Ninth Circuit Determines Tribal Company Could Be Topic To State Taxation Legal guidelines – Tax

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

07 July 2021

Snell & Wilmer

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Co-author by Kelsey Haake1

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

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.


1. Kelsey Haake is a 2021 summer associate at Snell &
Wilmer and is a 2023 JD candidate at the University of Pennsylvania
Carey School of Law.

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