Mescalero Apache Tribe v. Jones

Background

The Mescalero Apache Tribe runs a ski resort just outside its reservation on land leased from the U.S. Forest Service and developed with federal loans under the 1934 Indian Reorganization Act. New Mexico assessed a nondiscriminatory gross receipts (sales) tax on the resort’s sales and a compensating use tax tied to materials used to build two ski lifts; the Tribe paid under protest and sued for refunds after state and lower courts rejected its claims.

Reasoning

The Court addressed whether federal law prevents the State from taxing the Tribe’s off-reservation business and its property. The Court rejected a broad rule that tribes are immune from all state taxes. It read section 5 of the 1934 Act as protecting trust lands and rights in land from state property taxes, but not clearly extending that protection to business income derived off the reservation. The Court therefore allowed the State to collect the nondiscriminatory gross receipts tax, but concluded that the compensating use tax on personalty permanently attached to trust land (the ski-lift improvements) was effectively a tax on exempt property and could not be imposed.

Real world impact

Tribes operating businesses off reservations can be required to pay general state business taxes unless Congress has clearly forbidden those taxes. At the same time, states cannot collect taxes that operate as property taxes on permanent improvements to trust land. This decision will affect how tribes and states treat project financing, placement of equipment, and tax refunds where property is permanently attached.

Dissents or concurrances

A separate opinion argued for broader tribal immunity under section 5, urging that doubts about Congress’s protection should be resolved for the tribe and that income from trust-related enterprises should be exempt.