Ramah Navajo Sch. Bd., Inc. v. Bureau of Rev., 458 U.S. 832 (1982)

JUSTICE REHNQUIST, with whom JUSTICE WHITE and JUSTICE STEVENS join, dissenting.

The Court today reproves the New Mexico Court of Appeals for failing to heed our precedents, much as a disappointed parent would rebuke a wayward child.{1} I do not think the Court of Appeals deserves the rebuke; it seems to me that the state court applied our precedents at least as faithfully, and coherently, as the Court itself. In its desire to reach a result that it evidently finds quite salutary as a matter of policy, the Court finds "indistinguishable" a case that is considerably off the mark, and it finds "pervasively regulated" an activity that is largely free of federal regulation. It ultimately accords a dependent Indian tribal organization greater tax immunity than it accorded the sovereignty of the United States a short three months ago in a case involving the precise state taxes at issue here.

I

The general question presented by this case has occupied the Court many times in the recent past, and seems destined to demand its attention over and over again until the Court sees fit to articulate, and follow, a consistent and predictable rule of law. This insistent question concerns the extent to which the States can tax economic activity on Indian reservations within their borders. I believe the dominant trend of our cases is toward treating the scope of reservation immunity from nondiscriminatory state taxation as a question of preemption, ultimately dependent on congressional intent. In such a framework, the tradition of Indian sovereignty stands as an independent barrier to discriminatory taxes, and otherwise serves only as a guide to the ascertainment of the congressional will.

The principles announced in White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980), are consistent with this trend.{2} Thus, the Court in White Mountain recognized federal preemption as a principal barrier to the assertion of state regulatory authority over tribal reservations and members, id. at 142, and specifically invalidated the challenged assertion of taxing authority on that basis, id. at 148, 151, n. 15. The Court also recognized that, in some instances, a state law may be invalid because it infringes "`the right of reservation Indians to make their own laws and be ruled by them.’" Id. at 142 (quoting Williams v. Lee, 358 U.S. 217, 220 (1959)). But apart from those rare instances in which the State attempts to interfere with the residual sovereignty of a tribe to govern its own members, the "tradition of tribal sovereignty" merely provides a "backdrop" against which the preemptive effect of federal statutes or treaties must be assessed. See 448 U.S. at 143.

The Court today pays homage to these principles, but then promptly bestows its favors on a new analytical framework in which the extent of economic burden on the tribe, and not the preemptive effect of federal regulations, appears to be the paramount consideration. Such a shift is necessary, for the Court’s purported reliance on White Mountain will not withstand even superficial scrutiny.

II

The Court declares that "[t]his case is indistinguishable in all relevant respects from White Mountain." Ante at 839. This statement is quite inaccurate. White Mountain involved an attempt by the State of Arizona to apply its motor carrier license and use fuel taxes to the logging operations of a non-Indian company doing business exclusively on the reservation. The Court concluded that application of the State’s taxes was inconsistent with the pervasive federal regulation of the very activity subject to taxation. The Court repeatedly emphasized the comprehensiveness of the regulations on which it relied.

Under these regulations, the Bureau of Indian Affairs exercises literally daily supervision over the harvesting and management of tribal timber. In the present case, contracts between [the tribal organization] and [the non-Indian contractor] must be approved by the Bureau; indeed, the record shows that some of those contracts were drafted by employees of the Federal Government. Bureau employees regulate the cutting, hauling, and marking of timber by [the tribal organization and the contractor]. The Bureau decides such matters as how much timber will be cut, which trees will be felled, which roads are to be used, which hauling equipment [the contractor] should employ, the speeds at which logging equipment may travel, and the width, length, height, and weight of loads.

The Secretary has also promulgated detailed regulations governing the roads developed by the Bureau of Indian Affairs. . . . On the Fort Apache Reservation, the Forestry Department of the Bureau has required [the tribal organization] and its contractors . . . to repair and maintain existing Bureau and tribal roads and in some cases to construct new logging roads. . . . A high percentage of [the contractor’s] receipts are expended for those purposes, and it has maintained separate personnel and equipment to carry out a variety of tasks relating to road maintenance.

448 U.S. at 147-148.

But the Court in White Mountain did not merely review the comprehensiveness of the regulations and conclude, ipso facto, that state taxes on the logging operations were preempted. It found, with considerable attention to specifics, that "the assessment of state taxes would obstruct federal policies." Id. at 148.

At the most general level, the taxes would threaten the overriding federal objective of guaranteeing Indians that they will "receive . . . the benefit of whatever profit [the forest] is capable of yielding. . . ." 25 CFR § 141.3(a)(3) (1979). Underlying the federal regulatory program rests a policy of assuring that the profits derived from timber sales will inure to the benefit of the Tribe subject only to administrative expenses incurred by the Federal Government. . . .

In addition, the taxes would undermine the Secretary’s ability to make the wide range of determinations committed to his authority concerning the setting of fees and rates with respect to the harvesting and sale of tribal timber. The Secretary reviews and approves the terms of the Tribe’s agreements with its contractors, sets fees for services rendered to the Tribe by the Federal Government, and determines stumpage rates for timber to be paid to the Tribe. Most notably, in reviewing or writing the terms of the contracts between [the tribal organization] and its contractors, federal agents must predict the amount and determine the proper allocation of all business expenses, including fuel costs. The assessment of state taxes would throw additional factors into the federal calculus, reducing tribal revenues and diminishing the profitability of the enterprise for potential contractors.

Finally, the imposition of state taxes would adversely affect the Tribe’s ability to comply with the sustained yield management policies imposed by federal law.

Id. at 149-150.

As noted, the Court thinks that this case is "indistinguishable in all relevant respects from White Mountain." Ante at 839. It finds that "[f]ederal regulation of the construction and financing of Indian educational institutions is both comprehensive and pervasive." Ibid. But the regulations on which the Court relies do not regulate school construction, which is the activity taxed. They merely detail procedures by which tribes may apply for federal funds in order to carry out school construction.

The purpose of the regulations, which the Court quotes only in part, ante at 840-841,

is to give the application and approval process for obtaining a contract or services from the Bureau for school construction for previously private schools now controlled and operated by tribes or tribally approved Indian organizations. . . .

25 CFR § 274.1 (1981) (emphasis added). The regulations that follow explain the procedures by which tribes may obtain, complete, and file application forms for federal funding or services. §§ 274.12-274.18. As the Court observes, ante at 841, the regulations also authorize the BIA to approve or disapprove plans and specifications for construction as well as construction contracts let by the tribe, which are treated as subcontracts of the funding contract between the tribe and the BIA. The contracts are required to contain a clause establishing a hiring preference for Indians. § 274.38. And the BIA is given access to the tribe’s records for auditing purposes. § 274.41. That is the extent of the regulations.

In this case the BIA "contracted" with the School Board in order to convey federal funds for the construction project. It also approved the Board’s construction "subcontract" with the construction contractor. It played no role in the selection of the contractor, and it played no role in regulating or supervising the actual construction of the school. The Court concludes that this scheme, which is little more than a grant application process, "is at least as comprehensive as the federal scheme found to be preemptive in White Mountain." Ante at 841. I simply cannot agree.

More important, the Court concludes in the very next sentence that

[t]he direction and supervision provided by the Federal Government for the construction of Indian schools leaves no room for the additional burden sought to be imposed by the State through its taxation of the gross receipts paid to Lembke by the Board.

Ante at 841-842. This statement constitutes the sum total of the Court’s preemption analysis in this case. In White Mountain, the Court engaged in a detailed examination of the extent to which state taxes would interfere both with the Secretary’s ability to carry out his congressional mandate and with the tribe’s ability to carry out federal policy. In the place of such careful analysis, the Court today relies on ipse dixit. It does so because there is no realistic basis for concluding that the State’s taxes would interfere with a "pervasive" regulatory scheme. The BIA simply does not regulate the construction activity which the State seeks to tax. It provides federal money to eligible tribes and tribal organizations and it establishes a contract approval and auditing mechanism as a means of attempting to ensure that the money is put to the use for which it is earmarked.{3}

III

A careful reading of the Court’s opinion demonstrates that the single determinative factor in its judgment is the fact that the challenged state taxes have increased the financial burden of constructing a tribal school. Whether the federal regulations are detailed and comprehensive or largely a matter of bookkeeping is an irrelevancy, for the Court concludes that the tax burden

impedes the clearly expressed federal interest in promoting the "quality and quantity" of educational opportunities for Indians by depleting the funds available for the construction of Indian schools.

Ante at 842 (emphasis added). The Court recognizes that the legal incidence of the tax is on the non-Indian contractor, but asserts that,

in White Mountain . . . we found it significant that the economic burden of the asserted taxes would ultimately fall on the Tribe, even though the legal incidence of the tax was on the non-Indian logging company.

Ante at 844, n. 8.

The Court in White Mountain did indeed note that "the economic burden of the asserted taxes will ultimately fall on the Tribe." 448 U.S. at 151. But in a footnote immediately following that sentence, which is today ignored, the Court declared:

Of course, the fact that the economic burden of the tax falls on the Tribe does not, by itself, mean that the tax is preempted, as Moe v. Salish & Kootenai Tribes, 425 U.S. 463 (1976), makes clear. Our decision today is based on the preemptive effect of the comprehensive federal regulatory scheme, which . . . leaves no room for the additional burdens sought to be imposed by state law.

Id. at 151, n. 15.

Despite its references to the supposed "comprehensive and pervasive" regulatory scheme in this case, the Court clearly has chosen to bar the State from taxing Lembke’s gross receipts principally because the tax imposes an indirect economic burden on the tribal organization. As the Court in White Mountain recognized, our precedents undeniably view that as an insufficient basis for the recognition of an Indian tax immunity. See Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134, 156 (1980) ("Washington does not infringe the right of reservation Indians to `make their own laws and be ruled by them,’ . . . merely because the result of imposing its taxes will be to deprive the Tribes of revenues which they currently are receiving"); Moe v. Salish & Kootenai Tribes, 425 U.S. 463, 481-482 (1976) (upholding tax on cigarette sales from Indians to non-Indians because the legal incidence of the tax was on the consumer); Mescalero Apache Tribe v. Jones, 411 U.S. 145, 156-157 (1973) (refusing to imply tax immunity despite economic burden on tribal enterprise).{4} Even under the modified form of preemption doctrine applicable to state regulation of reservation activities, there must be some affirmative indication that Congress did not intend the State to exercise the sovereign power challenged in the suit. Until today, the mere fact that the asserted power will impose an economic burden on a tribal endeavor has not provided that affirmative indication.

I do not disagree with the Court’s judgment that congressional enactments such as the Indian Financing Act and the Indian Self-Determination and Education Assistance Act embody a federal policy encouraging the development of Indian-controlled educational institutions. But it is a considerable leap to infer from that policy the independent principle that all state laws which might increase the cost of such an endeavor are to be considered null and void. It is perfectly conceivable that Congress favored Indian education, but also contemplated that all costs of obtaining that end would be paid in a normal fashion. State taxes are as much a normal cost of school construction as the cost of cement and labor. The cost of taxes was included in the bids submitted to the Board by the construction contractors, and it apparently was also included in the funding requests submitted by the Board to Congress. The Board cannot be faulted for attempting to stretch its federal construction funds as far as possible, but that is a woefully inadequate basis for interfering with the sovereign prerogatives of the State of New Mexico.

IV

A short three months ago, this Court considered whether the State of New Mexico could impose its gross receipts and compensating use taxes on private contractors that conduct business with the Federal Government. We concluded that tax immunity was appropriate in only one circumstance:

when the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned.

United States v. New Mexico, 455 U.S. 720, 735 (1982). In reaching this conclusion, we held that

immunity may not be conferred simply because the tax has an effect on the United States, or even because the Federal Government shoulders the entire economic burden of the levy.

Id. at 734. If the legal incidence of the tax is on the contractor, it is to be considered valid, absent specific congressional action, as long as "the contractors can realistically be considered entities independent of the United States." Id. at 738.{5}

In this case, as in United States v. New Mexico, the legal incidence of the New Mexico tax is on the private contractor, not on the entity whose status might be the source of a tax immunity. And, as in United States v. New Mexico, it is evident that Lembke is a separate taxable entity completely independent of the tribal school board. Were the tax immunity of the Tribe no greater than that of the United States, it seems plain that New Mexico’s tax would have to be upheld as applied to the gross receipts of the non-Indian contractor. But the Court reaches a different conclusion because it finds that the tax imposes an economic burden on the Tribe’s effort to build a school with federal funds. Thus, the Court accords an Indian Tribe, whose sovereignty "exists only at the sufferance of Congress and is subject to complete defeasance," United States v. Wheeler, 435 U.S. 313, 323 (1978), greater immunity from state taxes than is enjoyed by the sovereignty of the United States on whom it is dependent.{6}

For these reasons, I dissent from the Court’s judgment.

1.

Although we must admit our disappointment that the courts below apparently gave short shrift to this principle and to our precedents in this area, we cannot and do not presume that state courts will not follow both the letter and the spirit of our decisions in the future.

Ante at 846.

2. Nevertheless, the Solicitor General has again suggested that on-reservation activities affecting resident tribes be considered presumptively beyond the reach of state law by operation of the "principle of tribal sovereignty." See Brief for United States as Amicus Curiae 17-24. The same suggestion was urged, and rejected, in White Mountain. It has proved no more appealing in this case.

3. The Court ignores other distinctions between this case and White Mountain. For example, the logging contractor in the latter case, although a non-Indian corporation, operated exclusively to harvest timber on the reservation; it conducted no off-reservation activities whatsoever. See 448 U.S. at 139. The contractor in this case is a general building contractor doing business throughout the State of New Mexico, and enjoying state services to the same extent as any other commercial enterprise in New Mexico. The Court dismisses this factor with the statement that,

[p]resumably, the state tax revenues derived from Lembke’s off-reservation business activities are adequate to reimburse the State for the services it provides to Lembke.

Ante at 844, n. 9. The Court’s "presumptions," however, are no substitute for the considered judgment of the state taxing authority. Indeed, in assessing the validity of a state tax, the Court has previously recognized that the State’s interests are strongest when the taxpayer is the recipient of state services. See Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134, 15 (1980). To the extent presumptions are relevant, the Court has inverted the one that ought to apply.

Another distinction is also relevant. The activity taxed in White Mountain was the exploitation of natural resources located on the reservation and devoted to the beneficial use and enjoyment of reservation Indians. Indeed, over 90% of the total profits generated by tribal enterprises were derived from the Tribe’s logging operations. 448 U.S. at 138. In this case, the state taxes diminish not the income generated by the Tribe for its own preservation and welfare, but federal funds appropriated by Congress for the purpose of school construction. No tribal funds are devoted to this endeavor, and congressional appropriations were based on funding requests that included the gross receipts tax as part of the estimated construction cost.

4. In other areas of tax immunity, the Court has steadfastly refused to assess the validity of a tax by reference to the economic burdens it imposes if those burdens are nondiscriminatory and comport with due process. See United States v. New Mexico, 455 U.S. 720 (1982) (state taxation of federal contractors); United States v. County of Fresno, 429 U.S. 452 (1977) (state taxation of Federal Government); New York v. United States, 326 U.S. 572 (1946) (federal taxation of state government); Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976) (state taxation of imports and exports).

5. We recognized one possible exception to this general rule:

In the case of a sales tax . . . , it is arguable that an entity serving as a federal procurement agent can be so closely associated with the Government, and so lack an independent role in the purchase, as to make the sale -- in both a real and a symbolic sense -- a sale to the United States, even though the purchasing agent has not otherwise been incorporated into the Government structure.

455 U.S. at 742. In this case, there is no basis for arguing that Lembke has acted merely as a purchasing agent for the Board or the BIA.

6. Of course, the Court purports to rest its decision on the preemptive effect of federal law. But the immunity of federal contractors from state taxes is also dependent on "generalized notions of federal supremacy." United States v. New Mexico, supra, at 730. The critical question, both in United States v. New Mexico and in this case, is what factors will the Court examine to determine whether the State has exceeded limits imposed by the Supremacy Clause and by Congress. I think it is evident that, in the area of federal tax immunity, the Court has required evidence of more than mere economic burdens before it will invalidate a state tax as applied. As this case demonstrates, tribal tax immunity may be invoked on no greater showing than the fact of economic burdens on a federally supported tribal endeavor. Since both immunities derive from precisely the same source -- the supremacy of federal law -- I find the Court’s decision today inexplicable.

With the abandonment of the notion that the economic -- as opposed to the legal -- incidence of the tax is relevant, it becomes difficult to maintain that federal tax immunity is designed to insulate federal operations from the effects of state taxation.

United States v. New Mexico, supra, at 735, n. 11.