Skip to main content

Tough decision on taxation

  • Author:
  • Updated:

Denying that Congress ever intended to treat tribes as states, the U.S. Supreme Court last week ruled that tribes are not exempt from payment of certain federal taxes in a case involving the Chickasaw and Choctaw nations of Oklahoma.

In a 7-2 decision, the court ruled the two nations must pay the taxes on Class II devices known as "pull-tabs." The two tribes offer the devices at various locations in Oklahoma, including gaming centers and convenience stores. Pull-tabs are common throughout Indian country. The tribes argued that, similar to states, their sovereign status as Indian governments and the Indian Gaming Regulatory Act, exempted them from the obligation of paying such taxes.

Since pull-tabs are cards or tickets people buy hoping to win money, the Internal Revenue Service considers the device to be a bet. The IRS claims this fact makes the transaction subject to wagering excise and occupational taxes. The tribes refused to pay the taxes since 1996 and the IRS sought back payments. But IGRA is saddled with contradictory and ambiguous language on the issue; the tribes argued the Supreme Court should apply well-established principles of Indian law and resolve the dispute in their favor.

But the high court ruled that while the language of IGRA was somewhat confused on the issue, any taxation exemption must be stated "explicitly" by Congress. The tribes lost the case at every level prior to the high court's decision, which has concluded the legal jousting stemming from this specific instance of problems of language and punctuation in the Indian Gaming Regulatory Act.

The question of legislative intent on the issue challenged the court. Two Justices stated it would favor the tribes while two others voiced no opinion on congressional letters and testimony submitted by the tribes to strengthen their case.

The decision, although dealing with a seemingly minor case having modest economic impacts on the tribes, is nevertheless a troubling one that diminishes Indian sovereignty. However, it is in line with the conservative composition of the current court ? one that appears to be extending federal and state authority over Indian governments.

Scroll to Continue

Read More

Most objectionable is the disregard by the court of the long-standing principle that treaties and laws should be read in favor of tribes. The court decided that this clearly established and most invoked cannon of interpretation is not a mandatory one. The majority stated that other legal principles allow the court to ignore certain language in laws as "surplusage." The court said the IGRA language was confusing and actually worked against the tribes in this case.

In a clearly reasoned dissenting opinion, written by Justice Sandra Day O'Connor and joined by Justice David Souter, O'Connor reminded their colleagues of the overwhelming record of precedent for what should have been a more Indian-friendly opinion. "Statutes are to be construed liberally in favor of the Indians, with ambiguous provisions interpreted to their benefit."

O'Connor argued that the majority appeared to be guessing at the interpretation of confusing parentheses and grammar in the language of the IGRA. The radical departure from the long-standing precedent, she wrote, "is not a step to be undertaken lightly."

O'Connor wrote: "In this case, because Congress has chosen gaming as a means of enabling the (Indian) 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."

While the opposing legal canon or "taxation principle" in this case states that "exemptions from taxation must be clearly expressed," O'Connor continued, "this Court has repeatedly held that, when these two canons conflict, the Indian canon predominates."

If the power to tax is the power to control and destroy, Indian sovereignty and the right to self-determined economic futures have suffered severely as a result of this decision. Clearly, as far as interpretation of Indian cases go, this court is in an activist anti-Indian sovereignty mind-set, discarding important principles of construction that have gone a long way in helping Indian nations hold the line against all manner of intrusion. Indian country would be wise to brace against this kind of blatant disregard for its long-established place in American jurisprudence.

We urge Congress to work honorably and efficiently with Indian governments to pass legislation that corrects this judicial mistake.