Chickasaw Nation v. U.S. (11/27/2001)

Questions presented: Does the Indian Gaming Regulatory Act (IGRA) give Native American tribes an exemption from having to pay federal wagering taxes on their gambling operations, specifically "pull-tab" games? Should tribes receive the same rights as states under the Internal Revenue Code when it comes to gambling revenues?

BY TOM MCCANN, MEDILL NEWS SERVICE

The Chickasaw Nation, a tribe of almost 260,000 Native Americans living in southwestern Oklahoma, depends largely on its profitable gambling ventures to provide social services and health care for its people.

Each year, the Chickasaw make almost $4 million from running three large bingo parlors in the small town of Ada, the tribe's informal capital, 83 miles south of Oklahoma City. It also gains a healthy profit from selling instant prize "pull-tab" tickets from the numerous gas stations and general stores it owns around Ada.

For decades, the Internal Revenue Service has left this gambling business mostly untouched, along with the many other tax exemptions Indian tribes traditionally enjoy. The Chickasaw Nation never had to pay federal excise and occupational taxes on its bingo and pull-tab profits, the tribe's lawyers said.

But that changed in 1996 when the IRS conducted an unprecedented audit of the tribe and ordered the payment of almost $45,000 in back taxes. The Choctaw Nation, also in Oklahoma, was ordered to pay $155,317. The auditors focused solely on their pull-tab businesses, while income from Bingo remained untaxed.

In response to the audit, the Chickasaw Nation sent the government a check for $1,369, the total in unpaid taxes for 1993. At the same time, it applied for a refund.

Then on Sept. 5, 1997, the Chickasaw sued to get the money back, and the IRS returned fire by suing for all the $45,000 it claimed the Chickasaw owed.

Lawyers for the Chickasaw Nation contended that Native American tribes are protected against these taxes by the federal Indian Gaming Regulatory Act (IGRA). When Congress passed the law in 1988, it intended to treat tribes exactly the same as it does states to ensure that tribes can sustain themselves economically, the Chickasaw argued.

All the Chickasaw's gambling proceeds go toward such projects as funding the tribal government, spurring regional economic growth, running alcohol treatment programs and providing education and social services for the tribe.

The Chickasaw should not be considered a "person" under the federal gaming laws, argued Graydon Dean Luthey Jr., attorney for the tribe, and as a rule all federal statutes should be interpreted liberally in favor of Native Americans.

"This issue is vital to all tribes who depend on Indian gaming to survive," said Luthey. "That 1988 law was supposed to help tribes like the Chickasaw strengthen their government and promote their economic development. This tax goes against everything that law meant to do."

The IGRA was originally enacted in response to several lawsuits by Indian tribes, seeking to set up gambling businesses in the face of bitter opposition from states. It set up federal Indian gaming rules for the first time and established a commission to protect the tribes' revenues against organized crime.

However, the U.S. Justice Department countered that the law only increased tribal leverage against other states, but the federal government still has the final say on all tax matters.

On Dec. 30, 1998, the U.S. District Court for the Eastern District of Oklahoma ruled in favor of the IRS.

On April 5, 2000, a 10th Circuit Court of Appeals panel unanimously affirmed.

"Over the past 30 years, Indian governments have occupied an anomalous niche within the structure of federal tax laws," wrote Appeals Judge Mary Briscoe in the 33-page ruling. "They enjoy some of the privileges afforded states, while at the same time are subjected to many of the burdens borne by individual taxpayers."

"Although Congress has often refrained from imposing taxes on Indian tribes, the Supreme Court has never held unconstitutional a federal tax applied to Indians."

In its petition for certiorari to the U.S. Supreme Court, the Chickasaw argued that the 10th Circuit opinion conflicts with that of the Court of Appeals for the Federal Circuit in Little Six, Inc. v. United States (210 F.3d 1361).

In the Little Six case, the appeals court ruled in April 2000 that the Shakopee Mdewakanton Sioux (Dakota) Community of Minnesota did not have to pay the excise and occupational taxes on their pull-tab games.

The Federal Circuit concluded that the IGRA and chapter 35 of the Internal Revenue Code were both ambiguous on the subject, and that the courts must always interpret ambiguous laws in favor of Indian tribes.

"Although tax exemptions generally are to be construed narrowly, in the government's dealing with the Indians the rule is exactly the contrary," said the opinion, citing a 1912 Supreme Court ruling. "The construction, instead of being strict, is liberal."

The U.S. Solicitor General's Office agreed that there was a conflict in the circuits, and concurred with the Chickasaw's petition that the Court should take the case.

On Jan. 22, 2001, the U.S. Supreme Court accepted this case for review and allowed the Shakopee Mdewakanton Sioux tribe to file an amicus brief.

On Nov. 27, 2001, the Court, by a 7-2 vote, held that the Indian Gaming Regulatory Act does not exempt tribes, as it exempts states, from paying gambling-related taxes.

The majority engaged in intense statutory construction, down to analyzing the meaning of parenthetical clauses in both the IGRA and the Internal Revenue Code.

Writing for the majority, Justice Stephen Breyer expressed frustration with the statutory draftsmanship, saying that Congress had put into law a "drafting mistake," one that admittedly involves statutory surplusage. "Nonetheless, we can find no other reasonable reading of the statute," Breyer wrote.

The majority found support for its conclusion by noting when Congress enacts a tax exemption, "it ordinarily does so explicitly. We can find no comparable instance in which Congress legislated an exemption through an inexplicit numerical cross-referenceespecially a cross-reference that might easily escape notice."

In dissent, Justice Sandra Day O'Connor criticized the majority for holding that the statute "clearly and unambiguously fails to give Indian Nations ... the exemption from federal wagering excise and related occupational taxes enjoyed by the States," when she would construe any statute that "is subject to more than one interpretation" in favor of the Indians. Justice David Souter joined in the dissent.