Tribes v. Gregoire

• Decision Date: 23 September 2011
• Docket Number: No. 10–35776.,10–35776.
• Citation: 2011 Daily Journal D.A.R. 14494,11 Cal. Daily Op. Serv. 12201,658 F.3d 1078
• Parties: CONFEDERATED TRIBES AND BANDS OF THE YAKAMA INDIAN NATION, Plaintiff–Appellant,v.Christine O. GREGOIRE, Governor of the State of Washington; Cindi Holmstrom, Director of the Washington State Department of Revenue; Leslie Cushman, Deputy Director of the Washington State Department of Revenue; Stuart Thronson, Assistant Director of Special Programs of the Washington State Department of Revenue; Pat Parmer, Chief of Enforcement and Education Division of the Washington State Liquor Control Board, Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

658 F.3d 1078

11 Cal. Daily Op. Serv. 12,201

2011 Daily Journal D.A.R. 14,494

CONFEDERATED TRIBES AND BANDS OF THE YAKAMA INDIAN NATION, Plaintiff–Appellant,

v.Christine O. GREGOIRE, Governor of the State of Washington; Cindi Holmstrom, Director of the Washington State Department of Revenue; Leslie Cushman, Deputy Director of the Washington State Department of Revenue; Stuart Thronson, Assistant Director of Special Programs of the Washington State Department of Revenue; Pat Parmer, Chief of Enforcement and Education Division of the Washington State Liquor Control Board, Defendants–Appellees.

No. 10–35776.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 3, 2011.Filed Sept. 23, 2011.

Phillip E. Katzen, Cory J. Albright, and Zach Welcker; Kanji & Katzen, PLLC, Seattle, WA, for the appellants.Robert M. McKenna, Attorney General of Washington, Heidi A. Irvin, David M. Hankins, and Robert K. Costello, Office of the Attorney General, Olympia WA, for the appellees.

Appeal from the United States District Court for the Eastern District of Washington, Robert H. Whaley, Senior District Judge, Presiding. D.C. No. 2:08–cv–03056–RHW.Before: JOHN T. NOONAN, JR. and MILAN D. SMITH, JR., Circuit Judges, and ANDREW J. GUILFORD, District Judge.^*Opinion by Judge MILAN D. SMITH, JR.; Concurrence by Judge GUILFORD.

OPINION

M. SMITH, Circuit Judge:

States lack authority to tax Indian tribes or registered members of Indian tribal organizations absent a clear authorization from Congress. Cnty. of Yakima v. Confederated Tribes & Bands of the Yakima Indian Nation, 502 U.S. 251, 258, 112 S.Ct. 683, 116 L.Ed.2d 687 (1992). The Tribes of the Yakama Nation (the Yakama or Tribes) claim that this principle of Indian tax immunity has been violated by the State of Washington's current cigarette excise tax, which the Tribes argue leaves their retailers liable for payment of the tax when retailers sell cigarettes to non-Indians.

In 1978, a three-judge district court held that the legal incidence of the Washington cigarette tax did not fall on the Tribes. Confederated Tribes of Colville Indian Reservation v. Washington, 446 F.Supp. 1339 (E.D.Wash.1978). In 1980, the Supreme Court agreed with the three-judge court and upheld the validity of Washington's cigarette tax and its requirement that tribal retailers collect the tax from non-Indian cigarette purchasers. Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 159–61, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980). Although some elements of Washington's cigarette tax law have been modified over the past thirty years, we conclude, as did the district court in awarding summary judgment to the State, that none of those changes has materially altered the legal incidence of the cigarette tax approved of in Colville, and we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Washington State Cigarette Tax

The State of Washington levies a general excise tax on all cigarettes sold, used, consumed, handled, possessed or distributed within the State. See Revised Code of Washington (RCW) §§ 82.24 et seq. (the Act or cigarette tax); see also id. §§ 82.24.020, 82.24.026. This excise tax is levied “at the time and place of the first taxable event and upon the first taxable person within [the] [S]tate.” RCW § 82.24.080(2).

The cigarette tax primarily is collected from licensed cigarette wholesalers, who purchase tax stamps from the Washington Department of Revenue (the Department), and then affix the stamps on each package (or other unit) of cigarettes they distribute to retailers. RCW § 82.24.030; see also Wash. Admin. Code (WAC) § 458–20–186(101)(b). Wholesalers are required to affix the stamps prior to their distribution of cigarettes to retailers. RCW §§ 82.24.010(8), 82.24.030; WAC § 458–20–186(101)(b). Only licensed wholesalers may possess unstamped cigarettes, and only then under certain conditions. RCW §§ 82.24.040(2), 82.24.050.¹ Moreover, only licensed wholesalers may purchase or obtain cigarette stamps. RCW § 82.24.040(3). Transporting or selling unstamped cigarettes may constitute a misdemeanor or a felony. RCW §§ 82.24.110, 82.24.250, 82.24.260.

“Licensed wholesalers are compensated for affixing the stamps at the rate of $6.00 per thousand stamps affixed.” WAC § 458–20–186(201)(b). Wholesalers who affix cigarette tax stamps “may, if they wish, absorb five one-hundredths cents per cigarette of the tax and not pass it on to purchasers without being in violation of th[e Act] or any other act relating to the sale or taxation of cigarettes.” RCW § 82.24.020(2). If a wholesaler posts a bond with the State, it may defer payment of the tax for up to thirty days. See WAC § 458–20–186(201)(b) (“Payment for stamps must be made at the time of purchase unless the wholesaler has prior approval of the [D]epartment to defer payment and furnishes a surety bond equal to the proposed monthly credit limit.”). This arrangement gives the wholesaler a grace period within which to collect the amount of the cigarette tax from retailers prior to paying it over to the Department.

The Act contains several provisions exempting certain entities and persons from its strictures. For example, RCW § 82.24.020 allows enrolled members of federally recognized Indian tribes to “purchase cigarettes from an Indian tribal organization under the jurisdiction of the member's tribe for the member's own use exempt from the applicable taxes imposed by this chapter.” RCW § 82.24.020(4) (emphasis added).² Section 82.24.250 allows Indian tribal organizations to possess unstamped cigarettes provided they “give [ ] notice to the board in advance of receiving unstamped cigarettes and ... within a period of time after receipt of the cigarettes as ... the person ... cause[s] stamps to be affixed in accordance with RCW [§ ] 82.24.030 or otherwise ma[kes] payment of the tax required.” RCW § 82.24.250(7)(c).

Also exempted from the notice, stamping, and cigarette tax requirements of the Act are lawful transactions covered by cigarette tax compacts between Indian tribes and the State under RCW §§ 43.06.450 et seq., wherein an Indian tribe imposes a tribal tax in lieu of the State tax. See also id. § 82.24.020(5) (terms of contract under compact statute control over conflicting provisions of chapter 82.24). This exemption was added in 2001 “to promote economic development, provide needed revenues for tribal governments and Indian persons, and enhance enforcement of the state's cigarette tax law, ultimately saving the state money and reducing conflict.” RCW §§ 43.06.450; 43.06.455(3), (8).

Although the Act contains many provisions excluding registered tribes from its provisions, it does require them to collect the cigarette tax from non-Indians who purchase cigarettes from Indian retailers. For instance, the Act contains a statement of legislative intent requiring Indian tribes to serve as tax collectors and remitters:

It is the intent of the legislature that, in the absence of a cigarette tax contract or agreement ... applicable taxes imposed by this [Act] be collected on cigarettes sold by an Indian tribal organization to any person who is not an enrolled member of the federally recognized Indian tribe within whose jurisdiction the sale takes place consistent with collection of these taxes generally within the state. The legislature finds that applicable collection and enforcement measures under this chapter are reasonably necessary to prevent fraudulent transactions and place a minimal burden on the Indian tribal organization, pursuant to the United States supreme court's [sic] decision in Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134 [100 S.Ct. 2069, 65 L.Ed.2d 10] (1980).

RCW § 82.24.080(4) (emphasis added). However, the State legislature has also instructed that the Act should be construed to “not apply in any case in which the State of Washington is prohibited from taxing under the Constitution of [Washington] or the Constitution or laws of the United States.” RCW § 82.24.900. This language is referred to by the State as the “constitutional backstop.”

The Department has also adopted administrative rules concerning the collection of cigarette taxes from Indian retailers. See WAC § 458–20–186(102)(c).³ Indian retailers making on-reservation sales to nonmembers of the tribe must “collect and remit” the State's retail sales tax and cigarette tax. WAC § 458–20–192(5)(c). As the Department sees it, if a tribal retailer sells cigarettes to nonmembers, the wholesaler is obligated to pre-collect the tax, and the tribal retailer must purchase a stock of cigarettes with tax stamps affixed to the packages for such sales. The tribal retailer would then collect the amount of the tax from nonmember customers. See WAC § 458–20–192(9)(a)(i). The Department refers to this as the “pre-collection obligation.”

The Department is also authorized by the Act to promulgate rules allowing for a refund to “dealers for the cost of stamps affixed to articles taxed ... which by reason of damage become unfit for sale and are destroyed by the dealer or returned to the manufacturer.” RCW § 82.24.210. Under the Department's rules, “[a]ny person may request a refund of the face value of the stamps when the tax is not applicable and the stamps are returned to the department.” WAC § 458–20–186(203).

B. Yakama Nation Retailers

The Yakama Nation is a federally-recognized Indian nation with approximately 10,000 enrolled members. It is a party to the Yakama Treaty of 1855 with the United States, 12 Stat. 951, and it exercises the sovereign right of self-government over the 1.4 million-acre Yakama Indian Reservation, located in central Washington. There are nine Yakama member-owned businesses on the reservation engaged in the retail sale of cigarettes and other tobacco products. Each of these businesses is organized, licensed, and operates under the laws of the Yakama Nation. By affixing...