Possessory Interest Tax Litigation Update

What is at Stake With “Possessory Interest” Taxes? A “possessory interest” is any leasehold interest on Tribal trust or allotted land Use or possession The tax is assessed against lessee Estimated 20,000 master leases, subleases and sub-subleases within the Agua Caliente Reservation Riverside County collects approximately $28M per year in property taxes on the Agua Caliente Reservation

Agua Caliente Reservation

Federal Litigation Objectives Obtain Court ruling that tax of possessory interests on Reservation trust land is unlawful Section 465 Bracker balancing Tribal Sovereignty Fully implement the Tribal Possessory Interest Tax Code Taxation is an important extension of Tribal sovereignty The Tribal PIT will raise important additional revenues to support the Tribe and the community

What’s Happened (Key Dates)? Beginning of Case January 2, 2014 – Case filed in Central District of California, Eastern Division April 28, 2014 – Court grants DWA Intervention Judgment on the Pleadings July 28, 2014 – Defs. file Motion for Judgment on the Pleadings October 14, 2014 – Court Issues Order Allowing Submission of NITA’s Amicus Brief April 8, 2015 – Tribe files Motion for Partial Voluntary Dismissal as to DWA’s groundwater and water service charges

What’s Happened (Continued)? Judgment on the Pleadings (Continued) June 2, 2015 – Court Grants Tribe’s Motion as to DWA Meanwhile…written discovery and depositions ongoing from April 2014 – September 2016 October 29, 2015 – Voicemail from Judge Gee’s clerk stating that the case is “on top of the pile” and that we “should be getting an order soon” Winter 2015 – Joint Motions asking Court to Rule February 8, 2016 – Order Denying Defs. Motion for Judgment on the Pleadings Applying facts as alleged, Court rules that PIT is preempted under Bracker

What’s Happened (Continued)? Cross-Motions for Summary Judgment October 2016 – Tribe files summary judgment December 2016 – County and DWA cross-move for summary judgment May 12, 2017 – Hearing June 15, 2017 – Order Granting Summary Judgment to County and DWA July 14, 2017 – Agua Caliente files Notice of Appeal to Ninth Circuit

Summary Judgment Order PIT is Not Preempted under 25 U.S.C.§465 §465 does not apply to the Agua Caliente Reservation because it was established before 1934 and therefore not taken into trust “pursuant to” the 1934 statute PIT is Not Preempted under Bracker Judge Gee acknowledges that the federal interests at stake in the leasing of Indian trust lands are “pervasive,” but she holds that the tribal interests implicated by the PIT are minimal and that the balance tips in favor of the County’s strong interests in raising money to fund services that it makes available to lessees PIT is Not Preempted by Tribal Sovereignty PIT does not impermissibly infringe on Agua Caliente’s sovereignty because, while it may result in some financial loss to the Tribe, the PIT does not adversely affect the Tribe’s ability to self-govern

Significant Factual Errors Failure to Understand Trust Lands Judge Gee draws a sharp line between Tribal trust lands – which she refers to as “Trust Lands” – and allotted trust lands Judge Gee fails to appreciate that the Tribe has legal jurisdiction, including taxing jurisdiction, over all trust lands Judge Gee fails to recognize that the strong federal interests in leasing apply equally to both Tribal and allotted trust lands Failure to Recognize Plaintiffs Given emphasis on allotted land and the fact that the Tribe does not directly receive revenues when allottees lease their lands – findings upon which the Court relies on to minimize the tribal interest at stake – Judge Gee’s failure to appreciate parens patriae is significant

Legal Errors in § 465 Analysis Ignores Mescalero In Mescalero Apache, the Supreme Court applied § 465 to an Indian-owned development on land that the tribe leased from the U.S. Forest Service. “it would have been meaningless” for the United States to go through the formality of conveying title to the land to itself “pursuant to” §465 Ignores Nature of Agua Caliente Reservation portions of the Reservation predate §465 while others were explicitly taken into trust under §465 Absurd results holding that §465 applies to some trust lands within a reservation but not others would be an absurd result arbitrarily creates winners and losers in Indian County well-established tribes with pre-1934 trust lands lose the tax exemption affirmed by Congress

Legal Errors in Bracker Analysis Federal Interests Court correctly acknowledges that federal regulation of the leasing of Indian trust lands is extensive and comprehensive But, fails to give sufficient weight to Section 162.017 and the United States’ amicus briefing State/ County Interests Judge Gee erroneously conflates the idea of tax “proportionality” with the requirement that a tax have some “connection” or nexus to the services that are being provided Judge Gee mischaracterized the activity being taxed The PIT is not assessed on the lessee’s use or enjoyment of Indian trust land but rather on the value of the land itself It is a property tax, not a use tax

Legal Errors in Bracker Analysis (Con’t) State/ County Interests Court ignored, or overly discounted, the fact that only a small portion of the PIT goes to fund the services identified Various services that a “portion” of the PIT helps fund, which Court concludes plays a key role in allowing the marketing of Indian land leases “by and large” the taxpayer/lessees are receiving the services that the PIT funds Tribal Interests Judge Gee woefully undervalued the Tribal interest Based on erroneous conclusion that Agua Caliente has no interest in the leasing of Reservation trust land unless the Tribe is the lessor on Tribal trust lands

Legal Errors in Tribal Sovereignty Analysis Factual error that only a “low number of leaseholds [ ] financially support the Tribe” Particular emphasis on the problem of dual taxation Court seems to blame the Tribe for not imposing its own tax

Agua Caliente’s Opening Brief to Ninth Circuit due December 21, 2017 Next Steps Agua Caliente’s Opening Brief to Ninth Circuit due December 21, 2017 Looking for amicus curiae briefs Effect of Section 465 Analysis Double Taxation/ Tribal Interest Implications

Thank you! Rob Roy Smith rrsmith@kilpatricktownsend.com