Ruling On Leased Slots Opens Door To On-Reservation Personal Property Taxes
In Mashantucket Pequot Tribe v. Town of Ledyard, an opinion certain to echo throughout Indian Country, the Second Circuit Court of Appeals recently decided that Ledyard, Connecticut, home to Foxwoods Resort & Casino, may assess the state property tax on slot machines owned by non-Indians and leased to the casino on the reservation.
Connecticut’s personal property tax, assessed for the purpose of funding the operations of local municipalities, does not apply to tribal property located on tribal land. However, many tribal casinos lease a large portion of their slot inventory, and non-Indian business owners locate substantial personal property on leased Indian land, so the ramifications of the decision could be far-reaching.
The Tribe challenged the Town’s imposition of the property tax on the owners of slot machines leased by the Tribe and installed at Foxwoods. The owners, AC Coin and WMS, had been paying the Connecticut tax, totaling about $300,000 per year, without protest and without passing the tax on to the Tribe, until the Tribe asked them to cease tax payments to the Town and indemnified them from any resulting liability. Ledyard Mayor Rodolico expects the Town to receive approximately $500,000 in back taxes and penalties and $300,000 per year in the future. Those numbers are de minimus relative to the Tribe’s revenuesharing payments, in which the Tribe pays 25% of slot revenue to
Connecticut. Revenue-sharing payments totaled more than $1.5 billion from 2003 to 2011. However, any taxes ultimately will come out of gaming proceeds that Indian tribes utilize to fund tribal government and social programs, so this decision could directly affect those programs, particularly for smaller tribes.
The Second Circuit’s decision reversed a district court’s decision barring the taxes, holding that the tax was not preempted by the Indian Trader statutes, the Indian Gaming Regulatory Act, or the Supreme Court’s Bracker preemption test. In White Mountain Apache Tribe v. Bracker, the Supreme Court announced that the determination of state authority over non-Indians on Indian land requires “a particularized inquiry into the nature of the state, federal, and tribal interests at stake,” including the preemptive effect of federal law, interference with tribal sovereignty, and the state’s regulatory interest in the matter. The Bracker test thus shifted the court’s task from the uncompromising dictates of sovereign immunity and preemption law, which apply to solely tribal matters, to one of balancing interests when non-Indians are involved.
In Town of Ledyard, the court admitted that the tax “impinges upon the Tribe’s ability to regulate its affairs and to be the sole governmental organ influencing activities,” which, under a pure sovereign immunity inquiry, would have ended the matter. Applying the Bracker test, however, the Second Circuit balanced the Tribe’s sovereignty against the Town’s interest in the “integrity and uniform application of their tax system,” and decided that the latter outweighed the federal and tribal interests.
The court drew a distinction between personal property taxes, which fall on the non-Indian ownership of property, and taxes on transactions between Tribes and non-Indians. This key distinction should limit the application of the opinion and preclude taxes on revenues generated by non-Indian property on the reservation. However, the decision applies to other non-tribal businesses operating on Indian land, such as restaurants and retail outlets. The decision will have no effect on Connecticut’s Mohegan Sun casino, whose vendors had been paying the tax pursuant to a memorandum of understanding between the Mohegan Tribe and the Town of Montville.
Jurisdictions that have not been collecting this tax are now on notice that it is an option. At the very least, this is a major backfire for the Tribe, as its litigating a de minimus tax that wasn’t even being passed on to the Tribe by its vendors has opened the door to state personal property taxes on all leased slot machines now operating on Indian casino floors, as well as any other non-Indian personal property in retail outlets and restaurants. This miscalculation by the Mashantucket Pequot Tribe could have negative consequences for many others.