Yavapai-Prescott Indian Tribe v. Scott, YAVAPAI-PRESCOTT

• Decision Date: 30 June 1997
• Docket Number: No. 96-16416,YAVAPAI-PRESCOTT,96-16416
• Citation: 117 F.3d 1107
• Parties: 97 Cal. Daily Op. Serv. 5188, 97 Daily Journal D.A.R. 8403 INDIAN TRIBE, Plaintiff-Appellee, v. Harold SCOTT, in his official capacity as Director of the Arizona Department of Revenue; Tony West, in his official capacity as Treasurer of the State of Arizona, Defendants-Cross-Defendants-Appellants, v. PRESCOTT CONVENTION CENTER, INC., an Arizona corporation, Defendant-Cross-Claimant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1107

117 F.3d 1107

97 Cal. Daily Op. Serv. 5188, 97 Daily Journal

D.A.R. 8403

YAVAPAI-PRESCOTT INDIAN TRIBE, Plaintiff-Appellee, v. Harold SCOTT, in his official capacity as Director of the

Arizona Department of Revenue; Tony West, in his official

capacity as Treasurer of the State of Arizona, Defendants-Cross-Defendants-Appellants, v. PRESCOTT CONVENTION CENTER, INC., an Arizona corporation,

Defendant-Cross-Claimant-Appellee.

No. 96-16416.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 7, 1997.

Decided June 30, 1997.

David Jeremy Bodney, Steptoe & Johnson, Phoenix, AZ, for plaintiff-appellee.

Patrick Irvine, Assistant Attorney General, Phoenix, AZ, for defendants-cross-defendants-appellants.

Cameron C. Artigue, Gammage & Burnham, Phoenix, AZ, for defendant-cross-claimant-appellee.

Appeal from the United States District Court for the District of Arizona; C.A. Muecke, District Judge, Presiding. D.C. No. CV-95-00124-CAM.

Before: PREGERSON, JOHN T. NOONAN, and KLEINFELD, Circuit Judges.

Opinion by Judge NOONAN; Dissent by Judge PREGERSON.

NOONAN, Circuit Judge:

Yavapai-Prescott Indian Tribe (the Tribe) brought this action for declaratory relief and an injunction against Harold Scott in his official capacity as Director of the Arizona Department of Revenue and Tony West in his official capacity as Treasurer of the State of Arizona (collectively, "the State" or "Arizona"). Prescott Convention Center, Inc., an Arizona corporation, (PCC) was also named as a defendant by the Tribe and became a cross-claimant against the State. From judgment in favor of the Tribe, the State appeals.

The case involves the judge-created law on the preemption of state taxes imposed on sales by non-Indians to non-Indians on an Indian reservation. Whether there is preemption depends on proof that the federal and tribal interest in the activity outweighs the interest of the State. Holding that in this case the plaintiff Tribe has failed to establish the superior interest necessary for preemption, we reverse the judgment of the district court.

THE PARTIES AND THE PROPERTY

The Plaintiffs. The Tribe, an Indian tribe recognized by the United States, has currently 143 members, of whom 65 live on the Yavapai-Prescott Reservation (the Reservation) next to the City of Prescott, Arizona.

The State Defendants. These defendants are responsible for the collection of taxes for the State.

The Private Defendant-Cross-Claimant. PCC is the lessee of a hotel on the Reservation (the Hotel).

The Hotel. In 1983 the Tribe received a grant of $1.12 million from the United States Department of Housing and Urban Development for the construction of the Hotel. The Tribe entered into an agreement with PCC to build the Hotel and to lease it from the Tribe. To finance this construction the Tribe loaned $1.1 million of the grant money to PCC. The bulk of the money needed for construction, $8.5 million, was borrowed by PCC from the Tribe through bonds issued by the Industrial Development Authority of the City of Prescott and guaranteed by the Household Finance Corporation.

As part of the construction deal PCC also became the lessee of the Hotel. The lease provided both the terms of the Tribe's loan and the rent to be paid. In consideration of the loan, PCC agreed to pay 2 percent annually, plus 20 percent of the annual net cash flow, defined as all income less operating expenses, franchise fees, debt service, and a replacement reserve; and in addition, on an assignment of the lease, the Tribe was entitled to 30 percent of the net proceeds of the assignment, defined as the gross proceeds less the outstanding balance on the mortgage and less "the equity" of PCC, defined as the cost of construction less sums borrowed. The rent was set as $35,000 per annum plus 1 percent of the gross revenue less taxes, telephone charges and franchise fees for the years of 1987 and 1988 and 1-1/4 percent thereafter. The Tribe was also entitled to levy a 1 percent transaction privilege tax on gross revenue and to increase this tax to an amount equivalent to the Arizona tax on similar businesses conducted outside the Reservation if the Arizona tax on the lessee's operations inside the Reservation was "declared unconstitutional, or deleted from the Arizona Revised Statutes, so that it no longer applies to Lessee's operations on the reservation."

Other pertinent terms were these: Title to all buildings and improvements vested immediately in the Tribe. PCC agreed to pay for all utilities and to maintain and repair all buildings. It was agreed that the Tribe should have no responsibility to provide or pay for police protection, fire protection, or street maintenance.

In 1985 the Secretary of the Interior approved the lease. The Hotel was built. It is a five-story structure with 161 rooms, half of them suites. (The suites, as more expensive, have presumably the better view, to the west over the city of Prescott.) The Hotel has a restaurant, an entertainment lounge, a salon, a health club, a pavilion in summer, and over 8,000 square feet of convention facilities including a ballroom and break-out rooms. The lounge has live entertainment five days a week. Food service is a substantial part of the Hotel's business. On peak days the Hotel At its start, the Hotel obtained a franchise to operate as a Sheraton Hotel. On August 21, 1992 the Tribe subleased 2150 square feet of floor space from the Hotel in order to set up a gaming facility known as Bucky's at a rent of 25 percent of the gross receipts from gaming devices (slot machines and automated poker games). Since August 1992 the Hotel has been operated as part of the Grace Hospitality Group and known as the Prescott Resort and Conference Center.

serves as many as 1,200 meals, using the ballroom and pavilion as well as the restaurant.

PROCEEDINGS

The State issued an assessment for the business transaction privilege taxes collected by PCC on room rentals and food and beverage sales through December 31, 1990. On November 15, 1994 the Arizona Board of Tax Appeals affirmed the assessment. On January 12, 1995 the Board denied a motion for rehearing.

On January 23, 1995 the Tribe brought this action naming both the State and PCC as defendants. PCC filed a cross-complaint against the State. On April 25, 1996 the district court ruled on cross-motions for summary judgment. Carefully setting out the facts and relevant Supreme Court and Ninth Circuit precedent, the court held (1) that the legal incidence of the State taxes was not upon the Tribe and (2) that the federal and tribal interests in the activities taxed outweighed the State's, so that as a matter of federal law the State was preempted from exercising its taxing power upon the sales of the Hotel. On June 13, 1996 the district court entered judgment enjoining the State from collecting the taxes and PCC from paying the taxes to the State.

The State appeals.

ANALYSIS

The Balance of Tribal, Federal and State Interests. The balancing required of a court determining whether taxation by the State is preempted has the ad hoc and particular character of a common law case developing common law based on the facts and like a common law decision must not do violence to precedent and must indeed fit within the frame established by precedent. In our case, three recent decisions of our court--Gila River Indian Community v. Waddell, 967 F.2d 1404 (9th Cir.1992) (per Fletcher, Nelson and Fernandez) (Gila River I); Salt River Pima-Maricopa Indian Community v. State of Arizona, 50 F.3d 734 (9th Cir.) (per Fletcher, Pregerson and Rymer), cert. denied, --- U.S. ----, 116 S.Ct. 186, 133 L.Ed.2d 123 (1995) (Salt River); and Gila River Indian Community v. Waddell, 91 F.3d 1232 (9th Cir.1996) (per Reinhardt, Thompson and O'Scannlain ) (Gila River II)--provide guidance within the context of the decisions of the United States Supreme Court which they reflect and interpret.

In Gila River I, the following alleged facts weighed in favor of preemption of Arizona business transaction privilege taxes laid on ticket sales to non-Indians for boat races and performances by two non-tribal lessees:

1. The income the Tribe received contributed to the economic well-being and self-sufficiency of the Tribe.

2. The United States held the fee to the property in trust for the Tribe.

3. The lake and marina on which the activities were conducted were constructed wholly with federal funds.

4. Any improvements belonged to the Tribe.

5. The several leases involved were all approved by the Secretary of the Interior as required by 25 U.S.C. § 415.

6. One lessee paid a sizable base rent plus a percentage of gross receipts in excess of $4 million to the Tribe.

7. The Tribe enforces regulations concerning sewage and sanitation.

8. A "significant number" of members of the Tribe were employed. Gila River I, 967 F.2d at 1406-1407.

9. The Tribe was actively involved in the production of the entertainment and worked "closely" with the lessees "to ensure that they provide high quality entertainment to the public." Id. at 1410.

In Salt River, the following facts weighed in favor of preemption of Arizona business transaction privilege taxes laid on sales to non-Indians by non-Indian lessees of a shopping mall:

1. The income received by the Tribe contributed to its economic well-being and self-sufficiency.

2. The United States held the fee in trust for individual tribal allottees on the reservation.

3. The improvements belonged to the tribal allottees.

4. The leases were subject to approval by the Secretary of the Interior.

5. The Tribe provided police protection.

6. The Tribe provided fire protection in conjunction with the city.

7. The Tribe conducted safety and health inspections.

8. The Tribe enforced the zoning laws.

9. The Tribe collected a 1 percent sales tax on gross sales amounting to over $1 million.

On the other hand, the following factors weighed in favor of the State in...