Wall Street Journal Exposes State-Big Tobacco Scheme to Snuff Out Tribal Tobacco Economies

It has been no secret that the states and Big Tobacco are in cahoots to destroy tribal tobacco economies (see the 1998 MSA), but the lengths to which they would go to do so, was left to speculation. Now, the Wall Street Journal has blown the cover off dealings between the States and Big Tobacco, which, as with the original MSA negotiations, concern tribal tobacco economics but do not involve any tribal governments. Nor can there be any doubt whatsoever that state governments are actively looking to balance their hundred-plus-million-dollar budget deficit on the backs of Indians.

The MSA is a convoluted mess, as the states would agree, but the upshot of the unholy alliance between them and Big Tobacco relatively straightforward: States pledge MSA monies to back bonds they issue to fund state government, especially while state tax revenues are at an all time low. In exchange for MSA monies paid by Big Tobacco, the states must protect Big Tobacco's multi-billion dollar market share, including in Indian Country.

Big Tobacco complains that tribal tobacco manufacturers and retailers are eating into that market share. So Big Tobacco threaten the states.

Unless the states more rigorously enforce state tobacco tax laws in Indian Country, Big Tobacco will take the MSA monies back, through push or shove, which could cause the state MSA-backed bonds to default. The States literally cannot afford a default so they are forced to cut a deal with Big Tobacco, promising to do more to protect Philip Morris and Friends' market share, with the tribal tobacco economy being the bargaining chip that both parties are all to happy to cede.

If, or when, the deal currently being negotiated between the states and Big Tobacco is consummated, it could result in the biggest heist of tax value derived from Indian Country by state government and non-Indians, since the Dawes Act. And the model state tobacco tax laws contemplated by the agreement, when, not if, passed by state legislatures, would cause massive, further incursion of state civil regulatory authority into Indian Country.

Indian Country -- meaning not just tribal governments with tobacco economies -- unite! And take action to defend tribal sovereignty as we now know it.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-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, or via galandabroadman.com.

Trahant Reports Quotes from Galanda Broadman's Blog on Indian Tax

Gabe Galanda's blogs on Indan taxation are quoted in Trahant Reports, as featured on indianz.com: It's time for tribes and states to work together.

Seattle attorney Gabriel Galanda puts it this way, on the social network, LinkedIn: “Tax-starved states and counties will continue to attempt to extract value from reservation economic development projects, through taxation or otherwise. Tribes must be vigilant in their defense against illegal inter-local cash grabs.”

On Galanda’s blog he writes that Washington state Republicans are proposing to “close” tribal tax loopholes worth $110 million. His message is clear. “Make no mistake about it,” he writes, “the state tax man cometh to Indian Country. Be prepared.”

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-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, or via galandabroadman.com.

Setting the Record Straight on Indian Taxation in Washington

Late this week, Washington State Republicans introduced three bills, seeking to balance the state's budget on the backs of Washington's 29 tribal governments. A legal and economic reality check is in order. Those bills are:

HB 2044 Concerning equity and fairness through the creation and regulation of electronic scratch ticket machines for nontribal gambling establishments.

HB 2045 Providing for fairness, equity, and transparency of tax preferences for federally recognized Indian tribes.

HB 2046 Concerning legislative involvement with compacts and compact amendments.

In support of those bills, Republican House members argue for "closing tribal tax loopholes." Here are some of the facts the Republicans either (a) do not understand, (b) do not care to understand, or (c) understand but do not care to help the public understand.

1. State taxation of Indian gaming revenues has been per se barred by Congress via the Indian Gaming Regulatory Act of 1988. Period. Still, local Republicans aspire to require "the non-taxpaying tribal mega casinos to pay a tax on the profits they make from the exclusive games they operate." Until they can figure out a way to do that (they can't), they hope to allow the largest expansion of gaming in the state's history, over-promising new state tax revenues. Indeed, according to a commercial gaming industry expert, the proposal "would cut into sales tax revenues in other segments of the state economy."

2. Governments don't tax other governments. Instead, governments -- be they state, local or tribal -- work with each other to devise accords that reflect the needs of each government in relation to the services they provide the public. That is why, according to one study, “[n]early every state that has Indian lands within its borders has reached some type of tax agreement with the tribes” -- including Washington.

3. State and local governments are already adequately compensated for the services they provide to tribal members. Under the economics of “tax exporting,” it is frequently tribal governments – not state or local governments –- who bear a disproportionate financial burden associated with the services they provide.

4. Washington State cannot legally enforce its fuel and tobacco excise tax regime on Indian reservations, according to the U.S. Supreme Court. Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134, 162 (1980); Oklahoma Tax Commission v. Potawatomi Tribe, 498 U.S. 505, 514 (1991). Therefore, heeding advice from the High Court, the state has entered into fuel and tobacco tax compacts with tribes, in part so it can collect something from reservation-based fuel and tobacco sales, instead of engaging zero-sum litigation and enforcement activities.

5. Ten years ago, researchers at the Evergreen State College opined that Washington tribal governments contributed an estimated $140 million annually to the state and local tax structure. Today tribal tax contributions to the state are likely far greater, due in large part to the diversification of Washington tribal economies beyond gaming and tobacco commerce. Tribes are already contributing their so-called fair share of taxes.

One can only hope that the facts will enter the legislative discourse about HB 2044, 2045 and 2046.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm. He is an enrolled member of the Round Valley Indian Tribes of Covelo, California. Gabe co-authored "Taxing Times in Native America," Washington State Bar News, January 2011. He can be reached at 206.691.3631 or gabe@galandabroadman.com, or via galandabroadman.com.

Balancing State Budgets on the Backs of Indians

The $175 billion state budget shortfall can "be traced to 15 years of state tax cuts," and red states, especially, continue to slash corporate income taxes. Meanwhile, Washington State Republicans propose closing "tribal tax loopholes" to supposedly earn the state $110 million every biennium, to be used for "education, public safety and services for the most vulnerable."

So let me get this straight: states continue to cut taxes on Corporate America through "thousands of credits, deductions, abatements and incentive packages," which guts revenues for state services; while proposing to close "tax loopholes" for tribal enterprises, which would gut revenues for tribal governmental services.

Make no mistake about it, the state tax man cometh to Indian Country. Be prepared.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-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, or via galandabroadman.com.

Seneca Nation Leverages Tribal Sovereign Economic Advantages to Woo Corporate America to Tribal Lands

True to business advice delivered by Gabe Galanda on March 15 at RES 2011, the Seneca Nation is inviting Corporate giants like Verizon to greenfield new operations centers on Seneca tribal lands. According to an Indian Country Today Media Network story, "Seneca Offers Land, Tax Advantages, Expertise to Verizon":

Seneca President Robert Odawi Porter wrote to Ivan G. Seidenberg, chairman and CEO of Verizon, on March 18 urging him to consider the many advantages of Seneca Nation land for future Verizon development. . . .

[T]he Seneca Nation doesn’t suffer from the same “systemic impediments” as New York’s local and county governments and invited him to visit Seneca territory to see for himself. The nation, Porter said, supports business development on its territories and throughout Western New York. . . .

Businesses that develop facilities on sovereign Indian land enjoy a number of competitive advantages, Porter said, listing a number of them:

- The Seneca Nation has civil regulatory authority over its own territory, meaning development on Seneca lands would not be subject to New York and county regulatory regimes so that projects can move forward more quickly than on non-Indian land. - Seneca has “streamlined processes” over the tens of thousands of acres of its territory in Western New York. As a result, companies who locate businesses on Seneca land won’t face “nuisance litigation from neighboring landowners as Verizon did," Porter said. - Businesses that locate on Indian land also have certain tax advantages, including in Seneca’s case, no property taxes. “As a sovereign nation, we control our own tax regimes. Culturally, we do not believe in imposing business-choking taxes on our people and development partners. As a result, your facility would not be subject to property taxes on our lands,” Port told the Verizon CEO. The IRS also allows third-party businesses on Indian land to use a shorter depreciation recovery period of approximately 40 percent for most non-residential depreciable property used in development.

Bravo, Seneca Nation, bravo!

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-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, or via galandabroadman.com.

"Dueling Sovereigns: Collecting Taxes in Indian Country"

Gabe Galanda and Anthony Broadman will be co-presenting, "Dueling Sovereigns: Collecting Taxes in Indian Country," at the 25th Annual Coming Together of Peoples Conference at the University of Wisconsin Law School on March 25, 2011.

State and tribal regulations arguably come into the most direct conflict at tax time. Efforts to streamline the federal tax code could lead the IRS to treat tribes more similarly to states, and some states would like to implement on-reservation sales taxes to ease their budget crises. What case can be made for the interests of each sovereign, and who has been winning when they collide?

Gabriel "Gabe" Galanda and Anthony Broadman are partners at Galanda Broadman PLLC, an American Indian majority-owned law firm. Gabe 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, or via galandabroadman.com. Anthony can be reached at 206.691.3631 or anthony@galandabroadman.com.

The Business Case for Private Investment and Development in Indian Country

On Wednesday, at RES 2011 in Las Vegas, Gabe Galanda presented a paper titled, "The Business Case for Private Investment and Development in Indian Country" (updated March 31, 2011). The paper was commissioned by the U.S. Interior Department's Office of Indian Energy and Economic Development, for presentation to representatives of Corporate America in attendance at RES.

There has never before been a better time to develop businesses on Indian lands or otherwise in partnership with tribal governments. The Great Recession has taken a disastrous toll on state and local governments. State tax revenues have plummeted, causing state and local governments to cut programs and reduce workforces. Local development impact fees have spiked. Tax assessors are assessing property and excise taxes with reckless abandon, as many state legislatures having withdrawn various tax exemptions and incentives that were designed to catalyze local business development and job creation. Obtaining building permits now takes even longer. It is getting more and more difficult, if not impossible in some jurisdictions, to develop new businesses in traditional commercial sectors.

But while state and local governments struggle to make ends meet, tribal governments have largely avoided economic catastrophe. Fueled by the $26.4 billion Indian gaming industry, Indian Country is generally faring much better than neighboring local economies since the recession took hold in 2008. Ironically, not having property tax bases to begin with, most tribal governmental revenues have remained stable. But tribes are not getting complacent; they recognize that the Indian gaming industry will not sustain its exponential growth over the last decade. The inevitable legalization of Internet gaming and, in some jurisdictions, commercial land-based gaming, will eventually put a major dent in Indian Country’s bottom line. As such, tribal governments are more than ever looking to diversify their economies.

Where tribes bring a staggering array tangibles like land and location, and intangibles like sovereignty, relaxed red tape and tax exemption, their corporate business partners bring proven industry expertise and new capital to the reservation. Whether through a joint venture between a tribe and a non-Indian business, a tribal land lease to a non-tribal company, or a tax credit investment – all of which are contemplated below – there are an abundance of very advantageous reservation development deals for Corporate America to symbiotically explore with tribes at this time in our nation’s history.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-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, or via galandabroadman.com.

See, the State Tax Man Cometh

Last month, Indian Country Today Media Network has published a column by Gabe Galanda, "The State Taxman Cometh." Consider now this headline, "Tax man eyes Indian tobacco sales."

The state's top tax collector said the state is ready to quickly end tax-free cigarette sales by Indian retailers to non-Indian customers.

New York State is awaiting a ruling from a federal appeals court on the long-simmering tobacco tax issue, said Thomas Mattox, who was confirmed Tuesday by the State Senate to the tax commissioner's post.

"We're prepared to enforce immediately," Mattox said after being unanimously backed by the Senate Finance Committee for the tax post. . . .

Gov. Andrew M. Cuomo is counting on $130 million in revenue by ending the tax-free Indian tobacco sales. The state wants to collect the tax "upstream" at the tobacco wholesale level so that the taxes already would have been paid to Albany by the time cigarettes reach Indian retailers.

Expect to see many more news stories about state and local tax collectors seeking to balance state budgets on the backs of Indians.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-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, or via galandabroadman.com.

Economic Issues Affecting Indian Gaming

Gaming Law Review & Economics has published a note, "Economic Issues Affecting Native American Gaming," featuring Gabe Galanda's remarks during a roundtable discussion last fall regarding economic issuing impacting the $26.5 billion Indian gaming industry. On the state of Indian gaming markets vis-a-vis that of domestic commercial gaming meccas:

[T]he New York Times wrote about this phenomenon, indicating that Reno and Lake Tahoe are seeing their revenues erode by as much as 25%–40%. That is juxtaposed with places like the Pacific Northwest, which are seeing modest, perhaps even healthy, growth during the same time period.

On the state of tribal financing:

[Y]ou are seeing that gaming tribes can only take out bank debt based on 2 to 2.5 times historical EBITDA, meaning proven cash flow. You once were able to leverage, very favorably, relatively unproven cash flows. Now though, unless you have historical, proven cash flow, you are going to have a very difficult time obtaining any money, and what money you are going to be able to obtain is probably far less—and it will cost you far more— than in prior years.

On the state of Indian gaming contracting:

There are a number of contracts, both in form and substance, that pertain to Class II or Class III gaming—most notably, those for gaming machines. We are now seeing the same type of financial scrutiny of deal terms in these contracts that we are talking about in regard to significant financing or restructuring transactions. We are seeing that scrutiny of what historically have been almost boilerplate agreements between tribal casino operators and their business partners . . .

On the states' budget crises:

[T]here is an estimated $112 billion shortfall amongst the states collectively. I will tell you that on the ground, in the offices of state or local assessors, there are government officials who are looking perhaps beyond the casino itself, the monies flowing from that particular casino and the properties within that casino, but still towards the tribe, to figure out how they can get their hooks into gaming proceeds running to the tribal government.

On state Class III gaming "fees" in lieu of taxes:

[W]e will see state governments in particular trying to develop new ways of imposing fees on gaming activities in circumvention of the stated intent, purpose, and spirit of IGRA, in desperate attempt to balance hemorrhaging state budgets.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-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, or via galandabroadman.com.

Furthering the Case for Tribal Legalization of Marijuana

Two February 20, 2011 national news stories further suggest that it is time for Indian Country to begin seriously engaging in the state-federal debate about legalizing, regulating and taxing marijuana. From the Oklahoman, "How $31 of pot gave mom a 10-year-prison sentence":

Because of $31 in marijuana sales, Patricia Marilyn Spottedcrow is now serving 10 years in prison, has been taken away from her four young children and husband, and has ended her work in nursing homes.

Tragically, Patricia Marilyn Spottedcrow is not the only poor Native American who has had to resort to selling illegal contraband to support her family, and whose family was shattered by the failed effects of the war on drugs. Accordingly, some tribal governments have already taken the matter of marijuana legalization and regulation into their own hands. Other tribes have considered doing so but decided marijuana was and is not part of tribal ways.

From the notoriously conservative Seattle Times editorial board, "The Washington Legislature should legalize marijuana":

MARIJUANA should be legalized, regulated and taxed. The push to repeal federal prohibition should come from the states, and it should begin with the state of Washington. . . .

[I]n America, prohibition is the pursuit of the impossible. It does impose huge costs. There has been:

• A cost to the people arrested and stigmatized as criminals, particularly to students who lose university scholarships because of a single conviction;

• A cost in wasted police time, wasted court time and wasted public resources in the building of jails and prisons;

• A cost in disrespect for the law and, in some U.S. cities, the corruption of police departments;

• A cost in lost civil liberties and lost privacy by such measures as the tapping of private telephones and invasion of private homes;

• A cost in the encouragement of criminal lifestyle among youth, and the consequent rise in theft, assault, intimidation, injury and murder, including multinational criminal gangs; and

• A cost in tax revenues lost by federal, state and local governments — revenues that for this state might be on the order of $300 million a year.

Some drugs have such horrible effects on the human body that the costs of prohibition may be worth it. Not marijuana. This state's experience with medical marijuana and Seattle's tolerance policy suggest that with cannabis, legalization will work — and surprisingly well.

Not only will it work, but it is coming. You can feel it.

To the extent consistent with tribal ways, tribal governments should draft behind the states in the push to repeal federal prohibition, and stand ready to legalize, regulate and tax (or tax exempt) marijuana under tribal law when that day comes.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-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, or via galandabroadman.com. This information is not intended to create an attorney/client relationship and shall not be construed as legal advice.