The U.S. Supreme Court has ruled a Kansas Indian tribe is not exempt from taxes on its purchases of motor fuel, overturning a previous ruling by the U.S. Court of Appeals for the Tenth Circuit. In a 7-2 opinion by Justice Thomas, the Court reversed an August 2004 ruling of the Tenth Circuit that the Prairie Band of the Potawatomi Nation is exempt from a Kansas tax on the purchase of motor fuel by wholesale distributors. The federally recognized Tribe buys the fuel for retail sale at a tribal service station, which is near a tribal casino. The Tenth Circuit had held that, because non-Indians come to the reservation for the casino, the motor fuel sold by the Tribe is an “integral and essential” part of the casino and its value is attributable to the reservation. The Supreme Court ruled instead that the tax was imposed off reservation on non-Indians.

“We are delighted with the Supreme Court’s ruling,” said William Perry Pendley of Mountain States Legal Foundation, which represents three trade associations that supported Kansas’s position in a friend of the court brief. “The Tenth Circuit’s ruling, had it been allowed to stand, would have destroyed competition in the sale of motor fuel, disrupted State tax administration, prevented States from raising revenue, and created commercial chaos.”

The National Association of Convenience Stores the Petroleum Marketers Association of America and the Society of Independent Gasoline Marketers of America, which represent 80 percent of the nation’s convenience stores, 8,000 independent petroleum marketers, and 250 independent motor fuel operators, filed the friend of the court brief.

J. Scott Detamore, senior attorney with Mountain States Legal Foundation (MSLF), wrote, “I believe this is a very important decision and that other states will begin to adopt Kansas’ system of taxation. The result will be that your members can better compete with on-reservation sales of gasoline, cigarettes and other items. I believe that it was important the Court receive your point of view--not just that of the several states that supported Kansas. I would like to think that your point of view, expressed by MSLF, assisted the Court in reaching the decision it did.”

The associations argued that, because the tax is on non-Indian, off-reservation economic activity, federal law does not preempt it and that any federal preemption must be unequivocal. Plus, because the value of the motor fuel is due to off-reservation activity, Kansas’ interest is paramount.
From Mountain States Legal Foundation