Wagnon v. Prairie Band Potawatomi Nation – Oral Argument – October 03, 2005

Media for Wagnon v. Prairie Band Potawatomi Nation

Audio Transcription for Opinion Announcement – December 06, 2005 in Wagnon v. Prairie Band Potawatomi Nation

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John G. Roberts, Jr.:

We will now hear argument in Wagnon vs. Prairie Band Potawatomi Nation.

Mr. Olson.

Theodore B. Olson:

Thank you, Mr. Chief Justice, and may it please the Court–

Kansas imposes a tax on the distributors of motor fuel.

The legal incidence of that tax is explicitly, by statute, imposed on the distributor of the first receipt of the fuel.

The tax is, thus, imposed and collected off reservation from non Indians.

The who, when, and where of the tax is all off reservation and non Indian.

David H. Souter:

Mr. Olson, may I ask you to go one step beyond that on an issue of fact that I just don’t understand from reading the briefs?

Let me give you three quick quotations.

First, the court of appeals opinion contains this statement,

“An expert on behalf of the tribe reported that basic economic theory teaches that the nation’s station cannot charge prices high enough to allow collection of both the Kansas and the nation’s fuel taxes. “

The red brief says, on page 8,

“It is undisputed that enforcing the State tax on fuel sold and delivered to the station would effectively nullify the tribal fuel tax. “

Finally, the yellow brief, on page 13, says,

“By selling its fuel at market prices, respondent. “

–the tribe…

“is making both a profit and collecting a tax. “

My question is, Do we know, from the record, whether the tax that is assessed on the distributor is, in fact, passed through to the tribe so that, in economic effect, the tribe is collecting, via pass through, the State tax and imposing its own tax and still selling at market prices?

Theodore B. Olson:

I had… I had the same question, Justice Souter, as I was looking at this yesterday.

And I investigated it.

And it is my understanding, but I did not find this completely in the record, that the distributor is, indeed, paying the tax, and that the tribe is also collecting a tax.

Now, I don’t quite understand how you reconcile those two points that you’ve just raised.

If it’s… if it’s something that is economically not possible, how can it… how is it that it’s being done.

Despite the fact that the tenth circuit held the tax impermissible, it’s my understanding that the distributor is still paying the tax.

Now, I–

Antonin Scalia:

Make it up on volume, I think.

Theodore B. Olson:

–Maybe they make it up on volume.

Maybe people that are at the casino are willing to pay more of the tax.

There is a differential between the amount of the State tax and the tribe tax.

It’s only a couple of cents, as I understand it.

Theodore B. Olson:

But I think the point–

David H. Souter:

But if… if I may interrupt you… if it’s getting passed through, and they’re still selling their gas, then there’s no… then the tribe cannot make an argument here that their sovereign taxing authority is being compromised or threatened.

And the argument, basically, would boil down to the argument that they want to make a bigger profit.

Theodore B. Olson:

–Well, I agree with that.

And I also would point out–

Antonin Scalia:

Or want to impose a higher tax.

Theodore B. Olson:

–Pardon me?

Antonin Scalia:

Or want to impose a higher tax.

David H. Souter:

Yeah.

Theodore B. Olson:

And what… I think that what… what this boils down to… and I’m skipping ahead of myself… is that the tribe would like to be able to market a product without having to pay the burdens of taxation all the way upstream.

Yes.

David H. Souter:

Yeah.

Theodore B. Olson:

Yeah.

There are taxes on the distributors’ property, there’s taxes that are imposed when the fuel comes out of the ground and at the refinery stage.

So, the tribe would like to market a product unburdened by any upstream taxation, the cost of doing business–

Anthony M. Kennedy:

Well, but aren’t they going to tell us that… as a practical matter, that the tax is really being collected for the retailers?

It’s just being passed on to the retailers, but paid by the… I take it that the distributor… the way this works… I, again, had problems with effect… I take it the distributor sends out a truck.

And if he sends out the truck to the tribe, then the distributor just pays the tax, and the tribe would want that tax to be… that fuel to be distributed, less the cost of the tax.

Theodore B. Olson:

–Yes.

Anthony M. Kennedy:

And if the tribe view prevails, then the distributor still sends the truck to the stations that are in the State and passes on the tax for those–

Theodore B. Olson:

It’s–

–It’s my understanding… and this is explained… the details of this are explained in Section 3410… I can’t give you a citation to the record, but the statutes, I’m presuming, are available… that the distributor pays a… pays a tax as a result of taking the fuel down from what they call the rack, and then taking it to various service stations–

Anthony M. Kennedy:

–distributors only.

I take it that’s–

Sandra Day O’Connor:

Well, what event triggers, if you will, the incidence of the tax on the distributor?

Is it… is it the obligation… is it the minute the fuel is brought into Kansas?

Theodore B. Olson:

–It’s–

Sandra Day O’Connor:

Is it when it is delivered to the distributor?

Theodore B. Olson:

–It’s–

Sandra Day O’Connor:

Or is it later?

Theodore B. Olson:

–The statute explicitly says, Justice O’Connor… this is on page 2 of the petition… the incidence of this tax is imposed on the distributor of the first receipt of the motor fuel.

And then Section… that’s Section 3408(c)… Section 3410 then describes, in a little bit more detail, the physical operation of the reports that the distributor has to make, and the distributor has to pay the tax.

Sandra Day O’Connor:

So, the distributor gets the fuel and incurs the obligation at that point, whether or not it’s resold.

Theodore B. Olson:

That’s correct.

Ruth Bader Ginsburg:

But doesn’t incur it, or gets a credit or gets it back, if it sells to the United States or if it sells out of State.

In other words, it’s not just the receipt.

Theodore B. Olson:

It’s… Justice Ginsburg, it is the receipt that triggers the liability for the tax.

There is a… an exemption that may be taken in connection with sales to the United States, and that’s a part of a massive quid pro quo operation, where fuel is sold to the United States, and the United States pays the State back substantially all of the tax that–

Ruth Bader Ginsburg:

And out of State or abroad–

Theodore B. Olson:

–And out of State, there is a deduction for fuel sold out of State.

That’s logical, because the purpose for the tax is to pay for the roads in Kansas, and it’s–

Stephen G. Breyer:

Then that’s the problem, right there, because I thought… first, there is a tax… you get a credit if you don’t sell the fuel to anybody.

So, I don’t think it’s quite… if you just sit there with–

Theodore B. Olson:

–I don’t–

Stephen G. Breyer:

–Maybe not–

Theodore B. Olson:

–I think… I would disagree with you, Justice Breyer.

Stephen G. Breyer:

–You don’t?

All right.

Theodore B. Olson:

I think it’s my understanding that if you sat on that fuel for the next year–

Stephen G. Breyer:

You’d still have to pay tax.

Theodore B. Olson:

–you’d still have to pay–

Stephen G. Breyer:

Okay.

Theodore B. Olson:

–the tax.

Stephen G. Breyer:

Now, on–

Theodore B. Olson:

That’s my understanding.

Now–

Stephen G. Breyer:

–All right.

Theodore B. Olson:

–with respect to the out of State distribution–

Stephen G. Breyer:

Yes.

Theodore B. Olson:

–that’s because–

Stephen G. Breyer:

All right.

Theodore B. Olson:

–that fuel is not going to be used on–

Stephen G. Breyer:

Fine.

Theodore B. Olson:

–Kansas highways, presumably.

Stephen G. Breyer:

You are Kansas.

You sell… the retailer in Kansas sells it to Nebraska.

Nebraska is, in a sense, a foreign and independent State.

And I guess, at some level, the tribes are arguing,

“Well, you sell to us, our local retailer. “

“We, too, are a foreign and independent State, even more so. “

“So, if you’re going to treat them this way… give the people in Nebraska a credit so they don’t have to pay… why don’t you treat us that way? “

“We drive on Kansas roads sometimes. “

“So do the Nebraskans– “

Theodore B. Olson:

Well, sometimes.

Stephen G. Breyer:

–“# sometimes”.

Theodore B. Olson:

The vast–

Stephen G. Breyer:

So, they say… get into interest balancing.

Theodore B. Olson:

–Well–

Stephen G. Breyer:

Now, what… now you have the whole argument that I’m thinking of.

What do you respond?

Theodore B. Olson:

–Well, one of my responses is that the tribe is located entirely within the State.

The record is clear that most of the fuel purchased at that station is used on highways paid for by Kansas.

An overwhelming majority of the fuel is not used on a reservation road; its used on the highways of the State of Kansas to get to the casino or to leave the casino.

The road that’s at issue in this case is 1.5 miles long.

The rest of the driving, according to the record, is on the highways of Kansas.

So, there’s a clear difference there.

When you sell… when the distributors market fuel in Nebraska–

John Paul Stevens:

But, Mr. Olson, would it make any difference if all of the driving was inside the reservation?

Would it–

Theodore B. Olson:

–No, we would–

John Paul Stevens:

–make any difference?

Theodore B. Olson:

–we would argue that it would not make any difference, Justice Stevens, because this is a tax on distributors.

It is… the Legislature of Kansas followed the specific advice of this Court in its unanimous opinion in the Chickasaw Nation that if there is an issue with respect to the tax being imposed on… arguably burdening the tribe, the State can change the legal incidence of the tax.

That’s a–

Ruth Bader Ginsburg:

–Well, that… that has been what’s discussed in the brief, and I think that the court, in Chickasaw, was saying, If the State puts the incidence on the tribe itself, we don’t have to look any further.

That’s what it said.

When the State levies a tax directly on the tribe or members inside the reservation, no balancing.

But then it also said that if the incidence rests on non Indians, as here, with the distributor here, then there is no categorical bar, than balancing kicks in.

So, all Chickasaw dealt with, with the categorical rule, is when the State says the incidence of the tax is on the tribe.

Theodore B. Olson:

–I… that’s correct, Justice Ginsburg.

But the answer is that this is an entirely off reservation tax on non Indians.

We’re… we submit that there’s no balancing necessary in this case unless you’re going to involve an… require States to submit to litigation and engage in balancing every time an off reservation tax on non Indians has some downstream economic effect.

But what about the tax on the car that brings the casino patron to the reservation?

What about the tax on the cigarettes or the alcohol or the gambling machinery?

John G. Roberts, Jr.:

Well, Mr. Olson, the Solicitor General tells us that… and here we have… you have the statute, but they have the Kaul case that suggests that this tax is imposed on the reservation.

Theodore B. Olson:

But the Kaul case, in the context of deciding whether other retailers there had standing, basically said that there was an economic impact that affected the retailers.

The Kaul case specifically referred, Mr. Chief Justice, to the fact that the legislature had… and this is on page 67 of the Pacific 2nd cite of the Kaul opinion… the legislature amended the statute… this is at the bottom of the second column… or the first column… to clarify the question where the incidence of taxation falls.

The legislature provided that, unless otherwise specified, the incidence of the tax falls on the distributor.

Then, Mr. Chief Justice, the court went on to evaluate the standing question and allowed the distributors the… to raise the issue, because the economic burden did come through the distributors.

It’s important, in that context, to note that the ultimate burden of any of these taxes is not falling on the retailer, it’s falling on the consumer.

It’s falling on the consumer of the gasoline.

The consumer puts the gasoline in the car, and then the car is driven overwhelmingly… the facts are unquestionable in this case… overwhelmingly on the highways of the State of Kansas.

So that the burden… ultimately, the burden–

John Paul Stevens:

Yes, but, again, that would still be true if the incidence… the tax was on the retailer rather than the wholesaler.

Theodore B. Olson:

–It still would be true.

And… but the fact is, in this case you have a… off reservation tax, on the… all distributors–

John Paul Stevens:

Which the statute contemplates will be collected when the gas is sold to the… by the retailer.

Theodore B. Olson:

–It… what the statute specifically says… this is Section 3409… it says that the distributor may pass on… “may”… it’s a permissive provision… may pass on the cost of the taxation as a part of the cost of doing business.

And, of course, the distributor does that with respect to the cost of its vehicles, the cost of other taxes it pays.

It may include those provisions.

Antonin Scalia:

But what a strange provision.

I mean, who would have thought that he couldn’t?

Why did–

Theodore B. Olson:

I–

Antonin Scalia:

–they ever put that provision in, unless it means something different from–

Theodore B. Olson:

–I think what it means… I understand, Justice Scalia, and I… because I’ve had the same reaction,

“Well, of course he could. “

“Why does he need a statute to do that? “

“It is a cost of doing business. “

I think that provision is a part of the effort to make clear one of the factors that distinguishes this case from the Chickasaw Nation case, where the court found that it was significant that the distributor was required to pass on the tax, act as a collection agent for the retailer, and took a 1.5 percent commission.

So, this court thought that might be significant.

Kansas, in part, I think, want to make… wanted to make it very clear that the… what was happening in the economic chain is cost of production of gasoline, including tax paid by the distributor, could be passed on in the form of cost of business to the retailer.

Now, of course its cost… it passed on, also, to the consumer.

The question–

John G. Roberts, Jr.:

Mr. Olson, what does it mean when they say, in law, the

“incidence of the taxes on the distributor? “

Does that mean anything other than that he has to pay it?

Theodore B. Olson:

–It is unclear from this court’s decisions precisely what “legal incidence” means.

At least it was unclear to me as I was looking through the court’s decisions.

But I think it’s a combination of the liability for the tax, the responsibility to pay the tax, the fact that… in this case, the retailer has no liability for the tax.

The only liability for the tax is on the distributor.

The relationship is between the State of Kansas and the distributor.

And all of those factors together make it clear to me, from this court’s previous decisions, that “legal incidence” is a term of art, especially in the field of taxation.

And, as the court pointed out in the Chickasaw Nation case, it’s important to have a–

John G. Roberts, Jr.:

Well, I guess the reason for my question is, they look back at the court’s decisions and see that it turns on where the incidence of the tax is.

And so, there’s some bright lawyer in Kansas who said,

“All we have to do is pass a law saying the incidence is… of the tax is on the distributor, and we’re going to win. “

Theodore B. Olson:

–Well–

John G. Roberts, Jr.:

So, it suggests that we shouldn’t give too much weight to that.

Theodore B. Olson:

–Well, the bright lawyer in Kansas who may have done that was the Kansas Legislature, following the unanimous decision of this court in Chickasaw Nation, saying,

Theodore B. Olson:

“If you want to avoid the potential problems that would exist, change. “

–and it’s not just the incidence of the tax, it’s the legal incidence of the tax, it’s… of course, the economic burden of taxation is spread out throughout the chain of distribution.

The legal incidence of the tax, as I read this court’s opinions, are… is, it is exactly what it is here, the distributor must pay for the tax, the distributor must account for the tax, the distributor is liable and may be penalized if the tax is not paid.

Nobody else is liable for it.

The distributor has to pay the tax even if it doesn’t sell the gasoline.

Here, not only the language is as clear as it could be… I mean, the legislature specifically says it… but the operation of the statute… and the two… the… twice, the tenth circuit considered this… the tenth circuit decided the legal incidence of the tax was on the distributor.

The two district courts that decided it before those two tenth circuit decisions, decided that the legal incidence was on the distributor.

The facts support that the legal incidence is on the distributor.

And respondents, on page 16 of the respondent’s brief, it seems to me, acknowledge precisely that.

They, in their effort to distinguish the Central Machinery case, which is the Indian taxation statutes… and we’re not… specifically said there, referring to Central Machinery,

“The State tax was imposed on the sale of merchandise. “

The legal incidence of the tax there, as here, fell on the non Indian seller.

“So, the respondents have even said that, on page 16 of their own brief. “

David H. Souter:

May I go back to one factual nuance on that?

Apart from legal incidence, somebody mentioned earlier that the tax would not necessarily be payable until, in fact, the gasoline was distributed to the retailer.

Is that correct?

Theodore B. Olson:

That’s not my understanding.

I may be wrong.

But, as I read Section 3410, the distributor must file monthly reports with the State describing the amount of tax it’s drawn down at the rack when it takes the… unloads fuel into its trucks.

And it’s responsible monthly–

David H. Souter:

But isn’t that a surrogate for sale to the… well, I guess what I’m getting at, the tax apparently is not payable when the distributor receives the fuel, but only when the distributor transfers the fuel to a retailer.

Theodore B. Olson:

–No.

I–

David H. Souter:

No?

Theodore B. Olson:

–That’s not my understanding.

The… it is not… the incidence… or the occasion for the payment of the tax isn’t a sale to a retailer.

You’d have… I can imagine the practicalities of that would drive everybody crazy.

The distributor–

David H. Souter:

Well, why would he be drawing it down, except to sell–

Theodore B. Olson:

–Well, of course… of course, the distributor is drawing it down to sell fuel to gasoline stations.

David H. Souter:

–Yeah.

Theodore B. Olson:

It may… there may be some storage involved, there may be other occasions.

But the fact is that the distributor files a monthly report describing how much fuel is… it receives.

Ruth Bader Ginsburg:

Mr. Olson, in terms of the text of the statute that is… the incidence is on the distributor of the first receipt, but then there’s this language… and it appears in a few places…

“the tax is hereby imposed on the use, sale, or delivery. “

What does… what does that mean, that

“the tax is imposed on the use, sale, or delivery? “

Theodore B. Olson:

Well, this is… this is an effort by the legislature to say that fuel, which is going to be used in Kansas, by and large… there’s always going to be exceptions… fuel that is used, by and large, in Kansas on the roads of Kansas, shall be subject to a tax so that those roads can be built and maintained.

Now, how shall we, mechanically, impose and collect that tax?

We will do it on the first receipt by the distributor.

John Paul Stevens:

Does that mean, Mr. Olson, that the tax that the… the fuel, rather, that’s sold to the United States Government, later, out of State, when is the credit for the sales out of State made?

Is that made at the time of the initial delivery, or is… do they ask for a refund a month later?

Theodore B. Olson:

I don’t know the answer.

John Paul Stevens:

I couldn’t tell from the–

Theodore B. Olson:

I don’t know the answer to that, Justice–

John Paul Stevens:

–It seems to me that might be a way of identifying whether the term “legal incidence” really has any significance.

Theodore B. Olson:

–Well, I would say that the… that if the… this Court’s prior decisions have any consistent meaning, that the person who has the obligation to pay the tax, and who might claim some credits or deductions, like we all do when we file our tax returns, the legal incidence of the tax is on us, as taxpayers.

The taxpayer here is the distributor.

The statute says so.

The way the statute works–

John Paul Stevens:

I, sort of, take “legal incidence” to mean the duty to pay the tax.

And I’m just wondering whether… when fuel is sold to a distributor that the… I mean, the distributor knows the fuel is going to be resold to the United States… does he have an exemption from the tax, because he knows what’s going to happen to it, or does he have to pay the tax, or accept the obligation to pay the tax, and then–

Theodore B. Olson:

–I think–

John Paul Stevens:

–subtract, later on?

Theodore B. Olson:

–I think, but I can’t represent to you know that I know for sure, that that is an accounting process that takes place.

Because these are transactions… thousands of transactions that are taking place all of the time.

Kansas also has a practical reason for imposing this tax on the distributors.

There are X number of distributors.

You can imagine how many times X there might be retailers and how many different disputes and so forth.

The point… one of the points that this Court has repeated made in connection with tax cases, and intersovereign immunity issues with respect to tax cases, it is vitally important that there be certainty, predictability, and some understanding of fixed events with respect to taxation.

Theodore B. Olson:

States can’t be engaged in litigation constantly, depending upon how many casino customers were here, how many people bought this gasoline, how many people bought that gasoline the next month, and how much did the tribe charge for the gasoline on its reservation.

That kind of balancing process makes no sense whatsoever, and it… and it sentences the States to litigation, and this Court to repeated decisions, based upon specific facts.

That’s why, we submit, that although the balancing is overwhelmingly in favor of the State, because it’s a tax for gas that will enable someone to drive on roads that the State has to pay for, that, in this situation, one balancing test makes little sense.

It simply invites litigation–

Antonin Scalia:

–Mr. Olson, you mentioned Section 3410.

Where does that appear on–

Theodore B. Olson:

–Well–

Antonin Scalia:

–I can’t find it in anybody’s–

Theodore B. Olson:

–I was not able to find it, either, in the briefs.

It’s… the Kansas… it’s the… it’s in the Kansas statutes, of course, but I couldn’t find it set out verbatim in the… in the briefs.

I suspect it’s in there someplace, but I couldn’t find it when I was looking.

Ruth Bader Ginsburg:

Mr. Olson–

John Paul Stevens:

I couldn’t either.

Ruth Bader Ginsburg:

–could we go back–

John Paul Stevens:

May I ask… excuse me.

Ruth Bader Ginsburg:

–to the question that Justice Souter raised at the outset?

Because I’m really puzzled.

This is the picture I have of the case.

And please tell me where it’s wrong.

Two jurisdictions, both with authority to impose a tax, the State and the tribe.

So, if the other weren’t taxing, there wouldn’t be any question, that the tribe can tax and the State can tax.

But the two can’t coexist, because the consumer’s not going to pay the price.

So, only one can.

And the issue is, which one dominates, and which is one is subordinate?

But you have unquestionable authority to tax in both.

And I thought it was clear that the two taxes did… this is not a case where the tribe can impose a tax, the State can im… oppose.

I read the briefs to accept that the tribe tax… couldn’t put its tax on top of the State tax.

Theodore B. Olson:

The… it’s a matter of economics, Justice Ginsburg, just as your question suggests.

The tribe would not… would like to be able to market tax free fuel at its nonregulated casino.

It would… probably would like… and if this case is decided against the State, it would probably not like to pay the tax on the… on the car that brings the patron–

Ruth Bader Ginsburg:

But not tax free.

I mean, the… a big thing that was made in this case was that, unlike the cigarette sales in the smoke shops, the tribe is not trying to market a tax exemption.

It is putting on its own tax, which will cost the customer, in the end, the same as if there had been a State tax.

Theodore B. Olson:

–Well, it wouldn’t have to use a tax to do that.

It owns the station.

It would–

Antonin Scalia:

–Who is it taxing?

Is it taxing itself?

Theodore B. Olson:

–It’s–

Antonin Scalia:

I mean, the tribe sells the gas–

Theodore B. Olson:

–That’s–

Antonin Scalia:

–doesn’t it?

Theodore B. Olson:

–precisely the point, that the tribe would probably not like to pay the taxes that are paid by the distributor or the refiner or the person that brings the fuel… the petroleum product out of the ground.

What it… what it simply means is, the margin between the cost and the sale, that’s what the tribe would like.

It’s perfectly understandable.

But it would like to have that and… that tax… and I’d like to save the balance of my time for rebuttal… but that tax is overwhelmingly used on the roads of Kansas… overwhelming used on the roads of Kansas… which are paid for, built, and maintained with the revenue produced by that taxation.

That’s what it’s for.

John G. Roberts, Jr.:

Thank you, Mr. Olson.

Mr. Gershengorn.

Ian Heath Gershengorn:

Mr. Chief Justice, and may it please the Court–

In the tribe’s view, the State’s defense of its tax today depends on a tax that does not exist.

Two distinct sovereigns have imposed fuel taxes here.

The Prairie Band Potawatomi Nation has imposed a tribal tax on a tribal station operating on tribal trust land.

David H. Souter:

Is it collecting that tax?

Ian Heath Gershengorn:

It is, Your Honor.

The–

David H. Souter:

Then what’s its gripe?

It wants a bigger profit?

It wants to increase–

Ian Heath Gershengorn:

–Your Honor–

David H. Souter:

–the taxation?

Ian Heath Gershengorn:

–the record is clear that the two taxes cannot coexist in the long run, because it would price the–

David H. Souter:

No, but if–

Ian Heath Gershengorn:

–price the–

David H. Souter:

–if the tribe is collecting… it’s assuming that… if the tribe is collecting its tax, and it does not have a claim to greater taxation or greater profit, then how is its sovereign right as a taxing authority being interfered with?

Ian Heath Gershengorn:

–Your Honor, the tribe is being forced right now to subsidize the sales at the station at a loss, which it’s doing for the balance of this litigation.

David H. Souter:

Loss of profit–

Ian Heath Gershengorn:

–Your Honor, the tribe… the tribe is–

But the–

David H. Souter:

–as an entrepreneur.

Well, isn’t… I mean, isn’t that necessarily the case?

If it’s collecting all of its tax, then what it’s complaining about is that it’s getting less profit as the… as the retailer.

Ian Heath Gershengorn:

–Your Honor, that’s correct, at the moment–

David H. Souter:

All right.

Then is that an issue that we should consider on a question of preemption which arises from the tribe’s assertion of sovereignty?

Ian Heath Gershengorn:

–I think it is, Your Honor, because the tribe should not be put to the choice, as a sovereign, where it’s running a tribal business, of choosing between… of generating revenues by the tax versus generating revenues by the profit.

There is no–

David H. Souter:

Well, in other words–

Ian Heath Gershengorn:

–suggestion, Your Honor–

David H. Souter:

–should we, in effect, say there is no distinction between the tribe’s position as sovereign and the tribe’s position as retail gasoline seller.

Ian Heath Gershengorn:

–Your Honor, I think, in that situation, that the two are very similar, in the same way when a State sells at a State liquor store–

David H. Souter:

Well, they’re similar, because it… ultimately, it’s all going into the same pocket.

We realize that. But, unless there is a claim that its taxing authority, as such, is being threatened or interfered with, I don’t quite see why a preemption theory that rests upon tribal sovereignty has any place in the analysis.

Ian Heath Gershengorn:

–Because, Your Honor, the… it is exactly the tribal taxing authority that interfered.

It’s a… it’s quite a strange form of taxing authority that says you can tax the… you can tax the station, but then… but then essentially have to operate the station at a loss.

That’s not–

David H. Souter:

But it’s not operating at a loss.

Stephen G. Breyer:

What’s strange about it?

I mean, every upstream tax, as Mr. Olson said, raises the price of goods and services.

And it’s harder to retail them, because they cost more.

Stephen G. Breyer:

So, that’s true of every single good sold on the reservation.

So I take it your claim must… and, of course, it may or may not be true that the tribe can put a tax on that.

It depends upon supply and demand–

Ian Heath Gershengorn:

–That is not a–

Stephen G. Breyer:

–But suppose they can’t?

Ian Heath Gershengorn:

–That is not a–

Stephen G. Breyer:

Well, my question is, If we hold for you here, and we don’t take an absolute principle, well, I guess States are forbidden to put any upstream taxes on.

Ian Heath Gershengorn:

–Your Honor–

Stephen G. Breyer:

Why isn’t that so?

Ian Heath Gershengorn:

–Because that does not describe the tax that’s at issue here.

The tax at issue here is imposed on the sale or delivery of fuel to the tribe on the reservation, and that is plain–

Sandra Day O’Connor:

Well, isn’t it… but they say no, that it’s imposed on the delivery to the distributor–

Ian Heath Gershengorn:

–And–

Sandra Day O’Connor:

–of fuel.

Ian Heath Gershengorn:

–and that, Your Honor, is not correct.

What they have done is conflate two concepts, the incidence of the tax–

Sandra Day O’Connor:

Well, it’s what the–

Ian Heath Gershengorn:

–and the–

Sandra Day O’Connor:

–statute says.

Ian Heath Gershengorn:

–I… with respect, Your Honor, I don’t think it is what the statute says.

The statute says, in 3408,

“a tax per gallon is hereby imposed on the use, sale, or delivery of fuel. “

It does not say “the receipt of fuel”.

“The distributor” is defined as somebody who receives and uses, sells, or delivers fuel.

All of the critical exemptions in the statutes are based on the distributor’s subsequent sale or delivery of fuel to the United States, out of State, the Federal contract–

John G. Roberts, Jr.:

But that’s just a subsequent deduction.

I mean, if we get income, we’re taxed on it.

If we make a charitable contribution, we get a deduction.

But that doesn’t mean we don’t have to pay and are subject to the income tax.

Ian Heath Gershengorn:

–Your Honor, this would be a very different case if the State had… if the legislature had passed a tax that said,

Ian Heath Gershengorn:

“This is a tax on receipt. “

and we were trying to argue that these… that somehow these exemptions made it not a tax on receipt.

But the legislature has said it is a tax on the

“use, sale, or delivery. “

And if I could point to two provisions that I think make this crystal clear, that it is not a tax on receipt, but on the subsequent use, sale, or delivery.

The first is 3417, which provides–

John G. Roberts, Jr.:

Where is–

Ian Heath Gershengorn:

–and that is–

John G. Roberts, Jr.:

–where is it?

Ian Heath Gershengorn:

–at 10(a) in the appendix your honor, that provides that a distributor after he has received the fuel, if he subsequently loses the fuel… has it lost or burned… gets a refund of the tax, if it’s… if that happens before he uses, sells, or delivers.

John G. Roberts, Jr.:

But that–

Ian Heath Gershengorn:

The other thing that–

John G. Roberts, Jr.:

–works with the income tax, too.

You have casualty losses and things like that.

It turns out you were subject to the tax, but you don’t have to pay it, because you get a deduction.

But that doesn’t mean you’re not subject to it in the first place.

Ian Heath Gershengorn:

–Your Honor, there are… there is literally nothing in the statute except for the incidence provision, which is what the State relies on, that makes this a tax on receipt.

And, if I could, in Central–

Stephen G. Breyer:

Well, we ought to know, because they’ve been… haven’t they had this for a while?

So, there must be a dealer somewhere who’s not on the reservation… he’s a distributor… somebody delivered to him a thousand gallons, and it’s sitting there in his tank.

Doe he have to pay the tax, or doesn’t he?

Ian Heath Gershengorn:

–Your Honor, I don’t… I think that you’re… that he would pay the tax in that instance–

Stephen G. Breyer:

Well, if he would–

Ian Heath Gershengorn:

–but I don’t think–

Stephen G. Breyer:

–pay the tax, then it is not–

Ian Heath Gershengorn:

–I don’t think so–

Stephen G. Breyer:

–on his–

Ian Heath Gershengorn:

–Your Honor.

Stephen G. Breyer:

–redistribution.

Ian Heath Gershengorn:

I don’t think so, Your Honor.

Stephen G. Breyer:

He is… sorry… if… I’d like to ask the question.

Ian Heath Gershengorn:

I’m sorry, Your Honor.

Stephen G. Breyer:

If… and you can say why this is wrong… if he gets a thousand gallons from whoever… Exxon or somebody… and he puts it in the tank, and he hasn’t sold it, and he has to pay the tax, then it would seem to me to be a sale on the distribution to him, not the sale on his distribution to somebody else.

Now, why is that wrong?

Ian Heath Gershengorn:

Because… two reasons, Your Honor… in the real world, what happens is the distributor picks up the fuel at the rack and delivers it to the retailer.

If the… if the distributor takes the fuel and holds it, he’s not a distributor under the statute.

A distributor is somebody who receives and uses, sells, or delivers.

That’s in… on page 2(a) of the red brief, Your Honor.

So that–

Stephen G. Breyer:

So, now you’re telling me something different from what I understood.

I thought you said it probably has happened in the history of this tax–

Ian Heath Gershengorn:

–I–

Stephen G. Breyer:

–that a distributor picked up a gallon of fuel, held it, and has not yet redistributed it.

So, you’re saying that’s never happened.

Ian Heath Gershengorn:

–Your Honor, I’m not aware of that happening.

But what I would say… the point that I would like to–

Stephen G. Breyer:

If I’m certain about what the tax is on, what should we do?

Dismiss the case or send it to the… ask a question, or what?

Ian Heath Gershengorn:

–Your Honor, I think that this Court can decide this question based on what the face of the statute is… itself says.

Anthony M. Kennedy:

I think we can–

Ian Heath Gershengorn:

No court–

Anthony M. Kennedy:

–I think we can decide it on the basis that we know that when the distributor puts… delivers gas to the gas station, it’s not instantly sold.

I mean, even we know that.

Ian Heath Gershengorn:

–No, Your Honor… that’s correct, Your Honor.

But the statute provides that the tax is on the sale by the distributor to the tribe on its reservation.

It is exactly like what happened in Central Machinery.

In Central Machinery, the incidence of the tax was indisputably on the off reservation seller.

This Court, nevertheless, said, correctly, that the taxable event, the thing that was being taxed, was the sale of tractors to the tribe on the reservation–

John G. Roberts, Jr.:

Well, the statute says–

Ian Heath Gershengorn:

–that was, therefore, preempted.

John G. Roberts, Jr.:

–the statute says it’s a tax on the sale, but then it goes on and says it’s the first sale, and the first sale is to the distributor, and that’s why the incidence of the tax is on him.

Ian Heath Gershengorn:

With respect, Your Honor, what part (c) says, which is what you’re reading from, it says,

“the incidence of the tax is imposed on the distributor of first receipt. “

That is the “who”.

That is not the “what”.

The 79-3408(a), and it is clearly imposed on the use, sale, or delivery of the fuel.

If I could, another provision of the statute that also–

John G. Roberts, Jr.:

But nobody… but it’s not sold… it’s not taxed twice.

If it’s sold to a distributor, that distributor has to pay the tax.

The distributor then sells it to someone else.

That someone else doesn’t have to pay the tax.

Ian Heath Gershengorn:

–That’s right, Your Honor.

But the question is, What exactly is the State purporting to tax?

This is a situation in which the State is not being unambiguous… is being unambiguous about what it’s taxing.

Antonin Scalia:

What if… what… perhaps the State expresses it that way just to cover some people who get their gas illegally, and they would say the tax is still due, even if you haven’t gotten your gas from a distributor who has paid the State tax.

Wouldn’t that suffice for why the court imposes the tax on the use, sale, or delivery?

Use, sale, or delivery.

Ian Heath Gershengorn:

Your Honor, I think the term “use” is the distributor’s use.

The scheme that Kansas has set up is a sensible one.

It is, the distributor gets the tax and then has three choices.

It can use it, sell it, or deliver it.

And if the distributor… if the distributor is… hasn’t done one of those things, then it’s… then it… then the distributor can be made liable for any tax increases that have… that happen while the distributor is holding the tax.

And so, in our view, and in every court that we’re aware of’s view… tenth circuit didn’t decide this case on the assumption that this was a tax on receipt of fuel off the reservation.

What the tenth circuit said was that Kansas is now attempting to collect its tax for the first time, a tax on motor fuel distributed to Indian lands.

It is, again, the same thing–

Stephen G. Breyer:

All right, suppose you’re right.

Look, the Indians, if there is a tax… they have a retail shop or they have things on the reservation, they go buy them… Kansas can’t impose a tax on what goes on, on the reservation.

Can you answer my first question?

Can you even remember it?

I’ll summarize.

Stephen G. Breyer:

On your assumption.

We go through the balance.

But they certainly could impose a tax on the department store in Kansas City, couldn’t they?

Ian Heath Gershengorn:

–That’s right.

Stephen G. Breyer:

And so, the Indian then goes to the department store and buys it.

He has to pay the tax, doesn’t he?

Ian Heath Gershengorn:

Yes.

Stephen G. Breyer:

Okay.

Now what he does, he says, “Call up and”… he says, “Please deliver it”.

Now he doesn’t have to pay the tax?

Ian Heath Gershengorn:

Your Honor, the answer is–

that’s correct, and that’s exactly what happens in the commerce clause when a person from Virginia buys something from Illinois and has it delivered to himself in Virginia.

They don’t pay the sales tax.

Stephen G. Breyer:

Is the commerce constitutionally–

Ian Heath Gershengorn:

No, Your Honor, under interstate sales tax.

Stephen G. Breyer:

–All right.

Well–

Ian Heath Gershengorn:

It’s the same situation–

Stephen G. Breyer:

–we’re now talking Federal rules.

Go ahead.

Ian Heath Gershengorn:

–I’m sorry.

It was… it’s the same situation there.

The question is, Where does the relevant sale take place?

And it takes place… in the Virginia/Illinois situation, the sale takes place in Virginia, which is why you don’t pay Illinois sales tax, though you may pay Virginia use tax.

It would be the same thing in the tribal situation.

The sale in that place, just like the sale in Central Machinery, takes place on the reservation.

And what this Court said, in Central Machinery, is that a sale to a tribe of goods on the reservation is… cannot be taxed by the State.

And, indeed, because this tax is on the sale on the reservation, the broader balancing principles apply.

The tribe here has imposed the… its tax on a tribal station, on a tribal land, right where this Court has said its tribal taxing authority is strongest, and has dedicated those revenues to improving the miles of dirt and gravel road on the reservation.

Anthony M. Kennedy:

Is it relevant–

John Paul Stevens:

May I ask you what the–

Anthony M. Kennedy:

–to the balancing test–

John Paul Stevens:

–may I ask you a question about the Federal exemption?

In your view, is that made available at the time of the initial purchase by the distributor, or does he have to, in effect, claim a credit later on?

Ian Heath Gershengorn:

It… that way it works, in practice, Your Honor, is… and their form is in the back of the red brief… is that the distributor writes down the number of gallons received, and writes down the number of gallons sold to the United States, nets that out, and pays the tax on the net, so that it’s… it’s essentially done at the… at the same time.

John Paul Stevens:

So that he… his obligation to sell the gas is… arises at the same time as his purchase.

Ian Heath Gershengorn:

I’m not sure his obligation to do so, but the form is due on the 25th of the month… of the next month.

And so–

John Paul Stevens:

And it shows both what they resell to the United States and what they acquired.

Ian Heath Gershengorn:

–Correct, Your Honor.

It shows gallons received, gallons exported, gallons sold to the United States.

John Paul Stevens:

And let me ask you this question, too, on that subject.

Do you think that the exemption that the State allows for resales to the United States is constitutionally compelled?

Ian Heath Gershengorn:

Your Honor, I think the answer to that is yes, under our theory of the case, but no, under their theory of the case.

The exemption to the United States–

John Paul Stevens:

And it’s no under our–

Ian Heath Gershengorn:

–is constitutionally–

John Paul Stevens:

–our precedent, I think, isn’t it?

Ian Heath Gershengorn:

–I’m sorry?

John Paul Stevens:

It’s no, under our precedent.

Ian Heath Gershengorn:

Well, it depends, Your Honor, on whether the legal incidence is on the United States or whether the incidence is on the seller.

Under this–

Sandra Day O’Connor:

Well, on that–

Ian Heath Gershengorn:

–Court’s precedence–

Sandra Day O’Connor:

–on the legal incidence of the tax, we suggested, in the Chickasaw Nation case, that a tax statute’s own declaration of the legal incidence would be dispositive.

So, why don’t we read the statute and say the incidence is on the distributor, and that’s the end of it?

Ian Heath Gershengorn:

–Because, Your Honor, I don’t think that’s what this Court’s cases say.

I think what this Court’s–

Sandra Day O’Connor:

Well, I thought that’s–

Ian Heath Gershengorn:

–cases say–

Sandra Day O’Connor:

–what we suggested in Chickasaw Nation.

Ian Heath Gershengorn:

–I think–

Ruth Bader Ginsburg:

Chickasaw said when the tax was imposed on the tribe, we would take the State at its word.

It said it’s taxing the tribe.

If the State put the tax on a nonIndian, then there would be balancing.

And that’s what Chickasaw–

Ian Heath Gershengorn:

–That’s my understanding, as well.

And this Court has always held it’s a Federal question where legal incidence lies, and has not deferred… has given–

Stephen G. Breyer:

All right.

So, if balancing–

Ian Heath Gershengorn:

–But if I–

Stephen G. Breyer:

–then how do you come out?

Because what they’re saying is,

“Okay, balance. “

“Fine. “

“You want to balance? “

“Here’s how you balance. “

Ian Heath Gershengorn:

–Your Honor?

Stephen G. Breyer:

On the one hand, the Indians have to pay the tax.

And it’s harder for them to impose their own tax.

Okay, that’s true.

That’s true of every upstream tax.

And it goes for roads that they use all the time.

And they just have a one and a half mile… and why shouldn’t they be treated every… like everybody else, when they’re going to use the roads the tax pays for?

So, the balancing works in their favor.

Now, what’s your response?

Ian Heath Gershengorn:

That the… Your Honor, we disagree with that at every level.

This… the tribal tax is addressed to a specific road… road problem that the Federal Government has identified and addressed in the Reservation Road Program.

The reservation roads are in abysmal shape, as the Federal Government has recognized.

More than 70 percent are in poor shape, poor condition.

Ian Heath Gershengorn:

The fatality rate is four times the national average.

And the tribe is using those revenues to fix… advance that particular Federal interest, which is reflected in Federal statutes and in the Federal regulatory scheme.

Anthony M. Kennedy:

–Why should all of that make a difference?

You make a big point in the briefing,

“Well, you’re not marketing the exemption, you’re taxing, you’re using. “

–if the… if the tribe does have the sovereign right to tax or not to tax, why can’t it use it not to tax at all and say, “We’re giving”… why is there a presumption in favor of imposing taxes?

Why can’t the tribe say,

“We’re not going to tax you if you come to the reservation. “

“Come on in and buy our gas. “

“No tax? “

Ian Heath Gershengorn:

This–

Anthony M. Kennedy:

Why isn’t… why isn’t that part of the tribal sovereign right?

Ian Heath Gershengorn:

–Because this Court has held, in Colville… and we don’t dispute here… that when the tribe is marketing an exemption, it has no… it has no… there are no Federal and tribal interests implicated.

And we’re not challenging that here.

What this Court has said is that when a tribe is generating real value on the reservation so that it has created a market, as this tribe has, to draw people onto the reservation and can sell its fuel at market value, it has a sovereign right and interest in taxing that… in imposing a tax that the State can’t interfere with.

And the State here has accommodated–

Antonin Scalia:

Who is… who is the tribe taxing?

Is the tribe taxing the purchaser of the gas?

Is that–

Ian Heath Gershengorn:

–No, it taxes–

Antonin Scalia:

–Is that–

Ian Heath Gershengorn:

–the retailer.

It taxes the retailer, Your Honor.

Antonin Scalia:

–I thought the retailer was the tribe.

Ian Heath Gershengorn:

It is.

It taxes the tribal station.

Antonin Scalia:

So, it’s taxing itself.

Ian Heath Gershengorn:

It is, Your Honor, but that tax is–

Antonin Scalia:

That’s real neat.

I have never heard of that before.

Antonin Scalia:

[Laughter]

Ian Heath Gershengorn:

–Your Honor, actually, it happens all the time.

Pennsylvania imposes a tax on State sold liquor.

North Carolina does it.

All the State run liquor stores are subject to a State imposed tax.

But–

John G. Roberts, Jr.:

Counsel, did I understand your earlier discussion, about the department store, to suggest that if the tribe had the tanker truck, and they picked up the fuel and then brought it back, that, in that case, you have no objection to the tax, even though the economic incidence and effect is going to be the same?

Ian Heath Gershengorn:

–Your Honor, at that point, Central Machinery wouldn’t apply.

I think that would be a closer case for the balancing, in that situation.

The… so, we wouldn’t… we wouldn’t concede that.

But, in this case, it’s much stronger, because the tax is on the reservation.

If I could also just point to one thing that Justice Breyer raised about the… about the exemptions for other States.

What this… what Kansas has done is provide an exemption for every other sovereign that’s implicated… for other States, for other countries, for–

John Paul Stevens:

But is it–

Ian Heath Gershengorn:

–the United States–

John Paul Stevens:

–constitutionally compelled to do so?

Ian Heath Gershengorn:

–It’s… it is, Your Honor, in this sense.

It comes in, in two situations.

First, it is… the Constitution and the Federal preemption doctrine prohibit discrimination.

And so, it is, in that sense.

But it also goes to the strength of the State interest here.

The State has not only… has accommodated the out of State interest, it has also accommodated the in State Government interests, other than the tribe.

It gives 30 to 40 percent of the fuel revenues to counties and to cities for roads.

Every other sovereign is accommodated here except for the tribe, and we think that’s exactly what Federal law prohibits and why the strength of the tribal interest here, and the tribe’s interest in imposing the tax to fix reservation roads, to advance that Federal interest, is exactly what deserves protection.

Antonin Scalia:

Cities and counties–

John Paul Stevens:

But your–

Antonin Scalia:

–aren’t sovereign.

John Paul Stevens:

–your claim wouldn’t disappear if they decided to tax all these other sovereigns.

Ian Heath Gershengorn:

I’m sorry, Your Honor?

John Paul Stevens:

Your claim, as a tribe, would not disappear if they decided to become nondiscriminatory and tax all of the sales.

Ian Heath Gershengorn:

Your Honor, it wouldn’t disappear, but it might alter the… it would alter the balance.

If the… what is troubling here is that the State has asserted a right in predictability, but the State’s right in predictability is only coming at the expense of a refusal to accommodate the tribal interests in the same way it accommodates every other sovereign.

And so, we do think that that goes to the strength of the State’s interest here, and to the State… the strength of the… of the State’s assertion of its tax.

David H. Souter:

And your view generally was that it was… that it was indicative of discrimination.

Ian Heath Gershengorn:

I think it–

David H. Souter:

And I thought that was the stronger argument, because the… you’re saying,

“Look, the State has only the most trivial interest in the amount of taxation it would get here. “

That would be equally true whether it forgives taxes that… on fuel that goes to the United States or not.

But the discrimination point, if it’s a fair one, would be the same.

Ian Heath Gershengorn:

–Your Honor, I think… that’s correct, and we’ve made both arguments, that it’s a–

John Paul Stevens:

Well, it would matter.

Ian Heath Gershengorn:

–that the discrimination is a freestanding reason that, even under an express preemption test like the State has articulated, we would prevail and that–

Antonin Scalia:

All the other sovereigns you mentioned do not consume the gas… or the gas sold to them is not consumed primarily on the roads of this State, except for cities and counties, which aren’t sovereigns.

I mean, they simply aren’t sovereign.

That’s the State, itself.

They’re subdivisions of the State.

So, it’s making exemptions for its own… its own State, plus exemptions for sovereigns, where the gas sold to those sovereigns probably will not be used primarily on the roads of this State.

Ian Heath Gershengorn:

–Your Honor, there is–

Antonin Scalia:

It makes perfect sense.

I don’t see there’s any discrimination.

Ian Heath Gershengorn:

–Mr. Chief Justice, thank you.

John G. Roberts, Jr.:

Thank you, Counsel.

Mr. Kneedler.

Edwin S. Kneedler:

Mr. Chief Justice, and may it please the Court–

The tribe here has imposed a tribal tax on sales at a tribal business on the tribe’s own reservation on tribal land.

The exercise of that power of taxation is at the core of tribal sovereignty, as this Court has long recognized, and that power–

David H. Souter:

Is it being interfered with?

Edwin S. Kneedler:

–Yes.

And, as to that question, I would point the Court to page 142 of the joint appendix, or page 12 of the petition appendix, in which the Court discusses the expert opinion that the tribe introduced into the record.

David H. Souter:

Well, that expert opinion is that, as an economic matter, you can’t collect both.

Edwin S. Kneedler:

Yes, he says–

David H. Souter:

You can’t impose both.

But the tribe is still imposing its tax, and it’s getting every penny that it… that it purports to impose.

Edwin S. Kneedler:

–But it is operating at a loss.

As I understand it, the tribe has chosen to subsidize–

David H. Souter:

Is–

Edwin S. Kneedler:

–out of–

David H. Souter:

–is that–

Edwin S. Kneedler:

–revenues.

David H. Souter:

–in the record?

Edwin S. Kneedler:

That is my understanding of what’s happening.

That’s not in the record.

What is in the record–

David H. Souter:

Let’s assume… let’s assume that is true.

What difference does that make to an analysis based on a preemption theory which is supposed to take account of tribal sovereignty?

The sovereign act is not selling gas, it’s taxing.

They are taxing.

They’re getting everything they want under their tax statute. Where, then, is there a basis for a preemption–

Edwin S. Kneedler:

–I think, for example, in this Court’s decision in Colville, where the Court stressed there that the Court was marketing an exemption from State taxation; that portion of the analysis of the Court there did not turn on whether the tribe was imposing its own tax.

It turned–

David H. Souter:

–No, I mean, it was–

Edwin S. Kneedler:

–it turned on economic–

David H. Souter:

–an entirely separate… an entirely separate rationale. It was saying the tribe is getting this tremendous advantage by… or wants this tremendous advantage… by marketing the exemption.

Edwin S. Kneedler:

–But the flip side of that in Colville was that if the… if the tribe, in that case, had been selling to people who would have been on the reservation anyway… in other words had not come onto the reservation to take… just to take advantage of an exemption from State taxation… but would have been on the reservation anyway, the Court specifically contemplated, in that situation, that the tax might well be preempted, because it would be interfering–

David H. Souter:

Well, maybe… maybe it contemplated that, and maybe it simply contemplated that that particular… that particular argument against it… i.e., that it was simply selling a tax exemption… would not have been an argument against it.

But it doesn’t follow, from that, that the tribe would necessarily have had a winning argument on a preemption theory.

Edwin S. Kneedler:

–No, but we… but we believe it is a winning argument.

I think the fair reading of Colville is that the Court would have seen that as quite different.

Stephen G. Breyer:

Well, if that’s a winning… of course it is different, in the sense you say, but if, in fact, it’s an interference… look, every upstream tax raises the price of goods and services.

Every upstream tax… indeed, every tax in the world… makes it harder to sell the product.

Stephen G. Breyer:

So, every tax makes it harder for the tribe to tax that item which was taxed by somebody else.

Now, if that’s the basis for saying it’s an interference, then every tax is an interference.

And I don’t see how that could be.

Edwin S. Kneedler:

Right. This is… this is not just any upstream tax, and it… and the theory here is not based on economic impact.

Stephen G. Breyer:

But, so far, your theory is based on economics, as I’ve heard it.

Edwin S. Kneedler:

No–

Stephen G. Breyer:

But if it isn’t, I would like to know what it is.

Edwin S. Kneedler:

–Yes.

Under the… first of all, in our… it is our position that, under the Kansas Supreme Court’s decision in Kaul, which should get deference in terms of understanding operative incidence of the State tax.

The incidence of the tax is, in fact, on the retailer.

And the court there found it critical–

Stephen G. Breyer:

The incidence of the tax–

Edwin S. Kneedler:

–The legal incidence–

Stephen G. Breyer:

–Oh.

Edwin S. Kneedler:

–was… is on the retail–

Stephen G. Breyer:

That’s very surprising.

When I read the statute, it doesn’t have one word about the retailer being obliged to pay–

Edwin S. Kneedler:

–And–

Stephen G. Breyer:

–anything.

Edwin S. Kneedler:

–As we read the Kansas Supreme Court’s decision, it’s not without ambiguity, but we believe the better reading of that… of that decision is that, as a matter of legislative intent, the incidence of the tax, who is ultimately going to pay the tax–

Stephen G. Breyer:

All right, if that’s–

Edwin S. Kneedler:

–is on the retailer.

Stephen G. Breyer:

–the legal incidence of the tax, I would think their side would win, in my mind.

Now suppose, actually, the legal incidence of the tax is not on that retailer, but, rather, is on the distributor.

Edwin S. Kneedler:

That would tell… that would tell you… I’m sorry–

Stephen G. Breyer:

If that’s so, and if we get into balancing, which I don’t know, what is to be said in favor of the Indian side?

It sounded to me as if it’s harder for them to tax.

So, I’m thinking, well, that’s true of every tax.

And then, put it on something else.

Put it on the tires.

Stephen G. Breyer:

Put it on anything else, if you can.

It’ll be harder for them to tax nonIndians.

But I didn’t know they had a Federal right to tax the nonIndians.

Edwin S. Kneedler:

–Yes, they do.

And, again, this is the situation contemplated in Colville.

It’s analogous to what this Court said in Cabazon with respect to the gambling facility, where the tribe has introduced on reservation value.

And in Colville, the court contemplated if the tribe puts a service station and sells to people who would be there anyway, that is on reservation value; they are not simply marketing a tax exemption and drawing people in by virtue of a tax exemption.

But, beyond that, just because… if the Court concludes that the incidence of the tax is on the distributor, notwithstanding the Kansas Supreme Court’s decision, the subject matter of the tax, the “what is being taxed”, is the sale or distribution, and that is a sale between the distributor and the retailer.

That is clearly–

John G. Roberts, Jr.:

Well, why isn’t it the sale between whoever is selling it to the distributor and the distributor?

Edwin S. Kneedler:

–I… because if you look in… it becomes particularly clear if you look at the form that is at the back of the respondent’s brief, but we also believe it’s clear from the… from the provisions of the statute that are on page 8(a) of the brief.

One that hasn’t been discussed, for example, is exemption D5… excuse me… the exception for deliveries to other distributors.

In that… in that situation, there is no tax.

And, in fact, the form, on page 19(a), makes it clear that any sales by one distributor to another are automatically exempted and not counted in the computation at all.

So, distributor to distributor taxes are exempted.

And this Court, in the Chickasaw case, said that’s very instructive, that the incidence of the tax is on the retailer.

Whether or not the incidence is there, the transaction–

John Paul Stevens:

It would seem to me exempting distributor to distributor taxes just means that only one distributor has to pay.

Edwin S. Kneedler:

–Only one distributor has to pay, but it means that a sale between the first distributor and the second distributor, for example, is not taxed.

John Paul Stevens:

No, but that’s because there was a tax on the first sale to the first distributor.

And may I ask this?

Supposing–

Edwin S. Kneedler:

Actually, there is not.

The tax is on the last distributor, with respect to his sale to the… to the retailer.

Antonin Scalia:

Yeah, but that’s because when a distributor sells to another distributor, he is not acting, for purposes of that sale, as a distributor.

Edwin S. Kneedler:

I think that–

Antonin Scalia:

If you sell to another distributor, you’re not being–

Edwin S. Kneedler:

–That makes… that makes my point, that the… that the statute, in applying to any use, delivery, or sale, the sale at issue is the sale that ultimately comes from a distributor to a retailer.

And, under this Court’s decisions in Central Arizona Machinery and the Bracker case, a sale by a… by someone residing off the reservation, but where the sale takes place on the reservation, as this one clearly does… the gasoline that’s delivered there… that is absolutely preempted under Central Arizona Machinery and the Indian Trader Statutes, because you–

John G. Roberts, Jr.:

But none of this… none of this mattered to the tenth circuit, though, did it?

John G. Roberts, Jr.:

I mean, they didn’t care where the incidence was.

They just went right into the balancing, right?

Edwin S. Kneedler:

–Right, that’s true.

And if–

John G. Roberts, Jr.:

And you think that was wrong.

Edwin S. Kneedler:

–We think the court was wrong to conclude that the incidence was on the… was on the distributor.

And if the Court has a question about that, it could remand to certify that question to the Kansas Supreme Court to clear it up, any ambiguity after Kaul.

But, even on the tenth circuit’s own way of approaching it, we believe that it was then correct, because it properly applied this Court’s approach of looking at the particular context of the Federal, State, and tribal interests.

And here, there are very powerful tribal interests in maintaining–

Stephen G. Breyer:

Is the one other… the interest other than the interest on being able to tax an item that an upstream tax prevents you from doing because of the economics?

Edwin S. Kneedler:

–It is the very same–

Stephen G. Breyer:

Is that the only one, or are there other ones?

Edwin S. Kneedler:

–it’s the very same interest that the State is asserting, which is the interest to impose a fuel tax in order to–

Stephen G. Breyer:

I’ve got the–

Edwin S. Kneedler:

–maintain the roads–

Stephen G. Breyer:

–I–

Edwin S. Kneedler:

–on the reservation.

Stephen G. Breyer:

–I want to hear you and know if there’s an additional one.

I’m not disputing that one.

I just want to be sure I get them all.

One is… one is that one.

Edwin S. Kneedler:

Is this–

–is the general… the general ability to impose a tax.

Stephen G. Breyer:

What else?

Edwin S. Kneedler:

But here, the interest is augmented by the fact that the tax is dedicated by tribal law to maintaining tribal roads, not just this one and a–

Anthony M. Kennedy:

And I just don’t–

Edwin S. Kneedler:

–half mile–

Anthony M. Kennedy:

–understand.

Why doesn’t the tribe have an incidence of not having any tax at all, helping–

Edwin S. Kneedler:

–It–

Anthony M. Kennedy:

–helping its members?

Edwin S. Kneedler:

–It–

Anthony M. Kennedy:

Why does the balancing only work if it taxes?

Edwin S. Kneedler:

–We don’t think it does.

Under the Colville’s decision, if the State is not just… or the tribe is not just marketing an exemption from State taxation, we think that the tribe… that the State tax is preempted there, as well.

But here, where the tribe is asserting not simply a commercial interest, selling at market value and not marketing a tax exemption of States–

Anthony M. Kennedy:

No, no, no.

You say that it could–

Edwin S. Kneedler:

–it’s imposing a–

Anthony M. Kennedy:

–market the exemption?

Edwin S. Kneedler:

–Pardon me?

Anthony M. Kennedy:

You say that a tribe can market its exemption?

Edwin S. Kneedler:

No, we do not.

Under this… under this Court’s decision in Colville, it can’t… the tribe cannot market an exemption, at least to people who would not otherwise be on the reservation.

But here, the tribe is asserting both a commercial interest… selling at profit; and also a sovereign interest… in taxing.

And where you have a tribe asserting both–

Anthony M. Kennedy:

Well, why isn’t that sovereign interest in not taxing?

Edwin S. Kneedler:

–It could.

But here, the tribe has asserted a sovereign interest in its tax, and that is what is being substantially interfered with.

John G. Roberts, Jr.:

Thank you, Mr. Kneedler.

Mr. Olson, you have four and a half minutes left.

Theodore B. Olson:

Thank you, Mr. Chief Justice.

Anthony M. Kennedy:

What about the Supreme Court’s characterization of this as being–

Theodore B. Olson:

The Kaul–

Anthony M. Kennedy:

–Yes.

Theodore B. Olson:

–Kaul case?

I read… I don’t think the Kansas Supreme Court could have been any more clear.

It said the legislature amended the legislation to clarify where the incidence of taxation falls.

It provided that the incidence of the tax falls on the distributor.

Then, in Victa, in connection with the standing issue, because economic burden fell on the retailers, it found that the retailers and… those other retailers had standing.

Theodore B. Olson:

Kansas could not have been more clear.

In Section 3401(f)(3), it defines a “distributor” as someone who receives the product.

In 3408(c), it’s… taxes the distributor on the first receipt of the tax.

In 3410, it again says it’s on the distributor.

Two district courts and two courts of appeals found that the legal incidence of the tax was on the distributor.

The Kansas Supreme Court said the same thing, the distributor is liable for the tax, pays the tax.

The retailer has no liability for the tax.

What in the world can Kansas do to make it clearer? Now, the Central Machinery case that’s… that my opponents have been speaking about is a case that was decided under the Indian Trader Statutes with respect to the trading with the Indians, with respect to Central Machinery case, was… over tractors sold on the reservation for use on the reservation.

It fell within the scope of the Indian Trader Statute.

But this Court has made clear, in a number of cases, the Indian Trader Statutes would not remotely apply.

David H. Souter:

I take it Kansas has not indicted the distributor for failing to register under the Indian Trading Statute.

Theodore B. Olson:

No, they’re… it hasn’t really been mentioned until the… I mean, hardly mentioned at all, until the Government decided to… the United States Government decided to discuss that point.

Antonin Scalia:

Aren’t there usually two incidents?

You talk about the incident of the taxes on a person, but it’s also on an event.

And what event is… in your… in your judgment is–

Theodore B. Olson:

Well, the statute could not be more clear, Justice Scalia.

It is the receipt by the distributor of the fuel.

That is what the statute says.

It is as plain–

John Paul Stevens:

But if the fuel–

Theodore B. Olson:

–as it could be.

John Paul Stevens:

–were destroyed by flood or lightning or something like… before it was resold to the retailer, there would be no tax–

Theodore B. Olson:

There’s an exemption for losses like… one of the Court’s questions with respect to a casualty loss or something that… but it’s limited.

The liability, nonetheless, exists on the distributor.

John Paul Stevens:

–Are there any incidents in which the distributor would pay the tax if he was not able to resell it to somebody else?

Theodore B. Olson:

I think that… I think the reading of the statute is plain.

If the distributor took the fuel, kept it, decided to warehouse it because the costs are going up or something like that, it would still have to pay the tax, because the tax is on the receipt by the distributor.

In answer to your question, Justice Stevens, Would those other exemptions, the United States Government be required by the Constitution, or the other States?

No, not under this Court’s decision in the Blaze case, which, as I understood it, was unanimous.

The Fresno case, U.S. vs. New Mexico, it’s not a tax on the United States.

Theodore B. Olson:

It’s… or an agency of the United States.

So they wouldn’t be required.

But they make sense, because the sales to other States are for people that drive on other States’ highways.

The sales to the United States Government is an exchange for almost the same amount of money that comes back.

So, there’s a rational purpose.

It’s not discrimination.

The tribe makes the point that it’s generating real value and reservation value.

This is fuel that’s used in cars that are… drive all over the State of Kansas.

The casino is there, so people come to the casino.

And, under Cabazon, there might be some value added by the casino, which, by the way, is an exempt value created by an exemption from regulation.

But the value for someone who puts fuel in their car is so that that car will then drive.

And that… cars that drive, in this case, drive on Kansas highways.

This, ultimately is–

John G. Roberts, Jr.:

Thank you, Mr. Olson.

Theodore B. Olson:

–Thank you.

John G. Roberts, Jr.:

The case is submitted.