OKLAHOMA TAX COMMISSION v. CHICKASAW NATION
Legal provision: 7 Stat. 333
Argument of Charles A. Rothfeld
Chief Justice Rehnquist: We'll hear argument now in Number 94-777... 771, pardon me, the Oklahoma Tax Commission v. Chickasaw Nation.
Mr. Rothfeld: Thank you, Mr. Chief Justice, and may it please the Court:
This case concerns two Oklahoma taxes, an excise tax on motor fuel and the State income tax, that the court of appeals held could not be applied to an Indian tribe or to certain of its members.
Now, I'll talk about those taxes in turn, starting with the one on motor fuel.
In holding the tax invalid, the court of appeals applied what it thought to be a per se rule that precludes the imposition of any State tax whose legal incidence falls upon an Indian tribe unless that tax has been expressly authorized by Congress.
Now, because the Court found as a matter of State law that the legal incidence of the tax falls upon the retailer of the fuel, and because the retailers in this case are tribally owned convenience stores located on Federal trust land in Indian country, the court of appeals applied its per se rule to strike down the tax.
We think there are three things wrong with this decision.
First, Congress has expressly authorized this tax.
Second, the court of appeals, even apart from the congressional action, should not have applied a per se rule in the circumstances of this case, and third, the court of appeals should not have found the legal incidence of the tax to fall upon the retailer of the motor fuel.
First, Congress has, by statute, expressly authorized the very tax that the State has imposed in this case.
The Hayden-Cartwright Act provides in so many words that States may impose taxes on motor fuel sold on United States military or other reservations.
Unknown Speaker: Was this argument raised before the court of appeals, Mr. Rothfeld?
Mr. Rothfeld: It was not, Your Honor, but I think that should not preclude its consideration here.
This is not a new claim or a new issue that's being injected into the case at this point.
This is simply additional authority for what has been the Tax Commission's consistent claim, and that claim is that the tax here is not preempted.
I think to consider that sort of preemption claim the Court typically in Indian preemption cases looks upon the entire body of Federal legislation and certainly the Hayden-Cartwright Act is legislation that deals specifically with the question of whether Congress intended a tax of this kind to be preempted.
Unknown Speaker: Mr. Rothfeld, most of these gas stations, I understand it, are in Indian territory but not on the reservation.
I mean, the most this statute would show is that the reservation was... is excluded.
Mr. Rothfeld: Well, I think, Your Honor, there was no doubt about the meaning of the word "reservation" at the time the act was written.
Unknown Speaker: It means Indian territory?
Mr. Rothfeld: --Well, I think that this Court had said some years before in United States v. Celestine that the term "reservation" is used in the land law to refer to any body of land, large or small, that has been reserved from sale by Congress for any purpose, and that--
Unknown Speaker: In the land law, but this is not land law.
When you say, United States military or other reservation, I hardly think that that refers to Indian territory, apart from Indian reservations.
Mr. Rothfeld: --Well, these--
Unknown Speaker: At least, it's highly questionable that it does.
That's even assuming that it covers Indian reservations at all.
Mr. Rothfeld: --Well, I think that it clearly does cover Indian reservations.
As I say, the Court had defined the term "reservation" to include specifically Indian reservations.
As to whether these particular lands are covered by that, these are Federal trust lands, clearly lands that have been reserved from sale by Congress, and as the Court said in Celestine, the general use of the term is to refer to lands that have been reserved for any purpose.
Unknown Speaker: Well, Mr. Rothfeld, now, this Hayden-Cartwright Act point was not raised below, or dealt with.
Mr. Rothfeld: That is true, Justice O'Connor.
Unknown Speaker: It would require us to interpret the meaning of "reservation" within that act I guess for the first time.
Mr. Rothfeld: That's true.
The Court has not yet expressed an opinion on it.
Unknown Speaker: And there was nothing express in the petition for certiorari here that referred us to the Hayden-Cartwright Act.
Mr. Rothfeld: Again, that is true, Your Honor, but I think that the question presented in the petition is whether or not this Oklahoma law is preempted, and clearly to answer that question requires a consideration of the body of congressional legislation.
I guess there is some parallel here in the Independent Insurance Agents case that the Court relied upon earlier this term in Lebron, and the issue is whether the statute had been repealed, and that point was not argued even in the briefs on the merits or at oral argument, and nevertheless the Court found it was appropriate to look to whether--
Unknown Speaker: Your first question presented, which I take it the Hayden-Cartwright Act would have to come under, or... it's not at all.
It says whether principles of preemption or Indian sovereignty preclude a State from imposing a tax on sales of motor fuel.
Now, it doesn't seem to me that that really necessarily includes the idea that there's an applicable statute.
Mr. Rothfeld: --Well, I think, Your Honor, that's a highfalutin way of asking whether or not the statute... the State statute is preempted, and again it's difficult to resolve a question of preemption, and particularly a question of Indian preemption which the Court has looked at the entire body of Federal legislation to see if there is an extant Federal policy that bears on the question without considering whether there is a Federal statute in the area, and this Federal statute clearly expresses the intent of Congress as to the particular point that's at issue here, so I--
Unknown Speaker: Mr. Rothfeld, even if you're right that the Court could entertain this statutory argument, isn't it extraordinary for this Court to be a court of first view?
Very often, the Court won't even address a question clearly raised by a petition, it will wait for a circuit split, but you're asking this Court to jump in and interpret this statute before anyone else has, and that's quite unusual.
Mr. Rothfeld: --Well, I think, Justice Ginsburg, again, we are presenting the question of whether or not this State law is preempted, and to answer that question we think that it would be appropriate for the Court to look to the entire body of Federal legislation to determine whether or not Congress has expressed a policy that bears on the particular tax.
Unknown Speaker: It might also be appropriate for the Court to say, we leave that question to one side because it has not aired before the court of appeals.
Mr. Rothfeld: Well, I... certainly that's within the Court's discretion, Your Honor.
I can't disagree with that, but I think that in this setting, in which the question is whether Federal law displaces the State tax, looking to the body of Federal legislation is an appropriate way of resolving that point.
And I think that it is quite clear that if the Court were to look at the Hayden-Cartwright Act, it would see that there is a Federal policy that deals specifically with the question in this case, and specifically provides that gasoline taxes and other motor fuel taxes may be collected by States on reservations, and again, as I suggested to Justice Scalia, there was no doubt about the meaning of the word "reservation" at the time the act was written.
Unknown Speaker: Your references to doubt I guess are to the departmental view at the time.
We've never construed it to cover an Indian reservation.
Have lower courts so construed it?
Mr. Rothfeld: So far as I am aware, Your Honor, there is one lower court decision on this point which has construed it.
It's a decision of the South Dakota supreme court which appears in 273 Northwest Reporter involving... it's In Re Motor Fuel Liability--
Unknown Speaker: Have you cited it?
Mr. Rothfeld: --It was not cited, Your Honor.
Unknown Speaker: The respondents say that we should dismiss this as improvidently granted.
Do you know the status of the legislation, and is what you just were talking about an added reason for doing that?
Mr. Rothfeld: --Well, I think that the legislation that the tribe refers to in its brief is essentially dead for this term of the Oklahoma legislature, so there is no prospect that the case be mooted, and I think this is clearly... even if the Court were to conclude that this was not a ground that it can base its decision upon, this is not a ground for dismissing the case as improvidently granted.
The Hayden-Cartwright Act was specifically noted in the opinion of the court of appeals, which said that it was not going to reach it, so the Court was certainly aware of the existence of the act at the time the petition was presented, and I should, I suppose, move on to the question, perhaps the more fundamental question, entirely apart from the act, of whether the court of appeals was correct in saying that there is a per se rule that precludes State taxation of the kind of this case.
We think that that clearly was wrong, and explaining why that's so, it's useful to start with three points that are not disputed between the parties in this case.
I think, first, that both the United States and the tribe recognize that the balance of State and tribal interests, which ordinarily is of crucial importance in resolving the question of whether a State may assert its jurisdiction on the reservation, they acknowledge that that balance decisively favors the State in this case.
They also acknowledge that their rule rests upon a... economically meaningless legal formulas, and the formulas are of legal incidence that has no connection to the economic realities in this case, and--
Unknown Speaker: Well, but it's one which I gather your client has embodied in a statute.
Mr. Rothfeld: --Well, I think that there is--
Unknown Speaker: Isn't that so?
I mean, under Oklahoma law the taxpayer here is deemed to be in this case the retailer, and hence the tribe.
Mr. Rothfeld: --Well, that was the court of appeals conclusion, Your Honor.
We disagree with that as a matter of State law, but we think that the question of where the legal incidence falls has no economic bearing, no bearing as a matter of economic reality.
I think that the tribe acknowledges--
Unknown Speaker: Well, don't we draw... I mean, not to put too fine a point on it, but didn't Oklahoma win the last case by a little line-drawing of exactly that sort?
Maybe I should ask whether you would like to win this one, or for us to go back and adopt the dissent in the Oklahoma Tax Commission case of a couple of weeks ago.
Mr. Rothfeld: --Well, I think it would be the--
Unknown Speaker: You did very well with formal line-drawing then.
Mr. Rothfeld: --I think it would be the Commission's preference to win both cases, Your Honor.
Unknown Speaker: Pardon me?
Mr. Rothfeld: I think I can confidently state that it's the Commission's preference to win both of those cases, and I--
Unknown Speaker: I guess that might be its position.
Mr. Rothfeld: --And I think that they are entirely consistent.
As I understand the Court's position in Jefferson Lines, it focused on an actual difference between a sales tax and a gross receipts tax.
I mean, the Court pointed out that a sales tax can be collected only in one State, and there, therefore, is no possibility of--
Unknown Speaker: It did not focus on economic effects.
I mean, that was one reason why the dissent and the majority parted ways.
Mr. Rothfeld: --No, that is certainly true, but there was a real difference, a real world difference between the two types of taxes that were at issue in that case.
There is no real world difference between the tax that Oklahoma is applying here as interpreted by the court of appeals and the tax--
Unknown Speaker: Is there any... I mean, you're talking economic realities.
Is there any such thing as a tax upon a retailer, or a tax upon a business?
Any tax upon a business is going to be passed downward to the maximum extent possible.
Mr. Rothfeld: --Well, I think that that's quite right, and that is a--
Unknown Speaker: So don't we have to determine it on formalistic bases?
It's going to end up, the purchaser's going to pay for it one way or another.
You're telling me there's no such thing as a tax on a retailer, then.
Mr. Rothfeld: --No.
I'm suggesting, Your Honor, that what the Court should do is determine these cases without reference to the formality at all, to the legal formulas, and simply look to the effect of the State law on the tribe.
Unknown Speaker: I'm saying if you do that there's no such thing as a tax on a retailer, because a retailer will always pass the tax downward to the maximum extent possible.
Unless, as a matter of form, he is required to collect penny for penny from the consumer, there's no such thing.
He's going to pass it down all the time.
Mr. Rothfeld: No, that is absolutely right, and we therefore think that in determining whether a tax of this kind is valid, the Court should look to whether or not it has an impermissible effect on the tribe.
Unknown Speaker: But that's not what our previous cases have done, is it?
I mean, they have stuck to what you regard as a formalistic evaluation.
Mr. Rothfeld: Well, I think that it's clear from the body of the Court's cases that it has not regarded legal instances as the be-all and end-all of the inquiry that is necessarily decisive.
In the Sac and Fox and the Colville cases, for example, the State imposed taxes, automobile and excise taxes and registration fees, on members of the reservation living on the reservation when there was the tribe living on the reservation who garaged their cars on the reservation, and the Court said that those taxes might well be valid if they were apportioned to deal with use of the car outside of Indian country.
The Court didn't say that the legal incidence of the tax falling upon the member of the tribe was dispositive in those cases.
In the Moe case, the Court also said that its decision striking down State taxes did not deal with the issue in which the receipts that are subject to tax are attributable to nonreservation sales to nonmembers, and the Court, I think generally, as in the Sac and Fox case, has referred to the rule in State imposition of taxes on Indians as a presumption.
Such a presumption presumably may be overcome, so I don't think it's the case that legal incidence is necessarily decisive.
What the Court has done is on a number of occasions strike down State taxes that fell on what the Court has described as value generated on the reservation by the tribe.
Those are taxes like the tax on the income of a tribal member reservation resident, at issue in McClanahan, cases like the tax on the sale by the tribe on the reservation to members of the tribe of goods that were used on the reservation that were at issue in Moe and Colville.
Unknown Speaker: It we reject your argument, I take it that Oklahoma could easily revise its taxing scheme in order to collect these taxes.
Just make it a consumer-based tax.
Mr. Rothfeld: That's true.
We think that it is clear that Oklahoma, under Moe and Colville and Chemehuevi and the other cases of the Court acknowledging the State's power to impose such a tax, the State could modify the tax legislation here.
The Court... the tribe acknowledges in its brief that all the State need do is insert somewhere in the text of the tax statute the legislative intent that the burden of the tax be borne by the consumer, that that's sufficient to validate the tax.
Unknown Speaker: So the cost of adhering to our precedents is really rather slight.
The State can simply conform to the rules we've set forth and to the rules that all of the other States have been following in evaluating the lawfulness of their taxing schemes.
Mr. Rothfeld: Let me respond in two parts to that, Justice Kennedy.
I think first of all the Court would not be adhering to its precedent.
There certainly is no... I mean, in the sense that the Court does not have to depart from any of its decisions to rule for the State here.
There is no case in which the Court has struck down a tax that otherwise would be valid, as this one clearly would be, simply because the legal incidence was said to fall upon the wrong person.
But there are substantial costs that are associated with a tax... with a rule that judges the validity of a tax based upon this kind of formalism.
It serves principally this rule, as what the Court described in Complete Auto as a trap for the unwary legislative draftsman who is not likely to be focusing on this program, certainly can't anticipate that years down the road a tribe is going to become a retailer or a wholesaler of fuel.
Unknown Speaker: Well, surely the legislators of the State of Oklahoma and other States with substantial Indian reservations are well aware of our taxing jurisprudence, and it would be quite astounding for us to presume to the contrary.
Mr. Rothfeld: Well, I think that this case actually is an illustration of the problem, that the Oklahoma legislature I think had been laboring under the assumption that the legal incidence of this tax fell upon the consumer.
The State has consistently taken the position throughout this litigation that it does not fall upon the retailer, and one problem with this kind of formalistic rule is that it will prompt people to search for statutory ambiguities to devise tax exemptions for themselves.
Unknown Speaker: But you're... so you say perhaps the Tenth Circuit was wrong here in deciding the question of Oklahoma law as to where the incidence of the tax fell.
Is this the legislation that's dead for this session in the Oklahoma legislature, to change the incidence of the tax?
Mr. Rothfeld: --The legislation that is dead would have declared the intent of the Oklahoma legislature that the tax fall upon the consumer.
Unknown Speaker: You claim this is a question of Federal law?
Where the Oklahoma legal incidence of the tax is a question of Federal law, or it's a question of--
Mr. Rothfeld: No, no, we don't suggest that it's a question of Federal law.
Certainly in the first instance it's a matter of State law, although if the rule is, and we say it should not be, but if the rule is that the legal incidence determines the availability of an immunity from State taxation as a matter of Federal law, if there is a Federal rule of preemption that turns upon the existence of legal incidence, then clearly the Federal courts are... must be able to determine where that incidence falls.
Unknown Speaker: --Why?
Mr. Rothfeld: It would otherwise be impossible to resolve--
Unknown Speaker: I mean, they have to be able to determine what the Oklahoma law is.
Mr. Rothfeld: --Well, that's right.
We don't suggest that it is a matter of Federal law where the legal incidence lies as a matter... as to the intent of the Oklahoma legislature, and the Court has said that the intent of the legislature is determinative in determining where the legal incidence of a tax falls.
Unknown Speaker: Why should we not just accept the finding of the court of appeals on that question of State law, as we usually do?
Mr. Rothfeld: Well, we think the court of appeals is clearly wrong, and the court has in other cases, as in Chemehuevi, a very similar situation, has said that the court of appeals got it wrong and has determined the legal incidence for itself.
I mean, I think that that... the Chief Justice referred to the cases of the Court accepting legal incidence as dispositive.
I think that what the cases of the Court have done have found legal incidence as an easy way of disposing of the case, and as in Chemehuevi, where the court of appeals got it wrong, the court of appeals has stepped in, and we think that it is clear here that the court of appeals did get it wrong.
As we read the tax statute, there are two provisions that bear specifically on the question of whether the consumer or the retailer bears the legal incidence of the tax.
We think both of those indicate that it clearly is the consumer who bears the legal incidence, and I think that if the Court chooses to move in that direction and not reach the more fundamental question of whether or not there is such a per se rule, they can easily dispose of the case by finding that the legal incidence does fall upon the consumer.
Those two provisions I should know quickly.
One of them is a definitional provision of the statute which refers to collection of taxes by both retailers and distributors, making clear that both of them were intended by the legislature to collect the tax from someone further down the distribution chain.
That is confirmed by another provision of the statute, an exemption provision, which provides that purchasers... that's the ultimate consumers... who buy gasoline for agricultural uses are relieved of the obligation of paying the tax, again indicating that it is ordinarily the purchaser who is intended to pay the tax.
So I think that is an easy ground on which the Court can dispose of this case, but I should return to the question of whether or not--
Unknown Speaker: Are you saying then that if this pending law, or this law that is now dead, had passed, there'd be no difference at all in substance?
Mr. Rothfeld: --That is absolutely right, Justice Ginsburg, and I think that is the most powerful argument for why such a formalistic rule makes no sense.
The Court has said that legal incidence falls upon the consumer where the legislator intends for the tax to be passed on to the consumer.
That is so even though the tax doesn't... even though the State law doesn't expressly require the pass-through.
That was the holding in Chemehuevi, and that is true even when there is no sanction imposed upon the retailer who fails to pass the tax on.
That was the holding in the Mississippi Tax Commission case and First Agricultural Bank cases.
So all that the legislature need do to change the legislative incidence of this tax is declare somewhere in the text of the statute its intent that the burden of the tax be borne by the ultimate consumer, and as Justice Scalia noted before, that makes no difference in reality.
It does not affect the tax collection procedure at all.
It does not collect the obligation upon the retailer in this case.
To have the validity of the State tax law turn upon that sort of formalism I think makes no sense.
The Court has rejected that approach in Complete Auto and in various other settings, and there is no reason why that kind of dinosaur of a rule, having become extinct everywhere else, should continue lumbering along here.
Unknown Speaker: I'm not sure what I understand you want us to look to.
You don't want us to look to whom the legislature intended to saddle with the tax.
What do you want us to look to?
Mr. Rothfeld: I think, Justice Scalia, that--
Unknown Speaker: Who actually ends up paying the tax?
Mr. Rothfeld: --I think the Court should look to the same considerations that it looks to outside of the tax context, where it looks to what the Court has called the particularized inquiry into the State, the tribal, and the Federal interest.
If the tax is one that imposes an impermissible burden on the tribe by somehow threatening to infringe on tribal sovereignty, or the mechanisms of tribal Government, as in the cases in which the Court has invalidated State taxes, the tax should be invalid, so for example--
Unknown Speaker: I thought you were arguing to us that it was unrealistic to view the incidence of the tax as being on one party or the other, and now you're saying it doesn't matter who the incidence of the tax is on, you should just be... just look at the scheme and see if it's hurting the tribes too much.
Mr. Rothfeld: --I think it doesn't matter who the legal incidence of the tax is on.
I think it matters what the effect of the tax is upon the tribe, upon the mechanisms of tribal Government.
Unknown Speaker: Fine.
If it's the effect, isn't it going to be adverse to the tribe no matter who you put it on?
Mr. Rothfeld: But the Court has already held in Moe and Colville and--
Unknown Speaker: Right, so I mean, if you really want us to look to the economic effect, I take it if there are only a few gas stations owned by the tribe, and prices are competitive, and there are a lot of gas stations elsewhere in the State, that whether you say the consumer is paying it or whether you say the distributor is paying it, or whether you say somebody else is paying it, in the absence of the tax, the tribe could charge more money, which they'd keep, and in the presence of the tax, they'll have to give that extra money to the Government.
Mr. Rothfeld: --That is true, Justice Breyer, but the Court has confronted that balance repeatedly in cases in which the legal incidence fell upon the ultimate purchaser and has found that the tribal interests in those circumstances do not outweigh the State's interest, and the--
Unknown Speaker: But the point is, if you look at the formality of it, the formality isn't on the tribe, is it, or is not?
Mr. Rothfeld: --Well, the court of appeals held that it is.
Unknown Speaker: Yes, all right.
The formality is you don't win on that one, and if you look at the reality, you don't win on that one, either.
Mr. Rothfeld: --No, on the contrary, I think that we do win on the reality, because the Court... the Court has judged taxes in which the legal incidence falls upon the purchaser, the taxes in Moe and in Chemehuevi, and in Colville, and in, most recently in Milhelm Attea.
The Court has viewed those in terms of the economic reality.
The Court has said--
Unknown Speaker: Well, isn't the economic... that's my question.
If the price is $1 a gallon and it's set by competition all over the State, and 20 cents of that dollar is going to the State government, I guess the tribe also can charge $1 a gallon, because that's the competitive price, and if they don't have to pay 20 cents out of that dollar to the State, they can keep it, and so those are the economic circumstances.
No matter who you say this tax is being borne by, the reality is it would be borne by the tribe.
Mr. Rothfeld: --If I may, Your Honor, I think the rule the Court has stated is that a State law is not invalid simply because it has an adverse economic impact on the tribe.
The Court has said there must be a particularized inquiry into the State tribal interests, and the State has conducted that inquiry, and although what you say is true as a matter of economic reality, the Court said quite clearly in Colville that there is no right on the part of the tribe to collect... to make sales that it would not otherwise have made simply because it is marketing a tax--
Unknown Speaker: We haven't said that, you've said it.
Mr. Rothfeld: --No, no--
Unknown Speaker: We asked you how you determined who bears the incidence of the tax.
You reject formalism.
You reject who the State says must pay it.
You ask us to simply decide who gets hurt by it.
You're the one that's proposing this, not our prior decisions.
If you look at who ends up... out of whose pocket it ultimately comes, it ultimately comes out of the tribe's pocket.
Mr. Rothfeld: --But I think the test is not as the Court has said it.
The test is not who is hurt by the tax or whose pocket the tax comes out of.
The test is whether the State law infringes upon the mechanisms of tribal Government, undermines the mechanisms of tribal Government in a fundamental way.
Unknown Speaker: That's quite a different test than saying we ought to look at the economic impact, which I thought you were saying a moment ago.
Mr. Rothfeld: Maybe I have misspoken.
I don't suggest that the tax falls upon whoever bears the economic impact.
I'm saying that in judging the constitutionality, the validity of a State tax law as it bears on Indian tribes, the Court must look to the effect of that tax on the tribal interests that the Court has said are significant.
Unknown Speaker: Well, in Chemehuevi, which was maybe 10 years ago... I just glanced at it again... there we reversed the Ninth Circuit because we thought it had been wrong in deciding where the legal incidence of the tax was, so at least we thought at that time, 10 years ago, that that was the test.
Mr. Rothfeld: Well, again, I think that the Court has found it an easy and noncontroversial way to dispose of these cases on the ground that the legal incidence doesn't fall--
Unknown Speaker: I think you may do us less than justice.
Mr. Rothfeld: --Well, I don't presume to tell the Court what it was thinking when it resolved these cases, Your Honor, but as I said, it is I think clear from the tenor of the Court's opinion as in Sac and Fox and Colville, where it did not dispose of challenges on the ground that these taxes have a legal incidence that falls upon members of the tribe, that's the end of the matter.
The Court said, in fact, those taxes might well be permissible if they were properly apportioned, even though the legal incidence fell upon the member of the tribe on the reservation, and I think that what the Court has looked to throughout this body of cases is whether or not the total... the tax, as applied, has an impermissible effect on the mechanisms of tribal Government.
In the cases in which the legal incidence was found to fall upon someone other than the tribe, the Court has looked to whether or not tribal operations would be displaced, whether or not it was real tribal interest that was at stake, and that is clearly not the case here where all the tribe is doing is importing onto the reservation goods manufactured elsewhere that are going to be marketed for resale largely to non-Indians for use outside of Indian country.
I reserve the balance of my time, if the Court has no questions.
Unknown Speaker: Very well, Mr. Rothfeld.
Argument of Dennis W. Arrow
Mr. Arrow: Mr. Chief Justice, and may it please the Court:
As counsel for the Tax Commission has made clear, this case involves two questions.
With the Court's permission, we would first turn to the fuel tax question, reserving the treaty question with relation to the income tax until later in this argument.
With respect to the fuel tax, we would like to make four points before this Court.
First, the court of appeals decision below is entitled to deference with regard to its interpretation of State law.
Counsel for the petitioner has characterized this as a State law question.
We on the respondent's side, representing the Chickasaw Nation, understand that this is primarily a State law question.
We agree with that proposition.
Obviously, as the Chief Justice has just pointed out, there is a Federal component to the extent that this Court in Chemehuevi established foursquare the proposition that the absence of an express pass-through provision in a State tax does not mean, ipso facto and a fortiori, that the resultant tax is not a consumer tax.
That is the Federal component of the rule.
Beyond that, this Court has treated those questions as State law questions, and in cases too numerous to cite, but one which we have mentioned in our brief is Haring v. Prosise, this Court has indicated that it is this Court's practice to accept conclusions of courts of appeals with respect to questions of State law even if independent examination might have justified a different conclusion.
That's the first point that we would like to make with respect to the fuel tax.
This takes us to the second point, which is that independent examination of the court of appeals decision by this Court in this case on the State law question with reference to the incidence of the fuel tax would not justify a different conclusion with respect to the court of appeals conclusion that the incidence of the fuel tax is, in fact, on retailers, in this case the Chickasaw Nation, the retail Indian tribe.
Unknown Speaker: Is there any difference that the consumer can see between what would have been if this law had passed and what is?
Now, the formal incidence of the tax is on the retailer.
If it had been placed on the consumer, would there be any difference in what the consumer would see at the pump, say?
Mr. Arrow: Justice Ginsburg, I would say in answer to that that while it might be theoretically possible that a retailer might choose to "absorb" part of the tax and therefore there might be some theoretical difference, our inclination is the same as the implications of Justice Scalia's question, which is that you know, can you really see any difference between the tax and the... regardless of where the incidence would be, and the answer might well be no.
With respect to Justice Scalia's question of counsel, we would simply invoke along this very same line what we have quoted in our brief in opposition at page 17, wherein we quote an argument which had been made by the Tax Commission in the court of appeals below.
This is on page 17 of the brief in opposition in... at line 3 of page 17.
Petitioner's own earlier argumentation expressly noted that the search for taxes included in the wholesale price could look back forever, and for the same reasons it could look forward forever for the same reason as well, and so our answer would be to incline to answer Justice Ginsburg's question in the negative.
Unknown Speaker: What do you do about the two provisions of law mentioned by your opponent?
Mr. Arrow: Yes, Your Honor.
Unknown Speaker: The definition section and the exemption section.
Mr. Arrow: --That's right.
The petitioner Tax Commission has made a great deal of the fact that section 501C is in a so-called definitional section of the statute.
When one examines that beyond the superficial characterization of the word, 501 of the statute which begins the fuel tax scheme has the word "definitions" in the heading.
When one looks at 501C, one finds that what 501C is definitional of is storage, and so to the extent that one finds it in the definitional provision of the statute, counsel for petitioner Tax Commission and the Tax Commission itself has attempted to indicate that there is some talismanic aspect of the fact that we find section 501C in a definitional provision, but the definition is one of storage.
We have a specific answer to that also.
It simply states, and I'm quoting from section 501C, the critical proposition advanced by the Tax Commission, nothing in this section shall--
Unknown Speaker: Is there a place in the briefs where we can find that that you're quoting?
Mr. Arrow: --Yes.
Yes, Your Honor.
Specifically I would refer the Court to section... the blue brief, to the brief of petitioner at page 36, I believe it is.
Unknown Speaker: Thank you.
Mr. Arrow: Yes, Your Honor.
Where they are quoting... 36 of the brief of the petitioner, yes, Your Honor.
Section 501... a definitional provision of the statute at about line 12 of the page.
Your Honor, I fail to find it in the brief of petitioner at this point.
It is cited in our brief, but I don't have the page in front of me.
I apologize, Your Honor.
Unknown Speaker: There's something on 36.
You're not talking about 501B?
Mr. Arrow: 501B, yes, Your Honor.
Unknown Speaker: "Provides that"... it's about a third of the way down the page...
"purchasers of nontaxable diesel fuel must comply with the provisions of section 509 in order to avoid the taxes levied by sections 501. "
--is that it?
That is on page 36.
Mr. Arrow: Yes, that... I believe that may be a... that may be a misquotation.
I believe they're referring to 501A at that point, or 501B, pardon me.
I'm talking about 501C, Your Honor.
Unknown Speaker: You're talking about C.
Mr. Arrow: I'm given the petition by cocounsel.
At page 39a of the petition, and at page 39a, about two-thirds of the way down to the bottom of the page,
"Nothing in this section shall require a distributor, dealer, or retailer to collect. "
and the Tax Commission relies heavily on the fact that it indicates that somehow retailers collect.
We point out in our brief in chief that this simply requires a negative inference, that petitioner is attempting to draw a negative inference from this that something else requires payment of the tax by a consumer, which is absolutely not the case.
We point out further that the provisions which are really definitional as to the incidence of the fuel tax are largely section 505 of the statute, specifically section 505C, and also section 506 of the statute, which provide... and these are cited in our brief in chief... which provide that the distributor is an agent of the State for collection of the fuel tax.
And we find, as we have indicated in the rest of our remaining brief, that as to those provisions, section 505C and section 506, as well as section 507, as well as section 502, there are numerous provisions which are ignored by the Tax Commission which establish the definition of where the legal incidence of the fuel tax is rather than simply carving out a phrase and basing their argument on a negative implication of a provision of the statute which is contained in the definition of "storage".
We submit that the statute taken as a whole, in short, even though there is that possible implication, but it requires a negative and an incorrect implication, that nothing... because nothing requires a distributor, retailer, or dealer to collect, that something else requires that collection be from consumers, and there simply is no pass-through provision to consumers anywhere in this scheme, express or implied.
With respect to the agricultural exemption which is cited, and this is the second provision that is relied upon primarily by the petitioner Tax Commission, they are referring to the agricultural exemption in section 509 of the statute, which simply states that anyone who is claiming an agricultural exemption for gasoline to be used for farm use shall not be required to pay... "to pay".
And we have indicated to this Court, having recognized the significance in plain meaning in text before this Court, but we have indicated that that word, which by the way was inserted in 1939... and we have researched the legislative history.
There is nothing which indicates any intent to change the legal incidence of fuel tax scheme in 1939, but we have described that as colloquial.
We also point out to this Court that in section 508B of the statute the identical provision with respect to the aircraft tax indicates that the exemption is one which can be claimed by the distributor, and other provisions of the statute are silent on this whatsoever, but the critical proposition that we indicate, and the critical provisions which we have cited to this Court which affirmatively establish the legal incidence of the fuel tax, are section 505E with respect to diesel fuel tax.
Section 505E expressly imposes payment obligations on retailers or dealers, and the only response that we've seen in the reply brief from the petitioner Tax Commission is, well, that only applies to diesel fuel, that's one, and secondly the Hayden-Cartwright Act.
Those are the only answers that they have to that, because it is expressed in that provision, section 505E of the fuel tax statute, that under those circumstances the diesel fuel tax is clearly to be... payment obligations are imposed on retailers or dealers.
Unknown Speaker: Mr. Arrow, can I ask you--
Mr. Arrow: Yes, Your Honor.
Unknown Speaker: --probably a stupid question, but does the place where the legal incidence of the tax falls determine whether the consumer or the dealer can deduct the payment for Federal income tax purposes?
Does it have any independent significance, is what I'm really asking.
Mr. Arrow: I am not aware of any for that purpose, Your Honor.
Unknown Speaker: It's... what difference... does it make any difference other than for this deciding whether the Indian tribes have to pay the tax.
Mr. Arrow: Your Honor, clearly in another non-Indian context this Court, as has been pointed out by Justice Souter as recently as the Jefferson Lines case, going back to Complete Auto Transit, has disregarded the formalities involved in a tax, but in this case, we submit to this Court that one either has a per se rule in this complex area, or one does not.
In order for there to be a per se rule, one must acknowledge the fact that the legal incidence must be controlling for purposes of the per se rule if the per se rule is to avoid cumbersome and duplicative litigation.
Unknown Speaker: Doesn't the incidence of the tax have significance outside of the Indian law context?
I mean, if there's a failure to pay a concededly owed tax, the State Tax Commission, it may depend on how the laws are drawn whether they can come after the wholesaler or the retailer or the purchaser, doesn't it?
Mr. Arrow: Yes.
Yes, Chief Justice Rehnquist, that's absolutely right.
We point out in part, specifically along those lines, that they're unlike the Oklahoma cigarette tax, unlike the California cigarette tax at issue in Chemehuevi.
Both of those cases contained independent obligations on the parts of consumers to pay for untaxed cigarettes and forbade the use of untaxed cigarettes.
Unknown Speaker: Yes, but in either event, even if the retailer isn't the taxpayer in a technical sense, it still can have a statutory obligation to collect the tax.
Mr. Arrow: That... in 1931, Your Honor, the legal incidence could only be characterized as dual.
In 1931, the Oklahoma legislative scheme was amended to include a situation whereby the wholesaler paid the tax but could, at its option, pass the tax along to retailers, and so both, in those situations, the statutory scheme at that point in time imposed obligations on both.
In 1933, during the Dust Bowl, and by the best of our research, based upon what we found with references to defaulting dealers in the statute, in 1933 the incidence clearly is moved onto wholesale... onto retailers, pardon me, with wholesale distributors... what has now become section 506 originated in 1933... with wholesale distributors limited specifically to agents of the State for collection.
And at that point, they still, and they do still today, have an independent obligation to pay over to the State... to remit is the technical term of art which the Oklahoma Fuel Tax Code uses... to remit moneys to the State which have been collected from retailers, and there is a penalty in section 506 for embezzlement.
Not for tax evasion on the part of wholesalers, but rather for embezzlement in those circumstances where wholesale distributors do not pay over to the State that money which we have collected, but there are independent payment obligations on retailers also, such as section 505E.
So the answer to your question is yes, it is possible that they both have obligations, one to remit moneys that it has collected, as the statute says, as the agent of the State, and moneys which it holds in trust, the other the primary obligation to pay, but in no sense is there any obligation on consumers, and that's the important point that I wanted to make in response to the Chief Justice's question.
Unknown Speaker: Well, I have to confess that the thing that keeps running through my mind is, as I remember the Moe case, the Court said the tribe cannot market its tax exemption by selling to nonmembers.
Mr. Arrow: That's right, Your Honor.
Unknown Speaker: But the answer to that is, they can do it if... they can market the tax exemption if the incidence of the tax falls on the retailer.
Mr. Arrow: Precisely, Your Honor.
Now, of course, we are not marketing the tax exemption in a loose sense of the term.
The Chickasaw Nation and all the other tribes of the State--
Unknown Speaker: Well, in an economic sense you certainly are--
Mr. Arrow: --Well--
Unknown Speaker: --because you're able to sell it cheaper than the retailers who must pay the tax.
Mr. Arrow: --Well, in point of fact that doesn't occur, Your Honor, because the tribe has imposed its own fuel tax, which is precisely the same as the fuel tax imposed by the State, so therefore as a matter of economic reality in this particular set of facts there is no economic advantage whatsoever.
Every tribe in the State has done the same.
Unknown Speaker: They owe it to themselves, sure.
Mr. Arrow: Well--
Unknown Speaker: You mean, if I take money out of one pocket and put it in my other, that's--
Mr. Arrow: --That is correct.
That is correct, Justice Scalia, but the distinction being there is no marketing and exemption from the standpoint of a consumer purchaser having any artificial inducement.
Unknown Speaker: --You're saying they're not using it to sell more gas.
Mr. Arrow: That's right, Your Honor.
Unknown Speaker: They're just using it to make more money.
Mr. Arrow: That's right, Your Honor.
That's correct, and our position in response to Justice Stevens' question is, if the incidence of the fuel tax is on the retailer, they can do that.
The premise of the Moe and Colville cases was that the incidence of the fuel taxes there was on the consumers, and this Court had expressly so found and had been supported by lower court interpretations of State law in both of those cases, and as questions have indicated--
Unknown Speaker: Do you know anybody in the State, other than Indians, who market more gas by charging less tax?
Mr. Arrow: --Who market more gas by charging less tax?
Unknown Speaker: Maybe I'm from the East here, and I'm always used to seeing, you know, the tax price and then it says, you know, plus 3, plus 2, whatever the tax is.
Plus 4, whatever it's gotten up to now.
It's not like that in Oklahoma?
It just says, you know, flat price, and you can bargain?
You can bargain the price down?
Mr. Arrow: No.
I have not successfully negotiated yet, Your Honor.
Unknown Speaker: You know, if the incidence were not on the purchaser, I would expect that some people would charge the tax and some people wouldn't.
Mr. Arrow: If the incidence--
Unknown Speaker: If there's no--
Mr. Arrow: --If the incidence were not on the retailer, Your Honor?
Unknown Speaker: --If... no, if the incidence were not--
Mr. Arrow: Not on the purchaser.
Unknown Speaker: --on the purchaser.
I expect that some people simply wouldn't charge any tax.
Mr. Arrow: Well--
Unknown Speaker: The gas stations don't show a tax charge, is what you're telling me.
Mr. Arrow: --Yes.
Again, Justice Scalia, with respect to your question of a while ago, with respect to your question as to whether there's really any such thing from a standpoint of economic reality, you know, the question, I suppose, might rhetorically be, is there any difference between not charging a portion of the tax and simply cutting profits 1 or 2 cents, you know, and that's right, Your Honor, and that's part of my answer to Justice Ginsburg as well.
If I might, Your Honor, I notice that my 5-minute light has come on, I'd like to move to the treaty question very briefly, which has not been yet addressed in this oral argument before the Court.
We'd like to make about four points about the treaty, very briefly Your Honor.
First of all, we'd like to focus on the characteristics of this treaty, which are extraordinarily unique in the history of the United States.
The history, which we have recounted in some detail over about the first 11 pages of our brief in chief, is very unique with respect to the relations between the United States and the Choctaw Nation.
That treaty, the Treaty of Dancing Rabbit Creek, is, of course, the treaty to which the Chickasaw Nation later becomes beneficiary by treaty in 1837.
This treaty, and this has not been contested by the Tax Commission, involves broader guarantees of self-government than any guarantees than had ever been given in any treaty in the history of the United States.
This is an uncontroverted fact.
There has been no dispute of that issue by the Tax Commission.
It is also--
Unknown Speaker: How broad is the sweep of this treaty in your view?
What about an Indian who... a tribal member who lives off the reservation and owns property off the reservation and is asked to pay a property tax?
Mr. Arrow: --Yes, Your Honor.
We would not think that it would cover that situation.
We think that the significant interpretive aspects of this is that first of all it involves governmental relationships between tribes and their own members, and secondly that it involves a nexus to tribal lands, and here the nexus to tribal lands is that the Indian country is the situs of the place where the governmental activities and the employment occurs.
That would be our limiting feature, Justice O'Connor.
In terms of interpretation--
Unknown Speaker: How do you get that out of the statute?
I mean, I would think if you're interpreting the statute as broadly as you ask us to... or the treaty, I'm sorry.
Mr. Arrow: --Yes, Your Honor.
Unknown Speaker: On the basis of just its language, I would think you'd have to say that a member of the tribe wouldn't have to obey general State laws.
He's a descendant of the tribe that was given these guarantees.
Mr. Arrow: We think that it's possible that other, broader interpretations could be made.
We, as well as the Tax Commission, as well as this Court, have thought of numerous hypotheticals which could go beyond.
At this point, we confine our theory, we suspect that probably many of those theories would not be successful, and should not be successful, but rather than attempting to litigate the possibilities, we have simply advanced a very narrow theory before this Court.
Unknown Speaker: Mr. Arrow--
Mr. Arrow: Yes, Your Honor.
Unknown Speaker: --that about the member of the tribe that lives in the town, that's the one we're talking about, who can vote in the town as a resident, whose children can go to school there, who gets fire, police, all protection, why should that person not have to pay tax?
Mr. Arrow: Yes, I understand the question, Justice Ginsburg.
The answer is, this Court in Sac and Fox addressed at least part of that question, as it had prior to that in McClanahan.
In Sac and Fox, this Court indicated very clearly that treaty questions aside, and other questions aside, and also the Williams v. Lee infringement question aside, residence is a very significant component of a presumption of the per se rule under McClanahan, and we understand that.
But the answer, Your Honor, is that there is simply no difference, because Chickasaw tribal members, as all tribal members, are eligible for State services whether or not they reside in Indian country, so to the extent that the Tax Commission attempts to advance the proposition that somehow, somehow it is different for tribal members who live outside of Indian country, that they're somehow entitled to more State services than members who live in Indian country, this Court has already held in Sac and Fox and McClanahan that those who work and reside in Indian country are already exempt from State income taxation.
And therefore the distinction, for this purpose, Your Honor, the distinction is simply a distinction without a difference from the standpoint of whether or not the employee of the Government, of the tribe, lives within or without Indian country, because under either circumstance they're going to be eligible for State services, and under those circumstances, there's no principled basis for a distinction for purposes of applying the treaty, even extending the treaty to cover situations which this Court has not yet ruled on under general law and Sac and Fox.
Unknown Speaker: Thank you, Mr. Arrow.
Mr. Arrow: Thank you very much.
Unknown Speaker: Mr. Engelmayer.
Argument of Paul A. Engelmayer
Mr. Engelmayer: Mr. Chief Justice, and may it please the Court:
I would like to begin with the fuel tax issue.
Our position is that the Court should resolve that issue by applying the principle that a State may not directly tax Indian activities in Indian country except where Congress has abrogated tribal immunity in explicitly... excuse me, in unmistakably clear terms.
Applying that principle, Oklahoma may not impose its fuel tax on the Chickasaw Nation's retailers, because Congress has not abrogated tribal immunity in this area, and because under State law the court of appeals reasonably concluded that legal incidence falls on the retailer.
Unknown Speaker: Well, Mr. Engelmayer, is your principle that if Congress hasn't abrogated the immunity, the State can't?
Is that consistent with our decisions in Moe and Colville and Chemehuevi?
Mr. Engelmayer: Absolutely.
It is legal incidence that determines whether or not a showing of congressional abrogation is required.
If the tax were to--
Unknown Speaker: Why is it not required in the case of one kind of legal incidence, if your theory is correct?
Mr. Engelmayer: --I believe it is correct.
I mean, I don't believe there is any distinction.
In other words, In Moe and Colville, Mr. Chief Justice, the tax... the determinative factor where taxes fell on the purchaser was whether the purchaser was an Indian, in which case the tax could not be imposed, or whether it was on a non-Indian, so there was legal incidence there, as in Chemehuevi, that was the decisive factor.
Unknown Speaker: And then... and you say you trace that back to a congressional determination of what?
Mr. Engelmayer: I think the basis for the per se rule, which relies on legal incidence, goes back historically to the sovereign immunity that tribes have had under the... vis-a-vis the States under the Constitution.
It also, though, as the Court noted in County of Yakima just 3 years ago, has practical justifications.
For example, one of them is that it serves the goal of predictability.
It allows both States and tribes alike to rely categorically on the presence or absence of congressional authorization in determining whether a tax would be or is valid.
It also obviates the need for an ongoing inquiry into whether the balance of interests that at one point may have justified a tax has changed over time, if, for example, it is shown that only a portion of a given tax maybe is being passed along.
As I noted, there is also an historical dimension to it, in that it reflects the sovereign immunity the tribes have under the Constitution vis-a-vis the States, and finally, and perhaps this is most important, it leaves the States with considerable flexibility.
In this case, all Oklahoma need do is to change the legal incidence of the fuel tax to make sure that it falls on the ultimate purchaser.
That is what other States with significant Indian populations have done.
That's so they've administered their tax statutes consistent with principles of Indian sovereignty.
I think this case is very much like Citizen Band Potawatomi, in that Oklahoma, having applied its tax laws in violation of settled principles announced by this Court of Indian sovereignty, has now come to this Court asking that those principles be scrapped.
Rather, I think the proper solution is for Oklahoma to conform its tax practices to those principles.
Now, I'd like to turn very briefly to the subject of Hayden-Cartwright, recognizing that it is our view that the subject was not raised below or in the petition and therefore should not be reached, but should the Court reach the issue, our position is that the act does not authorize State taxation of Indian tribes.
That, we submit, is clear from this Court's decision in White Mountain Apache.
There, the Court held that the act does not authorize taxation of fuel use by a non-Indian company doing business for a tribe on its reservation, this despite the fact that the Hayden-Cartwright Act explicitly authorizes taxation of fuel use, and the Court in that case reserved the question of whether the act even applies on a reservation.
Our submission is that if the act did not authorize direct taxation of a non-Indian company doing business for a tribe on its reservation, it's awfully difficult to see how the act could then be said to authorize direct State taxation.
Moreover, applying the unmistakably clear standard from Yakima and Blackfeet and Bryan, the tribe... neither the statute... the Hayden-Cartwright Act doesn't refer anywhere to tribes or Indians.
There's no indication that at the time of the act, 1936, Indians were even selling fuel on their reservations, and there's no evidence that Congress considered the distinct barrier to taxation posed by tribal immunity.
What the act does, I think, instead is to address and get rid of a distinct separate barrier posed by the territorial barrier posed by the Federal status of certain land, for example, military reservations.
On the subject of legal incidence, just very briefly, we believe it's principally a question of State law.
There are sound bases for the court of appeals decision.
In particular, as my cocounsel has noted, it appears that the statute requires that the retailer pay the taxes to the distributor for remission to the State, and it protects distributors against nonpaying retailers, but has no corresponding provisions governing the retailer-to-consumer step in the transaction.
In addition, there's a useful contrast here between other Oklahoma laws, which quite explicitly put legal incidence on the consumer.
The cigarette tax law that was adverted to by the court of appeals for example, and the special fuels tax law that Oklahoma has at section 702 and 703 of its code book, and it's cited, I believe, at pages 6 to 7 in a general way, the special fuel tax section of my cocounsel's brief.
That also applies explicitly to the consumer.
I think some sort of a conclusion can be drawn based on the absence of such clear focus on either use or consumption in this tax.
Finally, with regard--
Unknown Speaker: Do you know the answer to the question whether there's any consequence for Federal tax purposes placing the incidence on the retailer?
Mr. Engelmayer: --I do not, Justice Ginsburg.
Finally, our position is that the Chickasaw Nation's treaty with the United States prohibits the States from taxing wages paid by the Chickasaw Nation to its member employees.
Now, it's certainly true, as Justice Scalia pointed out, that the treaty says absolutely nothing about income taxes, or taxation of any kind.
Nevertheless, I think one has to read the treaty, as this Court noted in Choctaw Nation involving the very same treaty, from the vantage point of the Indian signatory in 1830 in the case of the Choctaw, 1837 in the case of the Chickasaw, those--
Unknown Speaker: I would think that what it meant to them at that time is that an Indian who was living in Indian country was not subject to State regulation, taxes or anything else, but the one who was living outside of Indian country would be subject to State regulation and State taxes.
Mr. Engelmayer: --I think the--
Unknown Speaker: Why do you draw the line just for purposes of taxes?
How can you get that out of this statute?
It seems to me if you say that an Indian off of the reservation or out of Indian country cannot be taxed, it seems to me you would also say he cannot be regulated in any other fashion.
Mr. Engelmayer: --If I may respond this way, I think from the vantage point of the Indian signatory in 1830, having no idea that some day this territory would be... this land would some day become part of a State known as Oklahoma, or of any State, having no conception of this idea, even, of State income taxation, such an Indian, if they were trying to express the thought that no State shall ever interfere with the relationship between a tribe and its member, if they were trying to figure out how to put that in a treaty, it's hard to think of a more emphatic way than the language which the treaty uses, which is,
"No territory or State shall ever have the right to pass laws for the Government of the Chickasaw Nation or their descendents. "
The treaty also provides that where any well-founded doubt appears regarding treaty terms, it should be construed in favor of the tribe, and while that's a tenet of statutory construction that this court has used in many Indian treaty cases, this is a rare treaty that furthermore includes it itself.
Justice Ginsburg inquired as to the limits of this theory.
In our view, the limits of the theory involve simply laws that would interpose the State between the tribe and its members, in this case by actually removing part of the wages paid by a tribe to its members and thus, a property tax, for example, or a residency tax or a gasoline tax imposed on off-reservation activity.
Unknown Speaker: Even though the members are long gone from the reservation?
Mr. Engelmayer: Well, they're not long gone in the sense that they're working, in this case, for the tribe, and they're tribal employees.
Unknown Speaker: Well, how about a member that lives off the reservation and works off the reservation?
Mr. Engelmayer: For the tribe, Mr. Chief Justice?
If it's not for the tribe--
Unknown Speaker: Not for the tribe.
Mr. Engelmayer: --If it's not for the tribe, there's no tribal relationship with the members that's being disturbed.
If it is--
Unknown Speaker: Well, that's a nice line you're drawing.
I mean, it may be a wonderful line, but I don't see how it has anything to do with the treaty language.
Mr. Engelmayer: --But this Court--
Unknown Speaker: The government of the descendents of the Chickasaw... it seems to me you're governing the descendents of the Chickasaw Nation if you regulate their conduct, whether with regard to charging them an income tax, or with regard to preventing certain actions of theirs by reason of criminal law, or anything else.
Mr. Engelmayer: --Justice--
Unknown Speaker: If you want us to give this a liberal interpretation, it means that nobody will govern the descendents of the Chickasaw Nation.
It's clear what that means.
You don't govern them.
Mr. Engelmayer: --I think if we were talking here about a treaty or a statute that had been enacted not having to do with the Indian context, I would probably agree with you that government probably would have something more to do with the process of governance, as you say.
But I think from the vantage point of the Indians at the time, I think the understanding would be that, you know, at least insofar as the tribe is dealing with its members, nobody should be getting in between there.
Once you stray off the reservation and you're not dealing with your tribe, criminal laws in a State, for example, I don't think that historically make... that the logic would carry through as much.
Unknown Speaker: It's a good line.
I just don't see it anywhere in the text of the--
Mr. Engelmayer: Thank you.
Unknown Speaker: --Thank you, Mr. Engelmayer.
Mr. Rothfeld, you have 5 minutes remaining.
Rebuttal of Charles A. Rothfeld
Mr. Rothfeld: Thank you, Mr. Chief Justice.
There are a couple of points.
Let me start with the motor fuel tax and questions that were raised by the Chief Justice and Justice Stevens, whether or not the legal incidence actually makes any difference in the real world.
I think the answer quite clearly is no.
The only entity that has a legal obligation to do something here, and against whom the State has any rights, is the distributor, who neither of us suggests bears the legal incidence of the tax, so the question then is whether or not the State's failure to insert these magic words of legal incidence somewhere in the text of the tax statutes, words that would have no actual effect, should render the tax invalid.
Unknown Speaker: If there's no difference, how do you explain the reluctance of the... or the nonaction by the Senate in killing this bill?
Mr. Rothfeld: Of the State--
Unknown Speaker: Oklahoma.
Mr. Rothfeld: --I think that the State was of the view that it should get this issue resolved, that it should not be bound by a semantic rule to resolve its law around something which is meaningless, and I think the Court--
Unknown Speaker: But since that would clarify it for the future, there wouldn't be any possible doubt.
Why wouldn't they just go ahead and do it?
Mr. Rothfeld: --Well, if the Tax Commission is correct in its contention here that that rule should not have legal effect, the legal incidence rule, then there is no need for the State to modify its rule in accordance with this.
Unknown Speaker: I think the reason they did it, Mr. Rothfeld, is they were worried that it would prejudice this litigation.
By changing the rule, they would in effect be admitting that it wasn't already that way.
Mr. Rothfeld: Well, I think they may have been concerned that it would moot the case.
Unknown Speaker: So is the reason that they didn't pass it because they didn't want to moot the case?
Mr. Rothfeld: Well, I can't speak for all the motivations of the--
Unknown Speaker: You can speak for the Tax Commission.
Well, it wouldn't moot the case as to past tax obligations, would it?
Mr. Rothfeld: --Well, past tax obligations are precluded... a suit to collect those precluded by the tribe's sovereign immunity, which is one problem with this type of rule.
Unknown Speaker: But is it your view that the only reason... if it made no difference, it's hard to see why they didn't pass it, unless they were worried that it might make the significance of this case less significant and maybe we would dismiss it.
Mr. Rothfeld: --Well, I think they may well have been concerned--
Unknown Speaker: Given your new argument.
Mr. Rothfeld: --They may well have been concerned that it would moot the case.
I don't think they were concerned that it would reflect some weakness in the case.
Unknown Speaker: Not a weakness, but--
Mr. Rothfeld: --I think they thought there was unnecessary--
Unknown Speaker: --All right.
I mean, but that's... if this is a tactical concern of one kind or another, which is what I'm curious about... I'm not saying it expresses a weakness in the case... I think that might be relevant, if that is your view.
Mr. Rothfeld: --I'm sorry, I may not be following the--
Unknown Speaker: Well, there's a problem for us in this case in that there's a new issue brought that wasn't argued below that isn't obvious how it comes out one way or the other, yet is determinative, and so that makes it a harder matter to reach the issue that this was granted cert to decide, and in the meantime, it's additionally confused because they could moot... or not moot it, but they could get rid of the problem by changing the law, and so that somehow feeds into this mix, too--
Mr. Rothfeld: --Well, it will always be the--
Unknown Speaker: --and that's why I ask the question.
Mr. Rothfeld: --It will always be the case that where there's an argument about the meaning of legal incidence that it's possible to avoid it by changing the State law.
I mean, that has not been the Court's reaction in the past.
In a case like Complete Auto, the State could have changes its law to delete the reference to privilege of doing business in interstate commerce, which the Court's prior decisions it heard, it felt held determinative, and the Court said it wasn't necessary for the State to modify its law around the formalism.
The proper course was to get rid of the formalism so that it wasn't determinative in the future, and clearly, as I was saying before, there is no real world impact of determining the legal incidence falls on one party or the other, and therefore the question is whether or not the law should be held invalid because the magic words were not used.
The Court has rejected that rule in the past in virtually every other context.
There is no reason to have it here unless precedent--
Unknown Speaker: But if you don't have the per se rule, supposing it's not a sale to a consumer.
Suppose they went into the hotel business.
They opened a hotel, or a ski resort, right on the reservation.
Could Oklahoma tax the income and the property and everything else from that activity?
Mr. Rothfeld: --I think probably not, and the reason is because the Court has said, looking to the economic reality, that the State can't tax value generated on the reservation by a tribal enterprise, and that explains the outcome, I think, in cases like Colville and Moe, in which the Court said that the State could not tax sales by the tribe to tribal members of goods for use on the reservation.
That was an entirely intertribal operation, and allowing the State to assert its interest there, where it really has no concern, no regulatory concern at all, and no responsibilities, would really threaten to displace the mechanisms of tribal government.
That principle does not apply here, because the customers are in large part nonmembers who are taking the goods subject to tax off the reservation immediately.
Unknown Speaker: I'm not sure that I... maybe it's obvious, but why is it... supposing the ski resort attracts skiers from all over the State, most of whom are not Indians, and don't they market their tax exemption if they don't have to pay any taxes?
Mr. Rothfeld: Well, I think that's true, Your Honor, but the lines the Court has drawn in cases like Hebezon is whether or not there is value generated on the reservation by the tribe.
Unknown Speaker: And you... well, okay.
Chief Justice Rehnquist: Thank you, Mr. Rothfeld.
The case is submitted.
Argument of Justice Ginsburg
Mr. Ginsburg: The second decision I have to announce is Oklahoma Tax Commission against Chickasaw Nation, 94-771.
This case concerns the taxing authority of the State of Oklahoma as it bears on the Chickasaw Nation, a federally recognized Indian tribe and all members of the tribe, taxes of two kinds are at issue.
First, Oklahoma’s exercise tax on motor fuels, second the state income tax.
The US Court of Appeals for the Tenth Circuit held that Oklahoma may not apply the state’s motor fuels tax to retail sales made by Chickasaw Nation convenient stores located on tribal land.
The Tenth Circuit also held that Oklahoma may not apply its income tax to wages of members of the tribe who are employed and paid by the tribe but who reside in Oklahoma outside Indian country.
We affirm the Court of Appeals ruling on the motor fuels tax but reverse the Tenth Circuit’s decision regarding the income tax.
Concerning the motor fuels tax, it is central law when Congress does not instruct otherwise that an exercise tax is un-impossible if its legal incidence falls on a tribe or its members for sales made within Indian country.
The Court of Appeals reasonably determined that the legal incidence of Oklahoma’s fuels tax falls on the retailer not on the wholesaler, not on the consumer.
We therefore hold that the state’s tax, as it is currently designed, cannot be collected for sales made at the tribe’s retail stores.
So, holding, we decline to consider the argument that the federal Hayden-Cartwright Act expressly authorizes states to tax motor fuels sales made on Indian reservation.
Oklahoma did not raise this point in the lower courts or in its petition for review and we will not fit as a court of first instance to resolve the matter.
Our decision as to the fuels tax is unanimous.
Turning to the state income tax question, we hold that Oklahoma may tax the wages of the Chickasaw nation and members of the Chickasaw Nation, who are employed and paid by the tribe but reside within the state of Oklahoma outside Indian country.
The treaty between the United States and the tribe guarantees the tribe and its members that no territory or state shall ever have a right to pass laws for the government of the Chickasaw Nation.
But that provision does not displays the general principle, which holds way both interstate and internationally that a sovereign may tax the income from all sources of those who reside within its borders.
On the application of Oklahoma’s income tax, the members of the tribe who work for the tribe but live outside Indian country, Justice Breyer has filed a dissenting opinion in which Justices Stevens, O'Connor and Souter joined.