Arizona Department of Revenue v. Blaze Construction Co. (03/02/1999)

By: Alex Devine, Medill News Service

Questions presented

Is a state tax on a contractor doing business with the United States on an Indian reservation pre-empted when Congress has not expressly provided for such precautions and there is no infringement of tribal sovereignty because no tribal funds are used and no tribe is a party to the contract?

Brief

Blaze Construction is an Indian-owned construction company that was awarded a contract by the U.S. Bureau of Indian Affairs to build and maintain roads on six reservations in Arizona, specifically those of the Navajo, Hopi, Fort Apache, Colorado River, Tohono O'Odham and San Carlos Apache Indian Tribes. When the state of Arizona attempted to tax the proceeds of the contract, Blaze disputed the levy in court. Blaze claimed the state had no right to tax a company doing business with the federal government on Indian reservations.

Blaze argued that Arizona is attempting to expand the state's taxing authority over Indian reservations, and the case is therefore an important one in establishing tribal rights.

In 1997, the Court of Appeals of Arizona reversed the ruling of the tax court and found in Blaze's favor. The court ruled that Arizona took no part in the planning and development of the project. It did not issue permits or carry out safety and quality inspections and therefore has no right to levy a tax.

On Dec. 16, 1997, the Arizona Supreme Court denied the state's petition for review.

Although federal law exempts tribes from state tax, it does not exempt contractors who do business with the federal government, said Arizona's attorney, Patrick Irvine. Arizona argues that the New Mexico Supreme Court has permitted such taxation. It also argues that the construction is not entirely independent of the state's authority because many of the roads feed into highways built and maintained by the state.

The court of appeals erred when it ruled that ""a state may not tax commercial transactions occurring on Indian reservations between non-Indians unless there is a 'direct connection' between state services and the taxed activity,"" Arizona's brief states.

""That requirement contravenes this court's long-standing principle that a state law will apply within an Indian reservation unless it interferes with tribal self-government or impairs a right granted or reserved by federal law,"" the brief states.

Arizona petitioned the Supreme Court for certiorari, which the court granted on May 18, 1998.

On March 2, 1999, the Court reversed and remanded, holding that a state generally may impose a nondiscriminatory tax upon a private company's proceeds from contracts with the federal government, regardless of whether the federal contractor renders its services on an Indian reservation. Justice Clarence Thomas wrote for a unanimous Court that absent a constitutional immunity or congressional exemption, federal law does not shield Blaze from Arizona's transaction privilege tax.