Held: Federal law preempts New Mexico's tax imposed on
the gross receipts that appellant non-Indian construction company
received from appellant tribal school board for the construction of
a school for Indian children on the reservation.
White Mountain
Apache Tribe v. Bracker, 448 U. S. 136,
controlling. Pp.
458 U. S.
836-847.
(a) In view of the federal and tribal interests arising from
Congress' broad power to regulate tribal affairs under the Indian
Commerce Clause, Art. I, § 8, cl. 3, and from the semi-autonomous
status of Indian tribes, the exercise of state authority over
commercial activity on an Indian reservation may be preempted by
federal law, or it may interfere with the tribe's ability to
exercise its sovereign functions. Traditional notions of tribal
sovereignty, and the recognition and encouragement of such
sovereignty in congressional Acts promoting tribal independence and
economic development, inform the preemption analysis. Ambiguities
in federal law should be construed generously, and federal
preemption is not limited to those situations where Congress has
explicitly announced an intention to preempt state activity. Pp.
458 U. S.
837-839.
(b) Federal statutes (particularly the Indian Self-Determination
and Education Assistance Act) reflect the federal policy of
encouraging the development of Indian-controlled institutions on
the reservation, and, under detailed regulations governing school
construction, the Bureau of Indian Affairs has wide-ranging
authority to monitor and review subcontracting agreements between
the Indian organization, which is viewed as the general contractor,
and the non-Indian firm that actually constructs the facilities.
The direction and supervision provided by the comprehensive federal
regulatory scheme for the construction of Indian schools leave no
room for the additional burden sought to be imposed by New Mexico.
There is no merit to the contention that the state tax is not
preempted merely because the federal statutes and regulations do
not specifically express the intention to preempt this exercise of
state authority. The interest asserted by the State relating to its
providing services to the non-Indian contractor for its activities
off the reservation is not a legitimate justification for a tax
whose ultimate burden falls on the tribal organization. Nor is the
State's purpose in imposing the tax pursuant to a general desire to
increase revenues sufficient to justify the additional burdens
thereby imposed on the comprehensive federal
Page 458 U. S. 833
scheme regulating the creation and maintenance of educational
opportunities for Indian children and on the express federal policy
of encouraging Indian self-sufficiency in the area of education.
Pp.
458 U. S.
839-845.
(c) Preemption analysis in this area need not be modified by
applying a new approach relying on the Indian Commerce Clause.
Existing preemption analysis governing this type of case provides
sufficient guidance to state courts, and also allows for more
flexible consideration of the federal, state, and tribal interests
at issue. Pp.
458 U. S.
845-846.
95 N.M. 708,
625 P.2d
1225, reversed and remanded.
MARSHALL, J., delivered the opinion of the Court, in which
BURGER, C.J., and BRENNAN, BLACKMUN, POWELL, and O'CONNOR, JJ.,
joined. REHNQUIST, J., filed a dissenting opinion, in which WHITE
and STEVENS, JJ., joined,
post, p.
458 U. S.
847.
Page 458 U. S. 834
JUSTICE MARSHALL delivered the opinion of the Court.
In this case, we address the question whether federal law
preempts a state tax imposed on the gross receipts that a
non-Indian construction company receives from a tribal school board
for the construction of a school for Indian children on the
reservation. The New Mexico Court of Appeals held that the gross
receipts tax imposed by the State of New Mexico was permissible.
Because the decision below is inconsistent with
White Mountain
Apache Tribe v. Bracker, 448 U. S. 136
(1980) (White Mountain), we reverse.
I
Approximately 2,000 members of the Ramah Navajo Chapter of the
Navajo Indian Tribe live on tribal trust and allotment lands
located in west central New Mexico. Ramah Navajo children attended
a small public high school near the reservation until the State
closed this facility in 1968. Because there were no other public
high schools reasonably close to the reservation, the Ramah Navajo
children were forced either to abandon their high school education
or to attend federal Indian boarding schools far from the
reservation. In 1970, the Ramah Navajo Chapter exercised its
authority under Navajo Tribal Code, Title 10, § 51 (1969), and
established its own school board in order to remedy this situation.
Appellant Ramah Navajo School Board, Inc. (the Board), was
organized as a nonprofit corporation to be operated exclusively by
members of the Ramah Navajo Chapter. The Board is a Navajo "tribal
organization" within the meaning of 25 U.S.C. § 450b(c), 88 Stat.
2204. With funds provided by the federal Bureau of Indian Affairs
(BIA) and the Navajo Indian Tribe, the Board operated a school in
the abandoned public school facility, thus creating the first
independent Indian school in modern times. [
Footnote 1]
Page 458 U. S. 835
In 1972, the Board successfully solicited from Congress funds
for the design of new school facilities. Pub.L. 9269, 86 Stat. 510.
The Board then contracted with the BIA for the design of the new
school and hired an architect. In 1974, the Board contracted with
the BIA for the actual construction of the new school to be built
on reservation land. Funding for the construction of this facility
was provided by a series of congressional appropriations
specifically earmarked for this purpose. [
Footnote 2] The contract specified that the Board was
the design and building contractor for the project, but that the
Board could subcontract the actual construction work to third
parties. The contract further provided that any subcontracting
agreement would have to include certain clauses governing pricing,
wages, bonding, and the like, and that it must be approved by the
BIA.
The Board then solicited bids from area building contractors for
the construction of the school, and received bids from two
non-Indian firms. Each firm included the state gross receipts tax
as a cost of construction in their bids, although the tax was not
itemized separately. Appellant Lembke Construction Co. (Lembke) was
the low bidder, and was awarded the contract. The contract between
the Board and Lembke provides that Lembke is to pay all "taxes
required by law." Lembke began construction of the school
facilities in 1974, and continued this work for over five years.
During that time, Lembke paid the gross receipts tax and, pursuant
to standard industry practice, was reimbursed by the Board for the
full amount paid. Before the second contract between Lembke and the
Board was executed in 1977, a clause was inserted into the contract
recognizing that the Board could
Page 458 U. S. 836
litigate the validity of this tax and was entitled to any
refund. Both Lembke and the Board protested the imposition of the
gross receipts tax. In 1978, after exhausting administrative
remedies, they filed this refund action against appellee New Mexico
Bureau of Revenue in the New Mexico District Court. At the time of
trial, the parties stipulated that the Board had reimbursed Lembke
for tax payments of $232,264.38, and that the Board would receive
any refund that might be awarded.
The trial court entered judgment for the State Bureau of
Revenue. After noting that the "legal incidence" of the tax fell on
the non-Indian construction firm, the court rejected appellants'
arguments that the tax was preempted by comprehensive federal
regulation and that it imposed an impermissible burden on tribal
sovereignty. The Court of Appeals for the State of New Mexico
affirmed. 95 N.M. 708,
625 P.2d
1225 (1980). Although acknowledging that the economic burden of
the tax fell on the Board, the Court of Appeals concluded that the
tax was not preempted by federal law and that it did not unlawfully
burden tribal sovereignty. The Board filed a petition for rehearing
in light of this Court's intervening decisions in
White
Mountain, supra, and
Central Machinery Co. v. Arizona
State Tax Comm'n, 448 U. S. 160
(1980). The Court of Appeals denied the petition, stating only that
this case did not involve either "a comprehensive or pervasive
scheme of federal regulation" or "federal regulation similar to the
Indian trader statutes." App. to Juris.Statement 36. After
initially granting discretionary review, the New Mexico Supreme
Court quashed the writ as improvidently granted. 96 N.M. 17, 627
P.2d 412 (1981). We noted probable jurisdiction. 454 U.S. 1079
(1981).
II
In recent years, this Court has often confronted the difficult
problem of reconciling
"the plenary power of the States over residents within their
borders with the semi-autonomous
Page 458 U. S. 837
status of Indians living on tribal reservations."
McClanahan v. Arizona State Tax Comm'n, 411 U.
S. 164,
411 U. S. 165
(1973). Although there is no definitive formula for resolving the
question whether a State may exercise its authority over tribal
members or reservation activities, we have recently identified the
relevant federal, tribal, and state interests to be considered in
determining whether a particular exercise of state authority
violates federal law.
See White Mountain, 448 U.S. at
448 U. S.
141-145.
A
In
White Mountain, we recognized that the federal and
tribal interests arise from the broad power of Congress to regulate
tribal affairs under the Indian Commerce Clause, Art. I, § 8, cl.
3, and from the semi-autonomous status of Indian tribes. 448 U.S.
at
448 U. S. 142.
These interests tend to erect two "independent but related"
barriers to the exercise of state authority over commercial
activity on an Indian reservation: state authority may be preempted
by federal law, or it may interfere with the tribe's ability to
exercise its sovereign functions.
Ibid. (citing,
inter
alia, Warren Trading Post Co. v. Arizona Tax Comm'n,
380 U. S. 685
(1965);
McClanahan v. Arizona State Tax Comm'n, supra; and
Williams v. Lee, 358 U. S. 217
(1959)). As we explained in
White Mountain:
"The two barriers are independent because either, standing
alone, can be a sufficient basis for holding state law inapplicable
to activity undertaken on the reservation or by tribal members.
They are related, however, in two important ways. The right of
tribal self-government is ultimately dependent on and subject to
the broad power of Congress. Even so, traditional notions of Indian
self-government are so deeply engrained in our jurisprudence that
they have provided an important 'backdrop,' . . . against which
vague or ambiguous federal enactments must always be measured."
448 U.S. at
Page 458 U. S. 838
448 U. S. 143
(quoting
McClanahan v. Arizona State Tax Comm'n, supra, at
411 U. S.
172).
The State's interest in exercising its regulatory authority over
the activity in question must be examined and given appropriate
weight. Preemption analysis in this area is not controlled by
"mechanical or absolute conceptions of state or tribal
sovereignty"; it requires a particularized examination of the
relevant state, federal, and tribal interests. 448 U.S. at
448 U. S. 145.
The question whether federal law, which reflects the related
federal and tribal interests, preempts the State's exercise of its
regulatory authority is not controlled by standards of preemption
developed in other areas.
Id. at
448 U. S.
143-144. Instead, the traditional notions of tribal
sovereignty, and the recognition and encouragement of this
sovereignty in congressional Acts promoting tribal independence and
economic development, inform the preemption analysis that governs
this inquiry.
See id. at
448 U. S. 143,
and n. 10. Relevant federal statutes and treaties must be examined
in light of "the broad policies that underlie them and the notions
of sovereignty that have developed from historical traditions of
tribal independence."
Id. at
448 U. S.
144-145. As a result, ambiguities in federal law should
be construed generously, and federal preemption is not limited to
those situations where Congress has explicitly announced an
intention to preempt state activity.
Id. at
448 U. S.
143-144,
448 U. S.
150-151.
In
White Mountain, we applied these principles and held
that federal law preempted application of the state motor carrier
license and use fuel taxes to a non-Indian logging company's
activity on tribal land. We found the federal regulatory scheme for
harvesting Indian timber to be so pervasive that it precluded the
imposition of additional burdens by the relevant state taxes.
Id. at
448 U. S. 148.
The Secretary of the Interior (Secretary) had promulgated detailed
regulations for developing "
I
ndian forests by the Indian people for the purpose of promoting
self-sustaining communities.'"
Id. at
448 U. S. 147
(quoting 25 CFR § 141.3(a)(3) (1979)).
Page 458 U. S. 839
Under these regulations, the BIA was involved in virtually every
aspect of the production and marketing of Indian timber. 448 U.S.
at
448 U. S.
145-148. In particular, the Secretary and the BIA
extensively regulated the contractual relationship between the
Indians and the non-Indians working on the reservation: they
established the bidding procedure, set mandatory terms to be
included in every contract, and required that all contracts be
approved by the Secretary.
Id. at
448 U. S.
147.
We found that the state taxes in question would
"threaten the overriding federal objective of guaranteeing
Indians that they will 'receive . . . the benefit of whatever
profit [the forest] is capable of yielding. . . .'"
Id. at
448 U. S. 149
(quoting 25 CFR § 141.3(a)(3) (1979)). We concluded that the
imposition of state taxes would also undermine the Secretary's
ability to carry out his obligations to set fees and rates for the
harvesting and sale of the timber, and it would impede the "Tribe's
ability to comply with the sustained-yield management policies
imposed by federal law." 448 U.S. at
448 U. S.
149-150. Balanced against this intrusion into the
federal scheme, the State asserted only "a general desire to raise
revenue" as its justification for imposing the taxes.
Id.
at
448 U. S. 150.
In this context, this interest is insufficient to justify the
State's intrusion into a sphere so heavily regulated by the Federal
Government.
Ibid.
B
This case is indistinguishable in all relevant respects from
White Mountain. Federal regulation of the construction and
financing of Indian educational institutions is both comprehensive
and pervasive. The Federal Government's concern with the education
of Indian children can be traced back to the first treaties between
the United States and the Navajo Tribe. [
Footnote 3] Since that time, Congress has enacted
numerous
Page 458 U. S. 840
statutes empowering the BIA to provide for Indian education both
on and off the reservation.
See, e.g., Snyder Act, 42
Stat. 208 (1921), 25 U.S.C. § 13; Johnson-O'Malley Act, 48 Stat.
596 (1934), 25 U.S.C. § 452
et seq.; Navajo-Hopi
Rehabilitation Act, 64 Stat. 44 (1950), 25 U.S.C. § 631
et
seq.; Indian Self-Determination and Education Assistance Act,
88 Stat. 2203 (1975), 25 U.S.C. § 450
et seq.
(Self-Determination Act). Although the early focus of the federal
efforts in this area concentrated on providing federal or state
educational facilities for Indian children, in the early 1970's,
the federal policy shifted toward encouraging the development of
Indian-controlled institutions on the reservation.
See 6
Weekly Comp. of Pres.Doc. 894, 899-900 (1970) (Message of President
Nixon).
This federal policy has been codified in the Indian Financing
Act of 1974, 88 Stat. 77, 25 U.S.C. § 1451
et seq., and
most notably in the Self-Determination Act. The Self-Determination
Act declares that a
"major national goal of the United States is to provide the
quantity and quality of educational services and opportunities
which will permit Indian children to compete and excel in the life
areas of their choice, and to achieve the measure of
self-determination essential to their social and economic
wellbeing."
88 Stat. 2203, as set forth in 25 U.S.C. § 450a(c). In achieving
this goal, Congress expressly recognized that "parental and
community control of the educational process is of crucial
importance to the Indian people." 88 Stat. 2203, as set forth in 25
U.S.C. § 450(b)(3).
Section 450k empowers the Secretary to promulgate regulations to
accomplish the purposes of the Act. 88 Stat. 2212, 25 U.S.C. §
450k. Pursuant to this authority, the Secretary has promulgated
detailed and comprehensive regulations respecting "school
construction for previously private
Page 458 U. S. 841
schools now controlled and operated by tribes or tribally
approved Indian organizations." 25 CFR § 274.1 (1981). Under these
regulations, the BIA has wide-ranging authority to monitor and
review the subcontracting agreements between the Indian
organization, which is viewed as the general contractor, and the
non-Indian firm that actually constructs the facilities.
See 25 CFR § 274.2 (1981). [
Footnote 4] Specifically, the BIA must conduct preliminary
on-site inspections, and prepare cost estimates for the project in
cooperation with the tribal organization. 25 CFR § 274.22 (1981).
The Board must approve any architectural or engineering agreements
executed in connection with the project. 25 CFR § 274.32(c) (1981).
In addition, the regulations empower the BIA to require that all
subcontracting agreements contain certain terms, ranging from
clauses relating to bonding and pay scales, 41 CFR § 14H-70.632
(1981), to preferential treatment for Indian workers. 25 CFR §
274.38 (1981). Finally, to ensure that the Tribe is fulfilling its
statutory obligations, the regulations require the tribal
organization to maintain records for the Secretary's inspection. 25
CFR § 274.41 (1981).
This detailed regulatory scheme governing the construction of
autonomous Indian educational facilities is at least as
comprehensive as the federal scheme found to be preemptive in
White Mountain. [
Footnote
5] The direction and supervision provided
Page 458 U. S. 842
by the Federal Government for the construction of Indian schools
leave no room for the additional burden sought to be imposed by the
State through its taxation of the gross receipts paid to Lembke by
the Board. This burden, although nominally falling on the
non-Indian contractor, necessarily impedes the clearly expressed
federal interest in promoting the "quality and quantity" of
educational opportunities for Indians by depleting the funds
available for the construction of Indian schools. [
Footnote 6]
Page 458 U. S. 843
The Bureau of Revenue argues that imposition of the state tax is
not preempted, because the federal statutes and regulations do not
specifically express the intention to preempt this exercise of
state authority. This argument is clearly foreclosed by our
precedents. In
White Mountain, we flatly rejected a
similar argument. 448 U.S. at
448 U. S.
150-151 (citing
Warren Trading Post Co. v. Arizona
Tax Comm'n, 380 U. S. 685
(1965);
Williams v. Lee, 358 U. S. 217
(1959); and
Kennerly v. District Court of Montana,
400 U. S. 423
(1971)). There is nothing unique in the nature of a gross receipts
tax or in the federal laws governing the development of tribal
self-sufficiency in the area of education that requires a different
analysis.
In this case, the State does not seek to assess its tax in
return for the governmental functions it provides to those who must
bear the burden of paying this tax. Having declined to take any
responsibility for the education of these Indian children, the
State is precluded from imposing an additional burden on the
comprehensive federal scheme intended to provide this education --
a scheme which has "left the State with no duties or
responsibilities."
Warren Trading Post Co. v. Arizona Tax
Comm'n, supra, at
380 U. S. 691.
[
Footnote 7] Nor has the State
asserted any specific, legitimate regulatory interest to justify
the imposition of its gross receipts tax. The only arguably
Page 458 U. S. 844
specific interest advanced by the State is that it provides
services to Lembke for its activities
off the reservation.
This interest, however, is not a legitimate justification for a tax
whose ultimate burden falls on the tribal organization. [
Footnote 8] Furthermore, although the
State may confer substantial benefits on Lembke as a state
contractor, we fail to see how these benefits can justify a tax
imposed on the construction of school facilities
on tribal
lands pursuant to a contract between the tribal organization
and the non-Indian contracting firm. [
Footnote 9] The New Mexico gross receipts tax is intended
to compensate the State for granting "the privilege of engaging in
business." N.M.Stat.Ann. §§ 7-9(F) and 7-9(A) (1980). New Mexico
has not explained the source of its power to levy such a tax in
this case, where the "privilege of doing business" on an Indian
reservation is exclusively bestowed by the Federal Government.
Page 458 U. S. 845
The State's ultimate justification for imposing this tax amounts
to nothing more than a general desire to increase revenues. This
purpose, as we held in
White Mountain, 448 U.S. at
448 U. S. 150,
is insufficient to justify the additional burdens imposed by the
tax on the comprehensive federal scheme regulating the creation and
maintenance of educational opportunities for Indian children and on
the express federal policy of encouraging Indian self-sufficiency
in the area of education. [
Footnote 10] This regulatory scheme precludes any state
tax that "stands as an obstacle to the accomplishment of the full
purposes and objectives of Congress."
Hines v. Davidowitz,
312 U. S. 52,
312 U. S. 67
(1941).
C
The Solicitor General, in an
amicus brief filed on
behalf of the United States, suggests that we modify our preemption
analysis and rely on the dormant Indian Commerce Clause, Art. I, §
8, cl. 3, to hold that on-reservation activities involving a
resident tribe are presumptively beyond the reach of state law even
in the absence of comprehensive federal regulation, thus placing
the burden on the State to demonstrate that its intrusion is either
condoned by Congress or justified by a compelling need to protect
legitimate, specified state interests other than the generalized
desire to collect revenue. He argues that adopting this approach is
preferable for several reasons: it would provide guidance to the
state courts addressing these issues, thus reducing the need for
our case-by-case review of these decisions; it would avoid the
tension
Page 458 U. S. 846
created by focusing on the pervasiveness of federal regulation
as a principal barrier to state assertions of authority when the
primary federal goal is to encourage tribal self-determination and
self-government; and it would place a higher burden on the State to
articulate clearly its particularized interests in taxing the
transaction and to demonstrate the services it provides in
assisting the taxed transaction.
We do not believe it necessary to adopt this new approach -- the
existing preemption analysis governing these cases is sufficiently
sensitive to many of the concerns expressed by the Solicitor
General. Although clearer rules and presumptions promote the
interest in simplifying litigation, our precedents announcing the
scope of preemption analysis in this area provide sufficient
guidance to state courts and also allow for more flexible
consideration of the federal, state, and tribal interests at issue.
We have consistently admonished that federal statutes and
regulations relating to tribes and tribal activities must be
"construed generously in order to comport with . . . traditional
notions of [Indian] sovereignty and with the federal policy of
encouraging tribal independence."
White Mountain, supra, at
448 U. S. 144;
see also McClanahan v. Arizona State Tax Comm'n, 411 U.S.
at
411 U. S.
174-175, and n. 13;
Warren Trading Post Co. v.
Arizona Tax Comm'n, 380 U.S. at
380 U. S.
690-691. This guiding principle helps relieve the
tension between emphasizing the pervasiveness of federal regulation
and the federal policy of encouraging Indian self-determination.
Although we must admit our disappointment that the courts below
apparently gave short shrift to this principle and to our
precedents in this area, we cannot and do not presume that state
courts will not follow both the letter and the spirit of our
decisions in the future.
III
In sum, the comprehensive federal regulatory scheme and the
express federal policy of encouraging tribal self-sufficiency in
the area of education preclude the imposition of the
Page 458 U. S. 847
state gross receipts tax in this case. Accordingly, the judgment
of the New Mexico Court of Appeals is reversed, and the case is
remanded for further proceedings not inconsistent with this
opinion.
It is so ordered.
[
Footnote 1]
On July 8, 1970, in his Message to the Congress on Indian
Affairs, President Nixon referred specifically to these efforts of
the Board to assume responsibility for the education of tribal
children abandoned by the State as a "notable exampl[e]" of Indian
self-determination. 6 Weekly Comp. of Pres.Doc. 894, 899
(1970).
[
Footnote 2]
See Pub.L. 93-245, 87 Stat. 1073 (1973) (amending
Pub.L. 93-120, 87 Stat. 431 (1973) to specifically earmark funds
appropriated there for the construction of the Ramah school
facility); Pub.L. 93-404, 88 Stat. 810 (1974); Pub.L. 94-165, 89
Stat. 985 (1975); Pub.L. 95-74, 91 Stat. 293 (1977).
[
Footnote 3]
Article VI of the 1868 Treaty between the United States and the
Navajo Tribe, 15 Stat. 669, provides that "[i]n order to insure the
civilization of the Indians entering into this treaty, the
necessity of education is admitted."
[
Footnote 4]
Although these regulations did not become effective until
several months after the BIA and the Board had executed the initial
contracts, the Secretary and the BIA had applied similar
requirements under the authority of the Johnson-O'Malley Act, 48
Stat. 596, 25 U.S.C. § 452
et seq. In any event, the two
subsequent agreements between the BIA, the Board and Lembke,
accounting for two-thirds of the total construction, were signed
after the effective date of these regulations, which clearly
authorize the BIA to monitor these construction agreements.
[
Footnote 5]
JUSTICE REHNQUIST asserts that the comprehensive federal
regulatory scheme outlined above "do[es] not regulate school
construction, which is the activity taxed."
Post at
458 U. S. 851.
The dissent fails to explain, however, how this fact distinguishes
this case from
White Mountain. In that case, we struck
down Arizona's use fuel tax and motor carrier license tax not
because of any federal interest in gasoline, licenses, or highways,
but because the imposition of these state taxes on a non-Indian
contractor doing work on the reservation was preempted by the
"comprehensive regulation of the harvesting and sale of tribal
timber." 448 U.S. at
448 U. S. 151.
We find that New Mexico is similarly precluded from impeding the
federal interest in the construction of autonomous Indian
educational institutions by imposing its gross receipts tax on
Lembke. JUSTICE REHNQUIST's contention that the New Mexico tax is
somehow compatible with this federal interest because such taxes
"are as much a normal cost of school construction as the cost of
cement and labor,"
post at
458 U. S. 855,
is also foreclosed by
White Mountain. Surely, state use
fuel and motor carrier license taxes are considered part of the
cost of harvesting and marketing timber. Yet in
White
Mountain, we concluded that these taxes impeded the federal
interest in "guaranteeing Indians that they will
receive . . .
the benefit of whatever profit [the forest] is capable of
yielding,'" 448 U.S. at 448 U. S. 149,
despite the dissent's argument that the taxes amounted to less than
1% of the annual profits produced by the logging operation. Here,
as in White Mountain, JUSTICE REHNQUIST continues to press
this argument.
[
Footnote 6]
Appellee would have us impute congressional awareness and
approval of the state gross receipts tax from appropriations bills
which earmarked funds for the construction of these facilities,
see n 2,
supra. Brief for Appellee 21-22. Appellee strains to find
this awareness and approval by arguing that the same architects who
prepared the cost estimates and requests that the Board submitted
to Congress also prepared the bid specifications pursuant to which
Lembke submitted its bid. However, as we have indicated, the bid
specifications only required prospective bidders to include "all
taxes required by law," and the submitted bids did not specify the
gross receipts tax as a separate line item.
Supra at
458 U. S. 835.
Therefore, it is by no means clear, and the Board disputes the
contention, that the Board ever intended to have these state taxes
included in the construction costs of its school facilities.
Furthermore, there is absolutely no indication that Congress was
even made aware of the existence of these taxes when it
appropriated funds for the construction of the Ramah Navajo school.
In any event, as we have noted in a related context, courts should
be wary of inferring congressional intent to alter the force of
existing law from an appropriations Act.
Cf. TVA v. Hill,
437 U. S. 153,
437 U. S.
189-191 (1978).
[
Footnote 7]
Of course, these statutes and regulations do not prevent the
States from providing for the education of Indian children within
their boundaries. Indeed, the Self-Determination Act specifically
authorizes the Secretary to enter into contracts with any State
willing to construct educational institutions for Indian children
on or near the reservation. 88 Stat. 2214, 25 U.S.C. § 458. This
case would be different if the State were actively seeking tax
revenues for the purpose of constructing, or assisting in the
effort to provide, adequate educational facilities for Ramah Navajo
children.
[
Footnote 8]
The Bureau of Revenue invites us to adopt the "legal incidence"
test, under which the legal incidence and not the actual burden of
the tax would control the preemption inquiry. Of course, in some
contexts, the fact that the legal incidence of the tax falls on a
non-Indian is significant.
See Washington v. Confederated
Tribes of Colville Indian Reservation, 447 U.
S. 134,
447 U. S.
150-151 (1980);
Moe v. Salish & Kootenai
Tribes, 425 U. S. 463
(1976). However, in
White Mountain, 448 U.S. at
448 U. S. 151,
we found it significant that the economic burden of the asserted
taxes would ultimately fall on the Tribe, even though the legal
incidence of the tax was on the non-Indian logging company. Given
the comprehensive federal regulatory scheme at issue here, we
decline to allow the State to impose additional burdens on the
significant federal interest in fostering Indian-run educational
institutions, even if those burdens are imposed indirectly through
a tax on a non-Indian contractor for work done on the
reservation.
[
Footnote 9]
In
Central Machinery Co. v. Arizona State Tax Comm'n,
448 U. S. 160
(1980), we held that the Indian trader statutes, 19 Stat. 200, 25
U.S.C. § 261
et seq., preempted the State's jurisdiction
to tax the sale of farm machinery to the Indian Tribe,
notwithstanding the substantial services that the State undoubtedly
provided to the off-reservation activities of the non-Indian
seller. Presumably, the state tax revenues derived from Lembke's
off-reservation business activities are adequate to reimburse the
State for the services it provides to Lembke.
[
Footnote 10]
We are similarly unpersuaded by the State's argument that the
significant services it provides to the Ramah Navajo Indians
justify the imposition of this tax. The State does not suggest that
these benefits are in any way related to the construction of
schools on Indian land. Furthermore, the evidence introduced below
by the State on this issue is far from clear. Although the State
does provide services to the Ramah Navajo Indians, it receives
federal funds for providing some of these services, and the State
conceded at trial that it saves approximately $380,000 by not
having to provide education for the Ramah Navajo children. App. 95,
105-106, 108.
JUSTICE REHNQUIST, with whom JUSTICE WHITE and JUSTICE STEVENS
join, dissenting.
The Court today reproves the New Mexico Court of Appeals for
failing to heed our precedents, much as a disappointed parent would
rebuke a wayward child. [
Footnote
2/1] I do not think the Court of Appeals deserves the rebuke;
it seems to me that the state court applied our precedents at least
as faithfully, and coherently, as the Court itself. In its desire
to reach a result that it evidently finds quite salutary as a
matter of policy, the Court finds "indistinguishable" a case that
is considerably off the mark, and it finds "pervasively regulated"
an activity that is largely free of federal regulation. It
ultimately accords a dependent Indian tribal organization greater
tax immunity than it accorded the sovereignty of the United States
a short three months ago in a case involving the precise state
taxes at issue here.
I
The general question presented by this case has occupied the
Court many times in the recent past, and seems destined to demand
its attention over and over again until the Court sees fit to
articulate, and follow, a consistent and predictable rule of law.
This insistent question concerns the extent to which the States can
tax economic activity on Indian reservations within their borders.
I believe the dominant trend of
Page 458 U. S. 848
our cases is toward treating the scope of reservation immunity
from nondiscriminatory state taxation as a question of preemption,
ultimately dependent on congressional intent. In such a framework,
the tradition of Indian sovereignty stands as an independent
barrier to discriminatory taxes, and otherwise serves only as a
guide to the ascertainment of the congressional will.
The principles announced in
White Mountain Apache Tribe v.
Bracker, 448 U. S. 136
(1980), are consistent with this trend. [
Footnote 2/2] Thus, the Court in
White Mountain
recognized federal preemption as a principal barrier to the
assertion of state regulatory authority over tribal reservations
and members,
id. at
448 U. S. 142,
and specifically invalidated the challenged assertion of taxing
authority on that basis,
id. at
448 U. S. 148,
448 U. S. 151,
n. 15. The Court also recognized that, in some instances, a state
law may be invalid because it infringes "
the right of
reservation Indians to make their own laws and be ruled by them.'"
Id. at 448 U. S. 142
(quoting Williams v. Lee, 358 U.
S. 217, 358 U. S. 220
(1959)). But apart from those rare instances in which the State
attempts to interfere with the residual sovereignty of a tribe to
govern its own members, the "tradition of tribal sovereignty"
merely provides a "backdrop" against which the preemptive effect of
federal statutes or treaties must be assessed. See 448
U.S. at 448 U. S.
143.
The Court today pays homage to these principles, but then
promptly bestows its favors on a new analytical framework in which
the extent of economic burden on the tribe, and not the preemptive
effect of federal regulations, appears to be the paramount
consideration. Such a shift is necessary, for the
Page 458 U. S. 849
Court's purported reliance on
White Mountain will not
withstand even superficial scrutiny.
II
The Court declares that "[t]his case is indistinguishable in all
relevant respects from
White Mountain."
Ante at
458 U. S. 839.
This statement is quite inaccurate.
White Mountain
involved an attempt by the State of Arizona to apply its motor
carrier license and use fuel taxes to the logging operations of a
non-Indian company doing business exclusively on the reservation.
The Court concluded that application of the State's taxes was
inconsistent with the pervasive federal regulation of the very
activity subject to taxation. The Court repeatedly emphasized the
comprehensiveness of the regulations on which it relied.
"Under these regulations, the Bureau of Indian Affairs exercises
literally daily supervision over the harvesting and management of
tribal timber. In the present case, contracts between [the tribal
organization] and [the non-Indian contractor] must be approved by
the Bureau; indeed, the record shows that some of those contracts
were drafted by employees of the Federal Government. Bureau
employees regulate the cutting, hauling, and marking of timber by
[the tribal organization and the contractor]. The Bureau decides
such matters as how much timber will be cut, which trees will be
felled, which roads are to be used, which hauling equipment [the
contractor] should employ, the speeds at which logging equipment
may travel, and the width, length, height, and weight of
loads."
"The Secretary has also promulgated detailed regulations
governing the roads developed by the Bureau of Indian Affairs. . .
. On the Fort Apache Reservation, the Forestry Department of the
Bureau has required [the tribal organization] and its contractors .
. . to repair and
Page 458 U. S. 850
maintain existing Bureau and tribal roads and in some cases to
construct new logging roads. . . . A high percentage of [the
contractor's] receipts are expended for those purposes, and it has
maintained separate personnel and equipment to carry out a variety
of tasks relating to road maintenance."
448 U.S. at
448 U. S.
147-148.
But the Court in
White Mountain did not merely review
the comprehensiveness of the regulations and conclude,
ipso
facto, that state taxes on the logging operations were
preempted. It found, with considerable attention to specifics, that
"the assessment of state taxes would obstruct federal policies."
Id. at
448 U. S.
148.
"At the most general level, the taxes would threaten the
overriding federal objective of guaranteeing Indians that they will
'receive . . . the benefit of whatever profit [the forest] is
capable of yielding. . . .' 25 CFR § 141.3(a)(3) (1979). Underlying
the federal regulatory program rests a policy of assuring that the
profits derived from timber sales will inure to the benefit of the
Tribe subject only to administrative expenses incurred by the
Federal Government. . . ."
"In addition, the taxes would undermine the Secretary's ability
to make the wide range of determinations committed to his authority
concerning the setting of fees and rates with respect to the
harvesting and sale of tribal timber. The Secretary reviews and
approves the terms of the Tribe's agreements with its contractors,
sets fees for services rendered to the Tribe by the Federal
Government, and determines stumpage rates for timber to be paid to
the Tribe. Most notably, in reviewing or writing the terms of the
contracts between [the tribal organization] and its contractors,
federal agents must predict the amount and determine the proper
allocation of all business expenses, including fuel costs. The
assessment of state taxes would throw additional
Page 458 U. S. 851
factors into the federal calculus, reducing tribal revenues and
diminishing the profitability of the enterprise for potential
contractors."
"Finally, the imposition of state taxes would adversely affect
the Tribe's ability to comply with the sustained yield management
policies imposed by federal law."
Id. at
448 U. S.
149-150.
As noted, the Court thinks that this case is "indistinguishable
in all relevant respects from
White Mountain."
Ante at
458 U. S. 839.
It finds that "[f]ederal regulation of the construction and
financing of Indian educational institutions is both comprehensive
and pervasive."
Ibid. But the regulations on which the
Court relies do not regulate school construction, which is the
activity taxed. They merely detail procedures by which tribes may
apply for federal funds in order to carry out school
construction.
The purpose of the regulations, which the Court quotes only in
part,
ante at
458 U. S.
840-841,
"
is to give the application and approval process for
obtaining a contract or services from the Bureau for school
construction for previously private schools now controlled and
operated by tribes or tribally approved Indian organizations. . .
."
25 CFR § 274.1 (1981) (emphasis added). The regulations that
follow explain the procedures by which tribes may obtain, complete,
and file application forms for federal funding or services. §§
274.12-274.18. As the Court observes,
ante at
458 U. S. 841,
the regulations also authorize the BIA to approve or disapprove
plans and specifications for construction as well as construction
contracts let by the tribe, which are treated as subcontracts of
the funding contract between the tribe and the BIA. The contracts
are required to contain a clause establishing a hiring preference
for Indians. § 274.38. And the BIA is given access to the tribe's
records for auditing purposes. § 274.41. That is the extent of the
regulations.
In this case the BIA "contracted" with the School Board in order
to convey federal funds for the construction project.
Page 458 U. S. 852
It also approved the Board's construction "subcontract" with the
construction contractor. It played no role in the selection of the
contractor, and it played no role in regulating or supervising the
actual construction of the school. The Court concludes that this
scheme, which is little more than a grant application process, "is
at least as comprehensive as the federal scheme found to be
preemptive in
White Mountain."
Ante at
458 U. S. 841.
I simply cannot agree.
More important, the Court concludes in the very next sentence
that
"[t]he direction and supervision provided by the Federal
Government for the construction of Indian schools leaves no room
for the additional burden sought to be imposed by the State through
its taxation of the gross receipts paid to Lembke by the
Board."
Ante at
458 U. S.
841-842. This statement constitutes the sum total of the
Court's preemption analysis in this case. In
White
Mountain, the Court engaged in a detailed examination of the
extent to which state taxes would interfere both with the
Secretary's ability to carry out his congressional mandate and with
the tribe's ability to carry out federal policy. In the place of
such careful analysis, the Court today relies on
ipse
dixit. It does so because there is no realistic basis for
concluding that the State's taxes would interfere with a
"pervasive" regulatory scheme. The BIA simply does not regulate the
construction activity which the State seeks to tax. It provides
federal money to eligible tribes and tribal organizations and it
establishes a contract approval and auditing mechanism as a means
of attempting to ensure that the money is put to the use for which
it is earmarked. [
Footnote 2/3]
Page 458 U. S. 853
III
A careful reading of the Court's opinion demonstrates that the
single determinative factor in its judgment is the fact that the
challenged state taxes have increased the financial burden of
constructing a tribal school. Whether the federal regulations are
detailed and comprehensive or largely a matter of bookkeeping is an
irrelevancy, for the Court concludes that the tax burden
"impedes the clearly expressed federal interest in promoting the
'quality and quantity' of educational opportunities for Indians
by depleting the funds available for the construction of Indian
schools."
Ante at
458 U. S. 842
(emphasis added). The Court recognizes that the legal incidence of
the tax is on the non-Indian contractor, but asserts that,
"in
White Mountain . . . we found it significant that
the economic burden of the asserted taxes would ultimately fall on
the Tribe,
Page 458 U. S. 854
even though the legal incidence of the tax was on the non-Indian
logging company."
Ante at
458 U. S. 844,
n. 8.
The Court in
White Mountain did indeed note that "the
economic burden of the asserted taxes will ultimately fall on the
Tribe." 448 U.S. at
448 U. S. 151.
But in a footnote immediately following that sentence, which is
today ignored, the Court declared:
"Of course, the fact that the economic burden of the tax falls
on the Tribe does not, by itself, mean that the tax is preempted,
as
Moe v. Salish & Kootenai Tribes, 425 U. S.
463 (1976), makes clear. Our decision today is based on
the preemptive effect of the comprehensive federal regulatory
scheme, which . . . leaves no room for the additional burdens
sought to be imposed by state law."
Id. at
448 U. S. 151,
n. 15.
Despite its references to the supposed "comprehensive and
pervasive" regulatory scheme in this case, the Court clearly has
chosen to bar the State from taxing Lembke's gross receipts
principally because the tax imposes an indirect economic burden on
the tribal organization. As the Court in
White Mountain
recognized, our precedents undeniably view that as an insufficient
basis for the recognition of an Indian tax immunity.
See
Washington v. Confederated Tribes of Colville Indian
Reservation, 447 U. S. 134,
447 U. S. 156
(1980) ("Washington does not infringe the right of reservation
Indians to
make their own laws and be ruled by them,' . . .
merely because the result of imposing its taxes will be to deprive
the Tribes of revenues which they currently are receiving");
Moe v. Salish & Kootenai Tribes, 425 U.
S. 463, 425 U. S.
481-482 (1976) (upholding tax on cigarette sales from
Indians to non-Indians because the legal incidence of the tax was
on the consumer); Mescalero Apache Tribe v. Jones,
411 U. S. 145,
411 U. S.
156-157 (1973) (refusing to imply tax immunity despite
economic burden on tribal enterprise). [Footnote 2/4] Even under the
Page 458 U. S. 855
modified form of preemption doctrine applicable to state
regulation of reservation activities, there must be some
affirmative indication that Congress did not intend the State to
exercise the sovereign power challenged in the suit. Until today,
the mere fact that the asserted power will impose an economic
burden on a tribal endeavor has not provided that affirmative
indication.
I do not disagree with the Court's judgment that congressional
enactments such as the Indian Financing Act and the Indian
Self-Determination and Education Assistance Act embody a federal
policy encouraging the development of Indian-controlled educational
institutions. But it is a considerable leap to infer from that
policy the independent principle that all state laws which might
increase the cost of such an endeavor are to be considered null and
void. It is perfectly conceivable that Congress favored Indian
education, but also contemplated that all costs of obtaining that
end would be paid in a normal fashion. State taxes are as much a
normal cost of school construction as the cost of cement and labor.
The cost of taxes was included in the bids submitted to the Board
by the construction contractors, and it apparently was also
included in the funding requests submitted by the Board to
Congress. The Board cannot be faulted for attempting to stretch its
federal construction funds as far as possible, but that is a
woefully inadequate basis for interfering with the sovereign
prerogatives of the State of New Mexico.
IV
A short three months ago, this Court considered whether the
State of New Mexico could impose its gross receipts and
Page 458 U. S. 856
compensating use taxes on private contractors that conduct
business with the Federal Government. We concluded that tax
immunity was appropriate in only one circumstance:
"when the levy falls on the United States itself, or on an
agency or instrumentality so closely connected to the Government
that the two cannot realistically be viewed as separate entities,
at least insofar as the activity being taxed is concerned."
United States v. New Mexico, 455 U.
S. 720,
455 U. S. 735
(1982). In reaching this conclusion, we held that
"immunity may not be conferred simply because the tax has an
effect on the United States, or even because the Federal Government
shoulders the entire economic burden of the levy."
Id. at
455 U. S. 734.
If the legal incidence of the tax is on the contractor, it is to be
considered valid, absent specific congressional action, as long as
"the contractors can realistically be considered entities
independent of the United States."
Id. at
455 U. S. 738.
[
Footnote 2/5]
In this case, as in
United States v. New Mexico, the
legal incidence of the New Mexico tax is on the private contractor,
not on the entity whose status might be the source of a tax
immunity. And, as in
United States v. New Mexico, it is
evident that Lembke is a separate taxable entity completely
independent of the tribal school board. Were the tax immunity of
the Tribe no greater than that of the United States, it seems plain
that New Mexico's tax would have to be upheld as applied to the
gross receipts of the non-Indian contractor. But the Court reaches
a different conclusion because it finds that the tax imposes an
economic burden on the Tribe's effort to build a school with
federal funds. Thus, the Court accords
Page 458 U. S. 857
an Indian Tribe, whose sovereignty "exists only at the
sufferance of Congress and is subject to complete defeasance,"
United States v. Wheeler, 435 U.
S. 313,
435 U. S. 323
(1978), greater immunity from state taxes than is enjoyed by the
sovereignty of the United States on whom it is dependent. [
Footnote 2/6]
For these reasons, I dissent from the Court's judgment.
[
Footnote 2/1]
"Although we must admit our disappointment that the courts below
apparently gave short shrift to this principle and to our
precedents in this area, we cannot and do not presume that state
courts will not follow both the letter and the spirit of our
decisions in the future."
Ante at
458 U. S.
846.
[
Footnote 2/2]
Nevertheless, the Solicitor General has again suggested that
on-reservation activities affecting resident tribes be considered
presumptively beyond the reach of state law by operation of the
"principle of tribal sovereignty."
See Brief for United
States as
Amicus Curiae 17-24. The same suggestion was
urged, and rejected, in
White Mountain. It has proved no
more appealing in this case.
[
Footnote 2/3]
The Court ignores other distinctions between this case and
White Mountain. For example, the logging contractor in the
latter case, although a non-Indian corporation, operated
exclusively to harvest timber on the reservation; it conducted no
off-reservation activities whatsoever.
See 448 U.S. at
448 U. S. 139.
The contractor in this case is a general building contractor doing
business throughout the State of New Mexico, and enjoying state
services to the same extent as any other commercial enterprise in
New Mexico. The Court dismisses this factor with the statement
that,
"[p]resumably, the state tax revenues derived from Lembke's
off-reservation business activities are adequate to reimburse the
State for the services it provides to Lembke."
Ante at
458 U. S. 844,
n. 9. The Court's "presumptions," however, are no substitute for
the considered judgment of the state taxing authority. Indeed, in
assessing the validity of a state tax, the Court has previously
recognized that the State's interests are strongest when the
taxpayer is the recipient of state services.
See Washington v.
Confederated Tribes of Colville Indian Reservation,
447 U. S. 134,
447 U. S. 15
(1980). To the extent presumptions are relevant, the Court has
inverted the one that ought to apply.
Another distinction is also relevant. The activity taxed in
White Mountain was the exploitation of natural resources
located on the reservation and devoted to the beneficial use and
enjoyment of reservation Indians. Indeed, over 90% of the total
profits generated by tribal enterprises were derived from the
Tribe's logging operations. 448 U.S. at
448 U. S. 138.
In this case, the state taxes diminish not the income generated by
the Tribe for its own preservation and welfare, but federal funds
appropriated by Congress for the purpose of school construction. No
tribal funds are devoted to this endeavor, and congressional
appropriations were based on funding requests that included the
gross receipts tax as part of the estimated construction cost.
[
Footnote 2/4]
In other areas of tax immunity, the Court has steadfastly
refused to assess the validity of a tax by reference to the
economic burdens it imposes if those burdens are nondiscriminatory
and comport with due process.
See United States v. New
Mexico, 455 U. S. 720
(1982) (state taxation of federal contractors);
United States
v. County of Fresno, 429 U. S. 452
(1977) (state taxation of Federal Government);
New York v.
United States, 326 U. S. 572
(1946) (federal taxation of state government);
Michelin Tire
Corp. v. Wages, 423 U. S. 276
(1976) (state taxation of imports and exports).
[
Footnote 2/5]
We recognized one possible exception to this general rule:
"In the case of a sales tax . . . , it is arguable that an
entity serving as a federal procurement agent can be so closely
associated with the Government, and so lack an independent role in
the purchase, as to make the sale -- in both a real and a symbolic
sense -- a sale to the United States, even though the purchasing
agent has not otherwise been incorporated into the Government
structure."
455 U.S. at
455 U. S. 742.
In this case, there is no basis for arguing that Lembke has acted
merely as a purchasing agent for the Board or the BIA.
[
Footnote 2/6]
Of course, the Court purports to rest its decision on the
preemptive effect of federal law. But the immunity of federal
contractors from state taxes is also dependent on "generalized
notions of federal supremacy."
United States v. New Mexico,
supra, at
455 U. S. 730.
The critical question, both in
United States v. New Mexico
and in this case, is what factors will the Court examine to
determine whether the State has exceeded limits imposed by the
Supremacy Clause and by Congress. I think it is evident that, in
the area of federal tax immunity, the Court has required evidence
of more than mere economic burdens before it will invalidate a
state tax as applied. As this case demonstrates, tribal tax
immunity may be invoked on no greater showing than the fact of
economic burdens on a federally supported tribal endeavor. Since
both immunities derive from precisely the same source -- the
supremacy of federal law -- I find the Court's decision today
inexplicable.
"With the abandonment of the notion that the economic -- as
opposed to the legal -- incidence of the tax is relevant, it
becomes difficult to maintain that federal tax immunity is designed
to insulate federal operations from the effects of state
taxation."
United States v. New Mexico, supra, at
455 U. S. 735,
n. 11.