CHICKASAW NATION v. UNITED STATES
The Indian Regulatory Gaming Act provides that Internal Revenue Code provisions "(including sections 1441, 3402(q), 6041, and 6050I, and chapter 35() concerning the reporting and withholding of taxes" with respect to gambling operations shall apply to Indian tribes in the same way as they apply to States. Chapter 35 imposes taxes from which it exempts certain state- controlled gambling activities, but says nothing about tax reporting or withholding. The Choctaw and Chickasaw Nations, in a lawsuit, claimed that the Gaming Act subsection's explicit parenthetical reference exempts them from paying those chapter 35 taxes from which the States are exempt. Rejecting that claim, the Court of Appeals ultimately held that the subsection applies only to Code provisions concerning tax withholding and reporting.
Does the Indian Regulatory Gaming Act exempt tribes from paying the gambling- related taxes, which State need not pay, imposed by chapter 35 of the Internal Revenue Code?
Legal provision: 25 U.S.C. 2719
No. In a 7-2 opinion delivered by Justice Stephen G. Breyer, the Court held that Indian Regulatory Gaming Act does not create such an exemption. The Court reasoned that despite its parenthetical reference, the language outside the parenthetical was unambiguous and the subsection applied only to Internal Revenue Code provisions that concerned the reporting and withholding of taxes. The language inside the parenthetical was meant simply to be illustrative. Moreover, the Court noted that when Congress enacts a tax exemption, it ordinarily does so explicitly. "We can find no comparable instance in which Congress legislated an exemption through an inexplicit numerical cross- reference -- especially a cross-reference that might easily escape notice," wrote Justice Breyer.
ORAL ARGUMENT OF GRAYDON D. LUTHEY, JR. ON BEHALF OF THE PETITIONER
Chief Justice Rehnquist: We'll hear argument first this morning in No. 00-507, the Chickasaw Nation v. the United States.
Mr. Luthey: Mr. Chief Justice, and may it please the Court:
The Chickasaw and Choctaw Nations ask this Court to hold that Congress has afforded tribes the same exemption from Federal wagering taxes enjoyed by State governmental wagering operations.
We do not base our claim on policy untethered to statutory text, but instead we base our claim today on section 20(d) of the Indian Gaming Regulatory Act codified at 25 U.S.C., section 2719(d).
Unfortunately, for all concerned, that statutory text is ambiguous, as every appellate judge which has examined it has held either expressly or implicitly, and as we expect the Government to admit today if the question is put to them.
One of the possible constructions of that ambiguous statute, based on its text and structure and giving effect to every word of the statute and bolstered by its legislative history, is that the tax exemption afforded States by Internal Revenue Code chapter 35, expressly referenced in section 2719(d), applies equally to tribal wagering operations.
Mr. Luthey: Where do we find this exact text that you're talking about in the brief or in--
Mr. Luthey: I would direct Your Honor to the petitioner's appendix 90a, to our appendix for certiorari.
Mr. Luthey: --Haven't you set it out on page 3?
Mr. Luthey: Yes, sir.
It's also there.
Mr. Luthey: On page 3 of your brief?
That's a handier reference then I think.
Mr. Luthey: Now, starting with the actual text of the statute, we believe that the statute contains two central textual commands: one that has to do with the reporting and withholding of taxes from gaming... from... from the winnings from gaming, and also the application of the Internal Revenue Code provisions concerning wagering operations.
It's the tribes' contention that these are two distinct concepts involving distinct provisions of the Internal Revenue Code.
And we find the basis for the distinction in two places.
One is the disjunctive or that connects gaming and wagering operations, and the additional support we find is in the parenthetical that precedes the reference to these two discrete concepts.
And if the Court would look at the parenthetical that leads in this statute and gives five separate examples of portions of the Internal Revenue Code that Congress intended to apply--
Mr. Luthey: Before you... before you proceed further with this argument that you make in your reply brief, did you present it, this or distinguishing gaming on the one hand from wagering operations?
Did you present that to the Tenth Circuit?
Mr. Luthey: --Not directly like that, Your Honor, we did not.
Mr. Luthey: And did you present it in your opening brief?
Mr. Luthey: What we did, Your Honor, in the opening brief is adopt the decision by the majority in the Little Six decision from the Federal circuit.
Mr. Luthey: Which does not make this argument.
Mr. Luthey: No.
We made this argument in direct reply to the Government's assertion in its answer brief that there is only one central textual command; namely, the Government would have you believe that the statute applies only to--
Mr. Luthey: Well, you've answered the question.
You raised it for the first time in your reply brief.
Mr. Luthey: --To address specifically, Your Honor, the Government's position which we claim is based on a false premise.
Mr. Luthey: Well, that was not a new position.
The Government had always said that this is how it should be read, and the fact is that what you say is the... is the meaning of it was a meaning that didn't occur to you until... until the reply brief.
I mean, I think that suggests how implausible a reading it is.
Surely, this argument should have been made much sooner if... if it was so... so evident.
I mean, the way... why don't you read the provision the way... the way you would have us read it?
Mr. Luthey: The way we would have the provision read, Your Honor, is set out at page 9.
Mr. Luthey: --Page what?
Mr. Luthey: Page 9 of the reply brief where we suggest that concerning addresses two distinct central textual commands in... in contradiction, Your Honor, to the Government's assertion that there is one central textual command.
Mr. Luthey: Right.
And you would say that the way to read it is, concerning the... the way it reads, if one would read it normally, is, concerning the reporting and withholding of taxes with respect to the winnings from gaming or wagering operations.
Now, the normal mind would say with respect to the winnings from gaming or wagering operations, but you want to read it concerning, A, the reporting and withholding of taxes with respect to the winnings from gaming or, B, wagering operations.
And that's just a very strained reading of it, it seems to me.
Mr. Luthey: Your Honor, if I could respond.
Mr. Luthey: I wish you would.
Mr. Luthey: I... I think our reading is informed by the parenthetical reference that precedes these two concepts, and particularly the text and structure of that parenthetical reference.
The parenthetical reference identifies five particular portions of the Internal Revenue Code.
The first three, sections 1441, 3402(q), and 6041, clearly apply to concerning the reporting and withholding of taxes with respect to the winnings from gaming.
There's no doubt about that.
Mr. Luthey: And not the winnings from wagering.
Mr. Luthey: --From gaming.
Mr. Luthey: But not from wagering.
Mr. Luthey: It's from gaming by players, Your Honor.
Then you get to the second part of the parenthetical--
Mr. Luthey: But would you explain to me?
I thought that gaming... a gaming operations or wagering operations... perhaps you can clarify what is the difference between gaming as a noun and wagering operations?
Mr. Luthey: --It's our... and you hit right exactly on the point, Your Honor.
It's our position that gaming is a noun and the wagering refers to operations.
And the way that you can see that is by the specific division in the parenthetical examples.
The first three have to do with the reporting and withholding of taxes from winnings by players from gaming.
The last two, section--
Mr. Luthey: But not the winnings by players from wagering.
Mr. Luthey: --No.
Mr. Luthey: And what... what is the difference between those two?
Mr. Luthey: The difference is how it is used in the context of this statute.
And the difference is again illustrated by the division within the five express illustrations contained in the parenthetical.
Mr. Luthey: If you could tell me concretely what is the difference between winnings from gaming and winnings from wagering operations.
Mr. Luthey: Winnings from gaming here refers to winnings by the players from gaming, money paid to players as a result of gaming, winnings from what the players do.
Mr. Luthey: Is there a difference, just in the English language, between gaming and wagering?
Mr. Luthey: They... they could be regarded synonymous if both are used as nouns, Mr. Chief Justice, or both are used as adjectives.
Here we... we contend that the distinction is informed by the parenthetical.
If you look at the last two--
Mr. Luthey: May I just ask?
Under your reading, what... using Justice Scalia's A and B, what function does A play?
Mr. Luthey: --What function A plays is that the tax is imposed on the winnings from gaming as a result of what the players have won.
Mr. Luthey: Wouldn't that have been picked up anyway, just in your reading from wagering on?
Mr. Luthey: Not necessarily because when you get to the second set, Your Honor, particularly 6050I and chapter 35, the text of those provisions have nothing to do with winnings.
Mr. Luthey: No.
But... but if it just read concerning wagering operations, just leave out all of the A part, if it said concerning wagering operations, it would pick up those provisions that require wagering operations to withhold and report the winning... the winnings of players.
The provisions you're referring to are not the provisions that imposed the tax on the players.
They're the provisions that require the wagering operations to withhold that tax and to report it.
Isn't that right?
Mr. Luthey: Well--
Mr. Luthey: So, wouldn't that have been covered just as easily by simply saying concerning wagering operations?
Mr. Luthey: --Well, section 1441 and 3402 actually do impose a tax, a percentage of tax, that is on the winnings from gaming.
Mr. Luthey: That's the chapter we're... okay, that's the--
Mr. Luthey: --Chapter 35 is different, Your Honor.
Chapter 35 imposes no tax on anyone from winnings.
Chapter 35 imposes a... a tax on the operator based on the wagers that have been received, not the money that the operator has paid out.
Mr. Luthey: --All right.
Let me put it this way, and it's suggested by Justice Ginsburg's line of questioning.
Does the Internal Revenue Code require any withholding of winnings from wagering operations?
Mr. Luthey: Yes, sir.
Mr. Luthey: Well, then that, it seems to me, destroys your argument because you... you are... you want to say that gaming covers the entire universe of winnings that are subject to withholding.
But then you answered my question there are also winnings from wagering that are subject to withholding.
And your way of parsing the statute does not permit withholding for that.
Mr. Luthey: If you--
Mr. Luthey: So, it seems to me that... that destroys the distinction you're trying to make which is what Justice Ginsburg's line of questioning, it seemed, suggested to me at least.
Mr. Luthey: --With respect, Your Honor, if you look at wagering and gaming as nouns, they could be read to refer to the same thing.
If you look at wagering operations on one hand as a concept that's distinct from the reporting and withholding of taxes from gaming, it's another matter entirely.
And the problem is here chapter 35, which is expressly referenced in the parenthetical, applies to wagering operations, not to the reporting and withholding of taxes on gaming.
It has nothing to do with it.
Mr. Luthey: The oddity of the argument to me is that the... you're... I think your explanation is assuming that the basic activity that's going on in a casino, which is giving rise to each of these different kinds of liability, is the same activity.
And... and you're calling it... you're calling it gaming when the card player plays blackjack, but you're calling it wagering when the blackjack casino has to withhold money.
And that seems very odd to me, but maybe I don't understand your argument.
I guess you're calling it wagering operations, not wagering.
Is that right?
Mr. Luthey: That's... that's exactly correct, Your Honor.
Mr. Luthey: Yes, but the operation... the wagering operation for one purpose is gaming for another purpose, and that... as I understand your argument, and that's just a very strange and confusing usage to impute to the Congress.
Mr. Luthey: With respect, Your Honor, if... if the statute is read closely, the first three provisions of the parenthetical apply to concerning the reporting and withholding of taxes with respect to the winnings.
Then we're told what the winnings come from.
We have taxes on winnings.
Mr. Luthey: They come gaming under your argument.
Mr. Luthey: They come from gaming.
Then we have two additional provisions identified: 6050I of the Internal Revenue Code and chapter 35--
Mr. Luthey: That's reporting and withholding, and the activity of the reporting and withholding is not gaming, but wagering operation.
Is that right?
Mr. Luthey: --No.
Mr. Luthey: Is that your argument?
Mr. Luthey: I'm not being clear here.
6050I and chapter 35 have nothing to do with reporting and withholding.
Nothing to do with reporting and withholding.
And that's been our position consistently, and the Government will concede that.
Mr. Luthey: Well, don't they impose... don't they impose an excise tax on operators?
Mr. Luthey: They do.
Mr. Luthey: Gaming and wagering?
If you... if you have a casino, you have to pay an excise tax?
Mr. Luthey: That's correct.
Mr. Luthey: A Federal excise tax.
Mr. Luthey: Yes, Your Honor.
Mr. Luthey: And you're arguing that the Indian tribes that operate the casinos were given somehow the same exemption from that that States are when States operate lotteries or some kind of gambling operations.
Mr. Luthey: Other type of wagering operation, Your Honor.
And one of the things that we believe informs our construction of this has to do with the legislative history--
Mr. Luthey: Before you get to that... I can take a break when you get to that.
Before you do, I have... I have another textual problem with your interpretation, and for this purpose, you can't use page 3 of your brief.
You have to look on page 90a of the appendix to the petition for a writ of certiorari, which... which contains the whole provision and not just the... the portion of it that page 3 quotes.
You want us to read the... the phrase with respect to the winnings from gaming... A, with respect to the winnings from gaming or, B, wagering operations in the middle of that paragraph as a separate A and B.
But the paragraph continues: shall apply to Indian gaming operations conducted or under blah-blah in the same manner as such... as such provisions apply to State gaming and wagering operations.
Now, does it mean in the same manner as such provisions apply to State gambling... to, A, State gaming?
Do any State constitutions allow the State to... you know, to gamble with the public funds?
See what I'm saying?
At the end of it, State... you can't possibly read it as: apply to State gaming on the one hand and wagering operations on the other because States don't game.
You have to read it as an adjective there.
State gaming operations.
Mr. Luthey: --At the end of... at the end of the statute, Your Honor.
Mr. Luthey: Yes.
You want to read it one way at the end and another way in the middle.
--Well, when you say gaming at the middle, don't you mean gaming by a player in a casino?
Mr. Luthey: Yes, sir.
Mr. Luthey: Okay, and isn't that what you would also mean when the word gaming is used at the end?
Mr. Luthey: Well, this is--
Mr. Luthey: I may not buy your argument, but I'm not sure that I see the inconsistency.
Mr. Luthey: --That's right.
And this is part of the ambiguity.
Mr. Luthey: If you're going to go to legislative history, why doesn't it all become clear?
Originally there was a bill that had the word not only the reporting but also taxation.
As the bill was originally reported, it said you apply to Indian tribes the same way as you apply to States laws that concern, one, taxation; two, reporting of taxes; three, withholding of taxes.
Now, we have two possible explanations of what happened.
They cut out the word taxation and they changed it to the present.
Explanation number one which would justify what you just said in the last 15 minutes.
It got into the hands of a real drafting nut.
Now, I've met people who can clear statutes and make them totally obscure.
Choice one is that's what happened.
Choice two is what happened is they changed it to mean just what the Government said.
They cut out taxation, they left reporting, and the number 35 is there as an accident, an error, a leftover, a number that no one caught and no one changed, though they should have done it.
Now, I see explanation one and explanation two, and maybe you have a third one.
If so, I'd like to know it; if not, I'd like to know why not adopt two.
Mr. Luthey: I'd like, Your Honor, to offer a third explanation in response to your direct question.
If you look at H.R. 1920, section 4, which was the first version of IGRA that was... that was put forward... and this is contained in our opening brief at pages 29 and 30... you will see that the initial draft, after... after mentioning provisions of the Internal Revenue Code, identified two specific areas concerning the taxation and the reporting and withholding of taxes.
There was a committee report from the House that is set forth in our brief at page 30 that commented on that text, and it noted that related provisions of the Internal Revenue Code, such as section 3402(q) and chapter 35, then it said concerning taxation.
So, it appears that you could conclude that the initial phrase, concerning taxation, referenced chapter 35.
Mr. Luthey: Yes.
Mr. Luthey: That Congress ended.
A new Congress began.
Senate bill 555 was introduced with largely the same language and presumably with Congress being informed by the prior committee report.
Then there was testimony before the Senate committee on IGRA in 1987, and tribal interests at those hearings specifically objected to the phrase, concerning taxation, rightly or wrongly... rightly or wrongly... because they were concerned that it would give the impression that this was somehow providing for taxation by the Federal Government of tribal gaming.
We... we know that in the legislative history.
The next thing that happened is the text was changed.
Concerning taxation was deleted, and the synonym for concerning taxation contained in House of Representatives Report No. 99488 that accompanied the prior bill... the synonym for taxation, chapter 35, was inserted in the text.
And when you see that legislative history, how the synonym for concerning taxation was removed from the legislative history committee report and brought to the text, and then you see what the text consisted of, which is the parenthetical that contains five references, two... two of which have nothing to do with the reporting and withholding.
Mr. Luthey: But, counsel--
--I get the third explanation, but the third explanation then depends on the testimony of the Indian tribal interests that say they don't want the word taxation.
Where is the reference to that?
How do I find... I don't notice it in your brief, but I haven't read it that--
Mr. Luthey: You will... you will find that in the amicus brief filed by Little Six at page 25.
Mr. Luthey: --Counsel, it seems to me you have two different kinds of presumptions that we face with language that can be said to be ambiguous.
One is that you don't presume exemptions from taxation from ambiguous language.
On the contrary, we have said that there are presumptions that favor Indian tribes when there's an ambiguity.
And it seems to me these presumptions are maybe a little bit in tension with each other, and which one should we rely on here, do you think?
And is there anything... in the Mescalero Apache case, which this Court decided, we did refuse to read an exemption into vague statutory language for tax purposes.
How do you distinguish the principles we applied in Mescalero?
Mr. Luthey: In Mescalero, Your Honor, there were actually two particular taxes at issue.
One was a gross receipts tax on off-reservation ski resort receipts, and in that the Court went through the various statutes that were being cited for the purpose of an exemption... the New Mexico Enabling Act, the Indian Reorganization Act... and found no ambiguity.
So, there was no need to provide application of the Indian law canon.
Specifically the Court said on the face of 465 there is no reason to hold that it forbids income taxes.
Then there was a second part that this Court decided in part 2(b), and that's whether or not section 465 of title 25's lands tax exemption extends to a use tax.
And in that course... in that case, the Court construed the statute, actually used the word construed.
Mr. Luthey: There's a well recognized presumption, Mr. Luthey.
Where the... you're talking about a treaty negotiated between the Indians and the United States, ambiguities are read to favor the Indians.
But what is the reason for carrying that presumption over into a statute?
Mr. Luthey: The underlying trust relationship, Your Honor, between the United States and the Indians, its wards, as recognized by this Court in the County of Oneida decision.
Mr. Luthey: Well, but give me a better reason than that.
I mean, the underlying presumption between the United States and its wards.
Why should that affect the construction of a statute?
Mr. Luthey: Because the statute is imposed by Congress on its wards, and this Court has long recognized, including in the Montana v. Blackfeet Tribe, that statutes concerning Indians that have ambiguity are to be construed in favor of the Indians.
And the underlying strong, powerful policy underpinning is that trust relationship.
Mr. Luthey: Mr. Luthey... I'm sorry.
You had... you had your finger on your button before I did.
What... what do you say in response to your friend's argument on the other side that the presumption in favor of the Indians should not apply because we're dealing here with a... a taxing statute over which... over Indian activities as to which the Government has plenary power under the Indian Commerce Clause.
What's your response to that?
They... I mean, they're contrasting the States.
They say, look, the States tax by... by sufferance when they... when they tax tribes.
The National Government has... has plenary authority, and therefore there should be different rules.
And the presumption shouldn't... presumption favorable to the Indians shouldn't operate.
What's your response to that?
Mr. Luthey: I direct Your Honor to Squire v. Capoeman at 351 U.S. 1 where this Court dealt with a Federal tax, a claimed exemption from Federal taxation, and applied the Indian canon in favor of the tax exemption sought by the Indians.
Mr. Luthey: Mr. Luthey--
--Mr. Luthey, could I ask you?
You say they're just making the Indian tribes similar to the States.
I know there are State lotteries, but are there... are there any State-run casinos in which, you know, you have State employees who are croupiers saying, you know, Monsieur et madame, mettez bon jour?
A State GS-7 or something.
Are... are there such entities?
Mr. Luthey: I'm not aware of any at this time, Your Honor.
Mr. Luthey: So... so the plausibility of... of giving an exemption from tax here to the... to the Indian casinos, because after all the States have it, is really not all that plausible because I don't know any State that has gone into the casino business, nor do I think any is about to.
Mr. Luthey: With respect, Your Honor, I must disagree with you.
The underlying policy for State governmental gaming and gaming under IGRA is exactly the same.
It is gaming to raise money to take care of governmental purposes.
And in fact, under IGRA, that's what the money must be spent on.
Mr. Luthey: Do some--
--Mr. Luthey, may I ask you one question on... on the text that supports Justice Breyer's notion that maybe this was just a crazy drafter?
The section starts out, the provisions of the Internal Revenue Code of 1986.
I take it that means all the provisions of the Internal Revenue Code of 1986.
And including... well, that seems to be redundant, because you already have the provisions of the Internal Revenue Code, all the provisions of the Internal Revenue Code, and naturally they would include these and everything else in the code.
Mr. Luthey: I... I would suggest to Your Honor that the provisions of the Internal Revenue Code of 1986 are then explained after the parenthetical by specifically what the provisions concern that are to be applied in the same way as States, and specifically included in that is chapter 35 which contains the exemption for States.
And in fact--
Mr. Luthey: Well, wouldn't you expect the sentence then to start sections so and so and so and so concerning?
Why have the provisions of the Internal Revenue Code?
Mr. Luthey: --The... the lead-in, the provisions of the Internal Revenue Code, is limited by its... by the part of the statute that identifies what the internal revenue concerns that shall be applicable equally for State gaming, as well as for the tribal activity here.
The parenthetical is illustrative.
Mr. Chief Justice, with that, I'd like to reserve.
Mr. Luthey: Very well, Mr. Luthey.
Mr. DuMont, we'll hear from you.
ORAL ARGUMENT OF EDWARD C. DuMONT ON BEHALF OF THE UNITED STATES
Mr. DuMont: Mr. Chief Justice, and may it please the Court:
Mr. Luthey: You must be excited about defending this statute.
Mr. DuMont: --I'm always excited to appear before you, Your Honor.
There are three statutory provisions really that are relevant here or sets of provisions, and if I can just go through them very briefly.
Chapter 35, that we've talked about, imposes a Federal wagering excise tax on certain limited kinds of wagering, including lotteries.
It exempts State lotteries, but not tribal lotteries by its terms, from the tax.
The second is section 7871--
Mr. Luthey: It makes no reference to Indian wagering operations in chapter 35?
Mr. DuMont: --Chapter 35 makes no--
Mr. Luthey: It exempts the States, makes no reference to the tribes.
Mr. DuMont: --Makes no reference, and it does not, I should point out, exempt States from all taxes.
It's a fairly limited exemption for State lotteries.
So, if a State were to enter the gaming business, then parts of the wagering excise tax would apply to the State.
But there's an exemption for State lotteries and not for tribal lotteries.
Mr. Luthey: Just... not just lotteries.
There would be an exemption for State casinos, I assume, if the State should open a casino.
Mr. DuMont: I think actually that the exemption is more limited than that.
It's an exemption for State lotteries.
Mr. Luthey: In chapter 35?
Is that in the papers before us?
Then why do we have a problem here?
Aren't we talking about casinos here?
Mr. DuMont: If you look at page--
Mr. Luthey: If the exemption only applies to lotteries, gee, we don't have a problem.
Mr. DuMont: --It's page 92a of the petition appendix, reprints section 4402 which lists the exemptions.
There's one for parimutuels.
There's one for slot machines, and then there's the third one for State-conducted lotteries.
It's on any wager placed in a sweepstakes wagering pool or lottery conducted by an agency of a State acting under authority of State law.
Mr. Luthey: And is that what they're relying on in this case, that... that exemption as exempting casinos?
Mr. DuMont: That's the exemption, although the... the gambling at issue here is so-called pull-tabs which are a form of lottery, not a form of table gaming.
So, I think it's true that pull-tabs are... are considered a lottery for purposes of this tax.
Mr. Luthey: What is a pull-tab?
I've never pulled--
Mr. DuMont: A pull-tab is a little card about like this with three to five little windows, like an Advent calendar, that you can pull up and reveal something underneath them.
Mr. Luthey: --What a weird analogy.
Mr. DuMont: And if you find under it three angels, for instance, you may--
--you may win something.
So, you pay a dollar for the ticket.
If you get the right combinations of symbols under the tickets, then you win something.
If you don't, you don't.
Mr. Luthey: Of course, in Calvinist theology, it's not weird at all.
So, in any event, we're not taking here about Indian casinos, gambling casino operations, because they wouldn't be covered by the exemption in title 35 even if it applied.
Mr. DuMont: That's correct.
They would not be covered by the exemption.
They would be covered by the tax.
Mr. Luthey: Well, that depends on how broadly one construes the word lottery, and that's been broadly construed in some cases.
Mr. DuMont: That's true.
There's a fairly specific--
Mr. Luthey: But in any event, in this case we do have an Indian lottery.
Mr. DuMont: --We have an Indian lottery.
We... we are prepared to concede that, yes.
Mr. Luthey: Well, is... are we talking about... is the excise tax,.25 percent on the amount of each wager in 4401(a)(1)... does that apply to Indian gaming?
It says, there shall be imposed on any wager authorized under the law of the State in which accepted excise tax equal to 0.25 percent of the amount of such wager.
Is that the kind we're talking about here?
Mr. DuMont: That's the tax.
It's the.25 percent on any wager.
Mr. Luthey: That is the tax we're talking about.
Mr. DuMont: That is the tax we're talking about.
Now, wager... the definitions exclude most kinds of table games like blackjack and so on where, if you look at the definitions, which are on page 90--
Mr. Luthey: See, that's... what I'm thinking of... what I'm thinking about is since 44(a)... 4401(a)(1); i.e., there shall be a quarter of 1 percent tax on every wager authorized under the law of the State, except later on, A, B, C, D.
If that's what we're talking about in this case, I'm trying to understand the testimony to which they pointed by Mr. Lionell John who said, I object to that word taxation because it would impose... give authority to impose a tax on Indian tribes.
But there already was that authority in 4401(a).
Is that right?
Mr. DuMont: --That's... that's certainly correct.
This tax applies, by its terms, to anyone who accepts a wager and we would certainly say that includes a State or a tribe.
Now, States are specifically exempted under chapter 35; tribes are not.
Now, let me use that to point out that an explanation, a good explanation, for the presence of section 2719(d) in the Indian Gaming Regulatory Act is the exquisite sensitivity to tax issues in all these matters relating to Indian gaming.
And what 2719(d) does is to make clear that a State... a tribal lottery operation, like the State lottery operation, would in fact have to comply with the withholding and reporting requirements of the Internal Revenue Code.
Mr. Luthey: I can understand--
Mr. DuMont: Now, that would not be a foregone conclusion to many tribal lawyers.
Mr. Luthey: --I can understand that.
What I can't understand is the reference to chapter 35.
You don't really have a good explanation for that, do you?
What... what does the... what does the reference to chapter 35 cover that's of any relevance?
Mr. DuMont: We do not have a good explanation for that.
Mr. Luthey: Thank you.
That was... you subscribe to the position that Judge Dyke took in the Federal circuit because he said there wasn't a good explanation for it either.
Mr. DuMont: That's right.
We have suggested... the Tenth Circuit suggested possibly incorporating the definitions of lottery and wager from chapter 35.
That's not a strong explanation.
Mr. Luthey: How about the reference to section 6050I?
Do you have an explanation for that?
Mr. DuMont: It's a lot more understandable for the following reason.
What 6050I relates to is anyone operating a business who receives $10,000 or more in cash from anyone in a business transaction or a series of transactions, and that is required to be reported.
It's a regulatory measure.
Now, one can certainly understand why that does and should apply to these operations like other business operations.
And it's in the same family as tax reporting obligations, but there's certainly attention in the language with respect to that one as well.
Now, there are several things to point about... out about all this.
One is that we don't know what happened in the committee that revised the statute, but what we do know is that the statute went in to that committee in a way that clearly would have referred to all taxation, provisions of the Internal Revenue Code covering all taxation of wagering operations, and that would have imported chapter 35 and also the State exemption.
It came out in a very different form.
It came out not only with the word taxation deleted, the parenthetical added, but also with the language about winnings added, and that is why it's not, in fact, possible to say that chapter 35 was just a substitution for the deletion of the word taxation because it's not all they did.
They also added the limitation that it applies to winnings from gaming or wagering operations.
And that's completely inconsistent with the application of chapter 35.
Mr. Luthey: Is there someone over in the IRS whose job it is to look through bills, when they finally emerge, and check the cross references and the numbers who might have caught what seems to be, in your argument certainly, an accidental error in not taking a number out that should have been taken out?
Is there anyone there whose job it is to do that?
I would think there was.
Mr. DuMont: There are a lot of people both at the IRS and on the Hill whose job it is to comb through tax legislation.
I would point out that this legislation came through the Indian Affairs Committee.
It was drafted by people who are not expert Internal Revenue Code drafters, and it bears a resemblance, but only a resemblance, to the kind of precision that one sees in tax legislation and in the provisions of the Internal Revenue Code itself.
Mr. Luthey: After the split, though, between the Tenth Circuit and the Federal circuit, did anyone call the responsible committee's attention to this so that Congress could fix up the statute?
Mr. DuMont: I'm not aware that anyone has brought this issue to... onto the legislative agenda.
I don't know that.
The other thing I would point out about the language is that when they... when the committee reformulated this language to include the parenthetical, the kind of parenthetical it is I think is important.
It's an example.
It's exemplary parenthetical.
We're not in the habit of ignoring parenthetical qualifications in statutes, particularly not in the Internal Revenue Code.
But this is a special kind of parenthetical.
It's one that says provisions of the Internal Revenue Code concerning the reporting and withholding of taxes, and then it has what is intended to be a helpful list of examples, including 1441, 3402(q), and so on.
Now, I just think it's interesting to remember that if all of those examples were perfectly apt, then one could properly characterize the entire parenthetical as superfluous.
So, what's interesting here is that although it's true that our interpretation will give no effect to the reference to chapter 35, what my colleague's interpretation would do is to give particular and surprising effect to one anomalous cross reference in--
Mr. Luthey: Well, it isn't surprising in the broad sense that Congress clearly has favored Indian gaming operations and has wanted to provide income to the tribes for their purposes through those operations, and impose an excise tax on it when the Congress doesn't impose it on the States would be perfectly consistent with that overall objective, it seems to me.
Mr. DuMont: --I think it would have been perfectly consistent to grant the exemption.
I think it's perfectly consistent not to grant the exemption.
And therefore, I think the policy argument is sort of--
Mr. Luthey: Maybe not as consistent because the effort over there in Congress has been to support these Indian gaming operations, not that I necessarily think it's a good idea, but Congress obviously does.
So, that may well have been their overall objective.
Mr. DuMont: --Well, but recall, Justice O'Connor, that in the specific context of the Indian Gaming Regulatory Act, what was going on was not a unilateral project in favor of tribal interests.
It was a very much a long-term and hard-fought compromise between State interests and tribal interests.
Mr. Luthey: But the State interest is not... I mean, you're... you're saying that part of the compromise might be that the States end up without taxation and the Indians get taxed.
I... I could understand that if we were concerned about sort of allowing a disparity between the States and tribes and the ultimate tax effect to them.
But I would have thought that the competition between the States and the tribes would have been a competition for gamblers, for money coming in.
And this taxation of the States at the other end wouldn't seem to affect that at all.
If somebody is going to wager a dollar, he doesn't care whether... whether the casino has to pay a tax on his dollar or whether... whether it doesn't.
He's just interested in the payout.
And... and so I'm... I don't quite see why it is plausible that taxing the Indians but not taxing the States might have been part of a... a compromise in the competition between States and Indians for... for gambling business.
Mr. DuMont: I think your competitive analogy is exactly right.
Or that's the right lens through which to view this statute.
But I think it also points up that it's a mistake to get wrapped up in the details of this case and to think about section 2719(d) as a provision that was... was directed specifically at State wagering taxes.
What it was directed at, I submit, is making sure that from the point of view of the gambler, there would be no difference... the tax point of view of the gambler, there would be no difference in going to a State lottery or a tribal lottery or a State game or a tribal game.
And that's why what it says is provisions relating to the reporting and withholding of taxes on winnings, on the gambler's winnings, are to be observed by the tribe in the same way that they would be observed by the State.
And the only thing that has gotten us... and that's a perfectly clear set of rules and there's a perfectly good reason for it.
The only thing that gets us mixed up in this case is the fact that there is what would appear to be a leftover or inadvertent reference to chapter 35.
Mr. Luthey: Yes.
Is there something... is there something else?
May I go to--
Before you depart from that subject, I... I assume that there would be a... a motive for the States to want to have these taxes imposed on the Indian lotteries even though they are not imposed on the State lotteries.
Just sheer competitive reasons.
True, it doesn't affect the gambler immediately, but that lottery which does not have to pay the tax can give much better odds and gamblers tend to bet with a lottery that gives the better odds.
So, this... this does place the State lotteries at a considerable advantage over the Indian lotteries, if you read it the way you want.
Mr. DuMont: It's a very small tax, Your Honor.
Mr. Luthey: It's a small tax.
Mr. DuMont: If it were a bigger tax--
Mr. Luthey: The odds are pretty... pretty close, I mean.
May I now ask you to turn to... to something else?
I asked counsel on the other side about the significance of your argument that the presumption favoring the... the tribes in this situation should not operate, even though it might in a case of State taxation, because of the Government's plenary power over Indians as... as distinct from the States' right only by sufferance of the Federal Government to tax.
Why should that make a difference?
Mr. DuMont: I think because of the historical difference in the relations between the Federal Government and the tribes on the one hand and the State governments and the tribes on the other hand, and the best case I can point you to on that is the Kagama case from the end of the last century which talks about the trust relationship and it talks about the fact that the tribes stand in a very different relation to the Federal Government from the relation in which they stand to the States.
Mr. Luthey: Well, that... that certainly affects... we'll assume the obligation of the Government, and it certainly may well accept the... the specific decisions that the Government makes.
But when we don't know what decision the Government has made, when the statute is ambiguous, why should the existence of the trust relationship, in effect, be to the tribes' disadvantage construing the ambiguous statute?
Mr. DuMont: There are two things that I'd like to--
Mr. Luthey: It seems counterintuitive, I guess.
Mr. DuMont: --Well, there are two things I'd like to point out about that.
The first is that, of course, if we get down to a battle of canons here, that we find the statute hopelessly ambiguous and it must be interpreted with reference to general principles, then the principle... the Indian canon certainly has some reference, but so does the general canon of strictly construing Federal revenue statutes.
And that's, of course, a context in which the Government has a trust relationship with all the people, that we must apply revenue statutes in a way that--
Mr. Luthey: What does the trust relationship tell us that informs us in... in construction?
It tells us something about the Government's obligations to various groups of people, but I don't know what it tells us about... about meaning.
Mr. DuMont: --I'm not sure it tells you very much at all about meaning.
In a case where you have... where you're using the canon as a true tie-breaker, then it may be a salutary principle of construction for all the same reasons--
Mr. Luthey: That's what I'm assuming.
That's what I'm assuming.
I'm assuming there are two tie-breakers and they're at odds.
Mr. DuMont: --for all the same reasons that the trust relationship exists in the first place--
Mr. Luthey: Yes, but you say they're... they're not... or the... the apparent loggerhead should... should dissolve when you realize that the Government has a particular trust relationship to Indians.
And my suggestion is, if that's the case, why isn't it more likely that the canon favoring the Indians would prevail?
Mr. DuMont: --I don't suggest that in... in cases involving Federal taxation because there is an equally strong and... and, in this particular context, opposite principle that exemptions from the exactions, the general exactions, to support the Federal Government are to be narrowly construed.
Mr. Luthey: Mr.... Mr.--
Mr. DuMont: And more to the point, they're not to be inferred.
Mr. Luthey: --Mr. DuMont, supposing we didn't have here an Indian tribe but an individual Indian who was claiming an exemption from taxation.
Would the same principle of resolving ambiguities in favor of Indians apply to that case?
Mr. DuMont: Not in the same... not in the same way.
And the cases, of course, on that in the tax area are very clear, The Cherokee Tobacco case and the other cases that say that a general taxing statute, general Federal taxing statute is to be applied in accordance with its terms absent some specific treaty or statutory right.
Now, in interpreting an ambiguous treaty or statutory right, there may be... there may be room for applying that canon.
But I'd like to come back, if I could, to the other reason--
Mr. Luthey: Mr. Dumont, before we get off of canons, we've just been talking about two, but there's a third one.
Indians really have two canons on their side and the third one is, to my mind, the strongest and... and the one that's... that's the hardest for you to overcome.
And that is that you never read a statute so that any of its provisions is inoperative or senseless.
Mr. DuMont: --I agree with you, Your Honor.
Mr. Luthey: --To be sure, the Indians' proposed interpretation here is strained, but you can do it; whereas there is no possible way to read section 35 on your interpretation as being relevant.
What do you say to that?
I really think you have the burden of showing that... that the Indians' interpretation is not only strained, but it's really so strained, it's just... it's just an impossible interpretation.
Why is it an impossible interpretation using, you know, that A, B, using the or to mean... you know.
Mr. DuMont: Right.
First of all, I agree with you that that's our biggest issue in this case.
Second, I also agree that our answer to that is that the statute is not ambiguous, and this gets back to the canon point.
The statute is not ambiguous because it cannot be fairly read to... to impose the exemption that my colleagues want.
And I would say that not only because it's not the natural reading, as you pointed out, Justice Scalia, of the statute, but also because you put several things together.
First of all, I'm looking at page--
Mr. Luthey: 90a of the--
Mr. DuMont: --90a.
Mr. Luthey: --of the appendix to the petition.
Mr. DuMont: But... page 90a.
The... at the end of the... what they want to do is to split gaming... winnings from gaming or wagering operations.
Now, first of all, the very last line of the statute refers to State gaming and wagering operations, and there it is used as a phrase.
And we submit that that's powerful evidence that it's used as a phrase a few lines up.
Second, in the very next breath from where it says, with respect to the winnings from gaming or wagering operations, the statute says, shall apply to Indian gaming operations.
It doesn't... doesn't say, apply to Indian gaming.
It says, apply to Indian gaming operations.
Again, clearly the statute is using those two together.
Third, even if we were to accept that interpretation, I'm not sure where it would get the tribes here because if you accept that interpretation, then you are divorcing winnings and gaming... or sorry... wagering and gaming.
It means they don't mean the same thing.
And all the statute confers is a right to have these provisions apply to Indian gaming operations conducted pursuant to this chapter in the same manner as it applies to the States.
Now, if we're going to divorce gaming from wagering operations, then having the provisions that apply to gaming by the States tells you nothing about chapter because chapter 35 applies to wagering operations.
So... and... and finally, I think, as Justice Ginsburg and some of the other colloquies pointed out earlier, the implication of that reading would be that the reporting and withholding requirements that we all agree are central to this statute somehow only apply to the Indian gaming piece and they don't apply to the wagering operations piece.
And that makes no sense out of the statute.
Mr. Luthey: But--
Mr. DuMont: So, for all those reasons, I don't think it's just a strained reading; I think it's an impossible reading of the statute.
Mr. Luthey: --But you do concede that, as I believe Judge Dyke said, the only way to make sense out of the statute is to treat it as though the reference to chapter were not there.
Mr. DuMont: I think that's right.
I think in... in effect what one has to do is ignore the parenthetical, the examples in the parenthetical, and give effect instead to the... what we would call the operative statutory text.
And as I said, if you took out the entire parenthetical, it wouldn't change anything about the... the effect of this statute on sections 1441, 3402(q), or 6041 because those are provisions of the Internal Revenue Code concerning the reporting and withholding of taxes with respect to winnings, and so they would continue to apply even if we deleted the entire parenthetical.
What wouldn't continue to apply are these two inapt examples... or the one inapt example of chapter 35 and possibly 6050I.
And in a particular situation like this, I take no joy in saying that there are some words that have no effect in the statute, but that is the position we're left with, and it is by far the better position of the two that are possible.
Mr. Luthey: Maybe I can just ask you one clarifying question.
Does this... does this statute apply to casino gambling generally or does it not?
Mr. DuMont: I'm sorry.
Mr. Luthey: Well, the one we're talking about in the case.
The whole... this whole tax--
Mr. DuMont: The Gaming Regulatory Act or the... or the wagering tax?
Mr. Luthey: --The wagering tax.
Mr. DuMont: The wagering tax... the definitions... the definitions on page 97a exempt from... they define a wager as sports wagering or 4421(1)(c), any wager placed in a lottery conducted for profit.
And the definition of lottery excludes games that are typically played where the wagers are placed, the winners are determined, and the distribution of prizes are made in the presence of all persons.
And that excludes both bingo, which is, of course, a principal tribal gaming activity, and also most table games like roulette or blackjack.
Mr. Luthey: It does exclude them.
Mr. DuMont: It excludes those.
I'd like to point out one thing I haven't mentioned yet which is there's an entire section of the Internal Revenue Code... and it's reprinted in the appendix to our brief... section 7871, which deals very specifically and in excruciating detail with tax exemptions that are or are not available to tribes under the Internal Revenue Code.
It was enacted by the Indian Tribal Governmental Tax Status Act.
In other words, Congress was specifically focusing on this issue.
And if you look at page 2a of the--
Mr. Luthey: Of what?
Mr. DuMont: --Of the main gray brief, the gray brief on the merits.
That reprints section 7871 starting on page 1a, and at the very bottom of 1a, it says, subject... sorry.
Starting up there at the top, 7871, a general rule, an Indian tribal government shall be treated as a State.
And then there's series of things.
If you go down to the bottom of 1a, subject to subsection (b), for purposes of any exemption from, credit, or refund or payment with respect to an excise tax imposed by chapter 31, chapter 32, chapter 33, chapter 36 of the Internal Revenue Code, but not chapter 35.
And so, that we think is very strong evidence both that Congress has thought through this problem carefully, and when it did, it chose not to extend the wagering tax exemption to tribes.
And number two, when IGRA came along a few years later, there would have been a very easy... there would have been two very easy and clear ways for Congress to extend the exemption that the tribes are now claiming.
Number one, amend section 7871 to add chapter 35 in this list.
Number two, go to chapter 35 and where the State lottery exemption is extended, say or a State... or a tribe.
Congress didn't adopt either of those measures, and we think the ease of doing that counsels very strongly against--
Mr. Luthey: That would have had to come up through the Ways and Means Committee if they had done that?
Mr. DuMont: --I suspect it would have had to go through the tax writing committee certainly, yes.
It counsels very strongly against interpreting difficult language in a collateral section of an entirely different non-tax statute to extend a tax exemption that Congress has not clearly granted.
If there are no further questions.
Mr. Luthey: Thank you, Mr. DuMont.
Mr. Luthey, you have 1 minute remaining.
REBUTTAL ARGUMENT OF GRAYDON D. LUTHEY, JR. ON BEHALF OF THE PETITIONER
Mr. Luthey: Thank you, Your Honor.
With respect to 7871 that my colleague has mentioned, that article... that argument is impeached by 2719(d)(2) of the Indian Gaming Regulatory Act which says that the provisions of this subsection, which includes the statute we've been talking about today, shall apply notwithstanding any other provision of law enacted before, on, or after October 17th, 1988.
So, that particular section provides the preeminence.
At the end of the day, I think we know this.
The language in question that we've been wrestling with here today is ambiguous.
They call it cryptic.
That's a synonym for ambiguous, as the dictionary tells us.
Secondly, the Government's construction requires a reading out.
Our construction gives effect to every word of the statute and is possible.
If possible, under the test of this Court in County of Yakima, the Indian canons must be applied to resolve the ambiguity in our favor.
Chief Justice Rehnquist: Thank you, Mr. Luthey.
The case is submitted.
Argument of Speaker
Mr. Luthey: The opinion of the court No. 00-507 Chickasaw Nation versus United States Choctaw Nation of Oklahoma will be announced by Justice Breyer.
Argument of Justice Breyer
Mr. Breyer: There is an act called the Indian Gaming Regulatory Act that provides that certain Internal Revenue Code provisions will apply to Indian tribes the same way that they apply the States, which ones.
But what the Act says is “provisions... concerning the reporting and withholding of gambling taxes.” Those are the provisions, but as you noticed I said, “...”. Now, what is in those ... is a parenthetical.
So, what it actually says is provisions (including Sections 1441, 3402(q), 6041, and 6050I and chapter 35 of such Code, i.e., chapter 35 of the Internal Revenue Code).
Now the problem in the case comes up because chapter 35 has nothing whatsoever to do with reporting and the withholding of gambling taxes.
It is the provision that asserts, that lays down, and that imposes the tax.
Well, the Tribes argue that we have to give some meaning to the word "chapter 35", and the only possible meaning it could have is that it should apply to them as it applies to States.
It happens to make exceptions for the States from the tax and therefore the Tribe shouldn't have to pay tax either.
Now, at the very least, they say, the statute is ambiguous in that respect and that being so, remember, the canon, statutes are to be construed liberally in favor of the Indians which has appeared in several of our cases.
Now, it is a very good argument but we conclude that we cannot agree with that argument.
In our view, the statute is about what it says it is about, namely the reporting and withholding of taxes.
It is not about imposing taxes.
We think it means that the Indian tribes like the States are free from certain reporting and withholding requirements.
We do not think it means that the Indian tribes don't have to pay the taxes.
And as far as the reference to chapter 35, we think basically, it was a cross referencing error, a numerical error, remaining in the statute and that conclusion draws some support from the fact that at one stage, the bill that became the law referred not just to reporting and withholding but it also referred to “taxation”.
In which case, a cross reference to chapter 35 would have, at that time, made a lot of sense but the committee took the word taxation out of the bill.
We cannot say the statute is really ambiguous at least it cannot be understood in two or more possible senses.
Considering ordinary life, somebody is saying to you, “Test drive some cars including Plymouth, Nissan, Chevrolet, Ford, and Kitchenaid.”
Well, I do not think we would say that was ambiguous; I think we would say whoever was saying it just made a mistake, they don't understand what Kitchenaid is, and that is basically how we conclude the provision in front of us should be interpreted.
Nor can we really make the Indian Canon determinative because there are many canons here and they cut in different directions, for example, there is a canon that says, "exemptions from taxation must be clearly expressed".
For these and other reasons discussed in our opinion, we reject the Tribe’s claim for tax exemption.
We affirm the similar determination made by the Tenth Circuit Court of Appeals.
Justice O’Connor has filed a dissenting opinion which Justice Souter has joined.