Jennifer A. MacLean (admitted Pro Hac Vice · Case No. 5:14-cv-00007-DMG-DTB Jennifer A. MacLean (admitted Pro Hac Vice) [email protected] . Benjamin S. Sharp (admitted . Pro

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DEFENDANTS’ CROSS-MOTION FOR SUMMARY JUDGMENT, MEMORANDUM IN SUPPORT THEREOF,

AND OPPOSITION TO PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT Case No. 5:14-cv-00007-DMG-DTB

Jennifer A. MacLean (admitted Pro Hac Vice) [email protected] Benjamin S. Sharp (admitted Pro Hac Vice) [email protected] PERKINS COIE LLP 700 Thirteenth Street, N.W., Suite 600 Washington D.C. 20005-3960 Telephone: (202) 434-1648 Facsimile: (202) 434-1690 GREGORY P. PRIAMOS, County Counsel (Bar No. 136766) RONAK N. PATEL, Deputy County Counsel (Bar No. 249982) [email protected] COUNTY OF RIVERSIDE 3960 Orange Street, Suite 500 Riverside, California 92501 Telephone: (951) 955-6300 Facsimile: (951) 955-6363 Attorneys for Defendants COUNTY OF RIVERSIDE, LARRY W. WARD, PAUL ANGULO and DON KENT

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

EASTERN DIVISION

AGUA CALIENTE BAND OF CAHUILLA INDIANS,

Plaintiff,

v.

RIVERSIDE COUNTY, LARRY W. WARD, in his official capacity as Riverside County Assessor, PAUL ANGULO, in his official capacity as Riverside County Auditor-Controller, and DON KENT, in his official capacity as Treasurer Tax Collector,

Defendants; and

DESERT WATER AGENCY,

Defendant-Intervenor.

Case No. 5:14-cv-00007-DMG-DTB Judge: Hon. Dolly M. Gee

DEFENDANTS’ CROSS-MOTION FOR SUMMARY JUDGMENT, MEMORANDUM IN SUPPORT THEREOF, AND OPPOSITION TO PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT Hearing Date: March 31, 2017 Time: 3:00 p.m. Courtroom: 8C Trial Date: June 13, 2017 Action Filed: January 2, 2014

Case 5:14-cv-00007-DMG-DTB Document 150 Filed 12/15/16 Page 1 of 33 Page ID #:1901

mailto:%[email protected]

mailto:%[email protected]

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TABLE OF CONTENTS

Page

-i-

I. FACTUAL BACKGROUND ......................................................................... 3

A. Under California law, PIT revenues directly serve the communities that generate them ........................................................... 3

B. Agua Caliente lands are deeply integrated into the non-Indian communities and lessees rely on services provided by the County and subordinate jurisdictions ................................................... 5

II. PROCEDURAL BACKGROUND ................................................................. 6

III. STANDARD OF REVIEW ............................................................................ 6

IV. ARGUMENT .................................................................................................. 7 A. Section 5 of the IRA does not preempt the PIT .................................... 8

B. The leasing regulations were not comprehensive before 2013 and they are not now ........................................................................... 12 1. The leasing regulations are not comprehensive or

pervasive ................................................................................... 12

2. The Secretary’s interpretation of the scope of the leasing regulations is incorrect and not entitled to deference ............... 15

C. Bracker balancing strongly favors upholding the PIT ........................ 18 1. The PIT does not undermine federal or Tribal interests ........... 18

2. The State interests in imposing the PIT are very strong ........... 21

V. CONCLUSION ............................................................................................. 25


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- i - DEFENDANTS’ CROSS-MOTION FOR SUMMARY JUDGMENT, MEMORANDUM IN SUPPORT THEREOF,


TABLE OF AUTHORITIES

Page(s) CASES

Agua Caliente Band of Mission Indians v. County of Riverside, 442 F.2d 1184 (9th Cir. 1971) ...................................................................... passim

Arenas v. United States, 322 U.S. 419 (1944) .............................................................................................. 5

Auer v. Robbins, 519 U.S. 452 (1997) ............................................................................................ 16

Brown v. United States, 32 Fed. Cl. 509 (1994) ................................................................................... 14, 16

Brown v. United States, 6 F.3d 1554 (Fed. Cir. 1996) ......................................................................... 12, 15

CBOCS W., Inc. v. Humphries, 553 U.S. 442 (2008) .............................................................................................. 8

Cherokee Nation of Oklahoma v. United States, 21 Cl. Ct. 565 (1990) ........................................................................................... 15

Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (1988) .............................................................................................. 7

Confederated Tribes of the Chehalis Reservation v. Thurston County Bd. of Equalization, 724 F.3d 1153 (9th Cir. 2013) ......................................................................... 8, 10

Cotton Petroleum v. New Mexico, 490 U.S. 163 (1989) ................................................................................ 17, 18, 21

English v. General Elec. Co., 496 U.S. 72 (1990) .............................................................................................. 11

Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000) ............................................................................................ 16

Fort Mojave Tribe v. County of San Bernardino, 543 F.2d 1253 (9th Cir. 1976) ..................................................................... 1, 8, 10

Gila River Indian Community v. Waddell, 91 F.3d 1232 (9th Cir. 1996) ......................................................................... 12, 21

Jonathan L. v. Sup’r Court, 165 Cal. App. 4th 1074 ........................................................................................ 22

Maraschiello v. City of Buffalo Police Dept., 709 F.3d 87 (2d Cir. 2013) .................................................................................... 7


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-ii- DEFENDANTS’ CROSS-MOTION FOR SUMMARY JUDGMENT, MEMORANDUM IN SUPPORT THEREOF,


Mescalero Apache Tribe v. Jones, 411 U.S. 145 (1973) .............................................................................................. 9

Nevada Bank v. Sedgwick, 104 U.S. 111 (1881) .............................................................................................. 1

Nevada v. Hicks, 533 U.S. 353 (2001) .............................................................................................. 1

New Mexico v. Mescalero Apache Tribe, 462 U.S. 324 (1983) .............................................................................................. 7

Nordlinger v. Hahn, 505 U.S. 1 (1992) .................................................................................................. 3

Norfolk Energy, Inc. v. Hodel, 898 F.2d 1435 (9th Cir. 1990) ............................................................................. 16

Northstar Financial Advisors Inc. v. Schwab Investments, 779 F.3d 1036 (9th Cir 2015) .............................................................................. 10

Organized Village of Kake v. Egan, 369 U.S. 60 (1962) .............................................................................................. 16

Palm Springs Spa, Inc. v. County of Riverside, 18 Cal. App. 3d 372 (1971) ............................................................................... 1, 8

Patterson v. McLean Credit Union, 491 U.S. 164 (1989) .............................................................................................. 8

Ramah Navajo School Bd., Inc. v. Bureau of Revenue of New Mexico, 458 U.S. 832 (1982) ............................................................................................ 13

Salt River Pima-Maricopa Indian Community v. Arizona, 50 F.3d 734 (9th Cir. 1995) ........................................................................... 18, 21

Segundo v. City of Rancho Mirage, 813 F.2d 1387 (9th Cir. 1987) ............................................................................. 15

Seminole Tribe of Fla. v. Stranburg, 799 F.3d 1324 (11th Cir. 2015) ..................................................................... 10, 11

United States v. City of Detroit, 355 U.S. 466 (1958) .............................................................................................. 9

United States v. County of Fresno, 429 U.S. 452 (1977) ........................................................................................ 9, 10

United States v. County of Fresno, 50 Cal. App. 3d 633 (1975), aff’d, 429 U.S. 452 (1977) .............................. 10, 20

United States v. Johnson, 256 F.3d 895 (9th Cir. 2001) (en banc) ............................................................... 10


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-iii- DEFENDANTS’ CROSS-MOTION FOR SUMMARY JUDGMENT, MEMORANDUM IN SUPPORT THEREOF,


United States v. Pierce, 235 F.2d 885 (9th Cir. 1956) ................................................................................. 5

Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95 (2005) .................................................................................... 9, 10, 18

Washington v. Confederated Tribes of the Colville Reservation, 447 U.S. 134 (1980) ...................................................................................... 17, 18

White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980) ..................................................................................... passim

Yavapai-Prescott Indian Tribe v. Scott, 117 F.3d 1107 (9th Cir. 1997) ......................................................................... 6, 12

STATUTES

25 U.S.C. § 2 ............................................................................................................. 16

25 U.S.C. § 9 ............................................................................................................. 16

25 U.S.C. § 415 ............................................................................................... 8, 14, 16

25 U.S.C. § 465 .................................................................................................. passim

25 U.S.C. § 951, et seq. .......................................................................................... 5, 8

25 U.S.C. § 953(b) ...................................................................................................... 6

25 U.S.C. § 5108 ......................................................................................................... 2

Cal. Rev. & Tax Code §§ 103, 104 ............................................................................ 3

Fla. Stat. § 212.031 ................................................................................................... 11

OTHER AUTHORITIES

25 C.F.R. Part 131 .................................................................................................... 13

25 C.F.R. Part 162 ........................................................................................ 12, 14, 15

25 C.F.R. § 131.5(b), (c), (d) (1971) ........................................................................ 14

25 C.F.R. § 162.017 .................................................................................................. 16

25 C.F.R. §§ 162.320(a), 162.321 ............................................................................ 14

25 C.F.R. §§ 162.334, 162.335, 162.328(a) ............................................................. 15

66 Fed. Reg. 7068 (Jan. 22, 2001) ............................................................................ 14

77 Fed. Reg. 72440 (Dec. 5, 2012) ..................................................................... 14, 15

Cal. Const. Art. XIIIA, §§ 1(a), 2(a) .......................................................................... 3


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-iv- DEFENDANTS’ CROSS-MOTION FOR SUMMARY JUDGMENT, MEMORANDUM IN SUPPORT THEREOF,


Cal. Const., Art. XIII, § 1 ........................................................................................... 3

Cal. Constitution, art. IX, section 1 .......................................................................... 22

Fed. R. Civ. P. 12(c) ................................................................................................... 6

Fed. R. Civ. P. 54(b) ................................................................................................... 6

Fed. R. Civ. P. 56 ........................................................................................................ 1

Fed. R. Civ. P. 56(c) ................................................................................................... 6


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- 1 - DEFENDANTS’ CROSS-MOTION FOR SUMMARY JUDGMENT, MEMORANDUM IN SUPPORT THEREOF,


Pursuant to Rule 56, Defendants County of Riverside, and Larry W. Ward,

Paul Angulo, and Don Kent, in their respective official capacities as Assessor,

Auditor Controller, and Treasurer Tax Collector, move for summary judgment

upholding the State of California’s possessory interest tax (“PIT”):

State taxing authority is generally coextensive with state sovereignty. “[A]ll

subjects over which the sovereign power of a State extends are objects of taxation.”

Nevada Bank v. Sedgwick, 104 U.S. 111 (1881). “State sovereignty does not end at

a reservation’s border.” Nevada v. Hicks, 533 U.S. 353, 361 (2001). There are two

independent barriers that can restrict state taxing authority. First, federal law may

preempt a state tax if compliance with both federal and state law is impossible or if

federal law occupies the field. Second, federal law may preempt a state tax if that

tax interferes with federal and tribal interests and state interests do not justify the

assertion of state authority. Thus, federal law can—in certain circumstances—

preempt state taxing authority over non-Indians, but it does not do so here.

The County has assessed the State’s PIT on non-Indians leasing lands and

improvements located within the Agua Caliente Reservation for over 45 years.

Agua Caliente Band of Mission Indians v. County of Riverside, 442 F.2d 1184 (9th

Cir. 1971) (holding PIT was not preempted by federal law); Palm Springs Spa, Inc.

v. County of Riverside, 18 Cal. App. 3d 372 (1971); accord Fort Mojave Tribe v.

County of San Bernardino, 543 F.2d 1253, 1259 (9th Cir. 1976). Congress has not

changed the law since those decisions. And all parties relied on those decisions

until 2013, when the Secretary of the Interior, in revising the Indian leasing

regulations to reduce federal oversight, emphasized the federal and tribal interests a

court should weigh when addressing whether federal law preempts a state tax.


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-2- DEFENDANTS’ CROSS-MOTION FOR SUMMARY JUDGMENT, MEMORANDUM IN SUPPORT THEREOF,


Plaintiff Agua Caliente Band of Cahuilla Indians (“Tribe”) now argues that

Section 5 of the Indian Reorganization Act (IRA), 25 U.S.C. § 4651, preempts the

PIT. But the Agua Caliente Reservation was not acquired under § 465; it was set

aside by Executive Order decades before Congress passed the IRA. Today, virtually

all of the lessees whose possessory interests the State taxes lease lands allotted to

individual Indians under the Agua Caliente Equalization Act of 1959, not § 465.

Only a small number of lessees are on tribal lands, and there is no evidence that

those lands were acquired under § 465. The Tribe’s § 465 argument is unpersuasive

for a second reason—the PIT does not tax tribal property at all.

The Tribe also argues that the PIT impermissibly interferes with its

sovereignty and rights of self-governance, but there is no evidence of that. The

original checkerboard pattern of the Reservation, combined with its subsequent

allotment to individual Indians (and some alienation to non-Indians), is responsible

for the deeply integrated communities that exist today. The Supreme Court long

ago endorsed concurrent taxation, so the PIT does not prevent the Tribe from

imposing its own tax. And the assumption that the PIT economically harms the

Tribe is refuted by the development that has occurred over the last 45 years. Agua

Caliente Indians now lease out 4,300 acres, as compared to 16 acres in 1969, and

the assessed value of the possessory interests in that land is now approximately

$2.9 billion.

California—on the other hand—has a very strong interest in providing all

residents governmental services, including public education, police and fire

protection, health and social services, jails and elections, building and planning

approvals, street maintenance, and water and sewer services. The Tribe does not

provide services to lessees; indeed, with respect to allotted lands, it does not even

1 Section 465 has been recodified as 25 U.S.C. § 5108, but this brief will

continue to refer to it as Section 465.


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know who the lessees are. That responsibility falls squarely on Riverside County,

Palm Springs, Rancho Mirage, Cathedral City and the special districts, each of

which receives an allocation of property tax and PIT revenues mandated under

State law. The Tribe’s objection that “the PIT is a general revenue tax not directly

tied to specific services” vastly oversimplifies a complex system that requires

property tax and PIT revenues to be allocated to the local governments and special

districts that generate them. Respectfully, the Court should grant the County’s

motion for summary judgment.

I. FACTUAL BACKGROUND

A. Under California law, PIT revenues directly serve the communities that generate them California’s counties, cities, schools and special districts depend on property

tax and PIT revenues to fund governmental services. See Defendants’ Statement of

Undisputed Facts in Support of its Cross-Motion for Summary Judgment (SF) 3.

Under the California Constitution, “all property is taxable.” Cal. Const., Art. XIII, §

1 (identifying exemptions). The code defines “property” to include both real and

personal property, and “real property” includes the “possession of, claim to,

ownership of, or right to the possession of land” and “improvements.” Cal. Rev. &

Tax Code §§ 103, 104. “Possessory interests” are the possession of (or the right to

possess) real property where title to the real property is held by a tax-exempt entity.

Id. § 107(a).

In 1978, California voters adopted Proposition 13, which imposes strict limits

on the rate at which real property is taxed and on the rate at which real property

assessments are increased from year to year. See generally Nordlinger v. Hahn, 505

U.S. 1 (1992). Under Proposition 13, property taxes are capped at 1% of the

property’s “full cash value,” which is defined as the assessed valuation as of the

1975-1976 tax year or, “thereafter, the appraised value of real property when

purchased, newly constructed, or a change in ownership has occurred after the 1975


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assessment.” Cal. Const. Art. XIIIA, §§ 1(a), 2(a). Proposition 13 also prohibits

assessment values from exceeding 2 percent annually. Id. § 2(b).

A taxing jurisdiction is a district that has been approved by the California

Board of Equalization to levy or assess taxes (e.g., fire protection districts, cities).

SF 4. All taxing jurisdictions provide a service to a specific geographical area. SF

4. Each parcel of land is assigned to a tax rate area (“TRA”), which is a small

geographical area within a county that contains properties that are all served by a

unique combination of local governments—the county, a city, and the same set of

special districts and school districts. SF 6. The County is responsible for assessing,

collecting and allocating tax revenues by TRA. SF 7.

The 1% tax is a shared revenue source for multiple local governments, which

include K-12 school districts, county offices of education, community college

districts, cities, and special districts (fire protection, cemetery, community services,

maintenance, highway lighting, water, hospital, sanitary, irrigation, mosquito

abatement, utilities, recreation and parks). SF 9. Counties must allocate the

revenues they collect from the 1% tax to the local governments pursuant to a series

of complex state statutes. Under Assembly Bill 8 (“AB 8”), passed in 1979, each

taxing jurisdiction within a TRA received the property tax revenue it received the

prior year, plus its share of any growth in property tax within its boundaries. SF 10.

Lessees of Agua Caliente lands rely exclusively on the County, Palm

Springs, Rancho Mirage, Cathedral City, the Palm Springs school district, and

special districts for all of their governmental services, including but not limited to

fire service, police protection, road maintenance, flood control, sewer, electrical

service, trash, public transportation, animal control services, and mosquito

abatement. SF 44 - 48.


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B. Agua Caliente lands are deeply integrated into the non-Indian communities and lessees rely on services provided by the County and subordinate jurisdictions There are thousands of leases for approximately 4,300 acres of tribal and

allotted lands scattered throughout the Agua Caliente Reservation. “Tribal lands,”

are lands held in trust for the tribe; “allotted” lands are lands held in trust for

individual members. The Tribe does not know any details regarding leases of

allotted lands—for which there are over 19,900 master leases, mini-master leases,

subleases and sub-subleases—including who the lessors or lessees are, what

businesses they may be operating, or any of the terms of those leases. SF 12. The

Tribe itself leases out approximately 14.75 acres of tribal trust land under four

commercial leases, and two residential leases. SF 13. The Tribe reviews leases of

tribal land to determine whether the leases comply with various environmental

regulations, land use, zoning and related services, and the lessees compensate the

Tribe for that service. SF 14. The Tribe otherwise does not provide governmental

services to lessees of Agua Caliente land. SF 15.

The history of the Agua Caliente Reservation has influenced both the leasing

arrangements and integrated nature of the communities. The Agua Caliente

Reservation encompasses approximately 31,000 acres, spread in a checkerboard

pattern over Palm Springs, Cathedral City and Rancho Mirage in Riverside County.

SF 16. President Grant established the Agua Caliente Reservation by Executive

Order in 1876, and President Hayes expanded the Reservation in 1877 to include

the even-numbered sections of designated land. SF 17, 18. The odd-numbered

sections had been previously granted to the Southern Pacific Railroad, which sold

the lands to non-Indians. Arenas v. United States, 322 U.S. 419, 431 (1944).

The ownership of land within the checkerboard itself is fragmented. In 1961,

the Secretary allotted over 90 percent of the Reservation under the Agua Caliente

Equalization Act of 1959, 25 U.S.C. § 951, et seq.; see also United States v. Pierce,


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235 F.2d 885 (9th Cir. 1956). The Secretary allotted 23,660 acres of Reservation

land valued at $12,800,000 to 85 members whose allotments were the lowest

valued allotments so that the Tribe’s 104 living members each owned allotments

“equalized'” at a minimum value of $335,000. SF 19. Approximately 2,111 acres,

which included a church and a cemetery; four mountain canyon areas, and the

Mineral Springs area, remained in trust for the Tribe.2 SF 20; 25 U.S.C. § 953(b).

II. PROCEDURAL BACKGROUND

On February 1, 2014, the Tribe filed its complaint seeking a declaration that

federal law preempts the Defendants’ assessment and collection pursuant to

California law of PIT on non-Indian lessees of tribal and allotted land, and an

injunction barring Defendants from carrying out those tax-related activities. Desert

Water Agency—which receives a portion of the PIT revenues collected by

Defendants—was permitted to intervene in April 2014, and in July 2014,

Defendants moved for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c).

On February 8, 2016, the Court denied Defendants’ motion, based solely on

the allegations in the Tribe’s complaint. See Doc. 118 at 5, 17. The Court declined

to decide whether 25 U.S.C. § 465 preempts the PIT, id. at 12, and also concluded it

must balance federal, tribal, and state interests under Bracker to assess whether

federal law preempts the PIT, id. at 16.

III. STANDARD OF REVIEW Summary judgment may be granted when the discovery, affidavits or

declarations, stipulations, or other materials “do not establish the absence or

presence of a genuine dispute” regarding a material fact and that the moving party

is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The Tribe has the

burden of proof to demonstrate that Bracker balancing favors tribal and federal

2 The Tribe now owns approximately 7,674 acres of trust tribal land, of which

approximately 2,230.47 acres are within Reservation boundaries. SF 21.


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interests over state interests. See Yavapai-Prescott Indian Tribe v. Scott, 117 F.3d

1107, 1112 (9th Cir. 1997) (holding Arizona tax not preempted under Bracker).

The Tribe characterized the Court’s denial of Defendants’ motion for

judgment on the pleadings as Law of the Case. Doc. 144 at 5-7. Under Rule 54(b)

of the Federal Rules of Civil Procedure, “any order or other decision, however

designated, that adjudicates fewer than all the claims or the rights and liabilities of

fewer than all the parties does not end the action as to any of the claims or parties

and may be revised at any time before the entry of a judgment adjudicating all the

claims and all the parties’ rights and liabilities.” (emphasis added). A court may

revisit its prior decisions and correct errors while the case is still pending. See

Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 817 (1988). In addition,

a motion for judgment on the pleadings is interlocutory. Law of the Case doctrine

does “not preclude a district court from granting summary judgment based on

evidence after denying a motion to dismiss based only on the plaintiff’s

allegations.” Maraschiello v. City of Buffalo Police Dept., 709 F.3d 87, 97 (2d Cir.

2013).

IV. ARGUMENT

Under White Mountain Apache Tribe v. Bracker, the PIT is preempted if: (1)

federal law preempts the exercise of state authority; or (2) the PIT unlawfully

infringes “on the right of reservation Indians to make their own laws and be ruled

by them.” 448 U.S. 136, 142-43 (1980) (citation omitted). Courts must also give

weight to the regulatory interests of states, because “‘automatic exemptions as a

matter of constitutional law are unusual.’” Id. at 144 (citations omitted). The Court

more recently explained, “State jurisdiction is preempted by the operation of federal

law if it interferes or is incompatible with federal and tribal interests reflected in

federal law, unless the state interests at stake are sufficient to justify the assertion

of state authority.” New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 334

(1983) (emphasis added).


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In 1971, the Ninth Circuit upheld the PIT because the Court could not find

any “congressional purpose to forbid the imposition of it.” Agua Caliente Band of

Mission Indians, 442 F.2d at 1186. The California Court of Appeal concluded that

the PIT “is sufficiently indirect and remote as to be permissible” under federal law.

Palm Springs Spa, Inc. v. County of Riverside, 18 Cal. App. 3d 372, 379 (1971).

The Ninth Circuit held in 1976 that federal law did not preempt the PIT because the

court found nothing in either the Indian Reorganization Act or the leasing statute—

25 U.S.C. § 415—that would “render the county powerless to enforce the tax here

involved against the lessee.” Fort Mojave, 543 F.2d at 1259.3 An analysis under

Bracker of the Tribe’s claims does not require a different conclusion.

A. Section 5 of the IRA does not preempt the PIT The Tribe argues that Section 5 of the IRA, 25 U.S.C. § 465, preempts the

PIT. That argument fails for two reasons. First, neither the leased parcels of allotted

or tribal land on the Agua Caliente Reservation were acquired pursuant to the IRA.

To the contrary, the Reservation was set aside by Executive Orders in 1876 and

3 Although this Court held that Bracker abrogated the decisions in Agua

Caliente and Fort Mojave, Order at 10, the Supreme Court has stated that “[c]hanges in interpretative approach . . . [do not] justify reexamination of well-established prior law.” CBOCS W., Inc. v. Humphries, 553 U.S. 442, 457 (2008). “Principles of stare decisis, after all, demand respect for precedent whether judicial methods of interpretation change or stay the same.” Id. “Considerations of stare decisis have special force” in statutory construction cases like this, because “unlike in the context of constitutional interpretation, the legislative power is implicated, and [the Legislature] remains free to alter what we have done.” Patterson v. McLean Credit Union, 491 U.S. 164, 172–173 (1989). Moreover, the Ninth Circuit has observed, “[e]ven prior to Bracker, we applied a similar mode of analysis” to uphold California’s possessory interest tax.” Confederated Tribes of the Chehalis Reservation v. Thurston County Bd. of Equalization, 724 F.3d 1153, 1158 (9th Cir. 2013); see also Palm Springs Spa, 18 Cal. App. 3d at 378 (“we find that balancing the interests of the state . . . against the interests of the United States . . . the nondiscriminatory possessory interest tax does not constitute an undue burden”).


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1877, more than 50 years before Congress passed the IRA. Thus, Section 465’s tax

exemption of land acquired pursuant to the IRA is irrelevant here.4

Second, even if the leased lands had been acquired under § 465, that statute

does not preempt the PIT. Section 465 provides that “[t]itle to any lands or rights

acquired pursuant to [this Act] shall be taken in the name of the United States in

trust for the Indian tribe or individual Indian for which the land is acquired, and

such lands or rights shall be exempt from State and local taxation.” 25 U.S.C. §

465. The PIT does not tax the lands or rights acquired under § 465, nor the Tribe or

its members. Instead, it taxes rights held by non-Indians acquired by contract. See

United States v. City of Detroit, 355 U.S. 466, 470 (1958) (distinguishing between a

tax that “simply and forthrightly [is] imposed on the property itself” and a tax “on

the privilege of using or possessing” property and upholding the latter).

The Tribe cites Mescalero Apache Tribe v. Jones, for the proposition that use

is among “the bundle of privileges that make up property or ownership of property,

and, in this sense, at least, a tax upon use is a tax upon the property itself.” Doc.

144 at 1 (quoting 411 U.S. 145, 158 (1973)). The Tribe’s reliance is misplaced. In

Mescalero, New Mexico was imposing use taxes directly on the Tribe, not a non-

Indian, as is the case here. The question was whether Indians going beyond

reservation boundaries were subject to state taxes, not whether non-Indians living

or conducting business on the reservation were exempt. 411 U.S. at 148-49.

The scope of a state tax is an issue of state law and is critical to the

preemption analysis. See Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95,

102-03 (2005). That is why the Supreme Court held four years after Mescalero that

the PIT is not a tax on property or improvements. United States v. County of

Fresno, 429 U.S. 452 (1977). In that case, the Court concluded that California

4 The vast majority of the leased lands are not tribal lands; rather, they are lands allotted to individual members pursuant to the Agua Caliente Equalization Act, 25 U.S.C. § 951, et seq. SF 22.


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could tax federal employees on their possessory interests in housing owned and

supplied by the Federal Government as part of their compensation, because the

“‘legal incidence’ of the tax involved in this case falls neither on the Federal

Government nor on federal property.” Id. at 464 (emphasis added). The Court

observed that the PIT “may impose an economic burden on the Forest Service,” but

in no other respect did it “threaten[] to obstruct or burden a federal function.” Id. As

the California Court of Appeal explained, the PIT “assessment is against the private

citizen, and it is the private citizen’s usufructuary interest in the government land

and improvements alone that is being taxed.” United States v. County of Fresno, 50

Cal. App. 3d 633, 640 (1975), aff’d, 429 U.S. 452 (1977).

The Ninth Circuit’s decisions upholding the PIT are consistent with County

of Fresno. When the Ninth Circuit upheld the PIT in 1976, it observed that “the

legal incidence of the [PIT] clearly falls on the lessee,” and that “[w]hatever may be

the scope of the indirect burden placed on the lessor's interest in this case, . . . it is

not sufficient to constitute an encumbrance of an ‘interest in land or other tribal

asset.’” Fort Mojave Tribe, 543 F.2d at 1256. Likewise, in 2013, the Ninth Circuit

distinguished a Washington State tax on improvements from the PIT by observing

that the PIT “‘does not purport to tax the land as such,’ which would be barred by §

465, ‘but rather taxes the full cash value of the lessee’s interest in it,’ which is not

covered by § 465.” Chehalis, 724 F.3d at 1158, n.7. Although Thurston County

cited to Fort Mojave, Agua Caliente and other cases in support of its argument, the

court observed that “[n]one … involved property taxes, however, so they do not

implicate § 465.” Id. at 1158 (emphasis added). The Ninth Circuit did not refer to

the PIT in passing; rather, the court specifically analyzed the difference between

Washington’s tax and California’s PIT. Respectfully, this Court should also

conclude that the PIT does not implicate § 465 because it is not a tax on real

property. Northstar Financial Advisors Inc. v. Schwab Investments, 779 F.3d 1036,


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1068 (9th Cir 2015) (citing United States v. Johnson, 256 F.3d 895, 914 (9th Cir.

2001) (en banc)(noting that courts are bound by reasoned dicta)).

The Tribe also relies (Doc. 144 at 8) on Seminole Tribe of Fla. v. Stranburg,

where the Eleventh Circuit held that § 465 preempted Florida’s tax on rental

payments made by non-Indian lessees of reservation land (citing 799 F.3d 1324

(11th Cir. 2015)). But the Florida rental tax is substantially different from the PIT,

which is critical. See Wagnon, 546 U.S. at 102-03. Florida’s rental tax provides that

“every person is exercising a taxable privilege who engages in the business of

renting, leasing, letting, or granting a license for the use of any real property” and

that “[f]or the exercise of such privilege, a tax is levied in an amount equal to 6

percent of and on the total rent or license fee charged for such real property by the

person charging or collecting the rental or license fee.” Fla. Stat. § 212.031. The

legal incidence of Florida’s rental tax falls directly on the Seminole Tribe, which

federal law prohibits. The Eleventh Circuit explained that “[t]he ability to lease

property is a fundamental privilege of property ownership,” and by taxing the

Tribe’s “privilege” to rent land, “the State of Florida is taxing a privilege of

ownership.” 799 F.3d at 1330. The Eleventh Circuit did question the Ninth

Circuit’s interpretation of the PIT as a “tax imposed upon the use of property [as]

something distinct from a tax imposed upon the property itself.” Id. at 1334; Agua

Caliente, 442 F.2d at 1186–87). But ultimately, the Eleventh Circuit did not

consider California’s PIT to be equivalent to Florida’s rental tax. Id. (questioning

the “extent that a tax on the full-cash value of a lessee’s possessory interest can be

viewed as analogous to a tax on the payment of rent”).

Accordingly, 25 U.S.C. § 465 does not preempt the PIT because the PIT does

not tax the Tribe or tribal land. It is a tax on non-Indian possessory interests, which

do not fall within the ambit of the tax exemption in 25 U.S.C. § 465.


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B. The leasing regulations were not comprehensive before 2013 and they are not now. Under Bracker, a state tax may be barred if federal law preempts the tax or if

the tax infringes the right of reservation Indians to make their own laws and be

ruled by them. 448 U.S. at 142-43. With respect to the first prong, intent to preempt

state law can be inferred in one of two ways: (1) field preemption, where Congress

has occupied the field of a specific area so completely that it crowds out any

possible state regulations; or (2) conflict preemption, where a state law would make

compliance with federal law impossible or would stand as an obstacle to the

accomplishment of Congress’ objectives. See English v. General Elec. Co., 496

U.S. 72, 78-79 (1990). Neither are present here.

The Indian leasing regulations are not comprehensive. Further, compliance

with the leasing regulations and the PIT is easily achieved; Indians have been

complying with Part 162 and lessees with the State PIT without issue both before

and after 2013.

1. The leasing regulations are not comprehensive or pervasive.

The Ninth Circuit has rejected arguments that the leasing regulations are

sufficient to preempt state taxes on several occasions. See, e.g., Yavapai-Prescott

Indian Tribe v. Scott, 117 F.3d 1107, 1111 (9th Cir. 1997) (upholding business

transaction privilege taxes on room rentals and food and beverage sales on private

lessee of hotel on reservation and noting that the Ninth Circuit accorded the leasing

regulations little weight); Gila River Indian Community v. Waddell, 91 F.3d 1232,

1237 (9th Cir. 1996) (upholding sales tax on entertainment events on an Indian

reservation and rejecting argument that leasing regulations were pervasive).

The Federal Circuit reached the same conclusion in Brown v. United States,

where it concluded that the leasing regulations were not comparable, for example,

to the timber management regulations addressed in Bracker. 86 F.3d 1554, 1561

(Fed. Cir. 1996). Although the court in Brown was determining whether the agency


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had a fiduciary duty to the plaintiff, its observations about the nature of the leasing

regulations are directly relevant to the Tribe’s argument that Part 162 is pervasive.

As the Brown court noted, “the Secretary lacks ongoing management responsibility

over the day-to-day administration of commercial leases concerning allotted lands.”

Id. In fact, the government argued to the Court of Federal Claims that “neither

section 415(a) nor part 162 ‘impose[s] comprehensive management responsibilities

upon the government.’” Id. at 1557.

These conclusions are clearly correct, as demonstrated by a comparison of

the leasing regulations to other regulatory regimes examined in the applicable case

law. In Bracker, the Supreme Court concluded that certain taxes imposed by

Arizona were preempted because the “federal regulatory scheme [governing the

harvesting and sale of timber from Indian lands] is so pervasive as to preclude the

additional burdens sought to be imposed” by the state taxes. 448 U.S. at 148. The

Bureau of Indian Affairs (BIA) had promulgated extensive regulations that

governed all aspects of the timber operation, including which trees and how much

timber would be cut, a fee schedule established by BIA, what logging equipment

was appropriate for use, and even acceptable speeds of travel for various types of

equipment. Id. at 145-148. The Court observed that BIA “exercise[d] literally daily

supervision over the harvesting and management of tribal timber,” id. at 147,

including the activities of the non-Indian contractors.

The regulations involved in Ramah Navajo School Bd., Inc. v. Bureau of

Revenue of New Mexico, 458 U.S. 832 (1982) were equally comprehensive. There,

a contractor built a school under a cost-plus contract for an Indian school board.

The school board sued New Mexico for refund of gross receipts taxes the contractor

paid to the State. In concluding that federal law preempted the gross receipts tax,

the Court observed that BIA was required to “conduct preliminary on-site

inspections, and prepare cost estimates for the project in cooperation with the tribal

organization.” 458 U.S. at 841. The regulations required approval of any


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architectural or engineering agreements executed in connection with the project,

and BIA could impose subcontract requirements, including bonding requirements,

pay scales, and hiring preferences. Id. Based on these regulations, the Court

concluded that the “[f]ederal regulation of the construction and financing of Indian

educational institutions is both comprehensive and pervasive,” and was “at least as

comprehensive as the federal scheme found to be pre-emptive in White Mountain.”

Id. at 839, 841. Again, BIA directly regulated the non-Indian contractor.

The Indian leasing regulations at issue here are not comparable. The

regulations were first promulgated in 1971 at 25 C.F.R. Part 131 and were

relatively simple. They required leases to be for fair market value (subject to certain

exceptions), required surety bonds of not less than one year’s rental and the

estimated cost of any improvements, and in some cases required liability insurance.

25 C.F.R. § 131.5(b), (c),(d) (1971). The regulations specified permissible lease

duration, required periodic lease reviews at not less than five-year intervals, and

limited the terms of leases for grazing, farming, and those granted by the Secretary.

Id. § 131.8. Subleases, assignments, and encumbrances generally required

Secretarial approval. Id. § 131.12.

The regulations did not dictate the activities that could be conducted on

leased land and did not involve BIA overseeing non-Indian activity on leased lands.

As the Court of Federal Claims noted, “[t]he government is not required to pursue

leases on allotted lands or to seek out potential lessees.” Brown v. United States, 32

Fed. Cl. 509, 516 (1994). Nor does the Secretary have “responsibility to manage or

administer leases once they enter into effect.” Id. (observing that “[f]rom the plain

language of [25 U.S.C. 415], the role of the Secretary is simply confined to

approval and fails to contemplate any comprehensive or on-going management

responsibilities”).


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The 2013 revisions do not change that conclusion.5 To the contrary, when the

Secretary revised the leasing regulations in 2013, she did so for the explicit purpose

of “delete[ing] regulatory burdens” and “limit[ing] BIA’s involvement in

substantive lease contents.” 77 Fed. Reg. at 72440-442. The 2013 revisions

eliminate certain requirements, defer to private negotiations, and impose timing

restrictions on the Secretary’s approval process to minimize agency delays. Id. The

new regulations, for example, waive the 1971 regulatory requirement of fair market

rents on individually-owned Indian land and leased land on which a tribe or lessee

constructs infrastructure improvements. Id. at 72450-51 (citing 25 C.F.R. §§

162.320(a), 162.321). The Secretary no longer conducts periodic rental reviews of

leases for housing for public purposes on individually owned Indian land and

eliminated bonding and insurance requirements for all residential leases. Id. at

72451 (citing 25 C.F.R. §§ 162.334, 162.335, 162.328(a)).

These types of efforts to accord Indians greater discretion in leasing

decisions are what prompted the Court of Claims to determine that 25 C.F.R. Part

162 “differs drastically from the pervasive nature of the statutes and regulations

governing management of oil, gas, and timber resources under which [the

government] assumes full responsibility.” Cherokee Nation of Oklahoma v. United

States, 21 Cl. Ct. 565, 578 (1990).

2. The Secretary’s interpretation of the scope of the leasing regulations is incorrect and not entitled to deference.

The Tribe’s reliance (Doc. 144 at 12) on the 2013 Preamble to the leasing

regulations to support its claim that the leasing regulations are comprehensive—

without addressing the regulations themselves or the Ninth Circuit cases that

conclude that the leasing regulations are not comprehensive or pervasive—is

5 In 2001, the Secretary revised portions of the leasing regulations, but

retained the 1971 regulations with respect to business and residential leases. See 66 Fed. Reg. 7068 (Jan. 22, 2001) (recodified at 25 C.F.R. Part 162).


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unpersuasive.6 The Preamble asserts that “[t]he Federal statutory scheme for Indian

leasing is comprehensive . . . [and] pervasive and leaves no room for State law,” 77

Fed. Reg. 72440-01, 72447 (Dec. 5, 2012), but that statement is not entitled to

deference, as this Court has already found. Doc. 118 at 15 (“[A] court is not

required to defer to an agency’s ‘p[roclamations of pre-emption.’”).

In addition, the Secretary’s view as to the comprehensive scope of the

regulations—which obviously differs from the position she has taken in cases like

Brown—is not due any deference, because the Preamble does not clarify any

regulatory ambiguity. Auer v. Robbins, 519 U.S. 452, 461 (1997) (courts may defer

to an agency interpretation of an ambiguous regulation). Moreover, preamble

language in a regulation does not have the same binding effect that regulations

themselves have. See, e.g., Norfolk Energy, Inc. v. Hodel, 898 F.2d 1435, 1441-42

(9th Cir. 1990) (refusing to consider a sentence in a preamble to the BLM’s

regulations because the “overall regulatory and statutory scheme” supported a

contrary interpretation).

Ultimately, Section 162.017 itself cannot preempt the PIT because that

regulation does not actually regulate Indians or leases, which is all that Congress

authorized the Secretary to do under 25 U.S.C. § 415. See Brown, 32 Fed. Cl. at

516. Agencies are creatures of statute and they cannot exceed the authority granted

them by Congress. See Food & Drug Admin. v. Brown & Williamson Tobacco

Corp., 529 U.S. 120, 133 (2000) (invalidating agency regulation of tobacco

products because it exceeded agency’s statutory authority). Because Section

162.017 does not regulate lease terms, relying on it to preempt the PIT would not

6 The Tribe discusses (Doc. 144 at 12-13) Segundo v. City of Rancho Mirage,

813 F.2d 1387 (9th Cir. 1987), but the later Ninth Circuit cases conclude or assume that the leasing regulations are not pervasive. The Tribe’s reliance on Segundo is misplaced because the municipal rent control ordinance directly conflicted with the fair market lease requirement of the leasing regulations whereas there is no such conflict presented by this case. Id. at 1391.


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be a valid exercise of the Secretary’s authority under 25 U.S.C. § 415. And while

the Secretary may have broad authority under 25 U.S.C. §§ 2 and 97, neither those

two sections nor § 415 give her the power to restrict state taxing authority. See, e.g.,

Organized Village of Kake v. Egan, 369 U.S. 60, 63 (1962) (“the Interior

Department itself is of the opinion that the sole authority conferred by [§ 2] is . . . to

implement specific laws, and by [§ 9] . . . over relations between the United States

and the Indians—not a general power to make rules governing Indian conduct.”)

Since the 2013 Rule was issued, the Secretary seems to have changed her

mind about whether the regulation itself preempts state taxes. According to the

Secretary’s amicus brief filed in this case, 25 C.F.R. § 162.017 is of very limited

effect. Doc. No. 142. It merely “describes one aspect of the federal and tribal

interests that a court must weigh in addressing whether federal law prohibits the

imposition of such taxes under Bracker and its progeny,” and “left room for courts

to undertake a ‘particularized inquiry into the nature of the state, federal, and tribal

interests at stake’ before determining the validity of a specific tax.” Id. at 2. Of

course, this is already what courts consider when determining the validity of a state

tax. See e.g., Colville, 447 U.S. at 156 (noting that there must be an

“accommodation between the interests of the Tribes and the Federal Government,

on the one hand, and those of the State, on the other”)). Thus, the regulation may

have prompted considerable litigation, but as the Secretary now acknowledges, it is

merely declaratory of a federal interest already understood to exist.

7 Rule-making authority for the “management of all Indian affairs and of all

matters arising out of Indian relations” is conferred by 25 U.S.C. § 2. 25 U.S.C. § 9 delegates rule-making authority to “effect the various provisions of any act relating to Indian affairs . . . .”


https://1.next.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000546&cite=25USCAS9&originatingDoc=Ib5835433909511d98e8fb00d6c6a02dd&refType=LQ&originationContext=document&transitionType=DocumentItem&contextData=(sc.Keycite)

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C. Bracker balancing strongly favors upholding the PIT

1. The PIT does not undermine federal or Tribal interests

Although the Tribe relies (Doc. 144 at 13) on the Preamble’s statement that

the leasing regulations are intended “to allow Indian landowners to use their land

profitably for economic development, ultimately contributing to tribal well-being

and self- government” to argue that the PIT is preempted, it is well-established that

federal interests in economic development are insufficient to preempt state taxes.

As the Supreme Court has repeatedly recognized, promoting tribal economic

development is an important federal interest, but it is not an overriding force that

preempts an otherwise valid state tax on non-Indians. Washington v. Confederated

Tribes of the Colville Reservation, 447 U.S. 134, 156-157 (1980) (“It can no longer

be seriously argued that the Indian Commerce Clause, of its own force,

automatically bars all state taxation of matters significantly touching the political

and economic interests of the Tribes.”). The Court rejected returning to the “long-

discarded and thoroughly repudiated doctrine” of invalidating every state tax that

has “[a]ny adverse effect on the Tribe's finances caused by the taxation of a private

party contracting with the Tribe.” Cotton Petroleum v. New Mexico, 490 U.S. 163,

187 (1989); see also Salt River Pima-Maricopa Indian Community v. Arizona, 50

F.3d 734, 739 (9th Cir. 1995) (although “the federal government has expressed an

interest in assisting tribes in their efforts to achieve economic self-sufficiency . . .

that interest does not, without more, defeat a state tax on non-Indians”).

The Tribe raises a number of objections, none of which supports preempting

the PIT. First, the Tribe argues (Doc. 144 at 14) that its economic interests are

harmed because it has held its own possessory interest tax “in abeyance as long as

the PIT is being assessed and collected against lessees.” The Supreme Court has

flatly rejected that argument, noting that concurrent federal, state and local taxation

occurs throughout the country. As the Court observed in Colville, “[t]here is no

direct conflict between the state and tribal schemes, since each government is free


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to impose its taxes without ousting the other.” 447 U.S. at 158; see also Wagnon,

546 U.S. at 114-115 (“Nor is the Nation entitled to interest balancing by virtue of

its claim that the Kansas motor fuel tax interferes with its own motor fuel tax.”);

Cotton Petroleum Corp., 490 U.S. at 188-89 (“since [Congress] has not exercised

that power [to prohibit state taxes] concurrent taxing jurisdiction over all of

Cotton’s on-reservation leases exists”).8

The Tribe next argues (Doc. 144 at 14) that it is being deprived “of more than

$20 million per year that could be spent to provide governmental services to both

Agua Caliente members and Indian trust lands within the Reservation.”

Specifically, the Tribe objects to PIT revenues “being distributed throughout all of

Riverside County or used to offset statewide funding obligations.” But AB 8 refutes

that objection, and even a cursory look at the budget materials the County produced

demonstrates that PIT revenues primarily serve the communities that generated

them. State law AB 8—not the County—controls how PIT revenues are distributed

and under State law, and property revenues are allocated to each unique TRA, of

which there are several within the Agua Caliente Reservation. SF 25. In 2014, for

example, the County collected approximately $27,996,000 in PIT revenues, but

retained only 12% for County services. SF 26. The Palm Springs school districts

and community college—which serve residents of Agua Caliente land—received

$10,962,932 in PIT revenues and the Educational Revenue Augmentation Fund

(ERAF) received $4,370,551. SF 27. Palm Springs, Cathedral City, and Rancho

Mirage—the communities within which the Reservation is located—received

$4,153,129. Id. The water districts that serve the Reservation received $2,802,026.

SF 28. Of the PIT revenues the County retained, most were used to fund fire

8 In any event, the Tribe provides no explanation of how it intends to collect

a PIT from lessees, given that the details of leases on allotted lands are all kept confidential from the Tribe. See SF 12.


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protection, health and sanitation, and road districts, including emergency services

for non-Indian lessees and for the Tribe. SF 29.

The Tribe argues (Doc. 144 at 15) that “under the current regime, it has no

say in the expenditure of tax revenues generated within its Reservation,” but that is

not true. Members of the Tribe have as much say over the expenditure of PIT

revenues as do the County citizens who pay the taxes. And because the lessees

paying the PIT are not tribal members, their ability to have representation is

important. Indeed, the Tribe does not provide government services to lessees or

even regulate the vast majority of leases. The Tribe only leases out 14.75 acres of

tribal land under four commercial leases, and two residential leases. SF 13. By

contrast, individual Indians lease out approximately 4,300 acres of allotted lands

under close to 20,000 lease arrangements. SF 11, 12. The Tribe does not consider

regulation of those lessees its responsibility and it plays no role in approving

lessees, the improvements they build on allotted lands, whom those lessees might

hire to conduct business, or even the terms of the leases. SF 14, 15, 30. The Tribe—

in fact—does not have knowledge of, access to, or control over any of the leases

covering allotted lands, and the information related thereto is proprietary,

confidential information the Tribe is not entitled to see. SF 12.

Finally, the Tribe objects (Doc. 144 at 15) that the economic burden falls on

the Indian lessor because “[i]t goes without saying that increasing the non-rent costs

of a non-Indian lessee’s leasing of Indian land reduces the proceeds that the Indian

lessor can obtain through the lease.” The Tribe relies on the Ninth Circuit’s

decision in Agua Caliente for that proposition, which is strange at least for the fact

that the Ninth Circuit concluded that the PIT was not preempted, notwithstanding

the economic burden. 442 F.2d 1184. As a matter of law, of course, the PIT

“assessment is against the private citizen, and it is the private citizen’s usufructuary

interest in the government land and improvements alone that is being taxed.”


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County of Fresno, 50 Cal. App. 3d at 640. Neither the Tribe nor its members are

liable if a lessee fails to pay the PIT. SF 23

It may be the case that today, there is some economic impact from the PIT on

the Tribe, although the Tribe acknowledges that it “did not do any quantification or

any unique technical studies on that.”9 SF 31. Rather, the Tribe perceives that the

PIT “would be a burden on [the members who are allottees] as a disincentive to

have their property marketed and purchased and/or leased.” SF 72. But the facts in

the record suggest that the impact—if there is any at all—is insubstantial. Since

1969, the amount of land Agua Caliente Indians lease out has grown from 16 to

approximately 4,300 acres. SF 1. The value of the possessory interests in those

lands and improvements (most of which were undertaken by the lessees) is

approaching $3 billion (based on the over $29,635,765 million collected in 1%

PIT), which means that the value to the Indian owner is likely greater. SF 2. There

does not seem to be any factual basis for the Tribe’s concern that the PIT has

undermined any federal objectives or hampered the ability of its 403 members to

lease their lands. But even if the Tribe had some evidence to support its concerns,

the Supreme Court has rejected a rule that would hold that “[a]ny adverse effect on

the Tribe’s finances caused by the taxation of a private party contracting with the

Tribe would be ground to strike the state tax.” Cotton Petroleum, 490 U.S. at 187.

2. The State interests in imposing the PIT are very strong Although the Tribe suggests (Doc. 144 at 3, 18) that the County’s use of PIT

revenues is disconnected from the community that generates them,10 State law

9 There is no evidence to support the claim that the Tribe is economically

burdened by the PIT, and several reasons to doubt its validity. Leases produced in the record contain provisions that control raising lease rates, and the leases are long-term. SF 71. This suggests that if the PIT were invalidated, and the Tribe did not impose its own PIT as a substitute, Indian lessors could not capture the value of the PIT in increased rents on all existing leases. 10 As a legal matter, this argument fails, because there need not “be a direct connection between the state sales tax revenues and the services provided to the


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actually dictates how local governments fund their operations: the County and

subordinate taxing jurisdictions rely heavily on property tax and PIT revenues to

fund the governmental services they provide. SF 3. Pursuant to AB8, the County

allocates the property tax and PIT revenues it assesses and collects to 350 recipient

entities that carry out government functions throughout the County. SF 37. Of the

approximately 11-12% of PIT revenues the County retains, approximately 60% is

placed in the general fund, which is restricted for specific uses, such as fire

protection, health and sanitation and road districts. SF 38. Those revenues were

used to fund the Sheriff’s Office, Corrections, the District Attorney, Health and

Mental Health, the Public Defender, Probation, Code Enforcement, and Animal

Services in fiscal year 2013-14—services that benefit everyone living in Riverside

County. SF 39. The County also services all unincorporated areas, including those

portions of the Agua Caliente Reservation and trust lands that are outside of Palm

Springs, Cathedral City, and Rancho Mirage. SF 40. Indeed, the County services

the Tribe directly: from 2011 to 2015, the County Fire Department responded to

488 471, 465, 488, and 480 incidents on the Reservation, respectively. SF 41.

Approximately 42% of the PIT revenues collected go directly to fund two

school districts in Palm Springs, the Desert Community College, and the Riverside

County Office of Education, and approximately 15.8% goes to the ERAF

(Education Revenue Augmentation Fund). SF 42. Thus, the greatest portion of PIT

revenue goes to education, from K-12 public schools to community colleges. SF 43.

Those schools are available to everyone, including tax-exempt Tribal members and

lessees of Agua Caliente land. Cal. Constitution, art. IX, section 1; Jonathan L. v.

Sup’r Court, 165 Cal. App. 4th 1074, 1089 (“The state is responsible for educating

Tribe. . . .” Gila River II, 91 F.3d at 1239; Salt River Pima-Maricopa Indian Community, 50 F.3d at 737 (noting that there is no requirement that a tax imposed on non-Indians for reservation activity be proportional to the services provided by the State).


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all California children.”) The Tribe does not provide public education to non-Indian

lessees of tribal or allotted land. SF 44.

Approximately 15% of the PIT revenues collected are allocated to the City of

Palm Springs (11.5%), Cathedral City (2.5%), and Rancho Mirage (1%). SF 45.

Palm Springs uses revenues in its general fund for a variety of services, including

police, fire, a convention center, street maintenance and lighting, building and

safety, railroad station, parks maintenance, recreation and library services. SF 46.

All of these services are available to lessees of Indian lands. SF 47. Similarly,

Rancho Mirage uses a significant percentage of revenues for public safety and

police, general government, engineering, and other services. SF 48. Much of the

remaining approximately 30% of the PIT revenues collected are allocated to

agencies with specific functions, including the Coachella Valley Water District

(4.6%), the Desert Water Agency (5.1%), flood control (2%), and the regional

medical center (1.7%). SF 49. Regional parks, the public cemetery, and the

mosquito and vector control also receive PIT funds. SF 50.

Loss of PIT revenues would significantly impact the County. Over the last

decade, the demands on governmental services in the County have increased, while

its revenues have decreased. The recession, beginning in fiscal year 2007-2008,

significantly impacted the County’s ability to provide services by reducing its

funding by approximately $200 million a year. SF 33. Decreases in property tax

revenue were particularly problematic in the County where the foreclosure rate was

the fifth highest in the State. SF 34. At the same time, the County’s population was

projected to grow by 6.8% between 2010 and 2015. SF 34. If the PIT were

invalidated, Riverside County would—on a prospective basis—lose approximately

$3.3 million, which “would negatively impact the County’s ability to provide

services that benefit the community, including those living and working on tribal

land,” SF 68, resulting in the discontinuance or decrease in services provided.


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In addition, the political subdivisions, tax districts and other service agencies

within the County that also provide services benefiting the lessees of tribal lands, as

well as the Indian owners, would lose approximately $25 million in PIT revenues

they use to fund services. SF 69. Drainage facilities built and maintained by the

Riverside County Flood Control and Water Conservation District, for example,

directly benefit the Tribe. SF 51, 56. The Finance Director for the Flood Control

District explains that before it was created, there had been severe flooding over the

2,700 square miles now covered by flood control facilities, but through effective

engineering, dam and channel construction, regulation, and public education,

damaging flooding is less common. SF 52. In fiscal year 2013/2014, the Flood

Control District received about $547,961 in PIT revenue from lessees of Agua

Caliente land, most of which was spent to construct and maintain Zone 6 facilities

that directly benefit the lessees and the lessors of tribal trust land. SF 53.

Specifically, these funds were used to pay for various facilities (including dams and

underground storm drains) that control flooding of trust land—although the

facilities are outside trust land, they directly benefit the Tribe and lessees. SF 54,

56. If the PIT were invalidated it would seriously undermine the District’s ability to

provide effective flood protection and it would allow lessees of tribal trust land to

avoid paying their fair share of the costs. SF 57.

Another government benefit derived from PIT revenues to lessees and lessors

of tribal and allotted land is the pest control provided by the Coachella Valley

Mosquito and Vector Control District in Riverside County. General Manager

Branka Lothrop, explains that the Vector Control District receives $228,700 per

year of PIT revenue. SF 59. The Vector Control District not only provides

protection from the nuisance of mosquitos, fire ants, gnats and flies, but also plays a

substantial role in protection of the public health because mosquitoes and other

vectors are carriers of viruses. SF 60, 61. The Tribe and federal government do not

provide mosquito protection and related services; yet the services undoubtedly


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benefit Indian lessors, lessees, and their guests, employees, and tenants who “enjoy

a more habitable, safer and, more desirable place to live, work or visit.” SF 62.

The very nature of the governmental services provided, combined with the

tightly integrated character of the Reservation, make segregating services by land

ownership impossible. For example, mosquito control cannot possibly be provided

to non-Indian land and withheld from Indian land located next door. SF 63.

Similarly, road maintenance cannot be provided only to leased lands because Indian

and non-Indian lands are located on the same roads. SF 64. Other governmental

services—such as public schools, courts, and libraries— are not provided directly to

land. SF 65. Providing those services on a parcel-by-parcel basis is infeasible.

The government services provided benefit everyone, and revenue losses

would harm the communities in which the Reservation, its members, and lessees

are located. SF 66. Lessees of Agua Caliente land paid PIT totaling approximately

$27-$29 million per year in fiscal years from 2011-2015. SF 67. If the PIT were

invalidated, those enjoying the benefits of the services would no longer pay their

fair share, and services would have to be curtailed. SF 70.

V. CONCLUSION The State’s interest in this case is substantial and easily justifies application

of PIT to the lessees of exempt land. The County, the subordinate municipalities,

and utilities have long provided governmental services to the lessees of exempt

lands. Indeed, the unusual structure of the Agua Caliente Reservation would

preclude any effort to cease such services. The Tribe and the allottees have

benefited from those governmental services, as their economic success clearly

demonstrates. The PIT has not undermined federal or tribal objectives in the last 45

years, and the Secretary’s 2013 revisions should have no effect on that conclusion.

DATED: December 15, 2016


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Respectfully submitted,

PERKINS COIE LLP

By: /s/ Jennifer A. MacLean Jennifer A. MacLean(D.C. Bar No. 479910) Benjamin S. Sharp (D.C. Bar No. 211623) Gregory P. Priamos (Bar No. 136766) Ronak Patel (Bar No. 249982)

Attorneys for Defendants County of Riverside, Larry W. Ward, Paul Angulo and Don Kent


Documents

Jennifer A. MacLean (admitted Pro Hac Vice · Case No. 5:14-cv-00007-DMG-DTB Jennifer A. MacLean (admitted Pro Hac Vice) [email protected] . Benjamin S. Sharp (admitted . Pro