2005, CDTFA and Nicholas Maduros, the CDTFA's director, have required Plaintiff to "report, charge, collect, and/or remit to the Defendants any California state sales and use taxes from the sale of motor vehicle fuel products delivered to, received by, and/or sold by the Plaintiff on the Reservation" in accordance with California state law. (Id. at ¶ 17.) To enforce this state use tax, Defendants have "undertaken collection activities" against Plaintiff such as "demands for immediate payment along with threats of property seizure, notices of lien, pre-intercept collection, collection fees, and late penalties." (Id. at ¶ 9.) Plaintiff brings this action, requesting the Court to invalidate and enjoin Defendants from enforcing the aforementioned use tax.
A defendant may seek to dismiss a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A Rule 12(b)(6) motion to dismiss "tests the legal sufficiency of a claim." Conservation Force v. Salazar , 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block , 250 F.3d 729, 732 (9th Cir. 2001) ). In evaluating the sufficiency of the claim, the court accepts all factual allegations as true and construes them in the light most favorable to the nonmoving party. Knievel v. ESPN , 393 F.3d 1068, 1072 (9th Cir. 2005).
To avoid dismissal under Rule 12(b)(6), the complaint must satisfy Rule 8(a)(2), which requires that the pleadings include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "If the Court finds that the plaintiff did not allege sufficient facts ‘to raise a right to relief above the speculative level’ and support a cognizable legal theory, it may dismiss the complaint as a matter of law." Great Minds v. Office Depot, Inc. , 945 F.3d 1106, 1109 (9th Cir. 2019) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).
The parties agree that the dispositive issue on the instant motion to dismiss is whether the incidence of California's use tax for motor vehicle fuel falls on Plaintiff, a tribal retailer. (Doc. Nos. 18 at 4; 19 at 2.) As more fully discussed below, if the tax does not fall on Plaintiff, then the tax is likely permissible, and Plaintiff has failed to plausibly allege a right to relief.
Here, Defendants argue that based on the plain language of the relevant California Revenue & Taxation Code provisions, the legal incidence of the California use tax falls not on retailers like Plaintiff, but on consumers. (Doc. No. 16-1 at 13–15.) Plaintiff, on the other hand, maintains that pursuant to Oklahoma Tax Commission v. Chickasaw Nation , 515 U.S. 450, 115 S.Ct. 2214, 132 L.Ed.2d 400 (1995), the use tax impermissibly falls on tribal retailers. (Doc. No. 18 at 6–8.) Prior to evaluating the merits of the parties’ arguments, the Court discusses the applicable law and statutes.
As for the applicable law, "[t]he Constitution vests the Federal Government with exclusive authority over relations with Indian tribes ... and in recognition of the sovereignty retained by Indian tribes even after formation of the United States, Indian tribes and individuals generally are exempt from state taxation within their own territory." Chickasaw Nation , 515 U.S. at 455, 115 S.Ct. 2214 (quoting Montana v. Blackfeet Tribe , 471 U.S. 759, 764, 105 S.Ct. 2399, 85 L.Ed.2d 753 (1985) ). As such, the issue of where the legal incidence of a tax falls is " ‘frequently [the] dispositive question in Indian tax cases,’ because ‘[i]f 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.’ " Coeur D'Alene Tribe of Idaho v. Hammond , 384 F.3d 674, 681 (9th Cir. 2004) (quoting Chickasaw Nation , 515 U.S. at 458–59, 115 S.Ct. 2214 ). However, if the legal incidence does not rest on a tribe, the state may impose the tax and place "minimal burdens" upon the tribe in collecting the tax so long as "the balance of federal, state, and tribal interests favors the [s]tate, and federal law is not to the contrary." Confederated Tribes & Bands of the Yakama Indian Nation v. Gregoire , 658 F.3d 1078, 1084 (9th Cir. 2011) (quoting Chickasaw Nation , 515 U.S. at 459, 115 S.Ct. 2214 ).
"The ‘legal incidence’ of an excise tax refers to determining which entity or person bears the ultimate legal obligation to pay the tax to the taxing authority." Id. "Identifying legal incidence requires a court to analyze the taxing statute and its implementation to determine which entities or individuals will likely face detrimental legal consequences if the tax is not paid." Id. In conducting this analysis, the Ninth Circuit has considered various factors, including (1) express statements of legislative intent, (2) whether the statute includes an "explicit ‘pass through’ which moves incidence down the distribution chain," (3) whether an entity is compensated for collecting and remitting the tax on behalf of the state, (4) what invoices show regarding payment of the tax, (5) whether a retailer may recoup tax paid for unsold products, (6) whether a retailer is refunded when a consumer fails to pay the tax, and (7) who the statute penalizes for nonpayment of the tax. Id. at 1086 (). The court must interpret the taxing statute fairly both as written and as applied. Cal. Bd. of Equalization v. Chemehuevi Tribe , 474 U.S. 9, 11, 106 S.Ct. 289, 88 L.Ed.2d 9 (1985) (per curiam).
As for the relevant statute, the California Sales and Use Tax Law, Cal. Rev. & Tax. Code § 6001 et seq., is a comprehensive system crafted to ensure that "all tangible personal[ property] sold or utilized in California is taxed once for the support of the state government." Woosley v. California , 3 Cal. 4th 758, 771, 13 Cal.Rptr.2d 30, 838 P.2d 758 (1992). The use tax "imposes an excise on the consumer at the same rate [as the sales tax] for the storage, use or other consumption in the state of such property when purchased from any retailer." Id. Property exempted, excluded, or otherwise not covered by the sales tax is subject to the use tax. Am. Airlines, Inc. v. State Bd. of Equalization , 216 Cal. App. 2d 180, 190, 30 Cal.Rptr. 590 (1963) (citing In re L.A. Lumber Prods. Co. , 45 F. Supp. 77, 86 (S.D. Cal. 1942) ). Sales of tangible personal property conducted on a reservation by Indian retailers to non-Indians or Indians not residing on-reservation are exempt from sales tax. Cal. Code Regs. tit. 18, § 1616(d)(3)(A)(2). Because all goods exempt from sale tax are subject to the use tax, Indian retailers are required to collect use tax from purchasers in such sales. Id.
The use tax requires that "[e]very person storing, using, or otherwise consuming in this state tangible personal property purchased from a retailer is liable for the tax." Cal. Rev. & Tax. Code § 6202(a).2 That liability is not extinguished until the tax is paid to the state or provided to a retailer who is authorized by the state to collect the tax. Id. Every retailer engaged in business in California who sells tangible personal property for storage, use, or consumption in the state must "collect the [use] tax from the purchaser and give to the purchaser a receipt therefor." § 6203(a).
Upon consideration of the applicable factors, including the tax code's explicit identification that the consumer is liable for the use tax, its "pass through" requirement, its refund protocol for overpayment, its protection of retailers from worthless accounts, and its required accounting measures, the Court finds that the legal incidence of the California use tax falls upon consumers.
First, the language of the California use tax statutes expressly...
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