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Tuesday, May 14, 2024 | Back issues
Courthouse News Service Courthouse News Service

Calif. Tax Deal with Gaming Indians Voided

(CN) - California cannot force gaming Indian tribes to drop a portion of their revenue into the state's general coffers in exchange for more slot machines and other benefits because that constitutes taxation, the 9th Circuit ruled.

The state of California and the San Diego-based Rincon Band of Luiseno Mission Indians took their concerns to district court after reaching an impasse over how the tribe's revenue would be dispersed in state funds.

Tribes currently give a percentage of their revenue to the state to help fund programs that address gambling addiction and other gaming-related community issues.

The district court ruled that the state was acting in bad faith and in violation of federal Indian gaming laws when it hammered out the deal to give perks to the tribes in exchange for general fund money.

Specifically, the court characterized the state's repeated insistence that Rincon pay a portion of its net revenues into the state's general fund as an attempt to impose a tax.

On appeal, a 2-1 majority agreed with the district court and the tribe that Governor Schwarzenegger and the state acted in bad faith by attempting to force the tribe to put its money into the state's general fund in exchange for more slot machines and other devices.

In its negotiations, the state demanded that Rincon agree to pay into the general fund 10 to 15 percent of its annual net win, and up to 25 percent of its revenue gained through any new devices.

"No amount of semantic sophistry can undermine the obvious: a non-negotiable mandatory payment of 10 percent of net profits into the state treasury for unrestricted use yields public revenue, and is a 'tax,'" Judge Milan Smith wrote for the majority.

In his dissent, Judge Jay Bybee expressed concerns that, "If the majority is correct, then there is nothing for California to do but authorize whatever [gaming] devices the band wants. The band wins. Everything."

Judge Bybee also concluded that "the result is going to be chaos as tribe after tribe seeks to reopen negotiations concluded and duly approved."

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