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Oklahoma tribes told they must pay taxes on pull tabs

WASHINGTON ? Indian tribes must pay federal gambling taxes on pull-tab lottery cards and other tribal lottery games, the U.S. Supreme Court ruled.

Its 7-2 decision Nov. 27 in Chickasaw Nation vs. United States, the court ruled the Chickasaw and Choctaw nations are not exempt from paying federal taxes on Indian gaming.

What is being called an error in the Indian Gaming Regulatory Act left the door open to varying interpretations on the taxation issue and Supreme Court Justices stated that Congress never intended to treat tribes in the same manner as states.

'The language of the statute is too strong to bend as the tribes would wish,' Justice Steven Breyer wrote in his opinion.

The court battle over the taxing of Class II pull tabs has been going on since 1996. These games are sold at gaming centers, convenience stores and other locations, by both the Chickasaw and Choctaw nations, and have been under the scrutiny of the Internal Revenue Service which considers the games bets and therefore taxable.

The whole issue arose after both tribes got into a dispute with the IRS on the taxation effort. The Chickasaw Nation and the Choctaw Nation were audited by the IRS and it was determined they were subject to federal wagering excise taxes by the IRS.

The tribes protested payment of taxes on pull-tab games which are similar to lottery tickets. A customer buys a ticket and pulls a tab to see if he or she has won a prize. Since these customers aren't playing against others, the tribes contended the games were similar to lottery tickets. The government disagreed and court battles ensued.

Although the suits were filed separately, the wording was identical in Chickasaw Nation vs. United States of America (99-7042) and the Choctaw Nation vs. United States of America (99-7072). In each case, attorneys strongly defended the lottery definition of pull-tab games.

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After losing in the lower courts, the tribes had hoped to see the Supreme Court rule in their favor. Now both tribes will have to come up with more than $200,000 in taxes and fees to the government and IRS.

Of the nine Justices who sit on the Supreme Court, only Justice Sandra Day O'Connor and Justice David Souter wrote scathing critiques about their colleague's opinions on the case. The opinion by O'Connor reads in part:

'The Court can do no more than speculate that the bill's drafters included the parenthetical while the original restriction was in place and failed to remove it when that restriction was altered... Both the inclusion of the parenthetical and the alteration of the restriction occurred in the Senate committee? and there is no way to determine the order in which they were adopted. If the parenthetical was added after the restriction, one could just as easily characterize the restriction as an unintentional holdover from a previous version of the bill ?

'Because nothing in the text, legislative history, or underlying policies of ?2719(d) clearly resolves the contradiction inherent in the section, it is appropriate to turn to canons of statutory construction. The Nations urge the Court to rely upon the Indian canon, that 'statutes are to be construed liberally in favor of the Indians, with ambiguous provisions interpreted to their benefit,' Montana v. Blackfeet Tribe, 471 U.S., at 766, as a basis for deciding that the error in ?2719(d) lies in the restriction of the subclass, not in the specific listing of chapter 35. '[R]ooted in the unique trust relationship between the United States and the Indians,' County of Oneida v. Oneida Indian Nation of N. Y., 470 U.S. 226, 247 (1985), the Indian canon presumes congressional intent to assist its wards to overcome the disadvantages our country has placed upon them. Consistent with this purpose, the Indian canon applies to statutes as well as treaties: The form of the enactment does not change the presumption that Congress generally intends to benefit the Nations. Montana v. Blackfeet Tribe, supra; County of Yakima v. Confederated Tribes and Bands of Yakima Nation, 502 U.S. 251 (1992). In this case, because Congress has chosen gaming as a means of enabling the Nations to achieve self-sufficiency, the Indian canon rightly dictates that Congress should be presumed to have intended the Nations to receive more, rather than less, revenue from this enterprise.'

O'Connor concluded, 'Faced with the unhappy choice of determining which part of a flawed statutory section is in error, I would thus rely upon the long-established Indian canon of construction and adopt the reading most favorable to the Nations.'

'I'm disappointed we could only persuade two of the nine members to our way of thinking on it. It is contrary to what has been federal policy and congressional policy up to now. In that federal policy has been to encourage tribes to engage in economic activity and self-determination to get off the federal dole,' said Chickasaw attorney Bob Raybon.

'It seems a little inconsistent for the Internal Revenue Service to say, 'Yeah, well, you made this money now we want some of it back,' ? It was a terribly written statute that was involved in that, it came out of the Indian Gaming Regulatory Act, very difficult to interpret what the Congress really meant. We believe that they intended to give tribes the same tax exemptions on gaming activities that they do the states. But the statute is so poorly written, in fact the whole court, both opinions refer to how poorly it was written.'

Although both the Chickasaw and Choctaw nations will have to pay taxes, the Chickasaw Nation, Rabon said, is working to have the statute in question rewritten and is hopeful other tribes will join in getting Congress to pass a clearer version of the IGRA.

The full text of the Supreme Court opinions can be found online at