So What Is a "Permanent Improvement" to Indian Land?

Much is being made of the new U.S. Department of the Interior leasing regulation, 25 C.F.R. § 162.017, which makes clear that "permanent improvements" to leased Indian land are “not subject to any fee, tax, assessment, levy, or other charge imposed by any State or political subdivision of a State." Related FAQs from those in tribal economic development, include: What is a permanent improvement? What makes an improvement permanent? And most commonly, does [insert type of real or personal property] constitute a tax-exempt permanent improvement? This blog attempts to help folks answer such pivotal questions from a legal point of view.

25 U.S.C. § 465 of course explicitly exempts Indian trust land from state and local taxation. In Mescalero Apache Tribe v. Jones, it was held that Section 465 exempts not only tribal land from state and local taxation, but any tax that the Court deems to be an equivalent to a tax on land, including any “permanent improvements” thereon. 411 U.S. 145, 158 (1973).

Such is true regardless of how the state characterizes those improvements. See Drye v. United States, 528 U.S. 49, 52-53 (1999) (federal law, not state law, defines “property and rights to property” for purposes of a federal tax statute); Confederated Tribes of Chehalis Reservation v. Thurston County Bd. of Equalization, 724 F.3d 1153, 1158 (9th Cir. 2013) (“[I]t is irrelevant whether permanent improvements constitute personal property under [state] law.”).

Under federal law, there is no one definition of a “permanent improvement” for taxation purposes. PPL Corp. v. C.I.R., 135 T.C. 176, 193 (U.S. Tax Ct. 2010).

Instead, courts look to six factors, the “primary focus” of which “is the question of the permanence of depreciable property and the damage caused to it or to realty upon removal of the depreciable property.” Id. (quoting Trentadue v. C.I.R., 128 T.C. 91, 99 (U.S. Tax Ct. 2007)). These factors are as follows:

(1) “Is the property capable of being moved, and has it in fact been moved?” Whiteco Industries Inc. v. Commissioner of Internal Revenue, 65 T.C. 664, 672 (U.S. Tax Ct. 1975).

(2) “Is the property designed or constructed to remain permanently in place?” Id.

(3) “Are there circumstances which tend to show the expected or intended length of affixation, i.e., are there circumstances which show that the property may or will have to be moved?” Id.

(4) “How substantial a job is removal of the property and how time-consuming is it? Is it ‘readily removable’?” Id. at 673.

(5) “How much damage will the property sustain upon its removal?” Id.

(6) “What is the manner of affixation of the property to the land?” Id.

There you have it. So is your improvement permanent?

Gabriel “Gabe” Galanda is the Managing Partner at Galanda Broadman. He is an enrolled member of the Round Valley Indian Tribes of Covelo, California. Gabe can be reached at 206.300.7801 or gabe@galandabroadman.com.

An Essay on the Federal Origins of Disenrollment

Disenrollment is not indigenous to Native America.  It is a creature of the United States. The origins of tribal "disenrollment" are traced to the United States’ paternalistic assimilation policies of the 1930s.  (Federal Indian rolls and removal therefrom date back even further--to the early 1800s.)

In 1934 the U.S. Congress passed the Indian Reorganization Act (“IRA”), wherein the federal government took an extremely active role in framing tribal membership rules.  The IRA contained a definition of who would be recognized as an indigenous person by the federal government: The individual must be a descendant of a member residing on any reservation as of June 1, 1934, or a person “of one-half or more Indian Blood.”  25 U.S.C. § 476.

The United States’ intent was to limit membership “to persons who reasonably can be expected to participate in tribal relations and affairs.”   Office of Indian Affairs, U.S. Dep't of the Interior, Circular No. 3123 (1935), reprinted in 2 Am. Indian Policy Review Comm'n, 94th Cong., Task Force No. 9 Final Report app. at 334 (Comm. Print 1977).  The IRA also urged tribes to adopt a constitution and included a boilerplate that tribes were encouraged to adopt.  And because tribal constitutions were subject to federal approval, the IRA definition of “Indian,” including its blood quantum requirement or some variation thereof, as well as concepts of "disenrollment," found their way into most tribal constitutions, even those that did not adopt the boilerplate IRA constitution.

In fact, even those tribes that opted to forego adopting a constitution were often persuaded to adopt these concepts somewhere in their organic law as a “consequence of the [federal government]’s control over federal services and tribal monies.”  Suzianne D. Painter-Thorne, If You Build It, They Will Come: Preserving Tribal Sovereignty in the Face of Indian Casinos and the New Premium on Tribal Membership, 14 Lewis & Clark L. Rev. 311, 341 (2010).

Thus, “while it is true that membership in an Indian tribe [wa]s for the tribe to decide, that principle is dependent on and subordinate to the more basic principle that membership in an Indian tribe is a bilateral, political relationship” under which the United States had set the terms.  Margo S. Brownell, Who is an Indian? Searching for an Answer to the Question at the Core of Federal Indian Law, 34 U. Mich. J.L. Reform 275, 307 (2001).  The Indian Self-Determination Education Assistance Act of 1975, additionally required that tribal governments devise formal membership regulations, in order for the tribe to receive certain federal self-determination funding.  The United States suggested such regulations, which like its boilerplate IRA constitutions, included notions of blood quantum and disenrollment.

In all, for the last 80 years, the United States has set the terms of tribal membership, i.e., "Indian," "blood quantum," "membership," "base rolls," and of course "disenrollment."  And for good measure, tribal acceptance and implementation of those unconscionable terms have been conditions precedent to self-determination funding since the 1970s.

Despite having invented disenrollment and foisted it upon tribal governments, the United States now suggests that it has no "business trampling on tribal sovereignty and self-governance" by interceding in tribal disenrollment disputes.  Or, as Nooksack Councilwoman Michelle Roberts -- a member of a the Nooksack 306 -- put it to Assistant Secretary of Indian Affairs Kevin Washburn: "It is Frankenstein in Indian country that the United States has created, and now ignores."

Galanda Broadman is an American Indian owned firm dedicated to advancing tribal legal rights and Indian business interests. The firm represents tribal governments, businesses and members in critical litigation, business and regulatory matters, especially in the areas of Indian Treaty rights, tribal sovereignty, taxation, commerce, personal injury, and human/civil rights.

Judicial Warning to Tribes to Avoid State Incorporation

Before any tribal government forms an enterprise under state law or seeks to do business beyond Indian Country, it should consider this week's indictment of tribal sovereign immunity by a Tenth Circuit Court of Appeals Judge in Somerlott v. Cherokee Nation Distributors.

CND, LLC wants sovereign immunity. But CND, LLC is in the business of manipulating spines for profit. It serves mostly non-Indians and operates off reservation. It was formed under Oklahoma’s limited liability statutes. . . .

[S]overeign immunity has never extended to a for-profit business owned by one sovereign but formed under the laws of a second sovereign when the laws of the incorporating second sovereign expressly allow the business to be sued. And it doesn’t matter whether the sovereign owning the business is the federal government, a foreign sovereign, state — or tribe. . . .

Neither can we doubt that the Nation lacked for choices when it came to organizing CND — or that good reasons exist for the choice it made. The Nation could have chosen to operate the chiropractic clinic itself and enjoy immunity for its operations. . . .

The moral of this story: Tribes should avoid state incorporation of their enterprises whenever possible. Instead, tribes should charter their businesses under tribal law, or perhaps Section 17 of the IRA (yet heeding caution about sue-and-be-sued-clause immunity waiver as to the latter). I recognize that certain tribal economic development efforts require an entity formed under state law but that should be the exception to the rule.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  Gabe assists tribal governments and businesses in all matters of tribal economic development and diversification, including entity formation and related tax strategy. Gabe can be reached at 206.691.3631 or gabe@galandabroadman.com.

Galanda and Dreveskracht Both Published in Gaming Law Review on Cutting Edge Indian Gaming Issues

Gabe Galanda and Ryan Dreveskracht were each published in the June 2012 edition of Gaming Law Review and Economics, the leading peer-reviewed journal addressing important regulatory and economic issues facing today’s gaming industry. Gabe was featured in a published set of roundtable comments on issues of "Native American Off-Reservation Gaming." Among Gabe's quotes:

“[O]ff-reservation gaming” is simply a politically loaded term, by the design of non-tribal political interests...[W]hat we are more likely than not talking about it is reacquired Indian lands -- lands to be held in trust for tribal governments by their trustee, the United States, for purposes of Indian governmental gaming enterprise."

"Everyone is awaiting the Interior Secretary’s determination on the Spokane Tribe's application for a two-part determination...[for a] proposed a gaming site just a few miles down the road from the Kalispel Casino and Resort, also in Airway Heights. As the crow flies, it’s about thirty miles from the Spokane Reservation. So the very recent acquisitions in California...perhaps bode well for the Spokane Tribe..."

"[A] Carcieri fix, as it has been called, is needed by Congress, both for purposes of trust acquisition relative to gaming and, more importantly, so that tribes can restore their land base and conduct themselves as governments, while diversifying their economies away from gaming....Any Carcieri fix and the issue of so-called off-reservation trust acquisition for gaming purposes are apples and oranges. But Congress has been persuaded to think that those two issues are inextricably intertwined with one another. And it is safe to say, I believe, that, so long as Congress believes that a Carcieri fix will allow so-called "off-reservation gaming," it is very likely that there will never be a Carcieri fix."

"[W]e are seeing a rise of cases like Patchak, where non-Indian citizens or officials are suing the United States or appealing administrative decisions and the tribe is not a party to the administrative litigation or to the federal court lawsuit -- until, perhaps, it is forced to intervene. And, generally speaking, tribes are immune from such administrative or federal court litigation between a non-Indian party and the federal government. But then they are faced with the Hobson's choice of essentially standing behind the shield of that immunity and not involving themselves in the litigation and, therefore, allowing the United States to represent its interests; or to actually consent to the litigation and effectively waive their immunity, because the tribe believes that it is the only party that can adequately represent its interests and because it believes -- perhaps more crucially –- that the federal government cannot adequately represent its interests."

"The tribes, whether by Congress or the Obama Administration, must be given a seat at the internet gaming table and they must be specifically mentioned in any federal law or regulation which allows internet gaming. If the United States flouts its obligations to Indian Country in regards to the legalization of internet gaming, then it may be time for tribal governments to start internet gaming irrespective of the fed. And that, of course, is precisely how modern Indian gaming began in the 1970s; that is what resulted in the Cabazon decision and, ultimately, the Indian Gaming Regulatory Act and, ultimately, it is that civil disobedience, if you will, that resulted in us having this discussion about a $26 billion Indian gaming industry."

Ryan published his article, "Keeping It Clean for the Future of Indian Gaming." A passage:

At minimum, the cautionary tale to lawyers exemplified by Lake of Torches must be told: Saybrook and Wells Fargo filed a $50 million suit against their former attorneys, alleging that Saybrook would not have purchased the bonds and Wells Fargo would not have secured them had it not been for their attorneys’ negligent advice regarding NIGC approval. It is highly unlikely that the attorneys’ malpractice insurance will cover any $50 million judgment. Further, although Lake of Torches was a legal victory for the Lac du Flambeau Tribe, it was Pyrrhic for both the Tribe and Indian Country. While Lac du Flambeau will find it difficult, if not impossible to ever assume another commercial loan, the Lake of Torches imbroglio helped freeze the capital markets for all of Indian Country for much of the last couple of years.

Indian gaming enterprises have an obligation to appreciate and help nullify the danger that non-Indian businesses and their attorneys inadvertently pose to tribal sovereignty. Indeed, the days of tribal lawyers playing ‘‘hide the ball’’ in contract negotiations may need to be a thing of the past. Instead, taking preemptive steps to caution non-Indian businesses to at least hire competent counsel is not only good business, it is very likely necessary to deter the ero- sion of those fundamental principles of law that have allowed Indian gaming to flourish into the present day.

Gabriel "Gabe" Galanda is a partner, and Ryan Dreveskracht an associate, at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  Gabe is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  He represents tribal governments and businesses and Indians citizens in all matters of controversy and transaction. He can be reached at 206.691.3631 or gabe@galandabroadman.com. Ryan's practice focuses on representing businesses and tribal governments in public affairs, energy, gaming, taxation, and general economic development. He can be reached at 206.909.3842 or ryan@galandabroadman.com.

Amend IRA Section 17 To Allow Federal Incorporation For Tribal Members

Tribal entrepreneurs frequently have only one avenue to charter a business, be it a sole proprietorship, corporation or limited liability company: state incorporation. That is because many tribal governments still do not have business structures laws or incorporation regimes in place. The problem with state incorporation of a tribal member-owned business, though, is that a state charter is the first thing a state tax collector will cite when attempting to tax the business.  An Indian business' state incorporation should not matter. The U.S. Supreme Court has rejected the notion that state taxation arises from the form in which a tribal party chooses to conduct its business. Mescalero Apache Tribe v. Jones, 411 U.S. 145, 157 n.13 (1972). In Pourier v. South Dakota Dept. of Revenue, 658 N.W.2d 395, 405 (2003), a state supreme court explained:

Congress’ primary objective in Indian law for several decades has been to encourage tribal economic independence and development. By finding that incorporation under state law deprives a business of its Indian identity, we would force economic developers on reservations to forgo the benefits of incorporation in order to maintain their guaranteed protections under federal Indian law. This could hinder economic development.

State taxation or other regulation of tribal member businesses most certainly hinders -- it is in fact anathema to -- Indian economic development. Again, though, an Indian's state business charter becomes the proverbial Exhibit A in a state's case to tax or otherwise regulate the business.  In fact, it may be all a state tax collector needs to assess the Indian business, deferring the (il)legalities until later, meaning when the business will find itself enmeshed in a costly tax litigation battle.

Section 17 of the Indian Reorganization Act, 25 U.S.C. § 461 et seq. (1934), provides that “[t]he Secretary of the Interior may, upon petition by any tribe, issue a charter of incorporation to such tribe . . . .” 25 U.S.C. § 477. Although the title of the IRA states that the statute was intended “to extend to Indians the right to form business and other organizations” (48 Stat. 984), and Section 19 defines an “Indian” as “all persons of Indian descent who are members of any recognized tribe now under Federal jurisdiction" (25 U.S.C. § 479), Interior takes the position that Section 17 itself mandates that charters only be issued to a “tribe” and not any tribal member.

That position, though technically correct perhaps, is myopic. It remains Congress’ primary objective relative to Indian Country to encourage tribal economic independence and development (at least on paper). As such, the Obama Administration, especially given its current campaign to protect the American middle class, should support legislation that would allow tribal member entrepreneurs to incorporate, while maintaining their guaranteed protections under federal Indian law to be free of state interference.

A narrow amendment to Section 17 that would allow Indian persons to federally charter businesses in fulfillment of the law's expressed intent, rather than incorporate under state law and thereby risk destruction via state taxation and other regulation -- yes, certainly easier said than done in this political moment -- should be proposed by the Obama Administration and considered by the Congress.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  He can be reached at 206.691.3631 or gabe@galandabroadman.com.