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Your recent article about Native American gaming ("The 5¢ Empire," December 2006) inaccurately portrayed the current law on taxation of "sovereign" Indian nations.
According to your article, "[Arnold] Schwarzenegger ran television advertisements portraying tribes as special-interest groups that avoided paying taxes. He was right; they don't pay taxes. Then again, neither does Belgium or any other sovereign nation." This passage gives an incomplete picture of the complicated issues related to the taxation of Native American businesses.
It is generally true that states do not have authority to tax or regulate gaming conducted on validly recognized reservation lands. However, the Indian Gaming Regulatory Act (IGRA) requires tribes wishing to pursue "Class III" gaming enterprises to enter into compacts with the state. These compacts will generally allow for some degree of state regulation and include an agreement for shared revenue generated by the gaming enterprise.
It should also be noted that other types of businesses conducted on tribal lands may be subject to state taxation. For example, both state and federal courts in many jurisdictions, including the U.S. Supreme Court, have consistently held that sales of tobacco to non-Natives can be subject to both state and local taxation. In fact, a federal court recently ruled that Rhode Island may even order state police to raid a Native American tobacco business on "sovereign land" in order to enforce state tax laws.
Furthermore, neither Indian tribes nor their members are immune from many forms of federal taxation. In general, Native Americans pay federal income tax on earnings from personal services or investments whether earned on or off the reservation, with the exception of income directly derived from allotted trust land, such as agricultural production. Native Americans also pay federal excise taxes.
Therefore, it is incorrect to assume that any state or local efforts to fairly tax Indian businesses are either unprecedented or wholly without merit. Similarly, your article fails to consider the potential deleterious effects of those gaming operations, both on and off the reservation. Off reservation, these facilities typically demand from the community as many, if not more, municipal services as taxed businesses, despite the fact that reservations are immune from property taxes. On reservation, experts have expressed concerns about gaming, including an increase in gambling abuse and addiction and evidence that gaming is replacing traditional social activities with materialism.
Indian tribes enjoy many benefits due to their "sovereign" status. Many of these benefits are an attempt to compensate for alleged unjust treatment of the tribes in the past. However, it would be a mistake to assume that these benefits are not without burdens, both for the Indian tribes and for the communities that host them.
Steven J. Getman
Seneca County (New York) Attorney
The Author Responds: I appreciate Mr. Getman taking the time to write to us about "The 5¢ Empire." I disagree, however, with several of the points in his letter.
First, I'm a bit baffled by the Seneca County Attorney's use of quotation marks around the term sovereign (when referring to native tribes as sovereign nations). The sovereign status of tribes is clearly stipulated in the Commerce Clause of the U.S. Constitution, which empowers Congress "to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." At the very least, tribes enjoy status on a par with states. Moreover, they deal with the federal government on a nation-to-nation basis (hence the nearly 400 treaties signed by tribes and ratified by Congress in the 1800s).
While Native American sovereignty has eroded over time — mostly through legislation and court decisions shaped by bigoted, stereotypical views of Native Americans — the basic concept of Indian sovereignty has been repeatedly affirmed by the U.S. Supreme Court. That view was expressed early on in the landmark Worcester v. Georgia decision in 1832. Subsequent military defeats of native nations may have stripped them of tribal assets, but not of their sovereignty.
Mr. Getman is right in asserting that IGRA does allow for some degree of state regulation over Native American gaming operations. Our story says this. It also points out that this regulatory function was intended solely to make sure that native gambling operations were run on the up and up. IGRA also stipulates that a state's oversight role should be agreed upon in the compacting process. Such agreement includes any fees paid to the state to "defray" the cost of this oversight. But as our article indicates, IGRA prohibits states from demanding a piece of the action. Here's IGRA on that topic: "Nothing in this section shall be interpreted as conferring upon a State or any of its political subdivisions authority to impose any tax, fee, charge, or other assessment upon an Indian tribe...to engage in a Class III activity."
In fact, the whole point of the story is how states have subverted the compacting process to tap into Indian gaming revenues. While taxation of Native Americans is a thorny, complicated issue, on the whole, tribal-owned businesses do not pay federal and state taxes; Native Americans do, but Native American nations do not. As for the tax raids in Rhode Island, the collection of sales tax on Indian lands varies from state to state and is far from settled law, as indicated by a recent court decision in Mr. Getman's home state of New York. That decision dismissed a suit by convenience-store operators who want the state to collect sales tax on gasoline and cigarettes sold on reservations.
I do agree with Mr. Getman that Indian casinos present problems for local residents and tribal members. The numbers I've seen show that about 5 percent of casino goers have a serious problem with gambling. While not a huge figure, it's still worrisome. In addition, the influx of thousands of casino goers often overwhelms the infrastructure of rural towns. In some cases, crime rates go up — both on and off reservation. But researchers disagree on the overall economic impact of gaming on tribes and local communities. On the whole, it appears that the negative effects of these casinos are outweighed by the creation of jobs.
Finally, Mr. Getman refers to the "alleged" unjust treatment of Native American tribes. We're all entitled to our own interpretation of the past. But by my lights, even a cursory examination of history reveals a regular and shameful pattern of unjust treatment of Native American tribes. In the article we mentioned the Dawes Act; we could just as easily have mentioned the Ft. Laramie Treaty, the Trail of Tears, the Indian Removal Act, the billions currently missing from the Indian Trust Fund accounts, or hundreds of other government-sanctioned outrages.
"Management or Manipulation?" (By the Numbers, December 2006) concisely demonstrates a shortcoming of capital markets: the incentive [to focus on] performance management rather than [properly] manage the performance of operating, investing, and financing activities underlying financial reporting (key drivers of performance). Oftentimes, management has the incentive to accelerate revenues, defer expenses, overstate assets and equity, and understate liabilities. These arise for various reasons, from meeting or exceeding market expectations of earnings per share to maximization of net income to boost the share price for capital appreciation to ensuring that banking debt/equity or cash-flow covenants are met. Only when we devise a new capital market and internal labor-market structure that does not focus on and suffer from short-termism of earnings maximization, debt/equity minimization, and cash-flow maximization will we have proper financial reporting that is representationally faithful rather than performance management. Only by creating greater ties between internal labor-market performance and external capital-market assessments will we have proper financial reporting.