Tax the Tribes?

The Rincon Indian Band is resisting California's efforts to condition expanded slots on higher payments to the state. A lawyer for the tribe says that the state's demands are effectively a tax on the tribe's casino. IGRA explicitly prohibits states from imposing any tax or fee on tribes, and further provides that "any demand by the State for direct taxation of the tribe" is evidence that the state is negotiating in bad faith.

So how is it that tribal-state revenue sharing provisions have been included in a number of Class III compacts for casino-style gaming? This is an issue we addressed in an article we wrote with economist Alan P. Meister, "Spreading the Wealth: Indian Gaming and Revenue Sharing Agreements," 80 North Dakota Law Review 657 (2004). Loosely speaking, here’s how it goes:

The U.S. Secretary of the Interior has interpreted IGRA to mean that if the state gives up something of sufficient value in exchange for a share of the tribe's casino revenue, then it won't be a tax. Usually this means some additional measure of market exclusivity in casino-style gaming, such as the right to operate slot machines when they're otherwise illegal to non-Indian gaming operations under state law. Although generally accepted in practice, this approach has not been widely tested in federal court.

Is the Rincon Band right that state revenue-sharing demands can cross the line into illegal state taxation? Consider the language used in a recent op-ed calling for Florida to negotiate "a fair tax" on the Seminole's proposed Class III operations. The writer characterizes revenue-sharing agreements in other states as state taxes, and proposes that since the state is "offering" the tribe Class III games, the state should demand a tax in the ballpark of 50%. In the face of this demand, the writer continues, "if the tribes refuse to negotiate in good faith and seek a better deal [from the Interior Secretary], the state should consider legalizing casinos that compete directly with the tribal facilities. Having a new competitor across the street will damage a tribal casino's fortunes more than any state-mandated tax."

Hmmm. Sounds like an untenable (unlawful?) position no matter how you slice it. Does merely using the correct terminology fix the problem?

Read more on the Rincon Band's stance here. And here's the Florida op-ed piece.