Flandreau Santee Sioux Tribe v. Sattgast

          ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT IN PART AND DENYING IN PART AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT IN PART BUT DISMISSING PLAINTIFF'S FOURTH CLAIM WITHOUT PREJUDICE

          KAREN E. SCHREIER UNITED STATES DISTRICT JUDGE.

         Plaintiff, Flandreau Santee Sioux Tribe, filed this action against defendants Richard L. Sattgast, Andy Gerlach, and Dennis Daugaard seeking a judicial declaration that, under federal law, the State of South Dakota does not have the authority to impose the State's excise tax in connection to services performed by non-Indian contractors in the Tribe's on-reservation construction project. Docket 1. Plaintiff and defendants move for summary judgment. Docket 31; Docket 66.

         FACTUAL BACKGROUND

         The undisputed facts^[1] are:

         The Flandreau Santee Sioux Tribe is a federally recognized Indian tribe. Docket 32 at 2; Docket 75 at 10. The Flandreau Indian Reservation is wholly located in Moody County, South Dakota. Docket 32 at 2. The Tribe owns and operates the Royal River Casino on the reservation. Docket 32 at 2; Docket 75 at 11. The State and the Tribe entered into a Tribal-State gaming compact under the Indian Gaming Regulatory Act (IGRA) that took effect on September 14, 2016. Docket 72-14. IGRA regulates Class III gaming activities at the Royal River Casino. Docket 32 at 2; Docket 75 at 11-12. The compact does not contain provisions specifically relating to construction standards, construction activities, or the taxation of construction activities at the casino. Docket 32 at 2; Docket 75 at 13. Casino revenue comprises approximately forty percent of the Tribe's income. Docket 75 at 12-13. Federal funding accounts for approximately fifty-two percent of the Tribe's income. Id. at 13. The Tribe also utilizes proceeds from the casino to help fund off-reservation projects in the local community including donations to the local school and fire department.

         The Tribe first opened the casino in 1990 and relocated it to the present building in 1997. Docket 75 at 11. Casino gaming amenities used or consumed at the casino by gaming patrons include: hotel rooms, alcoholic drinks consumed on the gaming floor and at the bar, concert tickets, and food eaten at the restaurant, on the gaming floor, and at the snack bar. Docket 77 at 35. The Tribe decided to invest in a $24 million renovation and expansion of the casino. Docket 32 at 2. The project includes doubling the number of slot machines, adding a VIP lounge, renovating the casino cage area, relocating the bar, and renovating the snack bar, restaurant, and hotel. Docket 75 at 14-15. The Tribe retained Leo A. Daly as the architectural firm and Henry Carlson Company as the general contractor. Docket 32 at 2.

         Under SDCL § 10-46A-1, a contractor's gross receipts are subject to a two percent excise tax. SDCL § 10-46A-1. The excise tax is deposited into the general fund. The general fund is used for a number of services, but for purposes of this case, the State points out that the general fund is used for professional licensing such as attorneys, electricians, plumbers, and notaries, and for the supervision of parolees. Certain construction projects within Indian country are exempt under federal law. Docket 32 at 3. The South Dakota Department of Revenue requires contractors to complete an “Indian Country Project Request for Exemption” form to receive an exemption from the tax. Id. at 3. The Department of Revenue denied requests by the Tribe and its construction manager for an exemption for the casino construction project. Docket 75 at 15-16. As a result, Henry Carlson has paid contractor's excise tax under protest consistent with SDCL § 10-27-2. Docket 32 at 4; Docket 75 at 16. Henry Carlson's protest letters requested that the state issue refunds to the Tribe as the entity who paid the cost of taxes. Docket 75 at 16. The Tribe seeks to have a judicial declaration that the State does not “have the authority to impose the State's contractor's excise tax” and seeks a refund of the “contractor's excise tax paid, or to be paid, under protest.” Docket 1. Currently, the Tribe estimates that the contractor's excise tax on the project will be approximately $480, 000.

         STANDARD OF REVIEW

         Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “[A] party seeking summary judgment always bears the initial responsibility of . . . demonstrat[ing] the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party must inform the court of the basis for its motion and also identify the portion of the record that shows there is no genuine issue in dispute. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992) (citation omitted).

         To avoid summary judgment, “[t]he nonmoving party may not ‘rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial.' ” Mosley v. City of Northwoods, 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). “[T]he mere existence of some alleged factual dispute between the parties is not sufficient by itself to deny summary judgment . . . . Instead, ‘the dispute must be outcome determinative under prevailing law.' ” Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992) (quoting Holloway v. Pigman, 884 F.2d 365, 366 (8th Cir. 1989)). On a motion for summary judgment, the facts and inferences drawn from those facts are “viewed in the light most favorable to the party opposing the motion.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).

         DISCUSSION

         I. Per se Invalidity

         “The initial and frequently dispositive question in Indian tax cases . . . is who bears the legal incidence of a tax.” Okla. Tax Comm'n v. Chicksaw Nation, 515 U.S. 450, 458 (1995). “If the legal incidence of an excise tax rests on a tribe or on tribal members for sales made inside Indian country, the tax cannot be enforced absent clear congressional authorization.” Id. at 459. But if the legal incidence of the tax rests on non-Indians, no categorical bar prevents enforcement of the tax[.]” Id. Here, the legal incidence of the tax is on the non-Indian contractor because under South Dakota law, the contractor has the legal obligation to pay the contractor's excise tax. See SDCL § 10-46A-1. As a result, the state is not categorically barred from imposing its tax and the tax is not per se invalid.

         II. Barriers to State's Exercise of Taxing Authority

         “More difficult questions arise where, as here, a state asserts authority over the conduct of non-Indians engaging in activity on the reservation.” White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 144 (1980). There are two potential “barriers” to the state's exercise of authority to tax non-Indian on-reservation activity. Ramah Navajo Sch. Bd., Inc. v. Bureau of Revenue of N.M., 458 U.S. 832, 837 (1982). “First, the exercise of such authority may be preempted by federal law.” Bracker, 448 U.S. at 142. “Second, it may unlawfully infringe ‘on the right of reservation Indians to make their own laws and be ruled by them.' ” Id. (quoting Williams v. Lee, 358 U.S. 217, 220 (1959)). These barriers are “independent but related.” Id.

The two barriers are independent because either, standing alone, can be a sufficient basis for holding state law inapplicable to activity undertaken on the reservation or by tribal members. They are related, however, in two important ways. The right of tribal self-government is ultimately dependent on and subject to the broad power of Congress. Even so, traditional notions of Indian self-government are so deeply engrained in our jurisprudence that they have provided an important ‘backdrop' . . . against which vague or ambiguous federal enactments must always be measured.

Id. at 143 (quoting McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164, 172 ...