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Saturday, June 15, 2024 | Back issues
Courthouse News Service Courthouse News Service

Big Win for Sioux Challenge to State Tax

FLANDREAU, S.D.(CN) - A federal judge refused South Dakota's request to dismiss the Santee Sioux Tribe's challenge to the state's tax on alcohol sales at the tribe's casino.

At the heart of the dispute is whether it is legal for South Dakota to impose a "use tax" on alcohol sold to non-Indians at the Flandreau Santee Sioux Tribe's Royal River Casino establishments, which include a hotel, bowling alley, and convenience store.

The tribe claims that imposition of a state tax on alcohol sold at the casino, which is on reservation land, violates the Indian Gaming Regulatory Act and impedes tribal sovereignty.

U.S. District Judge Lawrence Piersol on Friday denied the state's motions for summary judgment and dismissal.

Article 1 Section 8 of the Constitution gave the federal government the power to regulate commerce with Indian tribes.

The Indian Gaming Regulatory Act of 1988 protects gambling as a revenue source for tribes to foster economic development.

But the Act says nothing about whether alcohol sold at casinos on reservation land is subject to state tax. Tribes and states must create a "compact" to regulate gambling on tribal land.

South Dakota established such a compact with the Flandreau Santee Sioux Tribe in 1990. However, it, too, is silent on the issue of an alcohol tax.

The disagreement came to a head in 2009 and 2010, when the state declined to renew the tribe's liquor license for its gaming facilities unless the tribe remitted to the state a tax on alcohol sold to non-Indians.

The tribe refused, and requested a hearing before the South Dakota Office of Hearing Examiners, according to Judge Piersol's 33-page ruling.

The tribe filed a lawsuit in Federal Court in 2014 while the Hearing Examiner's judgment was pending.

The Hearing Examiner ruled for the state, and declared that the tribe must hand over the tax to get its liquor license renewed.

The state hoped that would be the end of it, but Piersol ruled that the tribe still has a case.

"Ultimately, the administrative process in issue was a state executive procedure meant to assess whether South Dakota's alcohol licensing procedure had been violated by the Tribe and whether the Tribe should be reissued licensure," Piersol wrote.

"The federal action, in contrast, calls into question fundamental principles regarding state taxation on reservation land, federal preemption law, the operation of IGRA, and 28 U.S.C. § 1362. Such questions appear to have been outside the parameters of the South Dakota Department of Revenue hearing process."

What remains for the court to decide is whether the sale of alcohol at casinos is tied closely enough to gaming to fall under the purview of IGRA at all.

"The Tribe fails to cite to case law, and the Court is not aware of any, that explicitly holds that goods and services sold at a casino directly relates [sic] to gaming," Piersol wrote. "No court has ever held that alcohol is subject to the IGRA."

Piersol appeared sympathetic to the tribe's arguments: "Alcohol sales and consumption is [sic] commonly associated with gambling ... and, as the Tribe correctly argues, surely then alcohol availability within a casino advances the casino's, and therefore the Tribe's, interests. Such advancement of tribal interests by way of casino operations and revenue falls squarely within the IGRA's purpose of furthering tribal progress."

He added: "Because this is a tax being imposed on Indian land, the interests of the Tribe, the State, and the federal government all must be weighed in order to determine if the State's taxes are permissible."

The state argued that by applying for a liquor license, the Tribe consented to the accompanying taxation.

Piersol disagreed.

"The Tribe's opposition is twofold: First, states have no authority to convert invalid on-reservation taxes into valid taxes by merely conditioning alcohol licensure on paying the taxes. Second, the Tribe asserts that a state's power to regulate alcohol within its borders does not empower the state to attach tax conditions to licensures that have no nexus to alcohol regulation."

Piersol denied all eight of the state's claims for dismissal or summary judgment.

Not surprisingly, the tribe's attorney, Ron Parsons, endorsed the ruling.

"The Flandreau Santee Sioux Tribe is pleased by the district court's decision and looks forward to presenting its case on the merits," Parsons told Courthouse News.

The state's attorney, Kirsten Jasper, declined comment.

For now, the tribe is allowed to continue selling alcohol at its casino under its old license pending the outcome of these proceedings.

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