Tribal Tax Codes are typically designed to impose tax on only those on-reservation transactions that the state is constitutionally prohibited from taxing. That way, a nonmember customer is not subjected to both tribal and state taxes on his on-reservation purchases. Determining which on-reservation transactions may be taxed by the state can be challenging.
However, the Eighth Circuit’s recent decision in Flandreau Santee Sioux Tribe v. Noem, 938 F.3d 928 (8th Cir. 2019), simplifies that determination for tribes engaged in gaming. While state taxation of alcohol, food, hotel rooms, and merchandise sold at the tribe’s casino is not expressly prohibited by the Indian Gaming Regulatory Act (IGRA), 25 U.S.C. §§ 2701-2721, the Eighth Circuit held that IGRA represents a comprehensive, exclusive, and pervasive regulation of Indian gaming, and a state tax on the sale of amenities that contribute to the economic success of the gaming activities is preempted under White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980).
In determining whether the state can apply its tax to an on-reservation transaction, Bracker requires the court to balance the competing federal, state, and tribal interests. However, where the federal regulation of an activity is comprehensive, exclusive, and pervasive, the state’s intrusion into the federal regulatory scheme cannot be justified by the state’s generalized interest in raising revenues. According to Bracker, a state tax that interferes or is incompatible with the goals of such comprehensive, exclusive, and pervasive regulation is preempted unless it serves a “specific, legitimate regulatory interest” or is “narrowly tailored” to compensate the state for “governmental functions” it performs for those “upon whom the taxes fall” in connection with the activity being taxed. A state tax of general application, such as a state sales or use tax, cannot satisfy the “narrowly tailored” requirement...
