In an important legal win for Indian country, a federal judge has reaffirmed that states and their subdivisions cannot tax property on Indian land regardless of who owns it.
The Mashantucket Pequot Tribal Nation won its long running lawsuit against the Town of Ledyard on March 27 when Senior U.S. District Judge Warren W. Eginton granted the Nation’s motion for summary judgment in a case it had filed against the town in 2006. The Nation sought a declaration that the Town of Ledyard did not have the authority to tax slot machines leased by the tribe from a gaming company and used at Foxwoods Resort Casino. The Nation argued that imposition of the tax by the town was preempted by the federal Indian Trader Statutes, the Indian Gaming Regulatory Act (IGRA), and based on a balancing of the interests of the federal government, the Nation, the town and the state.
The judge agreed. “Indian tribes are distinct sovereign entities that are ‘distinct, independent political communities retaining their original natural rights,’” Eginton said in his ruling, quoting Worcester v. Georgia, one of the Marshall Trilogy cases from 1823 to 1832 that set the foundation for Indian law. The trilogy paradoxically asserts the sovereignty of Indian nation while denying them land rights other than occupancy. “States do not have authority to regulate Indian tribes where a state law is preempted by federal law or infringes upon the ‘right of reservation Indians to make their own laws and be ruled by then,’” Eginton said, quoting other case law.
“The decision by the U.S. District Court of Connecticut in Mashantucket Pequot v. Town of Ledyard, in favor of the tribe, is the right one and it’s an important one. This decision was based on Supreme Court decisions and federal laws that preempt the local tax at issue,” said John Dossett, National Congress of American Indians’ General Counsel. “The decision in favor of the tribe is an important legal decision as states and local governments are increasingly attempting to reach into Indian country and apply their taxes to resources and revenues that are dedicated to tribal government purposes. It’s particularly important in the gaming arena, which is regulated under the Indian Gaming Regulatory Act (IGRA). Here, the court was adamant that the IGRA regulates gaming, the ability for the state to assess property taxes on casino equipment is not within the IGRA, and the District Court appropriately held in favor of the tribe.”
The Mashantucket Pequot Tribal Nation council said in a statement that it is pleased the federal district court in Connecticut agreed with the Tribe’s position that the Town of Ledyard lacks the authority under federal law to impose property taxes on leased slot machines on the Reservation. “The court’s decision definitively upholds the federal and tribal interests in tribal self-determination and self-government, and determines that these significant interests outweighed any interest the Town or State has to impose a tax on Reservation,” the council said. “This decision relates only to the Town’s attempt to impose taxes on property within the Tribe’s reservation and does not change the fact that the Tribe is the largest property taxpayer within the Town of Ledyard. Nothing in the decision will affect the Tribe’s continued payment of taxes on property located outside the Reservation.”
Neither Ledyard Mayor John Rodolico nor the town’s attorney, Don Bauer of the Washington-based firm of Perkins Coie, could not be reached for comment.
Eginton notes in his ruling that Nation has invested more than $1.42 billion into its gaming operations, which include Foxwoods Resort Casino and MGM Grand at Foxwoods. He cites the Nation’s reimbursement to the state of $56.8 million for law enforcement services since Foxwoods opened in 1992, and its contribution of 25 percent of its slot revenues in fulfillment of the tribal-state gaming compact—an amount now reaching almost $3.3 billion. Additionally, the tribe has contributed around $85 million in donations to local organizations and $10 million to the National Museum of the American Indian in Washington.
In his Eginton said that the taxing the non-Native owned slot machines was preempted by both the Indian Trader Statutes and the Indian Gaming Regulatory Act and that it was also preempted based on a balancing of the various parties’ interest. “The State and the Town’s interest in taxing the leased equipment fails to justify the economic burden on the Tribe that compromises substantial federal and Tribal interests in tribal self-determination and self-government pursuant to comprehensive federal regulation,” he wrote.
Gabriel Galanda, an enrolled member of the Round Valley Indian Tribes and partner in the Seattle-based firm Galanda Broadman, said the district court ruling is a victory for Indian county. “Through IGRA, Congress clearly preempted the Indian gaming tax field. States cannot tax Indian gaming. Period. That federal preemption now extends, at common law, to Class II or III gaming devices,” Galanda said. Galanda said it has always been presumed that under IGRA’s categorical bar to state taxation, states and local government cannot tax slot machines or video lottery terminals in tribal casinos, even if title to those devices remains with non-Indian manufacturers under lease or participation arrangements with tribes. The new ruling affirms that presumption, but also sends a clear message to states and their subdivisions, he said. “The ruling should also serve to push back against state and local tax collectors who are increasingly looking to sink their tax claws into the labors and proceeds of tribal economic development and diversification efforts, especially as they attack the likes of the tribes’ non-Indian business partners.”
The Town of Ledyard would be “foolish” to appeal the decision to the Second Circuit Court of Appeals, Galanda said, “but I would not put it past any elected state tax collector to file an appeal in hope of becoming a folk hero — in modern crusade against Indians, in the name of so-called states’ or taxpaying citizens’ rights. This is definitely a rare tax win for the good guys.”