In Ledyard, 2nd Circuit Says Local Governments May Tax Non-Indian Personal Property Located On Indian Reservations

Zehava Zevit is an Attorney in our Los Angeles office and Kathleen M. Nilles is a Partner in our Washington, D.C. office.

Reversing a district court order that would have preempted the imposition of local taxes on personal property located on Indian reservations and utilized by an Indian tribe, the U.S. Court of Appeals for the 2nd Circuit has held that the Town of Ledyard, Conn., can tax slot machines owned by non-Indian gaming machine companies and leased by the Mashantucket Pequot Tribe. Mashantucket Pequot Tribe v. Town of Ledyard , 12-1727-cv (L).

The court held that neither the federal Indian Trader Statutes nor the Indian Gaming regulatory Act (IGRA) expressly bar the imposition of a local property tax imposed on the non-Indian owners of personal property located on an Indian reservation. It further held that federal law does not implicitly bar the tax — even when the property is used for tribal operations — because state and town interests in applying the tax outweigh the federal and tribal interests reflected in federal statutes. The Ledyard decision burdens tribes by significantly diminishing the strength of their claimed interests in tax preemption cases.

Background

The Mashantucket Pequot Tribe entered into equipment lease agreements with various gaming manufacturers, including Atlantic City Coin & Slot Co. and WMS Gaming, Inc. Each of the leases between the manufacturers and the tribe was negotiated and executed on the reservation, and each provided that the tribe would reimburse the manufacturer for any tax imposed on the leased equipment. The Town of Ledyard sought to impose its property tax on the equipment placed at the Mashantucket Pequot casino on tribal lands. The tribe filed an action in federal court against the defendant town and state challenging the property tax. The parties filed cross-motions for summary judgment. In a uniquely comprehensive order issued March 27, 2012, Senior U.S. District Judge Warren W. Eginton (District of Connecticut) held that the Town of Ledyard could not tax the slot machines owned by non-Indian gaming machine companies and leased by plaintiff Mashantucket Pequot Tribe. (See our April 2, 2012, alert about this ruling.) Last week, the 2nd Circuit reversed that order.

The Ruling

First, the 2nd Circuit held that the tribe had standing to pursue its claim. It then held that the federal Tax Injunction Act, which normally bars an individual's state tax challenge in federal court, does not apply...