Ninth Circuit Determines Tribal Corporation May Be Subject to State Taxation Laws

By Kelsey Haake,¹ Jay M. Jetter and Heidi McNeil Staudenmaier

On June 21, the U.S. Court of Appeals for the Ninth Circuit held that the district court properly dismissed the claims of Big Sandy Rancheria Enterprises (“Big Sandy”), a federally chartered tribal corporation of the Western Mono Indians, against the Attorney General of California and the California Department of Tax and Fee Administration. Big Sandy, a wholesale cigarette distributor, asserted that California’s cigarette excise tax did not apply to its wholesale cigarette distribution business when distributed directly to other Indian tribes. Big Sandy also claimed that because it was a tribally owned and operated company, California’s regulations surrounding cigarette distributions and the licensing, reporting and recordkeeping requirements did not apply to it and are preempted by the federal Indian Trader Statutes.

The district court dismissed Big Sandy’s tax claim on jurisdictional grounds under the Tax Injunction Act, 28 U.S.C., § 1341. This Act prohibits “district courts from enjoin[ing], suspend[ing] or restrain[ing] the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” While there is an exception to the Act under 28 U.S.C. § 1362, which grants federal district court jurisdiction over claims brought by Indian tribes or bands, the district court held because Big Sandy is a federally chartered corporation rather than an Indian tribe, the exception does not apply. Additionally, the district court dismissed the remaining claims that other California regulations governing cigarette distribution were preempted by tribal sovereignty and the federal Indian Trader Statutes because Big Sandy conducts some of its business off its reservation.

Big Sandy appealed, and the Ninth Circuit concluded that the district court correctly dismissed the tax claim for lack of jurisdiction under the Tax Injunction Act and “properly declined to apply the Indian tribe’s exception to the Tax Injunction Act’s jurisdictional bar.” Under the decision, since the tribe waived the corporation’s tribal sovereign immunity when it created the corporation under Section 17 of the Indian Reorganization Act, the corporation is not subject to the exception in the Tax Injunction Act.

The Ninth Circuit further disagreed with the tribe’s claim it was preempted from the federal Indian Traders Statutes because Big Sandy conducts business outside of its reservation. Big Sandy also argued California’s regulations infringed on its tribal self-governance. However, the Ninth Circuit dismissed this claim, holding that Big Sandy “fails to plausibly allege that California hinders the tribe’s ability to govern its territory and members by prohibiting the Corporation, an unlicensed distributor, from selling off-directory cigarettes outside the Rancheria.” The Ninth Circuit affirmed that tribe-to-tribe sales made outside of their tribal territory constituted an “off-reservation activity” and was subject to non-discriminatory state laws. 

In sum, the Ninth Circuit agreed that the federal courts do not have subject matter jurisdiction because Big Sandy is not a tribe but a corporation. The court concluded that the case needs to go through the proper channels of being heard in the California state court due to the Tax Injunction Act. Thus, while the court did not expressly rule Big Sandy is subject to the California state cigarette taxes and regulations, the case will now go back to the California state court for further proceedings, in light of the Ninth Circuit’s rulings.