By Michael Penza and Amy Nogid 

The U.S. Court of Appeals for the Eleventh Circuit invalidated Florida’s rental tax imposed on the Seminole Tribe of Florida’s (the Tribe) leases of tribal land to non-Indian corporations, but upheld Florida’s utility tax collected from the Tribe. 

The Tribe operated casinos on two of its reservations; non-Indian corporations entered into leases with the Tribe to operate food courts at the casinos. The court affirmed the district court and held that the Indian Reorganization Act (IRA), which prohibits states from taxing lands held in trust by the United States on behalf of Indian tribes, preempts application of Florida’s rental tax on the non-Indian corporations’ lease payments to the Tribe. Relying on the U.S. Supreme Court’s decision in Mescalero Apache Tribe v. Jones, 411 U.S. 145 (1973), the Eleventh Circuit held that the ability to lease property is a fundamental privilege of property ownership, and that a tax on that privilege, such as Florida’s rental tax, amounted to a tax on the land itself, thereby violating the IRA. The court rejected Florida’s argument that the rental tax was a transactional tax rather than a tax on the land.

However, the court reversed the district court and upheld Florida’s utility tax collected from the Tribe related to utility services provided on the Tribe’s reservations. The court’s ruling hinged on determining the legal incidence of the utility tax. States are categorically barred from taxing Indian activity on reservations, but may tax non-Indian activity on reservations if not otherwise prohibited by federal law. The district court had found that the legal incidence of the utility tax was on consumers, likening it to a sales tax, and that an explicit pass-through provision of the tax to consumers was not required. The Eleventh Circuit, on the other hand, found that the legal incidence of the utility tax fell on the utility companies, and the utility companies were not legally required to pass the tax on to their customers. The court also found that unlike the rental tax, the utility tax was not preempted by federal law, even though electricity was essential to tribal activities, because there was no demonstrated Congressional intent to regulate utility use on tribal lands. Seminole Tribe of Florida v. Stranburg, No. 14-14524 (11th Cir. Aug. 26, 2015), aff’g in part and rev’g in part (S.D. Fla. Sept. 5, 2014).