AMERICAN INDIANS VERSUS THE BILLION-DOLLAR TAX WEEVIL: THE PERNICIOUS DUAL-TAXAT!Ot\ OF TRIBAL ECONOMIES

AFTER COTTON PETROLEWvf

Gavin Clarkson· ·

I. Introduction II. The Voracious Appetite of the Tax Weevil

A. 50 Questions of Economic Oppression B. The Costs of Infestation and Eradication C. The Impact on Tribal Services and Tri bal Tax Revenues D. A Related Invasive Species: Overzealous State Regulators

111. A H istory of Tribal Economies and the Indian Trader Act A. The O rigins of Federa l Indian Law and Policy B. A Good Rule: Warren Trading Post

IV. Moe. Larry and Cotton: The lntellecn1al Dishonesty of Race-Based Taxation A. Moe v. Salish and Kootenai -1-25 US 463 ( 1976) B. Colville v. Washington 439 U.S. 463 ( 1979) C. Cotton Petroleum r. New Mexico 490 U.S. 163 (1989) D. Intellectual Dishonesty E. Race-based Taxation of On-Reservation Econom ic Activity F. Secondary Impacts: Economic Leakage and Access to Capital

V. Revised Indian Trader Regu lations as a Solution A. Authority to Fix the Problem B. Broad Statutory Authority to Design Federal Preempti\·e Regulations. C. Components of the existing rule that should be kept? D. Ho\v to ensure that persons who conduct trade are reputable? E. What types of trade should be regulated? F. Hov,; might revis ions promote econo mic v iability and sustainabi lity?

V!. Conclusion

I 4 7 9

10 11 17 18 24 26 26 27 27 28 29 29 32 33 35 36 37 37 37 .39

L li\TRODLCTlO:\

Just as anthonomus grandis, the boll \\eeviL migrated into the Un ited States as an invasive spec ies to suck the I ife out of cotton crops, so too are state regulators and .. tax weev ils .. crossing into Ind ian Country" to suck the life out of tribal economies. The founding fathers were fully aware of the grave threat to tribal economies posed by the states; thus they gave Congress the exclusive .. power to .. . regulate Commerce .. . \vith the Indian Tribes:·; Beginning in 1790. Congress passed a series of laws asserting federal primacy in Indian affairs to completely preempt state involvement in tribal economies.· The Supreme Court \Vas similarly a\.vare of this

. Associate Professor. Department of Ftnance. :\ew \.le:-.ico Stace Lniversit). The author\\ ishes to thank Heather D::mn Thompson. Esq. for Yaluablc comments and Lia Clarkson for her e:-;ceptiona! skills as an c:Jitor. Additional thanks are due to the various tribal leaders and tribal organizations that shareJ their comments in response to the Ad\ ance \'otice of Proposed Rule \laking regarding updates to the Indian Trader regulations.

' The term .. lndian Country .. is legal!) defined in 18 C.S.C . § 1151. Although this article attempts tn standardize on the term .. Ind ian:· various statutes. regulations. as well as certain quoted material use the terms ··;\ati\e:· ··i\ati\c American:· or "Indigenous:· For the purposes of this article. these terms arc S) non:-.inous \\'ith .. Indian".

' l.'n ited States Constitution. Article I. Section 8. C lause 3 ' lndian Trade and lntercourse Act of l 790. Act of Jul) 22. 1790. ch. 33. l Stat. 137. Subsequent!: updated b)

Congress and e\ .:ntuall) renamed the Indian Trader Act (Act of :vtar. I. 1793. ch. I 9. I Stat. 329. Acr of \-1a) 19. l 796, ch. 30, I Swt. 469: Act of Mar. 3. l 799. ch. 46. l Stat. 743; Act of Mar. 30. [ 802. ch. l3, 2 Stat. 139: Act of June30. l83-Lch.16 1.4 Stat.729.}

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2 Indians versus the Billion-Dollar Tax Wee1·il (9-May-17

threat. Citing both the Constitution and the relevant acts of Congress, such as the Indian Trader Act. ' Chief Justice Marshall famously rebuked Georgia·s attempt to require non-Indians to obtain a license to interact with Indians as .. repugnant to the Constitution, laws. and treaties of the United States."'' Marshall went further. declaring that the Cherokee Nation \Vas .. a dist inct community. occupying its own territory, with boundaries accurately described. in which the laws of Georgia can have no force."- Congress subsequently reinforced the Indian Trader Acts m 1834, noting that:

[E]ach tribe. by adopting those laws as their O\Vn. and establishing competent tribunals. may relieve us from the burden qf executing them, and it is hoped that this will be done .. . . Such regulations must be made either by the United States or by the tribes. They \Viii be more satisfactory if made by them. than if made by us. and it must be our desire to do nothing for them which they can do for themselves.'

Yet the assaults on tribes by states continued. [n an l 886 case. US i '. Kagama. the US Supreme Court wrote that Indian tribes .. owe no allegiance to the States, and receive [nothing] from them. [In fact. all too often] the people of the states where they are found are often their deadliest enemies."'' Despite the Supreme Court"s admonition that ""the ... pov.-er to tax ... [is] the power to destroy, .. 10 the tradition of hostility· towards tribes continued, particularly between state regulators and tribal governments regarding taxation and regulation of economic activity in Indian Country, particularly \\·hen non-Indians \Vere in volved.

Just as the bol I weevi I cost America's cotton producers more than $15 bi II ion unti I determ ined eradication efforts eliminated infestations nationwide, .. state tax weevils have sucked billions of dollars out of tribal economies. 11 One tribal chairman labeled state taxation of on­reservation activity ··perhaps the biggest problem facing tribal econom ies today:'u And just as constant vigilance against boll v.-eevil re-infestations is required to ··prevent rare inc identa l reintroduction from becoming a reproducing expanding population ... 1- so too must federal entities be always on guard against tax weevil infestations. even after successfu l eradication efforts.

As nat ions that pre-date the Constitution and the United States fo r most of the ir history, tribal nations generally operate in environments independent of stare la\v. regu lation. jurisdiction. and taxation. Tribal governments. just like state governments, need to deve lop a tax base in order to provide vital services to their citizens. Given the exclusively federal nature of the Indian Commerce Clause and the Indian Trader Acts. one would think that the Supreme Court holding in Warren Trading Post that ··Congress has taken the business of Ind ian trading on reservations so fully in hand that no room remains for State laws imposing additional burdens upon traders·· 1

'

vvould be sufficient. Additional comfort might come from the Warren Trading Court·s

· Act or June 30. 1834. ch. 161. 4 Stat. 729. cited b) \ larsha ll in ll'orcesta · Worcester r . (jeorgia. 3 I l 'S 515. 562 ( 1832) · 1d at 520 .

' H .R. Rep. ?'-io. 23-4 74 at 19 (Ma) 20. 1834 ). 118 L .S. 375. 384 ( 1886 ).

" .\fc(11floch 1" .\/my/and. 17 l". . 31 6 t 1819). cited in se\eral Indi an Country ta:--ation cases http :/! \\"\\ w .cotton .org, teeh pcst/boll\\'ecvil/cradieation2.ctin

· See Part 11. infra " Winnebago tribal chairman A:\PRM comments. April I 0. 20 17 ·' http:. W\\ \\ .conon .org 1tech1pest/bol I\\ eevi I/eradication] .din ' Wa11"en Trading Post Co.\ . Ari/. State Tax Comm·n. 380 l".S. 685. 690 ( 1965 ):

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9-May-17] Indians versus the Billion-Dollar Tax Weeril 3

observation that --rn fact, the Solicitor's Office of the Department of the Interior (tw ice] interpreted these statutes to bar States from taxing [on-reservation economic activity.]" ir· Yet just as complacency, or the occasional hurricane, can result in boll weevil infestations in areas once thought to be weevil-free, so too can complacency, or periodic state budget crises, allow the tax 'vveev il to resume its pernicious assault on tr ibal economies . Thus, although most state governments provide little or no services 'vvithin Indian Country, when state economies were lagging. vorac ious tax weevils aided by fundamentally flawed Supreme Coun jurisprudence. particularly Collon Petrole11111,11 overran the boundaries of tribal sovereignty and created a pernicious problem of double-taxation for on-reservation economic act ivity .

When states wrongly insist on taxing on-reservation resources and economic acti vity. they dramatically increase the overall cost of any project. In some arenas, dual taxation makes otherwise economically viable projects impossible to pursue. Perhaps the single greatest impediment for tribes that \Yant to monetize the wealth contained 'v\·ithin their natural resou rce end0\rn1ent is the dual taxation placed on tribal energy projects after Colton Petroleum. although the tax vveev il damages more than just those projects. Thus, tribal governments face a Hobson·s Choice when state taxes are imposed. As the l\ational Congress of American Indians noted, if tribes:

impose a tribal government tax. ~hen the resulting dual taxation drives business away. Or. tri bes collect no taxes and suffer inadequate roads, schools, police. courts and health care . To add insult to injury. reservation economies are funneling mill ions of tax dollars into treasuries of state and local governments who ~pend the fu nds outside of Indian country. T hi s di lemma is fundamentally unfair to tribal governments, underm ines the Constitut ion· s promise of respect for tribal sovere ignty , and keeps Ind ian reservations the most underserved communities in the nation. 1 ~

The impact is particularly acute for tribes that are trying to gro\\ their economies by attracting outside capital and non-Indian businesses to the reservation. As one tribal chairman noted, .. Our non- Ind ian customers and bus iness partners are targeted for tax assessment by the state and local governments simply because they are non-Indians. As a resul t of this discriminatory taxation. our commerce w ith them is economically burdened and our economic grow1h frustrated ... 1' '

Since the Indian Trader Act \\as originally passed in the vacuum of accurate and c lari fying federal regulations, the states and the courts have fi lled the void w ith a patchwork of case law that could not have done a better job at destroying tri bal economies than if it had been by purposeful design. What more is the federal trust respons ibility if it is not intended to promote economic success in order to sustain se lf-suffic iency? Under no definition of trust responsibility is the goal to ensure and enforce poverty in perpetuity.

Fortunately. hO\-vever. federal preemption provides a mechanism to eradicate these pernicious tax weevi ls yet again . A carefu l revis ion of the Indian Trader regulations would provide a mechanism to reverse this judicially- imposed disaster of dual taxation ""hile simultaneously excluding overzealous state regul ators. In December 2016 The Department of Interior issued an

'' Id. 1• .Hoe v Salish and f\.oOEenui 425 US 463 ( 1976 ). Co!i-ille •·. ll"ashington 439 L .S. 463 (1979). and Cotton

Petroleum 1·. Xe 11· .\lexico 490 L .S. 163 t 1989). See also discussion of these cases in Part !\' infrn. " 0iCAf A:\'PR\I comments. April 10. 2017 · · Lummi ANPR\.1 comments. April 10. 20 17

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4 Indians versus the Billion-Dollar Tax Weei·il [9-May- l 7

Advance \Jotice of Proposed Rule~aking:" ("'ANPRM .. ) regarding updates to the Indian Trader regulations, 25 CFR Part 140. and this article argues that the federal government should absolutely seize the opportunity to update the regulations for the benefit of all of Indian Country .

Pa11 II of this article analyzes the impact of state tax weevils on tribal econom ies as well as the damage caused by a related invasive species. the overzealous state regulation weevil. Part III looks at the hi story of tribal law and policy from an economic perspective, focuses on the history of the Indian Trader Act. and identifies the appropriate preemptory nature of the Act as noted by the Supreme Court in Warren Trading Post. Part IV examines how the Supreme Court strayed from the principles excluding state taxation and regulation in a series of cases. cu lminating in Collon Petrole11111, which ultimately led to a race-based taxation system. Part V presents some guiding princip les for the development of revised Indi an Trader regulations. Part VI concl udes \.\ ith a summary of the comments provided as part of the announcement of proposed rulemaking regarding revis ions to the Indian Trad er regulations.

l!. THE VORAClOl 'S APPETlTE OF THE Ti\X WEEVIL

>-!early every economic endeavor that has proved viable for tribes has come under aggressive state attac k. Tobacco. gas. gaming. and now online lending are just a few examples. The states sue to find some angle, e ither to tax or regulate the tr iba l industry out of business. Almost all th e same arguments are made over and over again:

• T ribes are trying to skirt state la\\ s . o TRUTH: T ribes are implementing tribal law. State law shou ld be inappl icab le.

• Tribes are avoid ing state taxes. o T RUTH: Tribes are implementing tribal law. State lavv should be inappl icab le.

• The industry is unsavory. Tribes need to be protected. o TRUTH: Tribes can decide which industries and business they want to enter. just like any

other sovereign. • The business partners are just trying to take advantage of tribal sovereignty. They make all

the money and tribes wil l never reap the benefits. o TRUTH: With ··50 Questions of Economic Oppression .. 11 tribes often have to set less

favorable business terms than others. But that is their sovereign decision.

States take every tribal tax opportunity away from tribes they can. The Oklahoma Tax Commission is in constant litigation with its tribes. The entire tribal tobacco industry has been crippled due to state tax overreach. But perhaps the worst damage from an infestation of tax weev ils has been in tribal energy projects . Because of Cotton Petroleum. state tax vv·eevi ls a re sucking billions of dollars out of on-reservation natural resources that were in the ground before the state even existed. As the Mandan. Hidatasa. and Arikara wrote in their A PR\il comments:

Tribal self-determination over energy resou rces cannot happen with state dual taxation . ln the name of self-determination. Congress keeps asking tribes to take over more and more federal responsibilities. But. state dual taxation takes the very tax revenues that we need to fund our regulatory structures. provide for our communities. m itigate the impacts of oil and gas development. suppot1 economic grov. th, and develop our infrastructure. In North

: Federal register ci t:ition ·· cc Part II.A infra

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9-May- 17] Indians versus the Billion-Dollar Tax Weevil

Dakota, the State has taken about $ 1 billion in taxes from energy de ve lopment on tribal trust lands but spends next to nothing to benefit our lands. In the next fi ve years. the State w ill take another $ 1 billion more in taxes from tribal trust resources. Under this agreement. the State has taken the majority of the tax revenues from energy development on our Reservation.

North Dakota does not report how the funds it takes benefit our Reservation. We know that in 201 1 the State took about $82 million in taxes from our trust minerals, but spent less than $2 million on state roads on the Reservation and $0 on tribal and BIA roads. MeamYhile. we bear the cost of spills. increased waste. law enforcement and regu lating activity to protect our members and homelands. To make matters worse, the State unilaterally reduced tax rates under the tax agreement. O ver the next 20 years \Ve w ill lose almost $700 m ill ion under the reduced tax. Meamvhile at the expense to tribal se lf­detcrmination and infrastructure, the State has deposited $4 billion in its Legacy Fund including tax revenues from our tr ibal energy resources.

A 2015 study by the General Accounting Office cited state dual taxation as one of the barriers to Indian energy de~·elopment. We need these tax revenues to provide government services caused by development. Safe oil and gas develop ment and protection of our Reservation environment requires expensive tribal regu latory oversight. Inc reased population also requires increased governmental serv ices and infrastructure. inc luding. water. se\vers. sc hools, police. and soc ial wel fare programs. The Licensed Indian Trader regulations should be updated to e liminate state dual taxation or tribal energy resources.~~

5

In add ition, because of the dual taxation of Navajo coa l resources by the State of Arizona coupled with the Obama Administration· s ··war on Coa1.·· which the Trump Administration is attempting to reverse, the Navajo Nation and the Hopi Tribe are facing the c losure of the Navajo Generati ng Station and the loss of thousands of jobs in a very economically disadvantaged area. Jn their A PRM comments. the Na\(ajo Nation pointed out:

To be clear. dual taxation drives away business . It increase s the costs of doing business in Indian country and siphons revenues generated in Indian country to areas outside Indian Country. ft also impairs the abili ty of Indian tribal governments to deve lop and ma intain infrastructure, education. and job train ing opponunities. as \Veil as law enforcement, first responder, and other public safety services. This makes the in fus ion of capital into Indian country less attractive. Even the prospect of a future dual taxation situation where one does not currently exist can discourage investment in Indian country. Furthermore. when facing the risk of dual taxation, some Indian tribal governm ents out of necessity will make the difficult decision to impose a nominal tribal tax or to com plete ly fo rgo collecting any tribal tax.:;

As part of its sovereign governmental authority. the Navajo Nation levies Business Activ ity Tax ('' BAT") to fund governmental services to its citizens. The >Jation also provides for an express tax credit specifically related to the sale of coa l severed from the Navajo Nation

" :vll l.I\ A'\PR:vl comments. April I 0. 2017 ,. ~a' ajo A:\PR:\I comments. April I 0. 2017

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6 Indians l'e.rsus the Billion-Dollar Tax Weevil [9-May-17

reservation:

Under this provision, coal-mining companies receive a credit against their Navajo BAT liability for up to 25% of the amount of similar state taxes that are imposed and paid. This is exactly the type of instance where the Nation is forego ing its own tax revenue for activity conducted on its territory, \Vith respect to avajo natural resources, in order tO

avoid a dual taxation burden that if fu lly imposed, could drive business off the territory or out of business . The Nation has done so in order to accommodate the State's abi lity to impose its own tax. Under either scenario. activity in Indian country is generating the tax revenue, but Indian country is not benefiting at the level that it is capable of or should. or at vvhich other sovereign governments would normal ly achieve. Some states allocate tax dol lars for on-reservation serv ices. However. the amount generated by a state·s impos ition of taxes on-reservation generally substantially exceeds the amount the state allocates for on-reservation services. The amount of fund ing necessary to meet core tribal governmental needs continues to be elusive. The end resu lt is [that] Ind ian country fal ls further behind.2~

But tax weevi ls are not satisfied with just draining the life out of tribal energy projects. They also attack tribal retail projects. In their excel lent article.'' Kel ly Croman and Jonathan Taylor discuss the challenges faced by the Tulalip Tribe and their Quil Ceda Vi llage:

Double taxation puts tribal governments in a double bind: Levy a tax to recover investments in development and cause businesses to flee. or do not levy a tax and fai l to recover the costs of investing in development. The consequence is that most tr ibes have a very limited commerc ial ta\: base. Generally. they turn to government-o\\ned-enterprise profits. lease revenue, and natural resource sales for revenue-sources tapped minimally by all but the most resource-rich states (e .g .. Alaska}-because tribal members have few taxable resources or acti vities for their governments to tax. The rest of the world is privatizing. and for good reason, but the share of Indian country GDP that is owned by tribal governments is burgeoni~g. dominated by casinos and resource industries. To paraphrase the complaint of at least one tribal CEO. federal law forces tribes to be socialist in the ownership of production.

Qui! Ceda Village. a federally chartered municipality on the Tula!ip Indian Reservation. demonstrates the challenge presented by a state·s insistence on the primacy of its own sales tax. Befo re the Tu!alip Tribes developed the village. the corridor west of Interstate 5 on the east end of the reservation contained little more than vacant land and an abandoned industrial building, once leased to Boeing. To spur deve lopment, the Tribes re-planned the area, created a governing board. chartered the municipal ity under fede ral law, and built infrastructure-the roads. water lines. water treatment facility, telecom lines. and other cap ital necessary to recru it and retain tenants. It then leased space to companies ranging from Cabela·s and Home Depot to Walmart and Seattle Premium Outlets.

'' Id '; Kel ly S . Croman & Jonathan B. Taylor. \.Vhy Begger Th: Indian Neighbor') The Case for Tribal Pri mm:~ in

Taxation in Indian Country (20161.

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9-May- l 7) Indians versus the Billion-Dollar Tax Weevil

As a landlord, the Tulalip Tribes earn lease revenue from tenants commensurate with the Tribes· position in the marketplace for commerc ial real estate. As a government hov\ever. Tulalip cannot reap what it has sown. because the state·s insistence on collecting various taxes at the shops in Qui! Ceda V illage precludes the tribal government from imposing its own tax. The village produces mi llions for the state. lt yielded an estimated $26 million in sales and use taxes in 2005 (Taylor, 2006). By 201 3 that figure was $3 7 mi llion. w ith an additional $2. 1 million in business and occupation taxes (Tulalip v. Smith (Comp!.). 201). pp. 18- 19: Tu lalip v. Smith (Smith Answ.). 2015. pp. 9-10). The state also collects personal property and other taxes at Qui! Ceda. Yet the govern ment that creates, mainta ins, po lices, and support s the vi llage has received none of these tax receipts. The vacant land and the Boeing facility were once wastin g assets: now more than 1.000 people go to work at Qui l Ceda. and tens of thousands vis it there. All around Indian country, idle Jan~ provokes the question. What economic benefits \\ Ould emerge if uncerta inty and intransigence did not prevent tribes from reaping the tax revenues from whatever investments they might make in public goods and infrastructu re? The answer is plain: If states allowed tribal governments to reap tax revenue where the; sowed econom ic infrastruct ure, reservation and state economies would grovv. !<•

7

As Taylor and Croman note, much of this discuss ion would be moot if states provided infrastructure. public goods. and services on reservations in proportion to tribal needs"· or in proportion to the revenues extracted by their tax weevil s. But states generally spend less on reservations than elsev. here. choosing instead to keep the money and defer to the federa l and tribal governments to fund necessary tribal services. " Th is practice runs counter to vvell­established intrastate financing rules that cause all or the vast majority of certain taxes to flow back to the jurisdictions that generate them.1

'1 and the voracious appetite of state tax weevils.

pariicularly when state budgets are mismanaged or overextended. causes a dramatic increase in complexity and uncertainty for those wishing to engage in economic activity on-reservation.

A. 50 Questions of Economic Oppression11'

Currently if you \.Vou ld li ke to trade with an Indian or a tribe. you have to hire a lawyer to

analyze a minimum of 50 different variables and the associated case law in o rder to determine which jurisdictions regulations and taxes apply.

Depending on the answer to each of these questions the regulatory authority could be tribal. state. or federal. or a combination of any o r a ll of the three . Depending on the an swer to each of these questions . the taxing authority and which spec ific taxes and tax breaks apply could be tribal. state. or federa l. or a combination of any or all of the three. Fu1ther. the ans\vers are rarely clear. usually leading to extens ive and costly litigation on at least one or more of the questions .

Each of these questions must be researched and answered before one can determine whether tribal. state. and/ or federal regulations or taxes app ly for each project or bus iness:

'' Id. p. 18- 19. internal citations omitted ,. fd.

" Id. ,. Id.

'" These questions were de\ eloped b: Heather Dawn Thompson, counsel to the Cnitc::d Tribes ofl\orth Dakota. and were included in their commc:ms on the proposal t0 reYise the Indian Trader Regu lations. See Lnited Tribes of North Dakota A~PR\11 comments. /\pril I 0. 2017

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8 Indians versus the Billion-Dollar Tax Weevil (9-May-17

Ownership !. Is the business O\\ned by a Indian or a non-Indian? 2. ls the business O\vned by a tribal government? 3. What percentage of the business is Ov\·ned by each?

Use of Funds 4. If the business is owned by the tribal government, what exactly does the business use its

profits for? Place of Incorporation

5. ls the business incorporated under federal. state lavv or tribal law? 6. If owned by a tribal government, is it a federal Section 17 Corporation. a state. or a tribal

corporation? Location

7. Will the business be located on or off the reservation? (Colville) 8. If on the reservation. is the business located on trust land or fee land? 9. If off the reservation. is the business located on off-reservation trust land or fee land? I 0. ls the product manufactured on or off the reservation? 11. If the product is primarily manufactured off the reservation. is there ··value added .. to it

on the reservation? (_\,foe. Colville) 12. Are your company·s email and data storage servers located on or off the reservation?

Government Services/Infrastructure 13. If the business is located on the reservation, which government provides wh ich

government services (fi re. pol ice. roads. trash collection. roads, etc.)? 14. Which government provides e lectricity and communications infrastructure? 15 . If more than one government provides services. what percentage of government services

does each governmenr provide? 16. Does the tribal court look I ike a judicial system that a westerner would be comfortable

v,ith? Improvements

17. Have any ··improvements·· been built on the lands? (Chehalis) 18. Are the improvements permanent or non-permanent? 19. Are the improvements built on trust land or fee land? 20. Were the improvements built by Indians or non-Indians? 21. Are the improvements owned by Indians or non-Indians?

Type of Business 22. What type of business is it? 23. Is the business one that would predominately be considered a --government function .. ? 2-L Does the business involve a ·'treaty activity .. ? 25 . Does the business involve fishing or hunting? 26. Does the business involve gaming? 27. If it invo lves gaming. is it direct!: or tangential!; involved? 28. If it"s a bu ilding near gaming. does it actually physically rouch the casino? 29. Does the business involve alcohol?

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9-May-1 7] Indians versus the Billion-Dollar Tax Weeril

30. Does the business in volve tobacco? 31 . Is this an industry that is predominately regulated by the federal government? 32. Is it natural resource? 33. Is the natural resource being extracted by Indians or non-Indians? (Cotton Petroleum)

Type of Customer 34. Are sales being made to Indians or 'on-Indians? (Central J\lachinery) 35 . Is the sale on tribal land or non-tribal land? 36. Does the product stay exclusive ly w ithin the reservation or does it leave the reservation? 37. If the product leaves the reservation. is it tangible ore-commerce/service? 38. What percentage of the reservation population is be lo"' the poveny level?

Type of Employees 39. Are your employees Indians? 40. If so, what percentage of your employees are enrolled tribal members? 41. Are each of your tribal member employees enrolled with the tribe where the business is

actually located? 42. If your employees are non-I ndian are they married to and/or supponing a Indian family? 43 . Do your employees li ve on or off the reservation? 44. Do your employees travel off the reservation for work?

Lease 45 . Do you need to lease for the business? 46 . If you need a lease is it for land or natural resources? 47. If the lease is_for land, is it tribal trust land, or individually Indian-owned trust land?

Outsourcing 48. Do you outsource any of your work? -l9. If you do outsource. what percentage of the company's work is outsourced·) 50. What sort of dai ly control do you exert over the outsourced com panies?

B. The Costs of Infestation and Eradication

9

Just as bill ions are spent fighting the boll weevil. tribal govern ments. reservation-based businesses. and their investment and business partners \Vaste hundreds of millions of dollars annually on legal bills answering these quest ions and litigating them in court. These costs do not even touch on the governmental revenue lost to state governm ental overreach on taxes, because if any of these questions is answered the ··wrong .. way. an infestat ion of the tax vveevil is not only possible. it is probable.

Cap ital and investors \VOrk with areas with the highest reward to risk ratio. The risk and uncertainty of 50+ variables just to determine the regulatory and tax implications is too expensive for most any business. Thus, high-risk businesses and high-ri sk investors are often the only pool of capital and resources.

In law school students are trained to answer. ··it depends:· to practically every question. but off-reservation, it rarely depends on so many variables . On reservation. ··it depends"' are the two most profitable words for attorneys. and the most damagi ng to economic growth in Indian Country.

On-reservation tri bal businesses are vital to the sovereignty and \\el fare of tribal governments and American Indians/ Alaska Natives nationwide. ln 20 l .f the US Supreme Court reiterated that. .. (a) key goal of the Federa l Government is to render Tribes more se lf-sufficient

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10 Indians versus the Billion-Dollar Tax Wee\'il [9-May- J 7

and better positioned to fund their own sovereign functions. rather than relying on Federal funding.'·;i With dwindling federal funds, tribal communities face significant challenges in establishing steady revenue stream;; and attracting external investors.;2 While not exclusive ly linked to location. these challenges to tribal economic development are often entrenched because a majority of reservation lands are geographically isolated, historically disadvantaged. and poor.

The vast majority of tribal communities struggle with long-standing cyc les of poverty. and the need for economic development on tribal lands remains acute. As with other developing nations. poverty affects nearly every aspect of reservation life. Large portions of Indian Country lack basic infrastructure. posing a daunting barrier to tribal leaders· attempts to develop their economies. Such realities highlight the importance of stimulating economic development for tribal community social and economic recovery. Research from the 2006-20 I 0 American Ind ian Community Surveys indicates that the pace of reservation economic growth slowed bet\veen 2000 and 2010. While economic gro-wth on reservations outpaced the United States during the recession, the income gap between reservations and the rest of the United States remains large, with the real per capita income for. American Indians on reservations at $ 10.963 compared to $26,648 for US all races. Economists now speculate that current grov, th rates on reservations will slow the pace for closing the gap until at least the year 2080.u

Although tribal leaders have acknowledged and attempted to reduce these problems for decades. they have not had the resources to create a more hospitable business environment. A vicious cyc le has consequently developed: businesses avoid establishing a presence on reservations because of the lack of infrastructu re, v.hile tribal governments are left unable to improve their infrastructure because on-reservation commerce is woefu lly insufficient.

C. The Impact on Tribal Services and Tribal Tax Revenues

While the comments from the various tribal leaders point to tribal abilities to provide services to their members. most tribal governments lack the abil ity to provide the basic infrastructure most US citizens take for granted. such as passable roadways. affordable housing. and the plumbing. electricity, and telephone services that come with a modern home because of dual taxation. As l have written previously.'~ accord ing to the US Census Bureau, approximately 20% of American lnd ian households on reservations lack complete plumbing facilities. compared to l % of all US households. About one in five American Indian reservation households dispose of sewage by means other than public sev\'er, septic tanks, or cesspools. The Navajo reservation is the same size as West Virginia. yet. it only has 2,000 miles of paved roads whi le West Virginia has 18.000 miles. lnvestors and emplo)ers. even in the most distressed inner cities of the United States. take roads. telephones. electricity. and the like for granted. Their absence from large portions of lnd ian country poses a daunting barrier to tribal leaders· attempts to attract new private sector investment and jobs. Another tribal chairman succinctly discussed how dual

' .\fichiga111's. Bay .\ fills Indian Comn1111i1y . 13-i S. Ct. 202-i. 20-i3 (20 1-l ) (Sotoma:or.J . concurring) ''Cornel l and Kalt. Sm·ereignty and .\ a1io11-B11ilding: The Dewlopmenl Challenge in Indian Countr; Today.

Harvard Project on American Indian Economic Den:lopment, a\·ai lable at\\\\\\ .ksg .han ard.edu/hpaied " Randa ll K.Q. Akee & Jonathan 8. Taylor. (201-i). Social and Economic Change on American Indian

Reservations : A Databook of the C S Censuses and the American Comm uni t) Sun ey 1990 - 20 I 0. available at http : 'lray lorpolicy .com, us-data book '' Clarkso n. G .. Tribal Bonds: Statutor) Shai::kks and Regu lator~ Restra ints on Tribal Economic De\ elopment. 85 '.\C L REV 1009(2007)

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9-May- 17] Indians versus the BiL/ion-Dollar Tax Weevil

taxation leads to such problem in his comments:

There are many barriers and challenges to economic development in Indian Country. One of the largest barriers is the confusing. uncertain, unfair. and counter-productive state and local tax structure applied to non-Indians doing business in Indian Country. (While tribes c learly] have the so\·ereign authority to tax non-Indians doing business in Indian Country, ... many tribes re ly heavily on this important tax revenue to fund essential governmental services (po lice. fire, emergency services, roads, education. social services, etc.) that benefit all people, Indian and non-Indian. on the Reservation .... The problem is that state and local governments seek to impose these same taxes on non-Indians doing bus iness in Indian Country, while provid ing few (if any) governmental services in Indian Country in exchange for their tax revenues .... This [dual taxation problem hinders] non-I ndian developers. whose capital and expertise is o ften critical to economic development projects in Indian Country, [and who] usually have no objection to Tribal tax.es of the type typical ly imposed by sovereign governments providing essential governmental services to a community and its residents. [W]hen state and local governments impose their taxes on the same on-reservation. non-Indian activities that tribes tax. the combined tribal and state tax burden often makes the business opportunity no longer ··pencil our' and potential non-Indian partners take their business elsewhere, outside Indian Country . . . . [As a result of dual taxation, many tribes are forced] to forgo the ir own tribal taxes in order to attract and keep non-Indian business partners. The resu lt. of course. is that fund ing for tribally-delivered essential governmental services has suffered. In such instances, state and local governments provide minimal governmental serv ices in Indian Country. yet they enjoy the benefit of being able to tax non-Indians in Indian Country_;;

D. A Related !nvasive Species: Overzealous State Regulators"·

I I

In addition to the damage caused by state ta:x weevils, numerous states have recently artcmpti;:d to regulate businesses operated by tribal governments that are more properly subject to regu lations established by tribal law and subject to federal oversight. Despite the fact that these businesses operate exclusively under tribal law and make their tribal affiliation clear to customers, overzealous state regu lators are damaging or destroying tribal economic activities . particularly tribal electronic commerce, by demanding absolute compliance w ith state law. even when such laws are from states thousands of miles avvay. Not only does this overreac hing by uninform ed state regulation weev ils limit the products available to consumers but also it severely undercuts on-reservation economic development and challenges bas ic notions of tribal sovereignty .

These state regulatory \\eevil infestations in Indian Countr) are just as invasive and pernicio us as those by the tax weevils. with simi larly deleterious economic impacts. For example. the State of New York has asserted jurisdiction over on line lending acti vities of a tribal government in Oklahoma in spite of the fact that consumers are s igning contracts solely with the tribe .37 Despite the fact that these businesses operate exclusive ly under tribal law and make the ir

" Warm Springs A\: PR.'vl comments. April LO. 20 17 An t::\panded version of this section is contained in Clarkson. G .. Spilde, K .. Claw. C.. Online Son::reignt~ :

The La'' and Econom ics of Tribal Ekctronic Commerce. 19 Vanderbilt Journal of Entertainment & Technolog~ Law I (20 16)

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12 Indians versus the Billion-Dollar Tax Wee1·il [9-May-J 7

tribal affiliarions clear ro customers, certain stare regularors have demanded absolute compliance with state law. even when such laws are from states thousands of miles away.38 Not on ly does this overreaching by uninformed state regulators limit the products available to consumers. it also seve rely undercuts on-reservation economic development and challenges basic notions of tribal sovereignty.

Perhaps lost in rhe legal rancor. however, are the very real human and economic consequences of the loss of tribal lending as an e-commerce business. as well as the potential damage to tribal e-commerce as a whole. On-reservation tribal businesses are vital to the sovereignty and welfare of tribal governments, American Indians. and Alaska Natives natiomvide. In 2014 the US Supreme Co urt reiterated that ··[a] key goal of the Federal Government is to render Tribes m!Jre self-sufficient and better positioned to fund their own sovereign functions. rather than relying on Federal funding.'.3

'' With d\\·indling federal funds. tribal communities face sign ificant challenges in establishing steady revenue streams and attracting external investors.~" While not exclusively linked to location, these chal lenges to tribal economic development are often entrenched because a majo riry of reservation lands are geographically iso lated, hisrorically disadvantaged. and poor.~ 1

Most tribal communities strugg.le vvith long-standing cycles of poverty, and as vvith other deve lop ing nations. the need for econom ic development on tribal lands remains acure and affects nearl y every aspect of reservarion life."~ Large portions of Indian Counrry lack basic infrastructure. posing a daunting barrier to tribal leaders· attempts to develop their economies . Such realities highlight the importance of stimulating economic development for the soc ial and economic recovery of rribal communities. Research from the 2006-20 I 0 American Ind ian Community Surveys indicates that .the pace of reservation economic growth slowed between 2000 and 2010 .4; While economic growth on reservations outpaced the rare o f economic growth in the United States during the recession. the income gap between people li ving on reservations and the rest of the United States remains large. with the real per capita income for American

" Otoe-i\ li ssouria Tribe of Indians '. i\.Y. State Dep · l o f Fin. Servs .. 769 F.3d I 05. I 07 (2d Cir. 20 J .i).

''Such as J'\e\\ York·s attempted enforcement in Oklahoma. Id ,. \ilichigan \. Ba; '.'..!ills Indian Cmt; .. 13-1 S . Ct. 202-1. 20-13 (20 l-1 l (Sotomayor. L concurring). ·"Stephen Cornell & Joseph P. Ka ll, So' creignt; and Nation-Building: The Development Challenge in Indian

Country Today 5-7 ( 1998). http://hpaied.org 'sites/default/ti lcs/publi cations/ PRS98-25.pdf lhttps:/. perma.cc KC-IL-Al 16G ].

' See. e .g .. Ga' in Clarkson. \\'all Stret:t lndians: Information As; mmetr; and Barriers to Tribal Capital \larket Access. 11 LEWIS Ai'\D CL\ RK I. R.FV. 9-13. 9-1 5 (2008): see also Randall K.Q . Akec. Katherine A. Spi lde & Jonathan B. Taylor. The Ind ian Gaming Regulator; Act and Its Effoc ts on American Indian Economic DcHlopmcnt, 29 J OF EC0:--1 PERSP 185 . 189(2015 ): Ga,·in Clarkson. Accredited Indians: Increasing the Flo'' of Pri\':lle Equity into Indian Country as a Domestic Emerging \larket. 80 COLO L RE\. 285. 285-86 (2009): Gav in Clarkson. Tribal Bonds: Statutoi: Shackles and Regulator; Restraints on Tribal Economic Development. 85 ~ c L REV 1009. 10 1-1-( 2007).

" Randall K.Q. Akee. Katherine A . Spilde & Jonathan B. Ta; !or. Social and Economic Changes on American lndian Rcsen·ations in California: An E.,amination of T,, enc; Years of Tribal Go\ emmem Gaming. 18 l . :-.; L , .

G.Ull;\G RES & REV J 39. 50 (201 -1 ). ' ' Randall K.Q. Akee & Jonathan B. Tay lor. Social and Economic Change on American Indian Rescr\'ations: A

Databook of the L.; S Censuses and the American Community Surve; 1990-20 l 0. at' (20 l-1 J. hup://static l .squarespace.com static '52557b58e-lb0d476NO l ce95 li 53 79756ce-lb095f55e75c77b; l-100-1688H62-l/AkeeTa: lorUSDat:ibook201-1-05-15.pdf I hnps:/ perm a.cc 'P9YK­ZEUE 1.

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9-May- I 7] Indians versus the Billion-Dollar Tax Weevil 13

Indians on reservations at S 12. 142 compared to a S26,893 average for all races in the United States . .iJ Economists now speculate 'that current growth rates on reservations have slowed to the point that this gap will not close befo re the year 2054.J;

Although tribal leaders have ackno1.vledged and attempted to reduce these problems fo r decades, they have not had the resources to create a more hospitable business env ironment. A vicious cycle has consequently developed: businesses avoid establishing a presence on reservations because of the lack of infrastructure. dual taxation. and uncertainty as to state regu lation. whi le tribal governments are left unable to improve their infrastructure because on­reservation commerce is v.-oefully insufficient.

To break thi s cycle and increase revenue. some tribal leaders have relied on their most tangible. sustainable competitive advantage: tribal sovereignty. As the Chairwoman of the Habematolel Pomo Indians of Upper Lake recent!} testified before the House Committee on Financial services:

The inherent sovereign power of lndian Tribes pre-dates the u nited States Constitution. Indian Nations appears twice in the Constitution. each time in Articl e I. treated as separate and existing sovereign nations. Nearly every piece of modern legislation deal ing with Indian tribes explicitly affirms the protective trust re lationship benvcen tribes and the federal government. . . . The so le power to diminish tribal sovereignty rests with Congress . Whatever Congress has not expressly diminished by legislat ion remains for the exercise of tribal governments.Jr,

By leveraging th is sovereignty to their advantage:'" some tribal governments have relied on gaming to entice consumers to visit and invest in their communities!K Contrary to popular belief. however. gaming does not provide a sufficient recovery for most tribal economies. A majority of the more than 567 federally ~ecognized Indian tribes do not have sign ificant gammg operations.··· and of those that do. only a small handful generate substantial revenues."' While a

"" Id. " Id. ' Short-Term. Small Do llar Lentling: The CF PS- s Assault on Access to Credit and frampling of State anJ

1 ribal So\ ereignt:: Hearing Before the H. Comm on Fin. Sens .. I 14th Cong. l t2016). http: finam:ialscrvices.house.gO\:, uploadedtilcs/hhrg- 1 14-ba I 5-wstacc-streppa-20 1602 1 l .pdf (https:/lperm::i.cc/XPS5-TQ2B] (testimon: of Sherry Treppa. Chairperson. Habematole l Pomo or Upper L ake).

,. See gcnerall1 Gavin Clarkson & James K. Sebcnius. Len:raging Tribal So\ er..:ignt: for Economic Opponunit): i\ Strategic :\egotiations Persp..:cth e. 76 :-.to L RFV 1045, 1047(2011 ).

"1\otc that anothe r rdati \e of th..: tax wee1 ii sucks re\enucs out of tribal gaming. but this p1.:st \1as created b: Congress under !GR.A. which allowed state onici::ils to intest tribal gaming economics and force tribes tll share re\ enucs 11 ith the stme in exchange fo r essential I: nothing. 11 ith the exception of meaningful exclusi1 e territories in a tc11 ran:: instances. See id at

"' :>.AT L l\,DIA.\ G..\'.\ll\G ASS :\.A\ A\Al Y IS OF THf: EC0'.'.0'.\llC !'.\!PACT OF l'.'DIA:-.; G,\ \!l\,(j 1' ~· 5 at 17 {2005 ). http: s3 .amazona11 s.com. zanran_storage/11''1v .indiangaming.org Content Pages 52719314.pdf (hnps:/tperma.ccffY2C-FC7L ]. According to the ~ational Indian Gaming Association, onl: 224 tribes ha\e g::iming operations of any kind as of2005. Id. at 2.

See NA r.L G.\:VIBLl:'\G l:VIPACT STUDY COM:.!'\, :-.A rIO'.'.\l GA:VIBl.l:\G l:VIPACT STL,DY co:..1:-.11ss10:--. R.[PORT. at 2-10 ( 1999). http:/ go\ info.library .unt.cdu/ ngisc. reports. 2.pdf l htcps ::ipcrma.cc127BS-I'.\WP 1 (·The 20 largest Indian gambling fac ilities account for 50.5° o of totul r<.:\ enues. \\'ith the next 85 accounting for [onl;. j 41.2°0. Additional!;. . not all gambling facil ities arc successful. Some tribes operate their casinos at a Joss and a fe\\ hm c e\ en been forcc.:d to close mone~ -losing faci lities ... ). :\ote a lso that many tribes that do generate significant revenues often must share those re\ enues 1\ ith the state as part of the compacting process of the Indian Gaming Regulator: ,\ ct. See 25 L: .s.C.

DlSCUSS!00: DRAFT

14 Indians versus the Billion-Dollar Tax Weevil [9-May- 17

few tribes near major metropolitan centers operate successful gaming enterprises, hundreds of tribes have reservation lands that do not support a gam ing industry of any k ind, whi le others operate small casinos located far from population centers.51 Thus, the economic benefits of gaming are not universally d istributed throughout Indian Country. For example. the unemployment rate still hovers around fi fty percent for Indians \Yho li ve on reservat ions. nearly ten times that for the United States as a who le.-'" More than one-th ird of A merican Indian ch ildren live in poverty .~ 3

The dawn of the Internet Age, ho\<\ ever, ushered in a variety of new opportunit ies for tribe s located in rural areas to become hotbeds for business innovation. Most significant ly . triba l governments realized that they could export services via the Internet to transact business v.- ith consumers anywhere in the country '.vhile still being subject to tribal law alone.ii The key to th is arrangement was ensuring that a ll transactions occurred on the reservation and that consumers consented to the application of tribal la\\ instead of state la'.Y.5' Seizing upon this mode l. tribal governments began offering small-dollar loan s to consumers \vho needed money quickly or who were unable to obtain funding fro m traditi onal sources. When customers responded to these financ ia l services. much-needed tribal government revenues began to flow into some o f the poorest tribal communities.'"

The tribe-owned businesses that offer a nd serv ice these loans were organ ized to take advantage of the sovereign authority that the ir tribes exerc ised over the reservation_:- Under th is arrangeme nt. consumers g ravitated · to triba l lenders and exemp lified a classic quid pro quo . Tribal businesses prov ided consumers with small-dollar loans that other lenders were unwill ing or unab le to offer. and in return. consumers agreed to enter into loan agreements consummated on triba l land that were subject only to tribal law. Be lieving thi s arrangement to be a reasonabl e transac ti on. thousands of c ustome rs obtai ned much-needed fu nds on short no tice from tribal lenders through the Internet. Many of them became repeat customers who. despite the availabili ty of multiple off-reservation alternat ives (both on line and from land-based operat ions).

* 27 lO(d)(3 )(C J( ii iJ (20 12 ). fn some cases. such as with the \lohcgan and :vlashantt11.:kct Pequot t1·ihes in Connecticut. the revenue share is as high as 25%. See, e.g. . Clarkson & Scbenius ai 10-17.

< See Donald L. Barlett & James B. Steek. Wheel of.\/isforlltne. Tl'.\-IE. Dec. 16. 2002. at 4-k ;: See Bureau of Indian Affairs. 2005 American Indian Populatio n and Labor Force Report, at iv (2006 ).

http:1/\\Ww.bia.go' 'cs/groups pub! ic 'docunients 'texL idc-00 I 719 .pdf. ;, See. e.g . l\at" I Ctr. for Educ. Statistics. L. . Dep·t of Educ .. .'\ merican Indian and Alaska :\ati \ ·e Children:

f indings from the Base Year of the Earl) Chi ldhood Longitud inal Stud~ . Birth Coho11 (L:,C LS-B) 3 (2005 ). http://nces.cd .gO\ 1pubs2005/2005 l l6 .pdf (https :1/perma.cc/3AZE-L66S].

>' See Dodd-Frank Wall treet Reform and Consumer Protection A.::t, Pub. L. ;\o. I I 1203. ** IOO 1-1 10011. 124 Stat. l3 76. l 955-2 1 13 (20 I 2 ): see also Is Sm·ereign lmm11niryfor Tri ha I Lending Coming ro an End?. PY'.\-1\TS CO\!

(June 30. 20 15 ). http:1/\\ \\'\\ .p) mms.com:'in-deplh '20 15/ is-sovcreign-immunit) - fo r-tribal -payday-Iend ing-com ing­to-an-end/ [hllps: 'l perma.cc/9X\\'T-·H 'BS]:' The Dodd-Frank Wall S treet Reform and Consumer Protection .-let Benejils .\"at i\·e .-lmericans. L's DEP T TREASURY. https:/•\Y\\ \Ureasur: .gO\ /initiati •es/\\ sr Pages "Nati\·e­Amcricans.asp:-. [https : 1perma.cc1LX3 B-A VA Y) (last updated Jan. 26, 201 l. 10:03 A:'\I ).

<; Peter Lattman. Tribes Challenge ,\-eir York's .-1 urhori(v 0 1·er Their Lending. :-.; Y TIMES (Sept. 11. 2013). hltp:i'dealbook.n) times .com 2013 09 I l indian-tri bes-press- thei r-onl ine- loan-case-against-ne\\·-york. (https:/ipc rma.cc '/.R4X-E3 VY].

"' See Julia Hane & Joanna Zuckerman. Payday .\"ation. AL JAZEFKA A:'vt (June 17. 201 4). http://projects .alj azeera.com '20 14. payda: -rration/index.html [https : /perma.cc 'F2Z?,- L \ -:\G j .

,- Bn: t.: Black llorse. ;\ate. The Risks and Benefits ofTribal Pa~da~ Lend ing to Tribal SO\,er<: ign Immunity . I A'.\-! 1:-.iDIA\ L J. 388. 39.J.-96 (20 13).

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9-May-17] Indians versus the Billion-Dollar Tax Wee\·i! 15

intentionally chose to return virtually to the reservation to obtain additional financing. State efforts to regu late or even prohib it tribe-regulated lending began just as the mode l was

being streamlined and perfected. Even though consumers explicitl y agreed that their loans were subj ect only to tribal laws. states began suing tribal lenders for failing to obey local lending laws and fai ling to obtain state certifications. Initial tr ibal objections to these regulat ions relied upon the fact that the prevailing federal legislation. the Dodd-Frank Act, acknowledged that tribes are to be treated as states for the purposes of financial serv ices .5~ In spite of a clear federal mandate. attempted state regulation became more fervent and widespread.5" Faced \\·ith costly litigation in multiple states. many tribal government lenders were forced to cease or significantly reduce their operations, thereby cutting off vital economic lifelines in their communities.w Wh ile it is unc lear how this controversy will ultimately play out, one thing is cenain: states are not only underm ining tribal innovation and harming tribal econom ies but are also attacking tribal sovereignty itself."1 Revising the Indian Trader regulations so as to exclude state regulation. taxation, and jurisdiction could be a tremendous benefit to Tndian Country.

Businesses and consumers ente~ing into commerc ial contracts rely heavily on consistency and predictability in contracting. including >vhen the parties agree to apply tribal law or utilize triba l courts to reso lve disputes. Uniform interpretation and enforcement of such agreements are critical to ensuring continued investment in tribal bus inesses. With over one-quarter of American Indians living in poverty. nearly twice the nationa l average.62 it has never been more important to promote confidence in the Indian economy. When courts do not g ive full force and effect to contracting parties· des ires .to reso lve their private disputes using tribal courts and tribal Jaw, this confidence is threatened.

The continued assault by state regulatory v1·eevils on tribal online lenders discriminates against tribal courts and tribal entrepreneurs who select tribal courts and tribal la\V in their e lectronic commerce endeavors off-reservation. The potential damage extends beyond tribal online lending and. in fact, imperil s al l tribal attempts at e-commerce .'·; For example. as part of my facu lty sponsorship of the Nati ve American Bus iness Students Association at New Mexico State University. I he lped coach a business plan team that \\'as developing an online marketplace

'' There is one mention of tribes in the Dodd-Frank Act. and that occurs in the defin ition of ··State": The term ··State·· means an; State. territo1'). or possession of th..:: Lnited States .. . o r any federall) recogn iz..::d Indian tribe. as defined b; the Secretary of the Interior under section 479a-l (a) of title 25. Dodd- Frank Wall Street Reform and Consumer Protection Act§ 1002(27). 12 L.S.C. § 5~81(27) (20 12 ).

'" Jane Daugherty. Feds Claim Tribal lenders .\'of a Targel: Tribes Sue .\T Orer Crackdo1rn. J:-.IDIA:--1 COL'.;TRY

TODA v (Aug. 23 . 20 13 ). htLp:// indiancountr) todaymcdianet\1·ork .com 20 I 3;08. 23/ feds-claim-tribal-lendcrs-nor­target- rri bes-sue-ny-01-er-crackdo11n-1 5 100 l [https: ''perma.cc, \15QG-~RYH ].

" See e.g. . Jim Gallagher. Resen:mion Payda_1 lender lo Pay Res1i/lltio11 IO .Hissourians. ST LOLIS POST

DISPA TOI (Viar. 5. 2015 ). http:'/ww11 .stltoda; .com/business/ local/rcser\ at ion-pa) da) -lencler- to-pa: -restitu1ion- to-111issouri a11s/anicle_ I 625086f-85b6-555 f-9d0 l -a3506b l 3e09b.html [https: '/perma.cc 5Y8K-RF52

., Jane Daugherty. l\;ew York ' s Attack on Tribal Lenders Is a Threat to All ;-.,;mi\es, J:\DIA:\ COL:-.ITRY roo . .i. y (Aug. 25. 2013).

http:1/indiancountr; toda) mcdiancl\\or!-..com/2013 108 251n.::11-yor1'.s-uttad .. -tr ibal-lenders- threat-alt-nati\ es fhttps :/ ·perma.cctt..:~3 P-96RR ]. 62 See LI s CE:-.ISlS BUREAU. PO VER rv R:\ ff:.S: 2007-20 l I. 2 ( 2013 ). http ://W\\ \\".Census.gO\'lprod/20 1 Jpubs acsbr I 1-17.pdf [https: 'lpcrma.CC'4U B5-CPDRJ .

" See Brief for Professor Gavin Clarkson et al. as Amici Curiae Supporting Ddendant-Appellces at 1-8. Jackson 'v. Payday Fin., LLC. 76.+ F.3d 765 (7th Cir. 20 l .+}(No. l 2-26 l 7 ). https: iturtletalk . files.wordpress.com /2014109 clarkson-amicus-brief.pdf fllttps: ' perma.cc~JE6-G3~8 ].

DISCUSSION DRAFT

16 Indians versus the Billion-Dollar Tax Weevil [9-May-17

to connect Indian arti sans vvith potential off-reservation purchasers.''"' Many of these native artisans have little or no experience with e-commerce, and almost all of them are below the poverty level. If an American Indian artisan is asked through the exchange to produce a piece of jewelry by a potential, non-Indian customer from lllinois. it is perfectly reasonable for the parties to incorporate into their contract a clause stating that disputes \Viii be senled in tribal court and under tribal law. Under the new rule imposed by the Seventh Circuit,r.; however, such forum selection and choice of law provisions would be inappl icable if the non-Indian purchaser does not travel nearly 1,500 miles to ph)'sically enter the reservation. Instead. in order to pursue a legal remedy, the Seventh Circuit expects the artisan to travel that same distance. at her own expense. or to hire an anorney in a jurisdiction that she has never visited. simply because she is an Indian living on a reservation. No other business in the United States is subject to such an arcane requirement in selecting its preferred forum and choice of lavv. It is improper and discriminatory for the Seventh Circu it to impose such a restriction on a tribal artisan or upon any reservation-based business. Again. revising the Indian Trader regulations so as to exclude state regulat ion, taxation. and jurisdiction could reverse this judicial overreach.

Furthermore. well-established Congressional policyr•· and Supreme Cou11 jurisprudence'•' show strong support for tribal economic development. which the Seventh Circuit has substantially impaired. If extended to other circuits. this new rule vvould thwart federal e­commerce efforts already underway as part of the rational Broadband Plan , such as Fast­Forward Nevv Mexico. v\hich h'elps Navajo and Pueblo Indians develop e-commerce capabilities.'"

Tribal governments are beginning to engage in a range of e-commerce activities. and as these activities become more successful and spread across Indian Country. state governments and the federa l government become more involv~d in monitoring and in some cases attempting to exert regulatory authority over tribal e-commerce. E-commerce is the great equalizer fo r tribal economic development and should not be frustrated by state government interference or attacks on tribal sovereignty by those •vho oppose the onl ine lending industry in general or tribal sovereignty in particular.

As a matter of law and policy. tribal lending businesses should be permitted to offer loans that are governed by tribal law ""ithout fear of the state regulation weevils. States exist to serve the people, and it is not in the people· s best interest to deny them access to financial products. refuse to enforce their agreements. or destroy the industry of friend ly, developing economies.

Academic research challenges policy makers and the financial services industr) to focus on

·· See Arrowhead Artisan F.xchangc business plan. ·' See Jacksnn \. Payda; Fin .. LLC. 76.+ F.3d 765. 78 1- 82 (7th Cir. 201 .+J ("Here. the Plaintiffs ha\e not

engaged in any (in person l acti\·ities inside ~he rescn·ation . .. The) applied for loans in Illinois b; access ing a \\ebs ite rrather than ph; sical l) \'is iting the reservation J. Because th<! Plai ntiffs. acti \ itics do not imp! icate the sovereign!) of the tribe m·er its land and its concomitant authorit: to regulate the acti' it:r of nonmembers on that land, the tribal courts do not ha\ e juri sdiction O\'er the Plaintiffs' claims ... ).

See I -~ I COHE;\'S HA'-iDROOK OF FFDFRAL !'.'\DIA:'\ LAW § 21.0.+ (:\di Jessup Ne\\ ton ed .. 201 2) (listing numerous federal programs promoting tribal economic scl f-sufficienc) ).

- See. e.g. . Michigan v. Bay Mil Is Indian Cmt) .. 13.+ S. Ct. 202.+. 2043 (20 l .+)(Sotomayor. J ., concurring ) (··A ke; goal o !' the Federal Go\ ernment is to render Tribes more sel f-su fficicnt .. . rather than rd; ing on federal fund ing." ).

' See FED COM'.'.!C:\S CO:'v!M';\ ' co:-."NECT!'.'\G .'\ '.\!ERIC.\ THE 'JATIO;\,\( BR.OADBA\iD Pl..\'.'\ . 170 (20 10 ). http:; /transition. fee .gov !national-broadband-plan national-broadhand-p lan. pd f [h tlps:1/perma.cc/\,11\i 8 F-2T9 DI.

DISCUSSION DRAFT

9-May- l 7] Indians versus the Billion-Dollar Tax Weevil 17

foundational causes for the inability of many Americans to live within their means. Consumers of short-term loans are often overlooked in the debate over increasing access to and hea lthy competition for these tribal online lending services. When states or business competitors attempt to frus trate tribal governments' legal participation in th is industry, these under-served consumers lose. Rather than restricting tribal partic ipation in this industry, the public (and public policy) v..ould be better served by addressing the financial mismanagement. high unemployment. and other fi scal conditions that create a growing market for these products in the fi rst place.

Most importantly, the tribe·s ability to leverage their tribal sovereignty should remain available for e-commerce since it provides an opportunity for the poorest and most isolated tribes to create business opportunities that. do not rely on reservation visitors. It is well established in federal la\\' and policy that state laws should not take precedence over tribal la\\. and thi s relationship should not change automatically just because tribal governments are uti lizing techno logy to export their sovereignty in the online financial services industry.

Ill. A HISTORY OF fRIB.\L ECO\"O\IIES A'.\D THE !:\DIA'.\ TRADER :\ CT

As mentioned in the introduction above. in l 787 the U.S. Consticution assigned the power co .. regulate Commerce .. . \Vi th the Indian Tribes"' exclusively to Congress. '''' While the subsequent Ind ian Trader laws have their origins in the Indian Trade and Intercourse Act of 1790, Congress legislat ive ly re inforced the notion of excluding state authority in 183-+ by declaring that the Indian Trader regulations .. must be made either by the United States or by the [tribal governments. but not the States.]""' Similar!). in 1876 Congress delegated that ··sole power and authorit) ... to make such rules and regulations as he may deem just and proper ... " and .. for the protection of said Ind ians: · to the .. Commissioner of Indian Affairs ... ;1

The Supreme Court similarly attempted to maintain federal exclusivity in Indian Affairs. In Cherokee 1\'arion v. Georgia.n the first Supreme Court opin ion involving an American Ind ian tribe.n Chief Justice Marshall wrote that .. the relation of the Indians to the United States is marked by peculiar and cardinal distinctions 'v\hich exist no where else:··- A half century later the Supreme Court wou ld opine that. the ··relati on of the Indian tribes living within rhe borders of the United States. both before and since the Revolution. to the people of the United States has alv.ays been an anomalous one and of a complex character."-' The concept that so confounds both Congress and the courts is that, on one hand. Indian tribes are separate sovereigns. ··domestic dependent nations·"·· that are ensconced as a ··third sovereign"1

• in the federa l framework. while on the other hand, Congress has plenary authority over Ind ian tribes. 1~ While

· Artick I. Section 8. Clause 3. - H.R. Rep.t\o.23-47..i ai 19 (\!a; 20.183-i l. . 25 l'.S.C. §26 1. 262 ·~ Cherokee "\ation \·. Georgia. 30 l".S. 1 ( 183 I ) . . , An ea1fa:r Supr.:me Court case. Johnson '. ~! clntosh. 2 ! L.S. 5..i3 ( 1823 ). dealt \\ ith the issue or'' ho could

ac<.juire 1itle to land from Indian tribes. but no tribe \\aS a part~ to the case. Id. at 5..i3. -. Cherokee :\ation. 30 LJ.S. at 16 . . ·• L'nited States v. Kagama. 11 8 l. .. S. 3 75. 381 ( 1886). · · Cherokt:e "\::nion. 30 t..: .S. at 17. - In the words of Jus1icc O'Connor. .. Toda), in the Lni1c:d rates. we ha\'e 1hrec: t; pcs of so,·er<:ign entitit:s - the

Federal government. the States. and the Indian tribes . Each of the: three: SO\ ereigns ... pla; s an important role .. . in this countr: :· ·andra Da) O'Connor. Lessons.fi·om 1he Third So1·ereign· Indian Tribal Co11r1s. 33 Tl ·1.s.\ L J. 1. 2 ( 1997) .

. , CO! IE:--. 2005. ~ .f.03 [ l J

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18 Indians versus the Billion-Dollar Tax Weevil [9-May- 17

the fabrication of this plenary authority has dubious origins79 clearly based o n a negative perception of tribalism.8

" it nonethe less provides the authority, along with the Indian Commerce Clause, for congressional passage of the Indian Trader Acts .

The acknowledged existence of tribal sovereignty. hmvever, has served to balance the exercise of that plenary authority. and the maintenance of tri bal sovereignty is cri tical to the success of any rev is ions of the Indian Trader regu lat ions, as the .. first key to economic development is sovere ignty." 's1 As the chairman at Lummi noted. whi le the Indian Trader Act is

rooted in an antiquated historical, political, and legal foundation [and) presume the inability of Indians to sel f-gov~rn and self-regulate trad e within their territories in a manner that pro tects their interests and thus requ ires the assistance of the federal government to prevent potentially harmful commercial interactions betV\ een Indians and non-Indians ... the po licy fo undation supporting the [Indian] Trader Statutes - protecting trade with Indians - rema ins relevant today in a different context.s2

To fully understand how an antiquated. paternalistic statute can be refashioned into a modern tool to erad icate the tax weevil. however. it is important to review the origins of the federal Indian la\v and policy before address ing the modern context.

A. The Origins of Federal Indian l aw and Policy'-'

Although the legal princ ipl es that existed at the moment Europeans first made contact w ith the Indians had their origins in legal theories developed to justify the Crusades.s.. as the

that Arguabl~, the Supreme Court sim pl) made up the notion of plenar1 authority. In l\.agama. the Court stated

These Indian tribes arc the wards of the narion. They are communities dependent on the Un ited States. Dependent largely for their dail: food. Dependent for their political rights . . .. From their ,.el") \\eakness and helplessness. so largely due to the course of dealing of rhe Federal GO\·ernmcnt "ith them and the treaties in which it has been promised. there arises the dut) of protection. and with it the power. T his has al\\ a) s been recognized by the Execuri,·e and b:y Congress. and b: this coun. \\henc,·er the question has an sen.

Kamaga, 11 8 U.S. at 383-8.+. Unable to tind a S\lurce for such plenar) authorir: in the Constitution. the Court held that

The po" er of the General Go' ernment o,·er these remnants of a race once powerful. no\\ weak and diminished in numbers. is necessary to their protection, as well as to the safety of those among whom they dwdl. It must exist in that QO\Crnment, because it never has ex isted am wh..:re else. because the theatre or its exercise is within the geographical limits of the United States. becau-se it has ne,er been denied, and because it alone can enforce its la\\s on·all the tribes. Id at 384-85. " See, e.g . Worcester ' . Georgia, 3 I U.S. 515. 588 ( 1832) (discussing the ··humane polic~ ot" the go,·ernment

towards these chi ldren of the wilderness must afford pleasure lO e' cry bene\ olent teeling .. ): Cherokee .\"mion. 30 LS. at I. 17 ( 1831) (··[Indians] arc in a Slate of pupilage. Their relation to the united States resembks that of a ''ard to h is guardian . . . ... ): Johnson '. Mcintosh. 21 U.S. 5.+3. 590 { 1823 J c ·But the tribes of Indians inhabiting this count!) were fierce savages. whose occupation \\US \var. and whose subsistence "as drawn chieO; from the fo rest. To lean: them in possession of thei·r countr"). \\·as to leave the country a \\·iidcrncss . ..... ). These three cases. often refen-ed to as the ··:Vfarshall Tri log;:· form much of the foundation for federal Indian la\\. See general(v COHEN 2005. supra note 23, ~ 1 03[.f l[a I (prO\ iding history of these three cases).

" Stephen Cornell. Sovereigm;-. Prosperity and Policy in Indian C'o11n1ry Today. 5 COM'vlLl\ITY RI-.INVESTMENT 5. 5 (1997 ) .

. , Lummi A~PRM Comments, April 10. 201 7 ' '/\nearlier' ersion ot' this section can be found in Clarkson. G .. Tribal Bonds: Statutory Shackles and

Regulator; Restraints on Tribal Economic De,·eiopmcnt. 85 '.\ c L REV I 009 (2007)

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9-May-17] Indians versus the Billion-Dollar Tax Weevil 19

competing European na tions began to expand their empires. the papacy began to grant exclusive rights to lands as they were ·'discovered." including rights of sovereignty over the indigeno us populations.~' Even after England broke away from the autho rity of Rome. English law sti ll supported thi s ··Doctrine of Discovery,"'" and .. practical realities shaped legal re lations betwee n the Ind ians and colonists ." 'i; The ··necessity of getting along with po\verful " ' ~8 and militarily capable Indian tribes dictated that the settlers seek Indian consent to settle if they w ished ro Jive in peace and safety, buy ing lands that the Indians were ·wil ling to sell rather than displacing the m by other methods . As a result, the English colonial governments acqu ired most of the lands by purchase from the Indi ans.8

'' During thi s period ·'the Indians were treated as sovereigns possessing full ownership rights to the lands of America." '""

At the outbreak of the French and Indian War in 1754. treaty makin g assumed a new dimension. as each of the competing European po\vers sought to fo rm alliances w ith the various

""See, e.g., Pope Innocent JV. Commentaria Doctissima in Q11inq11e Li bros Decretali11m. in T HE EXPA;\SJ0:-1 OF

EUROPl:. TH E FIRST PHASE 19 1-92 (James Muldoon ed .. 1977) (··[J)s it licir to inYade a land that infidels poss.:ss o r \\hich bdongs to them ? .... [ljt is licit for the: pope to (demand allegiance. and) if the infidels do not obey. they ought to be compel led by the secular arm and \rnr may be declared against them by the pope and not by anyone else.'') See also ROBERT A W JLLIA\IS. JR . T.llE A\IERIC.\;\ l;\01..\'.\ f)i \\'FSTERJ\ I FG.\L THOUGHT TllE DISCOliRSFS OF

COC\QL:EsT. at 29-41 (discussing the crusading <:ra orig ins of the legal doctrines which gm erned European land clai ms in the Americas).

'' See. e.g .. Bull ··1ntcr Caet.:ra Di' inac" of Pope Alexander VI di\ iding the '.'\e\\. Continents and granting America to Spain. (\-la) 4. 1493) in Cl!URCH A'.\D STA TE THROliGH THE CEl\TURlES 153, 156-57 (Sidne) l. Ehler & .John B. Morrall, eds. & trans., 1967).

Wherefore. all things considered maturely and. as it becom<:s Catholic kings and princes . .. you have decided to subdue the said mainlands and islands. and their nati\·es and inhabitants ... with the proviso_ hO\\e\ er. that these main lands and islands found or to b..: found. discovered or to be disco\ ered ... be not actuall; possessed b; some other Christian king or prince. Id. See also Rull ··Romanus Ponti fox" of Pope :\icholas V Granting the Territories DiscO\·ered in Africa to

Portugal t.fan . 8. 1454) in CHLRC!l A~D STATE TllROLi(il! THE Ct:-.lTLiRI ES J~-L 153-57 (granting Portugal the exclusi\ e right to colon i7c the Canar;. Islands and all other parts or Africa); WlLLl.-\.vtS . supra note 77 at 15 - 18 (discussing the ··universal right asserted by popes and Christian prihees to enforce Christianity ' s \·ision of ·civilization·-- in the conquest of non-Curopean lands). See also generally Felix S. Cohen. The Spanish Origin of Indian Rights in 1he Lall' of the United Swtes. 3 I GEO LJ I ( 1942) (tracing che influence of Spanish Im.\ on the dc\·elopment of Indian Im\· in the lJni ted States) .

" See. e.g . Ca!Yin's Case. ( 1608) 77 Eng. Rep. 377 (K .8.) All infidds arc in law perpet11i inimici, perpetual enemies (for the la\\ presumes not that they \\ ill be converted. that being remota potentia, a remote possibilit) ) for bet\\een them. as with the de\·ils. \\·hose subjec1s they be. and the Christian. there is perpetual hostility. and can be no peace. . . . And upon this ground there is a d iversity het\'vCen a conquest ofa kingdom ofa Christian King. and the conquest ofa kingdom of an infidel: for if a King come to a Christian kingdom b) conquest .... he ma; at his pleasure alter and chan!?e the la\\S of that kin!?dom: but unti l he doth make an alteration of those la\\s the ancient lm>vs of that kingdom remain. But i(a Christian King should conquer a kingdom of an infidel. and bring chem und.:r his subjection. there ipso faclo the la\\S of the infidel are abrogated. for that they be not onl) a!?ainst Christi:mitv. but a irninst the Im\ of God and of nature. contained in the dcealo!?ue : and in that case. until certain laws be established amongst them. the King b; himself. and such Judges -as he shall appoint. shal l judge them and their causes accord ing to natural equity. Id at 397-398. This opi nion \\aS authored b; Lord Chief J ustice Ed\\ard Coke. who . coincidentally. co­

authored_ the chai1er for the Virginia Company in l 606. See WlLL!A;\lS . supra note_, at 201 -02. ··See COHE:\ 1005, supra note_~ I .02[ 1 j. " Id. Despite devastating outbreaks of disease. the Indians would continue to outnumber the Europe:in settlers

for se\ eral decades. See id "' Id. The Dutch similarly opted to obtain land 'ia consented purchase rather than more bellicose methods . . Id.

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20 Indians versus the Billion-Dollar Tax Weevil [9-May-17

tribes. After the war. in an effort to centralize Indian Policy. George lII issued a royal proclamation that declared that land transactions with the Indians could only take place with the permission and blessing of the Crown. Many scholars suggest that this proclamation was the catalyst for the American Revolution. as it prevented the founding fathers from engaging in land speculation beyond the Appalachians.~1

The military importance of treaty alliances v>'ould continue throughout the Revolutionary War period as wel l. After the war. however, a po\verful group of tribes that had sided with the British during the war confronted the founding fathers. Those tribes sti ll maintained claims to the territory between the Appalachian Mountains and the Mississippi River. In a surprising reversal, George Washington advocated for the federalization of Indian policy embodied in the Non-Intercourse Acts.''" He subsequently detailed his proposed policy for dealing with the Indians in a letter to James Duane. the head of the Committee of Indian Affairs of the Continental Congress.

[P]olicy and [economy] point very strongly to the expediency of being upon good tem1s with the Indians, and the propriety of purchasing their Lands in prefaence to attempting to drive them by force of an:ns out of their Country: wh ich as we have already experienced is like driving the Wild Beasts of the Forest which wil l return as soon as the pursuit is at an end and fall perhaps on those that are lefr there: when the gradual extension of our Settlements \\"ill as certainly cause the Savage as the \Volf to retire; both being beasts of prey tho· they differ in shape. In a word there is nothing to be obtained by an Indian War but the Soil they live on and this can be had by purchase at less expense [sic]. and without that bloodsbed, and those distresses which helpless Women and Chi ldren are made partakers of in all kinds of disputes with them ... :n Although many consider Washington· s letter the found ing document of American lndian

policy.''" its notion of Indians as .. savages·· sits alongside the pragmatic necessity of making treaties with the Indians. As th~ ne\\·ly formed United States began its inexorable march \..vestward, the lndian lands usually •vere not taken by force but were instead ceded by treaty in return for. among other things. the establishment of a trust relationsh ip,'" often in speci fie

'" Cite to Williams and others ,,, Prucha at

. ., Letter from George \\'ashington to James Duane (Sept. 7. 1783 ). in DOCL'.IE:\TS OF L.:l\ITED STATES !\DIAK

POL.ICY 1-2 (Francis Prucha. ed .. 3rd. ed. 2000) (noting George Washington·s recommendation were adopted by the Continental Congress).

" See. e.g., Robert /\. 'Wi lliams. Jr .. Like a Loaded Weapon: The Rehnqu ist Court. Indian Rights. and the Legal Histor; of Racism in America 44 (2005 ) (tracing the history of Indian polic;- ).

' The scope or the trust relationship is multi- faceted. ··\.!any treaties explicit!} prO\'ided for protection b:; the L·nitcd States:· See COHEi\ 2005. supra note _ ~ 1.03 [ l ]. See. e .g .. Treat; with the t-.:.askaskia. an. 2. Aug. 13. 1803. 7 Stat. 78. reprinted in Cl-L\RLES J KAPPLER !\DIAN AFFAIRS. LA \VS ,\i\D TREATlfS 25 ( 1904 ), [hereinafter Treat; with the Kaskaskia] (prO\ iding that the Lnited States \\Oulu protect the Kaskaskia tribe ): Treaty with the Cre.:ks, art. 2. Aug. 7. 1790. 7 Stat. 35. reprimed in 2 CH..\RLES J KAPPLFR. l\D!Ai\ AFFAIRS. LA\VS A'<D TREAT!FS 25 ( 1904 ) [hereinafter Treat; \\ith the Creeks] (providing that the Lnited States would protect the Creek >Jation). Other tremies pro,·ided the means for subs istence. See. e.g. Treaty of Fort Laramie. art. 10. Apr. 29. 1868. reprinted in FRA\"CIS PALL PRl;CHA. A:VIERICA:--1 !NOIA\ l REA TIES THE f!ISTOR y OF A POlll ICAL A:\OMAL y l 12 ( 1994) [hereinafter Fort Laramie Trear; l (pro\ iding for subsist.:nc.: rations for the ioux): Treat: with the Western Cherokee. an. 8. Ma:- 6. 1828. 7 Stat. 3 11. reprinted in KAPPLER. supra. at 290 [hereinafter Treat; v.ith the 1..\"estern Cherok~e I (providing for t\.1 ehe months of rations\: COi iE'.\ J 9lC. supra note _. at 81 (•·[E]ach I lead or a

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9-Nlay- 17] Indians versus the Billion-Dollar Tax Weevil 21

consideration for the Indians · relinquishment of land.96 It is important to note that these treati es were a lvrnys entered into as government-to-government re lationships between the tribes as collective political entities and the United States!c .. [F]rom the beginning of its political existence. [therefore, the United States] recognized a measure o f autonomy in the Ind ian bands and tribes . Treaties rested upon a concept of Indian sovereignty . . . and in turn greatly contributed to that concept.""1

K

At this point, however, the notion that state law had any place vv ithin Indian Country was completely fo reign to the founding fathers. Federal exc lusivity and preemption were clearly established in the Trade and Intercourse Acts and the subsequent Indian Trader Acts. As noted earlier, the case of Worcester v. Georgia. the state of Georgia passed a law requiring any non­"'.'Jative person living within the borders of the Cherokee Nation to get a li cense to do so from the state . Several missionaries, inc luding Reverend Worcester. de fi ed the law. were arrested. and were sentenced to fou r years o f hard labor. As ment ioned previously. on appeal to the Supreme Court, the Justices found that the Cherokee Nation was .. a distinct community, occupying its own territory. with boundaries accurately described. in which the laws of Georg ia can have no force ... 9'' Congress subsequently reinforced the notion of preemption of state la\v in its update to the the Indian Trader Acts in 1834, noting that the concomitant regulati ons "must be made e ithe r by the lJnited States or by the [tribal governments . but not the States.]";"'

For others. however, treating ·tribes as governm ents was clearly more a func tion o f pragmatism than a generally held be lief that tribal governments \\'ere legitimate sovere igns, and although the Indian tribes regarded treaty obligatio ns as sacred. condescending not ions of the inferiority of tribalism prompted many to question whether their provisions were binding on the United States. During this time pe riod, the legal discourse o f opposition to triba l sovereignty argued that ··tribal Indians. by virtue of th eir radica l divergence from the norms and values o f \\;hite soc iety regarding use o f and entitlement to lands, could make no c laims to possession o r sovereignty over territories -.. ... hich they had not cultivated and which wh ites cm·cted." 1 Various

Cherokee famil) ... \\ho ma: desire to remow West. shall be gi\ en. on enrolling himself for emigration. a good Rifl e. a Blanket. and a Kettle. and fi\·e pounds of Tobacco: (and lo each mem ber of his fami ly one Blanket. ) a lso. a just compensation for the property he ma: abandon ... ).

See. e.g.. Fort Laramie Treaty. supra ·note 72. at 110 (pro\·iding that the Sioux relinquish all claims to lands in the United States): Treaty \vith the 1'.askaskia. supra note 72. a t 67 (providing that the Kaskaskia Indians ··re linqu ish and cede to the L"nitcd States all the lands in the Illinois country ·· ): Treaty with the Creeks. supra note 72. at 26 I providing that the Creek nation ··extinguish fore, er all claims .. to spccitied lands).

- See. e.g., Treat; of Fort Laramie. Sep. 1 7. 185 !. reprinted in PRL:CHA . supra note 72. at 8-+ \referring to the United States and the Sioux collectively as ·i:he aforesaid nations .. ): Treat) of Fort Mcintosh. Jan. 2 l. 1785. reprinted in PRL"CH.-\. supra note T2. at 5 (describing the treaty as bcm·een the L'nitcd States and the \ViandoL Dcla,xare. Chippc,,a. and Ottawa nations ·or Indians): Treaty with the Six :\ations. Oct. 22. 178-1 . repri111ed in PRt;CHA. supra note 72. at 4-5 (describing the treat; as bet\\een the Lnited States and the Six >:ations).

'PRt:C~L.\. supra note_. at 2 . ... , Id. at 520.

•"; H.R. Rep. :\o. 23 -47.+ ar 19 (\fay 20. 183 -1 ). •0

• Robert A. \\ ' illiams. Jr.. Documents of Barbarism: The Contempmar~ Legac; or European Racism and Colonialism in the :\arrati,·e Traditions of Federal Indian Lmv, 3 I ARJZ L REV 237. 2-13--+-I ( 1989 ). Such arguments we re made by se, ·eral prorni nent.indi \ iduals. including Presiden t John Q uincy Adams:

The Indian right of possession itsel f s tands. w ith regard to the g reatest part of the country. upon a questionable foundation .... fW]hat is the right of a huntsman to the forest of a thousand miles oYer \\hich he has acc identally ranged in quest or prey? Shall the li beral bounties of PrO\ idence to the race of man be monopolized b; one or te n thousand for \\horn they \\·ere created 9 Shall the exuberant bosom o f the

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22 Indians versus the Billion-Dollar Tay Wen-ii [9-May- 17

political factions disagreed over whether tribalism could survive contact with white civilization and whether the appropriate course of action was to make the Indians assimilate into that soc iety or to remove them beyond the reaches of that soc iety.H': Ultimately. notions of tribal inferiority prevailed, and Congress passed tqe 1830 Removal Act. 1

"' Several tribes in the Southeast, hovvever. already had treaties that secured their right to remain on the ir ancestral homeland. In response, Georgia Governor George Gilmer declared that

[T)reaties \Vere expedients by v.;hich ignorant. intractable. and savage people were induced without bloodshed to yield up what civilized peoples had a right to possess by virtue of that command of the Creator delivered to man upon his formation - be fruitful. multiply. and replenish the earth. and subdue it. [The practice of purchasing land from the Indians was merely] the substitute which humanity and expediency have imposed. in place of the sword. in arriving at the actual enjoyment of property cla imed by the right of discovery. and sanctioned by the natural superiority allowed to the claims of civil ized communities over those of savage tribes.1n•

Over the next forty years. however. tribal sovereignty was nonetheless expl icitly and repeatedly recognized through treaty-making as tribes agreed to either remove to the west of the !'vf ississippi or cede portions of their ancestral homeland in the face of advancing settlement. 1

'1'

Wh il e the fo rmal existence of the United States began at a point in time when the prevailing policy recognized tri bal sovereignty through the treaty-making process. such an orientation was not permanent. Once the removal process vvas essenti ally complete. responsibility for Indian affairs, along \Yith the authority to negotiate on a government-to-government basis with the tribes. moved from the \.Var Depa11ment to the Interior Department. w, although such treaties still had to be ratified by Congress. In the 1870s, however, Congress ceased making treaties with the lndians 10

' and instead developed a policy of allotting tri bal lands to individual Indians "'~ that was

common mother. ampl; ade4uate to the nourishment of millions. be claimed exclusi\·ely by a few hundreds of her offspring? Shall the lord!: sarnge not only disdain the \·irtucs and enjo) ments of ci\ ili . ..:ation himself. but shall he control the ci\ ilization of a'' orld? . . . :\o. generous philanthropists ! Heaven has not been thus incons istent in the \\·orks of its hands I l lea,·en has not thus placed at irreconcilable strii"c. its moral laws'' ith its physical creation!

John Quincy Adams, Oration at Plymouth, Dec. 22. 1802 reprinred in Frank :vtoore, American Eloquence: A Collection of Speeches and Addresses : B: the \lost Eminent Orators of America 25 l. 255 ( I 857 ).

'"' See Letter from Thomas Jefferson. President of the L.'ntied States. to William I knry H an-ison. Gon:rnor o f Indiana Terri tor: (Feb. 27. 1803) in DOCL"\lE;\TS Of L>:ITED STATES !:"DIA:-.. POLICY. supra notc 69. at 22-23 ( .. [O jur ,;ettlcmcnts will gradually circumscribe and approach the Indians, and the; ''ill in time e ither incorporate with us as citizens of the United States. or remO\·e beyond tht! Mississippi ... ).

' Remo\. al Act. 4 Stat. 41 l ( 1830) (codified as amended at 25 C .S.C. § 174 ( 1982)). - Francis Paul Prucha. The Great Father 196 ( 1984 ).

"' See e.g Treaty of Dancing Rabbit Creek ( 1830). reprinted in 2 Charles J . Kappler. Indian Affairs. Laws and rrearies 310 ( 1904) (signed b~ Chocta\\ leaders ::n hok chukfi ahithac- ·<he little creek \\here rhe rabbits

dance .. -prm id ing for the remm al from the ancestral homelands in 'v1ississippi and Alabama w land in southeastern Oklahoma); Fort Laramie Treat:. April 29.· 1868. 15 Stat. 635. reprinted in DOCL"ME'.'TS OF L"'.\ITED STATES !'.\DIAS

POLICY. supra no te 85. I 09 (signed by the Sioux ;-..:ution at the conclusion of the Powder RiYer \Var. establishing a resen·ation) [hereinafter .. Fon Laramie Treaty .. ] .

... See Vine Deloria. Jr. & Cliffo rd :vt. Lyrle. American Indians. American Jusrice 113 (1983). - Treat) making \\·ith the Indians \\as ended b) Congress in 187 1: ··[T l]ereafter no Indian nation or tribe \\ithin

the territory of th.: United States shall be acknowledged or recognized as an independent nation. tribe. or po\\·er \vi th \\horn the United States ma:- contract b; treat: . . . :· Abolition of Treaty \faking. 16 Stat. 544. 566 ( 1871 ).

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9-May-171 Indians versus the Billion-Dollar Tax Weevil

characterized as a ·'mighty pulverizing engine"'10' ' that would destroy tribalism and force Indians

to assimi late into dominant society as individuals .1111 \lotions of the inferiority of tribalism were again a catalyst for policy change, but implementation of the policy required recognition of tribal sovereignty. Realization of the Allotment Act required negotiat ions vvith tribal governments, and even when dismantling the governance structure of particular tribes. such as the Five Civ il ized Tribes in Oklahoma, Congress still .. continued [the existence of tribes and tribal governments] in full force and effect for all purposes authorized by law.'· 111 and even updated the Indian Trader Act yet again. 11~

If the pol icy objective of the Allotment Act was to improve the lives of the Ind ians, it was a colossal failure. By the 1930s it was clear that the United States needed to change its stance on tribal sovereignty again, 113 and Congress passed the lndian Reorganization Act of 1934 ( .. IRA'). 11

"' In an effort to reinforce tribal sovere ignty. the legislation allowed tribes to adopt constitutions and to reestablish structures for governance. Post-IRA federal treatment of the tribes was less restr ictive, allowing for the popular election of tribal leaders according to tribal laws and constitutions. 11

; Congressional policy had completely reversed itself-tribal sovereignty \Vas nO\\ to be encouraged rather than destroyed: however. federal Indian policy would oscillate through one more cycle in the next half century . The period bet\\een 1945 and 1970 is referred to as the Termination Era. and was characterized by the passage of a number o f statutes that .. terminated .. indi vidual tribes-.. these acts distributed the tribes · assets by ana logy to corporate dissolution and afforded the states an opportunity to modify. merge or abolish the tribe · s

reprinted in PRUCHA. supra note Tl. at 135. ' ' General Allotment Act of 1887. 2-i Stat. 388 ( l 887). The statute is also known as the Dawes Act after

enator J lenr) L. Oa\ves of :'vlassachusctts. Whi le the D U\\ es Act represented the final, full -scale r.:alization of the allotment policy. man~ treaties made \\ ith western tribes from 1865 to 1868 prtn-ided ltir allotment in se\ cralty of tribal lands. See ROBERT \,\ 1:-.:STO:\ '.\IA RDOCK. Tiff REFORMERS A:\D Tl fF AM ERJCA:\ l:\ Df:\l'iS 2 12 ( 1971 }.

"" In an address to Congress in 190 I. President Theodore Roosewlt expressed his sense of the assim ilation policy :

[T)he tim.: has arrived\\ hen we should defi nite ly make up our minds to recogniLe the Indian as an individual and not as a member ofa tribe. The Genera l Allotment Act is a mighty pulverizing engine Lo break up the tribal mass [acti ng 1 di rec t!: upon th.: fam il) and the indi\ idual .

Ga\·in Clarkson. :\ot Because They are Bro•.vn. But Because of Ea: \\'hy the Good Guys Lost in Rice \. Cayetano, and Wh; They Didn ·r I la\ e lO Lose. 7 '.\llCH J Rr\CI: & L. 3 18. 325-326 (2002 }.

Id

"" Id. at 326. ,, fi\.e Tribes Act. ch. 1876. sec . 28, 3,i Stat. 13 7 ( 1906).

That the tribal existence and present tribal go,·emmcnts of the Chocta\\ . Chickasaw. Cherokee. Creek. anJ Seminole tri bes or nations are hereby cont inued in full force and effect for al l purposes authori/t:d by la\\ . unti l otherwise prO\ ided by law. but the tribal council or legislature in any of said tribes or nations shall not be in session for a longer period than thin: da: s in an~ one : ear: Pro1·ided. That no act. orJinance. or resolution (except resolutions of adjournment\ of the tribal council or legislature of any of the said tribes or nat ions shall be of an; \ alidit; until approved by the Presid..:nt of the L.:nited States: Pro1·idedf11rther. That no contract in\'Oh ing the payment or expend iture of any money or affecting an; propcny belonging to an: o f said tribes or nations made b~ them or an: or them or by an: officer thereof shall be of an: \·alidit) until apprm ed b; the President of the Llnited States.

,,, C ite

p See. e g. . l:\ST FOR GOVT RESEARCH. STl,DIES r:-.: AD'.\11:\ISTRATIO'.\ . THE PROBLE'.\I 01 ['.\:DIA~

AD'.\li:\ ISTRATIO'-. l 19231 (documenting the fail ure of federa l Indian polic~ during the allotment period\. " 25 t..: .S.C. ~ -16 1-49-1

· ' Russel La\H en..:e Barsh and James Youngblood I knderson. ·1 he Road: Indian Tribes and Politica l Liberty 209 ( 1980).

DISCUSSIO:\ DRAFT

2-l Indians versus the Billion-Dollar Tax Weed [9-\llay- 17

governmental funcrions ... 1 " Oddly enough. even during termination, the Indian Trader

regulations \Vere updated in 1957. again to exclude state involvement in on-reservation economic activity. 111

Termination finallv ended when President Nixon issued a landmark statement callin2 for a . . -ne\x. federa l policy of .. self-determination .. for Ind ian nations . 1. ~ B1 .. self-determination . ., President Nixon sought .. to strengthen the lndia11 s sense of autonomy without threatening his sense of community:· Self-determination11~ led to an increase in economic development activity. but access to capital remained an impediment. President Reagan also made an American Indian policy statement on January 24. 1983, stating his support fo r .. self determination:·i: ln attempting to give definition to .. se l(-determination, .. he stated:

Instead of fostering and encouraging self-government. federal policies have. by and large, inh ibited the pol itical and economic development of the tribes. Excessive regulation and self-perpetuating bureaucracy have stifled local decision making. th\\ arted Indian control of Indian resources and promoted dependency rather than se If-sufficiency .111

Tribal economies ha\'e grown consi~erably since the end of the Termination Era, with tribes receiv ing .. billions of dollars of federal financial assistance in the form of the Indian Self­determ ination Act, Indi an Self-governance Ac t. and Indian Health Serv ice funding has been provided to lndian nations and tribes:· c: The progress of these domestic emerging economics .. re flects an important milestone in the self-determination of Indian tribes that should be supported by the federal government. .. 113 Thus. the evidence from the last half­century of tribal economic developmenr indicates that tribes can and must compete within the larger capitalist environment. and given a leve l playing fie ld. they can thrive. Dual taxation by the tax \\ee\'il is arguably the greatest imped iment to a leve l playing field. and it clearly suppresses tribal economic developrnenr and curtails tribal access to capital.

· Prucha at _. Examples of thi s legislati\ e acti\ it; include /\ct of August 13. 195-L ch. 731. 68 Stat. 718 (Klamath). and /\ct of August 3. L 956. ch. 909. 70 Stat. 963 (Ollm\aS).

, .. See \:CAIED A:\PR:'vl comments, April 10. 20 17 '" Message from the Presi tknt of the l"nited States Transmitting Recommendations for Indian Policy. IUC -;i.

Doc. \:o. 9 1-363. (Jul) 8. 1970). See Indian Financing Act of 197-L Pub. L. :\o. 93-262. 88 Stat. 77 t 197.i ) (codified at 25 L.S.C. §~ 1.i5 l- 1453 ). Perhaps the greatest of l\'ixon·s contributions to Indian tribal SO\l!rcignt; \\US Public La\\ 638. the Indian Sdf-Ddcrmination and Education Assistance Act of 1975. Pub. L. :\o. 93-638. 88 Stat. 2203 (codified at 25 L". .C. *§ .i50a~50J. \\hich express!~ authorized the Scm~taries of Interior and Health and Human · en ices to contract\\ ith and make grants to Indian tribes and other Indian organizations for the deli\ ery of federal ser\'ices.

· The ke; legislation of this cr:i im:ludes : The Indian elf-Determination and Education Assistance Act of 1975 . Pub. L. 93-638 (codified at 25 U.S.C. §§ 450 e1 seq.): The lndian Ci\ ii Rights Act or 1968. Pub. L. 90-284 (wdified at 25 Li .S.C. §§ 1301-134 l ): The lndian Financing Act or 1974. Pub. L. 93-262 (codi fied at 25 L". . . C. § 1451): and the Indian Child Wdfore Act of 1978. Pub. L. 95-608 {coditied at 25 l ". .C. §~ 1901- 1963 !. See genera/~1 See COHE:-: 2005, supra note_§ 1.07.

- Presidential comm· n on Indian reser\'alion Economics. Report and Recummendation to the President of the Cnited Stutes 7 ( L 984 ).

' Id. " Lummi A:\PR:'vl Comments. April IO. 2017 :; Id.

0 1 scussro~ DRAFT

9-May- 17] Indians versus the Billion-Dollar Tax Weevil

B. A Good Rule: Warren Trading Post

As several tribes have noted. the Department of Interior has successfully updated regulations so as to completely preempt all state tax, regulatory, and jurisdictional authority. The recent update to regulations governing leasing (25 CFR Part 162) and rights-of-way on trust lands (25 CFR Part 169) provide a good template for the new Indian trader regulations. But the best guiding princ ipal comes from Warren Trading Post Company v. Arizona State Tax Commission, 11" \.vhere the court held that ··Congress has taken the business of lndian trading on reservations so fully in hand that no room remains for State laws imposing additional burdens upon traders. '"11

'

In Warren Trading Posl, Arizona sought to impose a tax on the gross proceeds of sales or gross income of a licensed Ind ian Trader. After noting that Arizona had specifica lly di sclaimed all right and title to Indian lands within its boundaries, 11

'' and after extensively reviewing the legislative history of the Indian Trader Act. 1=- the court held the tax inval id. noting

We think the assessment and collection of thi s tax would to a substantial extent frustrate the evident congressional purpose of ensuring that no burden shall be imposed upon Indian traders for trading with Indians on reservat ions except as authorized by Acts of Congress or by va lid regulations promulgated under those Acts. This state tax on gross income would put financial burdens on appellant or the Indians with whom it deals in addition to those Congress or tl1e tribes have prescribed. and could thereby disturb and disarrange the statutory plan Congress set up in order to protect Indians against prices deemed unfair or unreasonable by the Ind ian Commiss ioner. And since federal legislation has left the State with no duties or responsibilities respecting the reservation f ndians. we cannot believe that Congress intended to leave to the State the privilege of levy ing this tax. !ZS

A subsequent attempt by Arizona to tax on-reservation economic activ ity was similarly thvvarted in Central A1achinery Company v. Ariwna Stale Tw: Commission. 1

'-9 Even though

Central Machinery was ·'not a licensed Indian trader. and it [did] not have a permanent place of business on the reservation:·i ;,, the Court applied Warren Trading Post and overruled the Supreme Court of Arizona, concluding that those distinctions did not circumvent the federal prohibition on the imposition of the transaction privilege tax on the sale of farm machinery to an on-reservation enterpri se.13 1

Since the transaction was plainly subject to regu lation under the federal statutes and implementing regulations governing the licensing of Indian traders, federal law pre-empts the asserted state tax. It is irrelevant that appellant was not a licensed Indian trader. since it is the existence of the Indian trader statutes, not their administration, that pre-empts the

.,, 380 U.S. 685 ( 1965) ,,; Id.

-' Id. n.3 ,. fd.

'-'' Id. ,. -1-1-8 c .s. 160 t l 980). ,. ld at ,, fd.

DISCUSSIO>.i ORA.FT

26 Indians versus the Bi/Lion-Dollar Tax Weevil [9-May- 17

field of transactions with Indians occurring on reservations. Nor is it relevant that appel lant did not maintain a permanent place o f business on the reservation. since the Ind ian trader statutes and regulations apply no less to a nonresident who sells goods to Ind ians on a reservation than they do to a res ident trader. 132

If only the court had treated rVarren Trading Post as stare decisis, ne ither the tax weevil nor the overzealous regulation weevil \Vould ever have rai sed their ugly probosc ises again. But a las. that was not to be.

IV . .\ /0£, LARRY A:\D COTTO.\": TllE 1-:\TELLECTUAL DISHO>JESTY OF RACE-BASED TAX!\ TlO>J

A state ordinari ly may not regulate or tax property or economic activity in Indian country.133

Because of plenary federal authority in Indian affairs. state regulation has no place in Ind ian Country. As stated by the Supreme. Court in a case invalidating a state tax on royalty interests held by a tribe under oil and gas leases to non-Indians:

The Constitution vests the Federal Government vvith exclusive authority over relations \.\ ith Indian tribes .. .. and in recognition of the sovereignty retained by Indian tribes even after format ion of the United States, Indian tribes and individuals genera lly are exempt from state taxation within their own territory. 134

A. Moe v. Salish and Kootenai ../25 US 463 (/9 76)'''

In lvloe v. Confederated Salish and Kootenai Tribes, the Court presumed that a state could tax cigarette sales to non-Indians and then authorized the state to requ ire tribes to keep records of such sales. reasoning that these requirements amounted to a .. minimal burden:·uo .tvfoe

1': Id at '" Cohen 6.03 . citing Okla. Tax Comm ·n \. Chickasa\\ -:\ation. 515 U.S. -150. 45 8 ( 1995) (' .. [A ]hscnt cession or

jurisdiction or other federal statutes permining if . .. a Srate is \\" ithout po\\·er to tax rcserrntion lands ant.l resen at ion Indians ... ) (quoting Count) of Yakima\ . Confederated Trib.::s & Bands of the Yakima Indian :--.lation. 502 L .S. 25 l. 258 ( 1976)): Fishen. Dist. Ct.. -124 L-.s. 382. 386 ( 1976)( .. The right of [an Indian tribeJ to go\·ern itself independently of state law has been consistently protected by federal statute ... ): :vtcClanahan v. Ariz. State T ax Comm ·n. 4 11 L.S. 164. 168 ( 1973) c·· tT Jhe policy of leaving Indians free from state jurisdiction and control is deeply rooted in the Nation·s histor) ... ')(quoting Rice v. Olson. 32-1 ll.S. 786. 789 ( 19-1 5)); The Kansas Indians. 72 L .S. 737 ( 1867): Worcester'. Georgia. 3 1 Li .S. 515 ( 1832 ). Recent decisions n:affom this principle. See. e.g .. Ke\\eenaw Bay Indian Cmt:. \. '.\aftaly . 452 F.3d 514 (6th Cir. 2006) (state ma) not tax tribal real propert~ O\\ned in fee\\ ithin exterior boundaries of reservat ion): Shivwits Band of Paiutc Indians v. Utah. 428 F.3d 966 (I 0th Cir. 2005 ) (state may not enforce its billboard regulations on trust land with in Indian country): Rodewald v . Kan. Dep· t Revenue. 297 P.3d 28 l. 289-291 (Kan. 2013) ( .. Generally, a state has no civil or criminal jurisdiction over tribal members unless Congress has expn:ssl) said so .. : Kansas lacked jurisdiction to test for drunk dri\ ing or suspend license of a tribal member driving on rcscr\ationl: >:. Cent. El cc. Coop .. Inc. '. :\ .D. Pub. Sen. Comm· n. 83 7 1':. W.2d 13 8 ()! .D. 20 I 3) (state lacked jurisdiction to regulate tribe · s choice or uti I it) to provide electricit) sen ice within resetTation ).

'· \ !ontana \.Blackfeet Tribe. 471 U.S. 759. 76-1 ( 1985). " This case summary is from the Cohen Handbook. §6.03l 1 lfb l - \ !oe \.Confederated Salish 8:. Kootenai Tribes. 425 C.S. 463. 483 ( 1976). The Cout1 s opinion does not

provide an analysis for its ,·iew that a stat<:: ma) tax Indian retailers · on-rescn ation sales of cigarettes to non- Indian purchase rs. but appears instead mercl; to assume the validit: of this proposition. See Robert >i. Clinton. The Dormant Indian Commerce Clause. 27 Conn. I.. Re\·. 1055. 1203-1204 ( 1995 ).

DISCU SSIO\! DRAFT

9-May- 17] Indians versus the Billion-Dollar Tax Weevil 27

constituted a departure from established law, which has required a clear expression of congressional intent to justify extension of state governmental pO\Yer over Indians or Indian tribes on reservations without regard to the extent of regulatory burden on Indian tribes. 1

'1

f n Aloe, the Court took into account the state 's interest in preventing its res idents from avoiding the substantial taxes on cigarettes typically imposed by states by purchas ing them on an Indian reservation, thus importing an a na lysis applied in the context of state regulat ion of non­Indians· activity on tribal lands. 138 In contrast. a ··more categorical approach" generally applies to prevent direct impositions of state law upon Indians and Indian tribcs. 1

' ''

B. Colville v. Washington -139 US. ./63 (19 -9)

The Court extended the Afoe 'exception to allow a state to require more burdensome col lection and recordkeeping requirements on Indian cigarette sellers in Washington v. Confederated Tribes of the Colvifle Indian Reservation. 14

' Ironically, the Court seemed far mo re concerned about non-Indians off-reservation than Indians on-reservation, citing Aloe for the no tion that ···the competitive advantage which the Indian seller doing bus iness on tribal land enjoys over a ll other c igarette retailers. w ithin and w ithout the reservation. is dependent on the extent to v;hich the non-Indian purchaser is will ing to fl out his legal obligat ion to pay the tax . .,. 1

"1

While the duty of a non-Indian to pay tax for an on-reservation purchase has a dubious bas is . the Court completely rejected the foundational princ ipals from Warren Training Post and stated that ··we do not be lieve that princip les of federal Indian law. "'·hether stated in terms of pre­emption. tribal se lf-government. or otherwise, authorize Ind ian tri bes thus to market an exemption from state taxation to persons who wou ld normally do their business elsewhere.,. 14

:

The intellectual dishonesty inherent In this op inion is discussed in Subpart D, infra.

C Cotton Petroleum v. New Mexico ./90 US. 163 (1989; 1";

In Cotton Petroleum Corp. v. ,Veir iY!exico, the Court took up the question of whether the commerce c lause prohibited state taxes on o il and gas production also taxed by the Jicarilla Apache Tribe. The Court rejected the argument that the taxes imposed an unlavYful burden on interstate commerce because the tax was evenhanded and the oi l and gas extraction took place \\holly w ithin state borders as \Vei l as tribal borders. T he Court also held that the tax was not sufficiently confiscatory to vio late the due process clause. The Court did not rule on the impact of the Indian commerce clause on the dual taxation problem. but declared that it was ··treacherous .. to import concepts developed under the interstate commerce clause to the app li cation of the Indian commerce clause. 1

--

,. E.g. :\lomana v. Blackfeet Tribe. 4 7 1 U.S. 759 ( 1985 ): Br; an \. Itasca Counr;. 426 lf .S. 3 73 ( 1976 ): McClanahan ' . J\riz. State Tax Comm ·n. 4 I I l".S. 164 ( 1973 ).

'' Sec Cohen Handbook. *6.03[2][a] ·' Okla. Tax Comm ·n ' . Ch ickasm\ :-.:ation. 515 L.: .S. 450, -+58 ( 1995 ). " Washington v. Confederated Tribes of the Col\ ille !n<lian Rescn ation. -+-+ 7 C.S. 134. 1 59~ 160 { 1980 ): see

also Cal. State B<l. uf Equalization v. Chemehue' i Indian Tribe. -f 74 LS. 9 ( 1985 ). The Coh ille Court indicated that the stat.::·s recordkeeping requirements \\Ould ha'e been in,·alid if the Tribes had pro,ed that those requirements ''ere ··not reasonabl: ne..:essaf) as a means ofpre,·enting fraudulent transa..:tions:· Washington\" . Confederated Tribes of the Colville Indian Resen·ation. 44 7 U.S. 134. 160 ( 1980).

· .Hoe at 482. a; -f-+7 L. s. 155 ·'This case Summar: is from the Cohen Handbook. ~6.03 11 l[bj

01scuss1or..; DRAFT

28 Indians versus !he Billion-Dollar Tax Wee \·i/ [9-May-17

In the years fo llowing Cotton Petroleum, there was some di scuss ion of a federal legislative solution to overlapping state and triba l taxing authority .'~' To date. however. no federal statute has specifically addressed this issue. Thus. the interest in the Indian Trader Regulations and their abili ty to eliminate dual ta\:.ation of tribal energy is not surprising.

D. Intellectual Dishones(\"

Like many of the justices vvho decided Moe and Col/ville. I also attended Harvard Law School. During my time at Harvard. both public and private economic interests continually invited e\eryone to ··shop tax-free in 1'\ev. Hampshire."' yet the Supreme Court' s flawed notion of tribal sovereignty in Cofril!e" denied the tribes the ability to similarly market tax differentials with the surrounding states. ·

When a state government markets a tax incentive. it is considered savv) . When a triba l government markets a tax incentive, it is attacked in court as implementing unfair market practice. has its core sovereignty as a nation challenged, and incurs millions of dollars in legal fees.

When a state regulates an industry more favorably than another state. it" s a competitive advantage. When a tribe regulates 'an industry more favorably than another state. the tribe is attacked in court. has its core sovereignty as a nation challenged. accused of fraud. and incurs millions of dollars in legal fees.

Many states specifically waived and conceded their ability to overreach in the ""Enabling Act"' which brought them into the Union as states. Montana. South Dakota. North Dakota and Washington certainly did: 1

--

. .. States do agree and dec lare that they fo rever disclaim all right and title to .. . all lands lying within said limits owned or held by an) Indian or Indian tribes; .. . and said Indian lands shall rema in under the abso lute jurisdiction and control of the Congress of the United States: ... that no taxes shall be imposed by the States on lands or property therein belonging to or which may hereafte r be purchased by the Linited States or reserved for its

·· Cotton Petroleum Corp. \. '.'.rn \'1cxico. 490 C .S. I 63. 192-193 ( 1989) ' S..:e Jeanne S. Whiteing. T ribal anc.l State raxatio n of' \:atural Resources on Indian Resen ations. 7 Nat.

Resources & Em "t L. Re\. I 7. 59 ( I 993 ). " -+3 9 LLS. 463 (I 979) ·· Sec 4 . The constitutions shall be republican in fo rm. and make no distinction in ci\ ii or political rights on

account of race or color. except as to Indians not taxed. and not be repugnant to the Constitution of the L!ni tcd States anJ the principks of the Declaration of Independence.* * *

That the people inhabiting said proposed States do agree and declare that the; fore\ er disclaim all right anc.l title to ... all lands I; ing \\'ithin said limits O\\ ned or held b) an;. Indian or Indian tribes:

and that until the title thereto shall ha\e been e:-...tinguished b) the L'nited States. the same shall be and remain subject to the disposition of the L'nit..:c.l tatt!S. an<l saic.l ln<lian lands shall remain unc.l..:r the absolute jurisJiction anJ control of the Congress of the lnit..:d States:

*** that no taxes shall b.: imposed b;. the States on lands or propert;. therein bel,mging to or'' hich ma: hen.:after he purchased b) the lniteJ tates or rcscn ed for its use.

But nothing herein. or in the ordinances herein prm idcd for. shall preclude the said States from taxing as othe r lands are taxed an: lands O\\ ned or held b) an: lnJian ''ho has Sc\ crt!d his tribal relations. and has obtained from the l.'ni ted States or from an) pe rson a t itle thereto b) patent or other grant. save and exct!pt such lands as ha\ c been or ma) be granted to an) Indian or Indians umkr an:- act of Congress containing a pro\ ision e-.;empting the lands thus gramcd from ta:\ation: but said ordinances shall provide that a l I such lands shall be exempt from taxation b) said States so long and to such e:\tcnt as such acL of Congress ma; prescribe.

DISCU SIO DRAFT

9-May-1 7] Indians versus the Billion-Dollar Tax rVeei·il 29 use. : ~s

ln its ANPRM Comments, the National Congress of American Indians pointed out the intellectual disconnect created by the Supreme Court:

We also strongly encourage Interior to displace the uncertain balancing test created in White M1. Apache v. Bracker1

" ' because the appl ication of this extremely fact-specific test, and the accretion of incons i·stent holdings it has spawned provides strong incentives for state and local governments to take aggressive positions in taxing transactions and property on Indian reservations, thereby forcing tribes and the Department [of Interior] into costly and frequent litigation to protect their economic rights. The outcome of such litigation is frequently unpredictable. For example, in Bracker. the Supreme Court found that federal regulation of Indian timber is .. comprehensive'" and A rizona' s taxes could not be applied to a non-lndian company working under contract vvith a tribal corporation. \line years later in Collon Petroleum Corp, r . New :\fexico. the Court upheld impos ition of state severance taxes on a non-Indian company extracting o il and gas on J icarilla tribal trust lands. Yet federal regulation of both trust resources. timber and mineral s. is comprehensive. and in both cases resource revenues constituted the largest source o f tribal government revenue . The two cases cannot be reconciled, making it difficult to predict outcomes in balancing test cases.10

"

Instead of the intellectually dishonest Bracker balancing test. both the '\!CAI and thi s article argue that the best approach is complete eradication of the tax weev il and the elimination of double taxation through a careful revision of the Indian Trader regu lations. Not only would this change bolster triba l economies, but it wou ld a lso eliminate the deleterious secondary impac ts disc ussed in the next two subsections.

E. Race-based Taxation of On-Reservation Economic ;!,ctivity

Indian Country is nO\V the only place in the Un ited States where the imposition of tax is a function of race. 1

;1 The state tax weevils target Non-Indians ··for tax assessment ... simply

because they are non-Indians. As a result of this disc riminatory taxation .. .. commerce \\ith [non-Indians] is economica lly burdened and our economic gr0\.\1h frustrated."1

'2 Thus. Indian

Country is the only place in the world where jurisdiction is based on the citizenship of the participants. the citizenship of the land owner. and the type of business. the racial legacy of the ··so Questions ...

As the Lummi chairman eloquently stated. ··Race-based taxation and regulatory schemes have no place in federal lavv and should be prohibited ... " If the new regulations are properly drafted so as to com pletely preempt .all state tax, regulatory. and jurisdictional authority, the full economic potential of Indian Country as a domestic emerging market could final ly be w ithi n

·' The Enabl ing Act. 25 L'. . Statutes at Large. c 180 p 6 76 . . ,i.ig Li .s. 136 ( 1980)

·" NCAI A\!PR'.\! Comments, April 10. 20 17 ., .\foe '" Salish and Kootenai .+25 liS .+63 ( 1976). Coh-ille 1·. fi'ashi11gto11 -l39 L .S. -l63 ( 1979). and Cotton

Petroleum "' .\ ew Jlexico .+90 L. S. l 63 ( l 989 ) all \\ rongl) held that non- Indians entering tribal lands \Yere subject to state taxation because of their race.

•· Lum mi A:--; PR:'v! comments. A pril lO. 20 I 7 " Id.

· orscussro~ DRAFT

30 Indians \'ersus the Billion-Dollar Tax Weeril [9-May-17

reach.

F. Secondmy Impac.ts: Economic Leakage and Access to Capital

Although much of this article has focused on the primary deleterious impact of the tax ·wee\'i l. dual taxation also creates secondary impacts. such as a disastrous level of economic leakage. Alisha Murphy and I prev iously demonstrated '54 how economic leakage operates in Crownpoint. New Mexico. on the eastern edge of the Navajo Nation. Although we identified fractionated land interests and problems with trust land as significant factors in the pervasive problem of economic leakage. dual taxation also has a significant and negative impact on tribal entrepreneurship. Because of dual taxation. it is almost always more expensive for a non-Indian to engage in commerce on a reservation, so tribal communities cannot expand their economic base beyond the on-reservation population. Even when communities can use tourism to attract off-reservation customers. the efforts are th\\ arted by dual taxation. For example. CrO\\ npoint attracts thousands of visitors each year to its monthly 1\avajo rug auctions. yet there are no hotels for vis itors in Crownpoint. nor are there other stores for shopping, in part because 'ew Mexico would impose additional taxation on those ventures and thus make them less profitab le if the entrepreneurs \Vant to be competitive with hotels and stores in Gallup. Nationwide. there are fewer entrepreneurial ventures on reservations and thus fewer options fo r on-reservati on consumers to spend their money on the reservation. The inevitable consequence o f such a lack of consumer spending options on-reservation is leakage.

Most of the economic leakage from Cro\\npoint flows to Gal lup. 'ew Mexico. a border town just outside the Navajo :-lation reservation \\ ith an estimated 22.000 residents.1

" That population nearly triples. however, on the first of each month. Social Security checks are distributed to the tribal elders and veterans on the first of the month. and most tribal members have neither access to a local bank nor sufficient consumer spending options on the reservation. Therefore. most >:avajos end up dri ving for an hour or more to purchase much needed groceries, lumber. auto­parts. and school clothes for children in border tO\rnS such as Ga llup. According to the Cniversity of New Mexico Bureau of Business and Economic Analysis study. significant competition for retail dollars from the Navajo Nation is spread among several surrounding non­Indian communities. such as Gallup. Grants. Farmington. ShO\\ LO\.\·. and 'v\"insl0\\. 1

"'

The 20 14 Dine Po licy Institute Food Sovereignty Reportw found that 60% of respondents needed food items that were not . available locally. 1

'8 The Nav~jo Nation Department of

Economic Development reports that 71 % of Navajo dollars are spent off the reservation. 1" ' and

nearly 80% of tribal consumers purchased their groceries off reservation. 1'·

1 This economic

,;, Clarkson. G .. :Vlurph:--. A .. Tribal Leakage: I IO\\ the Curse o r rrust Land Impedes 1 ribal E<.:onomic Self­'ustainabiliry . 12.2 JOt;R..'\.\l OF LA\\. Eco:-.:o:-.11c~ .-\>D POLICY 3 1 ( 2016)

' L.S. Census Bureau. C .S. Census Q uick Facts. Gallup Cit; . :\c\\ :Vlc:x ico 12010). hnp: qu id.facts.census.gO\· qfd states 35 3528460.html.

Jefferey \! itchell. Gall up \!ainstreet Communit) Economic Asses~mcnt 6 l2006J. ·· D ine Polic) Institute. a Repo11 on the >:m ajo \. ation Food S) stem and the Case to Rebuild a scll~sufficicnt

food s;-stcm for the Dine People 17 (20 1.i ) [hacinafter Food So\ ereignt: Report]. '' Food Son:reignt) Report at 17. • T ri b Choudhal). 2002-2003 Cornprehensi\(: Economic De\ clopmcm Strateg) of the :-\a\ ajo :'\ation 13

(2003 ): >;a;ajo :'\ ation Di\ is ion or De\ elopment. :\a\ ajo Economic Data Bulletin 00 1-021 2 I (20 12 ). http: l111a\·ajobusincss .com, pdf A.ds/>:a' EconomicDataBulleti nf ina!_ 0302 12.pdf.

"'' :-.J,\ V:\JO ~A TIO:-< DI VISIO"'< OF E:C0/\:01\l!C. 'Ji\ V.-\JO l::CONO.\.IJC DATA BlJLLETli\ 00 1-021 2 (20l21.

DISCUSSIO~ DRAFT

9-May- l 7] Indians versus the Billion-Dollar Tax Weevil 31

leakage happens despite the long drives off-reservation to the grocery store. some drives as long as 2-W miles. 1

"' These startling statistics not on ly demonstrate the magnitude of the economic leakage that pervades the Navajo Nation but also explains why the Wal-Mart in Gallup is one of the largest in the world.

Such leakage is not unique to the 1\avajo Nation. but instead is pervasive throughout Indian Country. The former Chairman of the Crow 'ation in Montana suggests that if .. anyone doubts that money flows into Billings [from the Crow Nation,] go to Wal-Mart today after members receive their per-capita check from the tribe. 'We don't call it Wal-Mart. we call it Crow­Mart. .. ,,;.1 The Cro\\' Nation and the six other federa lly recognized tribes in Montana also conducted a study that found that tribal and BIA salaries pump more than $200 mill ion directly into the state economy. and '"since every doll ar turns at least five times in a local economy, the total annual contribution may reach S l bill ion ... "3 When private sector wages. as wel l as goods and services purchased by tribal and BIA entities are considered, the contribution to the state of Montana ··could reach $3 billion to $5 billion a year. '"1

''4

In his book. Reservation Capitalism, Professor Robert Mi ller identifies several studies on leakage from various reservations in addition to the Montana tribal study, such as research on the Zuni Pueblo economy that fo und that 84% of all individual income was spent off reservation."·' Former Commiss ioner of Indian Affa irs, Robert L. Bennett, perhaps best summarized the prob lem of leakage: ··[w]hen a million dol lars is in vested in most communities. it generates approximate ly ten million dollars of cash flow. But in Indian communities. one million dol lars generates just one million dollars of cash tlow ... 1"'·

The tax \Veevil and the overly zealous regulation weev il have also contributed to the lack of available capital on reservation. As I noted in Accredi1ed Indians.161 data from the Native American Lending Study ("·Lending Study'") conducted by the US Treasury Department found that 86% of Indian Country communities do not have a single financ ial institution. Members of l 5% of Ind ian Country communities must travel more than one hundred mites to reach a bank or A T:vt. 1 ·•~ Additionally, half of the financial institutions providing service to Indian Country on ly provide A TMs and personal consumer loans, not business loans. 1r"'

Perhaps because of issues similar to the ··50 Questions:· 11" of the financ ial institutions that are not tribally affiliated but are accessible to reser\'ations, 66% do not offer sta11-up business loans

http: ''na\·ajobusiness.com 'pd f"Ads.';\a\EconomicDataBulletinFinal_ 0302 12.pd f. " FoodSo\ereignr; Report at 17. '·= Beck; Sha;. Croir Leader Owlines Plan for Fuel Plam. BILLli\GS GAZETIE (Dec. 6. 2007).

http: .. billingsgazwc.com/ne\\S 'local/cro\1 -lcader-outlines-pla11-for-fuel-p!ant/a1ticle _ d02077~ l-ecO 1-5 I a6-9596-c2a3bacd2fl f.html.

'•' Ron Selden. F.conomic de1·e/opmen1attitudes11111s1 change. !:\DI.-\'.\ COL:'.\TRY TODAY (June 13. 200 I). ·· fd

Robert :V!ilkr. Resen ation Capitalism 136(2012). hereinafter \.filler. '" Robert L. Bennett. The War on Poverty. in Indian Se! f-Rulc: First Hand Accounts o f" Indian-White Relations

from Roosc\ elt To Reagan 22~ (Kenneth R. Philp ed .. 1986). · Clarkson. G .. Accredited Indians: increasing the Flow of Pri\ are Equit; inro !ndian Countr; as a Domestic

Emerging Ylarh:et. 80 COLORAOO L REV 285 . 291 (2009) 1'" C\.fTY DEV Fr\i fi\STS Fu1'D. US OEP"T OF TREASU RY THE REPORT OF Tl IE :-.:ATIVE AMERICA~ LEl\Dl\"G STL DY

2 ( 200 l ). arailable aT http: \v11'\\ .cdfi fund.gm·· docs, 200 l _ nacta _lcnding_stud; .pdf [hereinafter CD Fr I at l-L Id.

- See Part [I. ,\ supra

DISCUSS TO~ DRAFT

32 Indians versus the Billion-Dollar Tax Weel'if [9-May-I 7

on or near the reservarions. 1•1 Seventy-four percent do not offer business microloans, 71% do not

offer small business loans. and 80% do not offer larger business loans. 1'1

The lack of adequate financial institutions poses a significant challenge for lndian Country businesses when they seek funding. The Lending Study included a financ ial survey, and more than 60% of survey respondents stated that business loans were either .. difficult .. (37%) or .. impossible"' (24%) to obtain. 1

·; The level of difficulty increased for business loans over $100.000. with nearly 70% rating such loans as difficult or impossible to obtain. m

In addition to the Lending Study. the Treasury Department also commissioned a companion study to examine private equity in Indian Country ( .. Equity Study .. ). "" The Equity Study estimated that Indian Country has $ 10 billion in equity capital. '°" which is on ly 0.03% of U.S . total equity: ·- Given the current economic conditions in Indian Country, \Vhich are substantial ly below average for the Un ited States as a whole. Indian Country faces at least a$ I 0 bi llion equity investment gap. 17

' The gap between the current Indian Country equity level and the level that should ex ist based on Indian Country·s size relative to the entire United States is $44 billion. 17

''

This huge private-equity gap will not be fill ed until additional private-equity sources are brought to bear, but the tax weevil" s pernicious dual taxation makes an already difficult investment climate nearly impossib le. ·

Quite simply. entrepreneurship will not thrive in Indian Country and economic leakage will continue until the tax weevil has been eradicated. the zealous regulation \.Veevil has been banished. and the 50 questions have been significantly reduced in complexity.

V. REVISED !:\DIA:-. TRADER REG CLATIO:\S AS A SOLL:TIO:\

If the Indian Commerce Clause and the lndian Trader Act \Vere properly implemented there would only need to be tv•o questions asked instead of 50:

I. ls this business owned by American Indians or a tribal government? 2. Is this commerce \\ith or emanating from Indian Country?

Jurisdiction over commerce issues should be territorial/nation-based. just like every other single governmental jurisdiction in the "vorld. If you cross the border you are in that jurisdiction. period. If it is O\vned and run by that gov~rnment. it is owned by that government. period. No more .. it depends.'"

Second, after firmly establishing federal preemption over tribal commerce, the regulations must firmly defer to tribes to opt-out. The opt-out provision must be flexible and at the discretion of any tribe who feels they. in their own judgment. are ready to control their O\.\ n commerce.

• ";\ :lli\ e American Lending cudy. fi nal Sur. e~ Report. at 21 (a\ ailabk at http: ' \ \ \\\\ .tribal fi nance .org Documents12000 _ nacta _ delo itte _touche _ ti nal_surYe) _ report .pd!)

-: id ., C DFI. supra note 26. at 2. "· Id . • , CO'.\! Pl.EXITY '.\tG'.\tT l:\C & THE JOl-NSO:"\ STRATEGY GROL'P. L S DEP"T OF TREASl,;RY. CDFI FL ":\D '\ATIVE

\MERJCA\ LE:"\Dl'JG STl Dl EQl,ITY 1:-\VESTYIE\'T ROl\'DTABLL A:'-iD RESEARCH REPORT 12001 ). (/l"Gi!ab!e al

http:'1\1 \\- W.cribal ti nance.org1Documents'200 !_ nacca_fina l_ repon_ equi ty.pd f [he rc ina!ler C DFI EQUin ]. " ld at 55. -· Id. at 7. -, Id. at 55 . - hi.

DISCU SIO, DRAFT

9-May- 17] Indians versus the Billion-Doliar Tax Weevil ........ .) .)

Further, there must be a time limit. such as 60 days, within wh ich if the DOI has not acted, the tribal control over commerce is automatical ly approved.

Obviously the tax weevils will object, but solid economic modeling suggests that the ir complaints are invalid. and that in fact. the tax weev ils actually harm the surrounding state economies. As Croman and Taylor riote,

destination effects and regional multiplier impacts that Indian economic activity produces for the off-reservation economy-including in non-Ind ian employment and state tax co llection. Direct, indirect, and induced impacts on gross regional product, employment. and tax col lection have been variously documented in studies of tribal colleges, tri bal timber operations, tr ibal procurement businesses, and tribal casinos. Impact model estimates are confirmed by before-after and adjacent-remote data on economic activ ity . . . . Broad statistical and econometric analyses show· employment gains in nearby counties when an Indian casino opens and income gains in California census tracts near Indian casinos. The economics, anecdotes, models, data, and econometrics corroborate one another: Reser\'ation econom ic gro\\th begets nearby economic gro\.\th.1s''

Given that the de Jure, de facto , ·and de recto cases are clearly in favor of eradicating the tax weevi l infestations and eliminating double taxation, the on ly real question remaining is how.

A. Authority to Fix the Problem

The Constitution specifically delegates to Congress the authority to regu late tribal commerce. Any and al l laws, regulations, state or federal actions, or case law, regarding Indian commerce or Ind ian traders all stem from the Indian Commerce C lause. The --Indian Trader Act" is essentially a cod ification of the Indian Commerce Clause. Congress has not abrogated these rights to states; to the contrary. Congress explicitly delegated this power to the Commissioner of Ind ian Affairs in the Indian Trader Act.

The governmental structure in the Constitution. the agreement in the treaties between the federal government and the tri bal nations, and the agreement between the state governments and the federal governments. each out.li ne that Indian lands \.Vere and "shall remain under the absolute jurisdiction and control of the Congress of the United States ... ,.1

• 1787: Federal Constitution o the US Constitution assigned the power to ·'regulate Commerce ... with the Indian

Tribes,. exc lusively to Congress . Article I, Section 8. Clause 3. • l 866. Treaty - Agreement at fort Berthold

o No delegation of trade or commerce to state governments. Solely a federal relationship. '1'

• I 868: Treaty - Treaty of Ft. Laramie o No delegation of trade or commerce to state governments. Solely a federal

relationship.'"; • 1876: Act - Indian Trader Act

"· Croman and Taylor. supra note_ at 17. ' · Enabling Act of 1889 (25 Stat. 676. chs. 180. 276-28-+. c::nactcd Februar~ 22. 1889! '' Agreement at Fort Bc::rthold. 1866 '' Furt Laramie Trc::at: . 1868

DISCuSSIO\i DRAFT

3-l Indians ve"rsus the Billion-Dollar Tax Wenil [9-May-17

o Congress delegated that .. sole power and authority to appoint traders ... and to make such rules and regulations as it may deem just and proper ..... and ··for the protection of said Indians:· to the ··commissioner of Indian Affairs ... 1" 4

• 1889: Act - The Enabling Act o As a pre-requisite to becoming a state The Act admitting Montana, North Dakota,

South Dakota. and Washington. each state specifically and unequivocally declared that ··Indian lands shall remain under the absolute jurisdiction and control of the Congress of the United States'·1s5

The A:\PRM comments from the ational Congress of American Indians contain an excellent analysis of the Depanment of Interior' s authority to issue regulations that completely preempt state tax laws:

Consistent with traditional administrative law principles. validly promulgated regulations authorized by the agency's organic statute displace conflicting state laws by operation of the Supremacy C lause. because ··[t]he phrase 'Lavvs of the United States· encompasses both federal statutes themselves and federa l regulations that are properly adopted in accordance with statutory authorization ... 18

" The Supreme Court has found that '"a federal agency acting within the scope of its congressiona lly delegated authority may preempt state regulation·· and hence render unenforceable state or local lavvs. 1x· As the Supreme Court stated in Altria Group v. Good. 18

" a federa l law that confli cts with a state law will trump. or ··preempt; · that state lav\: The Supreme Coun has long recognized that state la;,·s that contl ict \vi th federal law are .. \, ithout effect. " 1

"9

Regu latory pre-emption by the Department of Interior can be detected in almost every aspect of natural resources use and development on federal lands in the United States: from surface min ing reclamation requirements in coal fields to protection of wild horses and burros on grazing ranges to the terms of timber sales in federal forest holdings; from the TV A to Grand Coulee Dam, with FERC licensed facilities on nearly every river in the country. The Department of Interior is intimately fam iliar with the doctrine of federal regu lator) pre-emption. and exercises it daily on federal lands throughout the United States. In comparison, revised Indian Trader Regulations will be a modest exercise of regulatory preemption. The Indian Commerce Clause is an enumerated Congressional authority, Ind ian country is land traditionally reserved to federal authority to preserve tribal self-government. and Congress has specifically delegated authority to regulate commerce with Indians on reservati ons to Interior under 25 U.S.C. 262. 1

''"

?\CAI also pointed out that valid!; issued federal regulations can also overturn federal common la\\:

Val idly issued federal regulations may also displace federal common lavv . Common law

'"· 25 L; .s.C. §26 1. 262. ' Enabling Act of 1889 (25 St<lt. 676. chs. 180. 276-28-L enacted r:cbruar; 22. 1889) ' Cit: of :\ew York \'. FCC. 486 LS. 57. 63 ( 1988J. ,- Louisiana Public Sen ice Comm'n '. FCC. 4 76 C. , . 355. 368· 369 ( 1986 ). " 555 U. S. 70 (2008 ). ' '.\lar: land v. Louisiana. 451 l 1. S. 725. 746 1 1981 l ' \:CA I ANPR\11 comments. Apri l 10. 20 17

DISCUSSION DRAFT

9-May- 17] Indians versus the Billion-Dollar Tax Weevil

is a collection of judicial decisi<;>ns that govern matters that do not fall within the realm occupied by Congress. Legislation has primacy over a reas formerly \Vithin the domain of the common la\v.1•

11 Administrative agenc ies, created and empowered by statute to carry out mandates, regularly promulgate regulations that carry the force of laws passed by Congress . Such agencies also have the authority to issue regulations overturning common la\v decisions. Under the balance of power inherent in our system. courts have a limited role only to invalidate regulations only if they exceed statutory authority.1

" "

B. Broad Statutory Authority to Design Federal Preemptive Regulations.

The language in the Indian Trader Act is about as broad, discretionary, and comprehensive as any language in any statute. It clearly delegates to the Commissioner of Indian Affairs the ··pmver" to protect that naturally accompanies the "'duty'· to protect. as discussed in Kagama.

and

The Commissioner of Indian Affairs shall have the sole power and authority to appoint traders to the Indian tribes and to make such ru les and regulations as he may deem just and proper spec ify ing the kind and quantity of goods and the prices at which such goods shall be sold to the lndians.1

"3

Any person Q!siring to trade with the Indians on any Ind ian reservat ion shall, upon establ ishing the fact to the sati sfaction of the Commissioner of Indian Affa irs that he is a proper person to engage in such trade. be perm itted to do so under such rules and regulations as the Commissioner of Indian Affairs may prescri be \for the protection of said J!U"IJ!ns. '9"'.J ·

Congress has continued to ' ·expl!citly·· act in support of tribal commerce and self-suffi ciency, repeating and bolstering the ideals set in the Indian Trader Act. Congress has taken numerous steps to actually enhance and support tribal sovereign commerce and economic development. For example, Congress has clearly expressed its intent for the United States government to encourage and foste r tribal commerce and economic development. In the comprehensive bill, the Native American Business Development Act. Congress made its findings regarding tribal economic development and the ro le of the federal government and federal agencies in that nation-building pursuit very ··explic iC: 1

"''

· See Erie Railroad Co. \ . Tompkins. 30-1 L' .S. 6-1 ( 1938). '"' i'-iCAI A>iPR:\1 comments. April 10. 2017 ·· 'Aug. 15, l 876, ch. 289. § 5, 19 Stat. 200. 25 l".S. Code § 261 PO\\ Cr to appoint traders\\ ith Indians. ·• :\1ar. 3. 190 I, ch. 832, § 1. 31 Stat. I 066: Mar. 3. 1903. ch. 99-1. § 10. 32 Stat. l 009 . .. ; ··Clause 3 of Section 8 of Article I of the l"nitcd States Constitution recogni7es the special relationship

bet\\een the l 'nitcd States and [ndian tribes: beginning in 1970. \\ ith the inauguration b: the i\'ixon Administration of the Indian sclf-dctem1ination era. each Pres ident has reaffirmed the special gO\ ernmcnt-to-gO\ ernmcnt relationship between Indian tri bes and the l "nited States: *** consistent 1\ ith the principles of inherent tri bal sovere ignty and the special relationship bet\\een Indian tribes and the l "n itcd States. Indian tribes retain the light to enter into contracts and agreements to trade free!:. and seek enforcement of treaty and trade rights: Congress has carried out the responsibil it;. of the l "n ited States for the protection and presen a ti on of Indian tribes and the resources of Indian tribes through the endorsement or treaties. and the enactment of other la\\S, including la\>S that prO\·ide for the exercise of administrati\ e authorities: the l" nited States has an obligation to guard and presen e the sovereign!) of Indian tribes in order to foster strong tribal go\ernments. Indian selt:.determination, and economic <;eJt:.sufficienc;. among Indian tribes: ***the l 'nited States has an obligation to assist Indian tri bes \\·ith the creation

DISCUSS IO~ DRAFT

36 Indians versus the Billion-Dollar Tax Wee\1i! [9-May-17

The United States has an obligation to guard and preserve the sovereignty of fndian tribes in o rder to foster strong tribal governments. Indian self-determination. and economic self­suffic iency among Indian tribes;

The United States has an obligation to assist Indian tribes with the creation of appropriate economic and po li tical conditions with respect to Indian land;

The economic success and material well-being of [American Indian] communities depends on the combined e ffo rts of the federal government, tribal governments. the private sector. and individuals. 1

9(,

Furthermore, because of the unique trust relationship with tribes, the Supreme Court has made c lear that a basic cannon of Indian law is that ··ambigu ities in federal la\\' should be construed generously'· in favor of the tribes.1

•11 Therefore. if ambiguities occur in reading the

Indian Trader Act, each ambiguity should be read in favor of the tribes.

C Components of the existing rule that should be kept7

All licenses previously issued under 25 CFR Part l 40 should remain in force but should be placed under the authority of the tribe for subsequent renewal and regulation. Otherwise. given that the current regulations are "ntiquated. paternalistic, and outdated, the India n T rader regulations should be completely revised to address the economic realities of Indian Country in the 21 " century and beyond.

For example, as noted by NCA IED in its comments. the regulations still require federal licensing of all trade on reservation except for trade conducted by ··fullbloods." Of particular concern is the notion that the regulati ons are to serve the .. public interest. .. Furthermore, 25 CFR 140.2 states that the ' ·Pres ident is authorized, whenever in his opinion the public interest may require. to prohibit the introduction of goods. or of any particular artic les. into the country belonging to any Indian tribe. and to direct that all licenses to trade vYith such tribe be revoked _ and all applications therefor rejected. No trader shall , so long as such prohibition exists. trade with any Ind ians of o r for said tribe."' Similarly, 25 CFR l40.22 states that -'Ir is the duty of the superintendent to see that the prices charged by licensed traders are fai r and reasonable."

These paternalistic notions are pervasive throughout the regulations. and thus the best course of action is to develop a new set of regulat ions from scratch. lmpon antly . the primary goal of such regulati ons should be the betterment of Indian Country, even if such interests might conflict with others ' perceptions of the .. public interest."' As the Winnebago Chairman aptly stated, the "public interest"" standard .. has no place in Indian Country: what matters is what is in the best interest of the tribes:· Similarly. the notion that the federal government should be in charge of licensing and regulating Indian traders is both paternalistic and anachronistic. Tribal la\YS and regulations should govern Indian Traders. unless certain tribes opt for federal licensing vvh ile they develop thei r own regulatory systems.

The Citizen Potawatomi has put forth an excellent set of proposed regulations that would

of appropriate economic and pol itical conditions with respect ro Indian lands .... the economic success and material well-being ofNati\e American communities depends on the combined efforts of the Federal Go,·ernmcnt. tribal gm ernments, the pri vate sector. and indi' iduals ......

·• '.'\ative American Business De\elopmcnt Act. 25 L.S.C. ~ -DOl (a). , .. Ramah .Vavajo School Board 1·. B11rea11 of Ren!n11e. -15 8 U.S. 832 ( 1982).

DISCUSSION DRAFT

9-May-17] Indians versus the Billion-Dollar Tax Wee\·il 37

appear to be beneficial not only to tribes in Oklahoma, but throughout Indian Country. 1 ~~ I am encouraged by the consultation process associated with the Al\PRM. and I would hope chat such consultation would continue in the development of new regu lations.

D. How to ensure that persons who conduct trade are reputable?

Tribes have more than established their ability to regulate non-Indian activity, and any paternalistic notions to the conrrary should be el iminated from the regu lations. The updated regulations should reflect that any commercial activity in Indian Country is subject to tribal regulatory authority, tribal jurisd ic.tion. and tribal taxation, and that all state authority and jurisdiction is spec ifically excluded. furthermore , any businesses entering into relationships vvith tribes should be required to consent to tribal jurisdi ction (as is the case wich the Hopi and Zuni reservations pursuant to 25 CFR 1 41. 15. 1~")

As discussed previously, the threat to tribal economies does not come from disreputable traders but rather from overzealous state regulators and tax commissioners. The revised Indian Trader regulations should protect trjbal economic activities from unauthorized and unwarranted state interference. Thus. the regu lations should specifically exclude any and all state tax. regulatory. and jurisdictional authority.

E. What types of trade should be regulated?

All commercial activity should be subject to the Jndian trader regu lations. pursuant to triba l regulation and to the exclusion of any state· s tax. regulation. or jurisdictional authority. The only possible exception should be commercial activity already covered by existing federal and tribal regulation, so long as that activity completely preempts all state tax. regulatory. and jurisdictional authority.

In an idea l world, intertribal commercial ac ti vity would also be exempt from these regulations; however, overzea lous state regu lators and tax commissioners have attempted to interpose themselves \vhere they dQ not belong. As such. the regulations should not apply to intertribal commerce except as necessary to exc lude any and al l state tax. regulatory. and jurisdictiona l authority.

F. How might revisions promote economic \'iability and sustainability?

As several tribes have noted. the Depa11ment of Interior has successfu lly updated regul ations so as to completely preempt all state tax, regu latory, and jurisdictional authority. The recent update to regulations governing leasing (25 CFR Part 162) and rights-of-way on trust lands (25 CF R Part 169) provide a good template for the new Indian trader regulations. Additionally. a goal of the new regulations should be to reassert and reaffirm the principal from Warren Trading Post Company '" Ari::ona Swte Tax Commission. 380 U.S. 685 (1965) that ··congress has taken the bus iness of Ind ian trading on reservations so fully in hand that no room remains for State

'"' The Lummi Nation has similarly suggested a compktely re' iscd set ,)f regulations in an arpendix to the tribal chairman ·s comments. See Lum mi Al\'PR:vt comments. April I 0 . 2017.

· 25 C F'R § 1.t 1.15 Consent t o jurisdiction of Hopi and Zuni tribal courts. As a condition to doing business on the I lopi or th..: /,uni Resen ation each applicant fo r license under this pan shall. in accordance'' ith the constitutions of those tribes. \oluntarily submit the applicant and the applicant's emplo; e<::s or agents to the jurisdiction o f the tribal court for the purpo~c of the adjudication of an: dispute. claim or obligation arising unJcr tribal ordinance relating to commerce carried out b; the licensee.

DISCCSSIO>J DR.A.FT

38 Indians versus the Billion-Dollar Tax Weevil [9-May-17

laws imposing additional burdens upon traders." ' (see also Central \llachinery Company v. Arizona State Tax Commission. 448 U.S. 160 ( 1980)). As the Pokagan Chairman noted.

[T]he preemptive weight of Indian Trader [Act and its associated] Regulations is an important consideration in negotiating a comprehensive Tax Agreement between the Pokagon Band and other Michigan Indian tribes and State of Michigan. Therefore, the Regulations should be updated to maximize preemption of state and local taxes in accordance with federal jurisprudence.

The elimination of double taxation and the reduction of uncertainty regarding state regulation should dramatically increase the amount of capita l available to invest in Indian Country. As [ have written previously. the equity investment gap in Indian Country is $44 billion. and private enterprise in Indian Country needs that capital.""0 In turn , entrepreneurship in Indian Country should increase, which will result in a reduction in economic leakage, all of which benefit not only Indian Country but also the United States as a whole.

As discussed earlier, the damage caused to Ind ian Country by the lack of entrepreneurship and the devastating impact of economic leakage cannot be overstated. As Professor Miller notes. there are three primary reasons why economic leakage in tribal communities leads to disastrous economic situations for Indian reservations. First, the lack of community development:

[L]eads to more poveny and overall lower Indian family incomes. Second, having so fevv employers and jobs avail able in Indian Country leads to hi gh unemployment rates. And, third, the absences of thriving_ economies. characterized by a suffic ient number of private ly and publically owned businesses in Indian Country, adds to the impoverishment of Indians and their fami lies .201

Professor Miller also notes that:

[H]av ing the United States looking over the shoulders of tribal governments and requiring federal approvals of most economic dec isions, and the time it takes to gain these bureaucrat ic approvals, adds enormous costs and inefficiencies to tribal and Ind ian economic endeavors. The ineffi cient and non-business-oriented federal bureaucracy creates serious obstacles for tribal governments and Indians in using trust assets for economic purposes. and for non-Indian companies who want to \Vork in Indian Country.''12

Without entrepreneurship a triba·I economy cannot be self-sustaining. yet tribal members still must meet their basic consumption needs. In an interview with the Farmington Daily Times in 2011 , Navajo Nation president Ben Shel ly. pointed out the need to reverse economic leakage. President Shelly said ··every weekend we come to town, into Farmington, especially the first of the month ... same with Gallup, same with Page, same \.vith Flagstaff"""·' and spend money earned on the reservation. Professor Miller simi larly points out:

[T]he money Indians spend does not circulate on their reservations between various

,. C larkson. G .. Accredited Indians: Increasing the Flow of Pri,:ite Equit) into Indian Countr)- as a Domestic Emerging \il arh:el. 80 COLOR/\ DO L REV 285. 29 l (2009)

, .. : ~!ILLER al 113.

' "' vtlLLER at ~O . ' '" Alysa Landry . :Yarnjos break ground on third casino. FAR.!vlli\GTO'.\ DAILY TI:v!ES (Feb. 26. 201 1 ).

DISCUSSION DRAFT

9-May-l 7] Indians versus the Billion-Dollar Tax Weevil

public and private business opp9rtunities and jobs. Clearly, if there are no businesses on reservations where residents can buy necessary and luxury goods. they \\'ill make those purchases off reservation. The lack. then. of small businesses on reservations leads to many negative economic impacts. 211

"'

39

Like the notion of excluding state law and regulation from tribal lands, the legal origins of the Indian Trader Act are found in Cherokee Nation 1·. Georgia,205 where Chief Justice Marshall wrote that one of the '·peculiar and cardinal distinctions .. :''" of the relationship between Indian tribes and the Un ited States is the notion that tribes were:

domestic dependent nations ... in a state of pupilage. Their relation to the United States resembles that of a ward to his guardian .... They look to our government for protection: rely upon its kindness and its power: appeal to it for relief to their wants; and address the president as their great father. T,hey and their country are considered by foreign nations. as well as by ourselves, as being ... completely under the sovereignty and dominion of the Un ited States.2

1;"

Part of that guardian -\\ard relationship was the notion that the federal government would be the protector of Indian lands. both from avaricious settlers and land spec ulators as well from the Indian himself. It was that sense of paternalism that ultimately led to the disastrous s ituation of dual taxation of economic activity on Indian lands .

Thus. there is a sense of poetic justice in the notion chat the Indian trader regulations. born out of that same sense of paternalism. could potentially be used to benefit Indian Country and strengthen tribal sovereignty in the 21 " century and beyond.

VJ. CO'.\Cl.l'SIO!\

The Indian Trader regulations should be completely revised consistent w ith many of the guiding principles elucidated by the various tribal leaders and organizations that have submitted comments . The new regulat ions should:

1) Advance tribal self-governance and se lf-determination by ensuring that tribes have final decision-making authority on matters related to trade within Indian Country

2) Include both comprehensive standards related to final decis ions made by Indian tribes on matters involving trade \Vithin their fndian country and provis ions regarding state taxation similar to those contained in 25 CFR Part 162 (Leasing) and 25 CFR Part 169 (Rights of Way). as necessary to bolster the preemptive weight o f the Regulations as applied to state and local taxation vvithin Indian counrry.1

"8

''' \!ILL.FR at 114. 205 Cherokee '.\at ion \ '. Georgia. 30 L' .S. ( 5 Peters) 1 ( 183 I ).

' Id ,. - Id. at 17 .

' ' As fUrther noted in the Pokagon comments: (In order] to coumeract the Supreme Cou11 s apparent de\ aluing of the preempti\ e \\eight of the Indian Trader [ActsJ and th.: Regulation. the Regulations should be updated to include prO\iSion~

regarding stare and local taxation similar to those comained in 25 C.F.R. Pan 16'.! (Leasing): and 25 C.F .R. Part 169 (Rig hts of Wa~ ). cc 25 C.F-.R. ! 6'.!.0017: 25 C.F .R. 169. l !. These provisions. \vhich \\'ere structured in pan based upon Warren and Central .'vlachinery . ha\e pro\cn \ aluable in helping to insulate Indian country economic activity from state and local taxation. See Seminole Tribe of Florida 1·. Stranburg. 799 F.3d 13 2-1- ( 11 th Cir. 2015) (noting: ··[T]he extensi\ e and

.Dr CCSSfO>; DR.A.FT

40 Indians versus the Billion-Dollar Tac Weevil [9-May- 17

3) Require all persons engaging in trade w ithin Indian Country to comply \vith all tribal laws and regulatory authorities that have been approved by the Secretary of Interior.

4) Declare that all persons engaging in trade within Indian Country are subject to the laws and regulations of the tribe and are subject to the jurisdiction of the Tribal Court.

5) Restore the exclusive Constitutional authority of the Congress to regulate trade in Indian Country and to ensure the protective authority of the Trader Statutes that existed as recently as l 9S0'0

"

6) Eliminate regulatory burdens that are not necessary for the Department to meet its statutory and trust responsibilities and include provisions supporting tribes' sovereign rights"'"

7) Recognize tribal preference in employment and contracting'j 1

* * *

exclusive regulation of Jndian leasing - as e\·idcnccd by federal la\v and regulations - precludes rhe imposition of state [rental] taxes on that activity. "J.

See Pokagon ANPR\1 comments. April l 0. 20 17. ' ''" As the Lum mi comments noted. ··Congress has ne\·er consented to the broad authority of outside

gm ernm ents to regulate trade in Indian Country and the Department should revise Part 140 to conform\\ ith the Constitution and Congressional authorization:· See Lum mi A:\PR:Vl comments. April JO. 20 l 7.

" ' It is \\01th noting that the comments from the :\at ional Federation of Independent Business also calls for the reduction or elim ination of burdensome regulation in Indian Country (see .\T!B A'\IPR :VI comments. April 10. 201 7). howe\·er, I disagree with their recommendation that the Indian T rader Act be repealed in the absence of an alternative that excllldes any and all state tax. regL1latory. and jurisdictional authorit; over activit; in Indian Country. (Id.) S ince the \iFIB did not substantive!; address the dual taxation issue. perhaps they \~ill re\ ise their position after reviewing the comments from tribal leaders.

" As specified in 25 CFR Part 162 Tribes have a sovereign interest in achieving and maintaining economic self-sllfficicncy. and the federal goYernment has an established policy of encouraging tribal sel f-goYernance and tribal economic self-sufficienc). A tribe·s speci fic preference in accord with tribal la\\ ensures that the economic development of a tr ibc·s land inures to the tribe and its members. T ribal So\·ereign authority . which carri es \v ith it the r ight to exclude non-members, allows the tribe to regL1late economic relationships on its reservation between itself and non-members.

DISC USS ION DRAFT