Case 5:14-cv DMG-DTB Document 150 Filed 12/15/16 Page 1 of 33 Page ID #:1901

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1 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #:0 0 0 Jennifer A. MacLean (admitted Pro Hac Vice) JMacLean@perkinscoie.com Benjamin S. Sharp (admitted Pro Hac Vice) BSharp@perkinscoie.com PERKINS COIE LLP 00 Thirteenth Street, N.W., Suite 00 Washington D.C Telephone: (0) - Facsimile: (0) -0 GREGORY P. PRIAMOS, County Counsel (Bar No. ) RONAK N. PATEL, Deputy County Counsel (Bar No. ) rpatel@co.riverside.ca.us COUNTY OF RIVERSIDE 0 Orange Street, Suite 00 Riverside, California 0 Telephone: () -00 Facsimile: () - Attorneys for Defendants COUNTY OF RIVERSIDE, LARRY W. WARD, PAUL ANGULO and DON KENT AGUA CALIENTE BAND OF CAHUILLA INDIANS, v. Plaintiff, RIVERSIDE COUNTY, LARRY W. WARD, in his official capacity as Riverside County Assessor, PAUL ANGULO, in his official capacity as Riverside County Auditor-Controller, and DON KENT, in his official capacity as Treasurer Tax Collector, UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA Defendants; and DESERT WATER AGENCY, Defendant-Intervenor. EASTERN DIVISION Judge: Hon. Dolly M. Gee DEFENDANTS CROSS-MOTION FOR SUMMARY JUDGMENT, MEMORANDUM IN SUPPORT THEREOF, AND OPPOSITION TO PLAINTIFF S MOTION FOR SUMMARY JUDGMENT Hearing Date: March, 0 Time: :00 p.m. Courtroom: C Trial Date: June, 0 Action Filed: January, 0

2 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #:0 0 0 TABLE OF CONTENTS Page I. FACTUAL BACKGROUND... A. Under California law, PIT revenues directly serve the communities that generate them... B. Agua Caliente lands are deeply integrated into the non-indian communities and lessees rely on services provided by the County and subordinate jurisdictions... II. PROCEDURAL BACKGROUND... III. STANDARD OF REVIEW... IV. ARGUMENT... A. Section of the IRA does not preempt the PIT... B. The leasing regulations were not comprehensive before 0 and they are not now.... The leasing regulations are not comprehensive or pervasive.... The Secretary s interpretation of the scope of the leasing regulations is incorrect and not entitled to deference... C. Bracker balancing strongly favors upholding the PIT.... The PIT does not undermine federal or Tribal interests.... The State interests in imposing the PIT are very strong... V. CONCLUSION... -i-

3 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #:0 0 0 CASES TABLE OF AUTHORITIES Page(s) Agua Caliente Band of Mission Indians v. County of Riverside, F.d (th Cir. )... passim Arenas v. United States, U.S. ()... Auer v. Robbins, U.S. ()... Brown v. United States, Fed. Cl. 0 ()..., Brown v. United States, F.d (Fed. Cir. )..., CBOCS W., Inc. v. Humphries, U.S. (00)... Cherokee Nation of Oklahoma v. United States, Cl. Ct. (0)... Christianson v. Colt Indus. Operating Corp., U.S. 00 ()... Confederated Tribes of the Chehalis Reservation v. Thurston County Bd. of Equalization, F.d (th Cir. 0)..., 0 Cotton Petroleum v. New Mexico, 0 U.S. ()...,, English v. General Elec. Co., U.S. (0)... Food & Drug Admin. v. Brown & Williamson Tobacco Corp., U.S. 0 (000)... Fort Mojave Tribe v. County of San Bernardino, F.d (th Cir. )...,, 0 Gila River Indian Community v. Waddell, F.d (th Cir. )..., Jonathan L. v. Sup r Court, Cal. App. th 0... Maraschiello v. City of Buffalo Police Dept., 0 F.d (d Cir. 0)... - i -

4 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #:0 0 0 Mescalero Apache Tribe v. Jones, U.S. ()... Nevada Bank v. Sedgwick, 0 U.S. ()... Nevada v. Hicks, U.S. (00)... New Mexico v. Mescalero Apache Tribe, U.S. ()... Nordlinger v. Hahn, 0 U.S. ()... Norfolk Energy, Inc. v. Hodel, F.d (th Cir. 0)... Northstar Financial Advisors Inc. v. Schwab Investments, F.d 0 (th Cir 0)... 0 Organized Village of Kake v. Egan, U.S. 0 ()... Palm Springs Spa, Inc. v. County of Riverside, Cal. App. d ()..., Patterson v. McLean Credit Union, U.S. ()... Ramah Navajo School Bd., Inc. v. Bureau of Revenue of New Mexico, U.S. ()... Salt River Pima-Maricopa Indian Community v. Arizona, 0 F.d (th Cir. )..., Segundo v. City of Rancho Mirage, F.d (th Cir. )... Seminole Tribe of Fla. v. Stranburg, F.d (th Cir. 0)... 0, United States v. City of Detroit, U.S. ()... United States v. County of Fresno, U.S. ()..., 0 United States v. County of Fresno, 0 Cal. App. d (), aff d, U.S. ()... 0, 0 United States v. Johnson, F.d (th Cir. 00) (en banc) ii-

5 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #:0 0 0 United States v. Pierce, F.d (th Cir. )... Wagnon v. Prairie Band Potawatomi Nation, U.S. (00)..., 0, Washington v. Confederated Tribes of the Colville Reservation, U.S. (0)..., White Mountain Apache Tribe v. Bracker, U.S. (0)... passim Yavapai-Prescott Indian Tribe v. Scott, F.d 0 (th Cir. )..., STATUTES U.S.C.... U.S.C.... U.S.C....,, U.S.C.... passim U.S.C., et seq...., U.S.C. (b)... U.S.C Cal. Rev. & Tax Code 0, 0... Fla. Stat OTHER AUTHORITIES C.F.R. Part... C.F.R. Part...,, C.F.R..(b), (c), (d) ()... C.F.R C.F.R..0(a),.... C.F.R..,.,.(a)... Fed. Reg. 0 (Jan., 00)... Fed. Reg. 0 (Dec., 0)..., Cal. Const. Art. XIIIA, (a), (a)... -iii-

6 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #:0 Cal. Const., Art. XIII,... Cal. Constitution, art. IX, section... Fed. R. Civ. P. (c)... Fed. R. Civ. P. (b)... Fed. R. Civ. P.... Fed. R. Civ. P. (c) iv-

7 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #:0 0 0 Pursuant to Rule, Defendants County of Riverside, and Larry W. Ward, Paul Angulo, and Don Kent, in their respective official capacities as Assessor, Auditor Controller, and Treasurer Tax Collector, move for summary judgment upholding the State of California s possessory interest tax ( PIT ): State taxing authority is generally coextensive with state sovereignty. [A]ll subjects over which the sovereign power of a State extends are objects of taxation. Nevada Bank v. Sedgwick, 0 U.S. (). State sovereignty does not end at a reservation s border. Nevada v. Hicks, U.S., (00). There are two independent barriers that can restrict state taxing authority. First, federal law may preempt a state tax if compliance with both federal and state law is impossible or if federal law occupies the field. Second, federal law may preempt a state tax if that tax interferes with federal and tribal interests and state interests do not justify the assertion of state authority. Thus, federal law can in certain circumstances preempt state taxing authority over non-indians, but it does not do so here. The County has assessed the State s PIT on non-indians leasing lands and improvements located within the Agua Caliente Reservation for over years. Agua Caliente Band of Mission Indians v. County of Riverside, F.d (th Cir. ) (holding PIT was not preempted by federal law); Palm Springs Spa, Inc. v. County of Riverside, Cal. App. d (); accord Fort Mojave Tribe v. County of San Bernardino, F.d, (th Cir. ). Congress has not changed the law since those decisions. And all parties relied on those decisions until 0, when the Secretary of the Interior, in revising the Indian leasing regulations to reduce federal oversight, emphasized the federal and tribal interests a court should weigh when addressing whether federal law preempts a state tax. - -

8 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #:0 0 0 Plaintiff Agua Caliente Band of Cahuilla Indians ( Tribe ) now argues that Section of the Indian Reorganization Act (IRA), U.S.C., preempts the PIT. But the Agua Caliente Reservation was not acquired under ; it was set aside by Executive Order decades before Congress passed the IRA. Today, virtually all of the lessees whose possessory interests the State taxes lease lands allotted to individual Indians under the Agua Caliente Equalization Act of, not. Only a small number of lessees are on tribal lands, and there is no evidence that those lands were acquired under. The Tribe s argument is unpersuasive for a second reason the PIT does not tax tribal property at all. The Tribe also argues that the PIT impermissibly interferes with its sovereignty and rights of self-governance, but there is no evidence of that. The original checkerboard pattern of the Reservation, combined with its subsequent allotment to individual Indians (and some alienation to non-indians), is responsible for the deeply integrated communities that exist today. The Supreme Court long ago endorsed concurrent taxation, so the PIT does not prevent the Tribe from imposing its own tax. And the assumption that the PIT economically harms the Tribe is refuted by the development that has occurred over the last years. Agua Caliente Indians now lease out,00 acres, as compared to acres in, and the assessed value of the possessory interests in that land is now approximately $. billion. California on the other hand has a very strong interest in providing all residents governmental services, including public education, police and fire protection, health and social services, jails and elections, building and planning approvals, street maintenance, and water and sewer services. The Tribe does not provide services to lessees; indeed, with respect to allotted lands, it does not even Section has been recodified as U.S.C. 0, but this brief will continue to refer to it as Section. --

9 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #:0 0 0 know who the lessees are. That responsibility falls squarely on Riverside County, Palm Springs, Rancho Mirage, Cathedral City and the special districts, each of which receives an allocation of property tax and PIT revenues mandated under State law. The Tribe s objection that the PIT is a general revenue tax not directly tied to specific services vastly oversimplifies a complex system that requires property tax and PIT revenues to be allocated to the local governments and special districts that generate them. Respectfully, the Court should grant the County s motion for summary judgment. I. FACTUAL BACKGROUND A. Under California law, PIT revenues directly serve the communities that generate them California s counties, cities, schools and special districts depend on property tax and PIT revenues to fund governmental services. See Defendants Statement of Undisputed Facts in Support of its Cross-Motion for Summary Judgment (SF). Under the California Constitution, all property is taxable. Cal. Const., Art. XIII, (identifying exemptions). The code defines property to include both real and personal property, and real property includes the possession of, claim to, ownership of, or right to the possession of land and improvements. Cal. Rev. & Tax Code 0, 0. Possessory interests are the possession of (or the right to possess) real property where title to the real property is held by a tax-exempt entity. Id. 0(a). In, California voters adopted Proposition, which imposes strict limits on the rate at which real property is taxed and on the rate at which real property assessments are increased from year to year. See generally Nordlinger v. Hahn, 0 U.S. (). Under Proposition, property taxes are capped at % of the property s full cash value, which is defined as the assessed valuation as of the - tax year or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the --

10 Case :-cv-0000-dmg-dtb Document 0 Filed // Page 0 of Page ID #:0 0 0 assessment. Cal. Const. Art. XIIIA, (a), (a). Proposition also prohibits assessment values from exceeding percent annually. Id. (b). A taxing jurisdiction is a district that has been approved by the California Board of Equalization to levy or assess taxes (e.g., fire protection districts, cities). SF. All taxing jurisdictions provide a service to a specific geographical area. SF. Each parcel of land is assigned to a tax rate area ( TRA ), which is a small geographical area within a county that contains properties that are all served by a unique combination of local governments the county, a city, and the same set of special districts and school districts. SF. The County is responsible for assessing, collecting and allocating tax revenues by TRA. SF. The % tax is a shared revenue source for multiple local governments, which include K- school districts, county offices of education, community college districts, cities, and special districts (fire protection, cemetery, community services, maintenance, highway lighting, water, hospital, sanitary, irrigation, mosquito abatement, utilities, recreation and parks). SF. Counties must allocate the revenues they collect from the % tax to the local governments pursuant to a series of complex state statutes. Under Assembly Bill ( AB ), passed in, each taxing jurisdiction within a TRA received the property tax revenue it received the prior year, plus its share of any growth in property tax within its boundaries. SF 0. Lessees of Agua Caliente lands rely exclusively on the County, Palm Springs, Rancho Mirage, Cathedral City, the Palm Springs school district, and special districts for all of their governmental services, including but not limited to fire service, police protection, road maintenance, flood control, sewer, electrical service, trash, public transportation, animal control services, and mosquito abatement. SF -. --

11 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 B. Agua Caliente lands are deeply integrated into the non-indian communities and lessees rely on services provided by the County and subordinate jurisdictions There are thousands of leases for approximately,00 acres of tribal and allotted lands scattered throughout the Agua Caliente Reservation. Tribal lands, are lands held in trust for the tribe; allotted lands are lands held in trust for individual members. The Tribe does not know any details regarding leases of allotted lands for which there are over,00 master leases, mini-master leases, subleases and sub-subleases including who the lessors or lessees are, what businesses they may be operating, or any of the terms of those leases. SF. The Tribe itself leases out approximately. acres of tribal trust land under four commercial leases, and two residential leases. SF. The Tribe reviews leases of tribal land to determine whether the leases comply with various environmental regulations, land use, zoning and related services, and the lessees compensate the Tribe for that service. SF. The Tribe otherwise does not provide governmental services to lessees of Agua Caliente land. SF. The history of the Agua Caliente Reservation has influenced both the leasing arrangements and integrated nature of the communities. The Agua Caliente Reservation encompasses approximately,000 acres, spread in a checkerboard pattern over Palm Springs, Cathedral City and Rancho Mirage in Riverside County. SF. President Grant established the Agua Caliente Reservation by Executive Order in, and President Hayes expanded the Reservation in to include the even-numbered sections of designated land. SF,. The odd-numbered sections had been previously granted to the Southern Pacific Railroad, which sold the lands to non-indians. Arenas v. United States, U.S., (). The ownership of land within the checkerboard itself is fragmented. In, the Secretary allotted over 0 percent of the Reservation under the Agua Caliente Equalization Act of, U.S.C., et seq.; see also United States v. Pierce, --

12 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: F.d (th Cir. ). The Secretary allotted,0 acres of Reservation land valued at $,00,000 to members whose allotments were the lowest valued allotments so that the Tribe s 0 living members each owned allotments equalized' at a minimum value of $,000. SF. Approximately, acres, which included a church and a cemetery; four mountain canyon areas, and the Mineral Springs area, remained in trust for the Tribe. SF 0; U.S.C. (b). II. PROCEDURAL BACKGROUND 0 0 On February, 0, the Tribe filed its complaint seeking a declaration that federal law preempts the Defendants assessment and collection pursuant to California law of PIT on non-indian lessees of tribal and allotted land, and an injunction barring Defendants from carrying out those tax-related activities. Desert Water Agency which receives a portion of the PIT revenues collected by Defendants was permitted to intervene in April 0, and in July 0, Defendants moved for judgment on the pleadings pursuant to Fed. R. Civ. P. (c). On February, 0, the Court denied Defendants motion, based solely on the allegations in the Tribe s complaint. See Doc. at,. The Court declined to decide whether U.S.C. preempts the PIT, id. at, and also concluded it must balance federal, tribal, and state interests under Bracker to assess whether federal law preempts the PIT, id. at. III. STANDARD OF REVIEW Summary judgment may be granted when the discovery, affidavits or declarations, stipulations, or other materials do not establish the absence or presence of a genuine dispute regarding a material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. (c). The Tribe has the burden of proof to demonstrate that Bracker balancing favors tribal and federal The Tribe now owns approximately, acres of trust tribal land, of which approximately,0. acres are within Reservation boundaries. SF. --

13 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 interests over state interests. See Yavapai-Prescott Indian Tribe v. Scott, F.d 0, (th Cir. ) (holding Arizona tax not preempted under Bracker). The Tribe characterized the Court s denial of Defendants motion for judgment on the pleadings as Law of the Case. Doc. at -. Under Rule (b) of the Federal Rules of Civil Procedure, any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties rights and liabilities. (emphasis added). A court may revisit its prior decisions and correct errors while the case is still pending. See Christianson v. Colt Indus. Operating Corp., U.S. 00, (). In addition, a motion for judgment on the pleadings is interlocutory. Law of the Case doctrine does not preclude a district court from granting summary judgment based on evidence after denying a motion to dismiss based only on the plaintiff s allegations. Maraschiello v. City of Buffalo Police Dept., 0 F.d, (d Cir. 0). IV. ARGUMENT 0 Under White Mountain Apache Tribe v. Bracker, the PIT is preempted if: () federal law preempts the exercise of state authority; or () the PIT unlawfully infringes on the right of reservation Indians to make their own laws and be ruled by them. U.S., - (0) (citation omitted). Courts must also give weight to the regulatory interests of states, because automatic exemptions as a matter of constitutional law are unusual. Id. at (citations omitted). The Court more recently explained, State jurisdiction is preempted by the operation of federal law if it interferes or is incompatible with federal and tribal interests reflected in federal law, unless the state interests at stake are sufficient to justify the assertion of state authority. New Mexico v. Mescalero Apache Tribe, U.S., () (emphasis added). --

14 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 In, the Ninth Circuit upheld the PIT because the Court could not find any congressional purpose to forbid the imposition of it. Agua Caliente Band of Mission Indians, F.d at. The California Court of Appeal concluded that the PIT is sufficiently indirect and remote as to be permissible under federal law. Palm Springs Spa, Inc. v. County of Riverside, Cal. App. d, (). The Ninth Circuit held in that federal law did not preempt the PIT because the court found nothing in either the Indian Reorganization Act or the leasing statute U.S.C. that would render the county powerless to enforce the tax here involved against the lessee. Fort Mojave, F.d at. An analysis under Bracker of the Tribe s claims does not require a different conclusion. A. Section of the IRA does not preempt the PIT The Tribe argues that Section of the IRA, U.S.C., preempts the PIT. That argument fails for two reasons. First, neither the leased parcels of allotted or tribal land on the Agua Caliente Reservation were acquired pursuant to the IRA. To the contrary, the Reservation was set aside by Executive Orders in and 0 Although this Court held that Bracker abrogated the decisions in Agua Caliente and Fort Mojave, Order at 0, the Supreme Court has stated that [c]hanges in interpretative approach... [do not] justify reexamination of wellestablished prior law. CBOCS W., Inc. v. Humphries, U.S., (00). Principles of stare decisis, after all, demand respect for precedent whether judicial methods of interpretation change or stay the same. Id. Considerations of stare decisis have special force in statutory construction cases like this, because unlike in the context of constitutional interpretation, the legislative power is implicated, and [the Legislature] remains free to alter what we have done. Patterson v. McLean Credit Union, U.S., (). Moreover, the Ninth Circuit has observed, [e]ven prior to Bracker, we applied a similar mode of analysis to uphold California s possessory interest tax. Confederated Tribes of the Chehalis Reservation v. Thurston County Bd. of Equalization, F.d, (th Cir. 0); see also Palm Springs Spa, Cal. App. d at ( we find that balancing the interests of the state... against the interests of the United States... the nondiscriminatory possessory interest tax does not constitute an undue burden ). --

15 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0, more than 0 years before Congress passed the IRA. Thus, Section s tax exemption of land acquired pursuant to the IRA is irrelevant here. Second, even if the leased lands had been acquired under, that statute does not preempt the PIT. Section provides that [t]itle to any lands or rights acquired pursuant to [this Act] shall be taken in the name of the United States in trust for the Indian tribe or individual Indian for which the land is acquired, and such lands or rights shall be exempt from State and local taxation. U.S.C.. The PIT does not tax the lands or rights acquired under, nor the Tribe or its members. Instead, it taxes rights held by non-indians acquired by contract. See United States v. City of Detroit, U.S., 0 () (distinguishing between a tax that simply and forthrightly [is] imposed on the property itself and a tax on the privilege of using or possessing property and upholding the latter). The Tribe cites Mescalero Apache Tribe v. Jones, for the proposition that use is among the bundle of privileges that make up property or ownership of property, and, in this sense, at least, a tax upon use is a tax upon the property itself. Doc. at (quoting U.S., ()). The Tribe s reliance is misplaced. In Mescalero, New Mexico was imposing use taxes directly on the Tribe, not a non- Indian, as is the case here. The question was whether Indians going beyond reservation boundaries were subject to state taxes, not whether non-indians living or conducting business on the reservation were exempt. U.S. at -. The scope of a state tax is an issue of state law and is critical to the preemption analysis. See Wagnon v. Prairie Band Potawatomi Nation, U.S., 0-0 (00). That is why the Supreme Court held four years after Mescalero that the PIT is not a tax on property or improvements. United States v. County of Fresno, U.S. (). In that case, the Court concluded that California The vast majority of the leased lands are not tribal lands; rather, they are lands allotted to individual members pursuant to the Agua Caliente Equalization Act, U.S.C., et seq. SF. --

16 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 could tax federal employees on their possessory interests in housing owned and supplied by the Federal Government as part of their compensation, because the legal incidence of the tax involved in this case falls neither on the Federal Government nor on federal property. Id. at (emphasis added). The Court observed that the PIT may impose an economic burden on the Forest Service, but in no other respect did it threaten[] to obstruct or burden a federal function. Id. As the California Court of Appeal explained, the PIT assessment is against the private citizen, and it is the private citizen s usufructuary interest in the government land and improvements alone that is being taxed. United States v. County of Fresno, 0 Cal. App. d, 0 (), aff d, U.S. (). The Ninth Circuit s decisions upholding the PIT are consistent with County of Fresno. When the Ninth Circuit upheld the PIT in, it observed that the legal incidence of the [PIT] clearly falls on the lessee, and that [w]hatever may be the scope of the indirect burden placed on the lessor's interest in this case,... it is not sufficient to constitute an encumbrance of an interest in land or other tribal asset. Fort Mojave Tribe, F.d at. Likewise, in 0, the Ninth Circuit distinguished a Washington State tax on improvements from the PIT by observing that the PIT does not purport to tax the land as such, which would be barred by, but rather taxes the full cash value of the lessee s interest in it, which is not covered by. Chehalis, F.d at, n.. Although Thurston County cited to Fort Mojave, Agua Caliente and other cases in support of its argument, the court observed that [n]one involved property taxes, however, so they do not implicate. Id. at (emphasis added). The Ninth Circuit did not refer to the PIT in passing; rather, the court specifically analyzed the difference between Washington s tax and California s PIT. Respectfully, this Court should also conclude that the PIT does not implicate because it is not a tax on real property. Northstar Financial Advisors Inc. v. Schwab Investments, F.d 0, -0-

17 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: (th Cir 0) (citing United States v. Johnson, F.d, (th Cir. 00) (en banc)(noting that courts are bound by reasoned dicta)). The Tribe also relies (Doc. at ) on Seminole Tribe of Fla. v. Stranburg, where the Eleventh Circuit held that preempted Florida s tax on rental payments made by non-indian lessees of reservation land (citing F.d (th Cir. 0)). But the Florida rental tax is substantially different from the PIT, which is critical. See Wagnon, U.S. at 0-0. Florida s rental tax provides that every person is exercising a taxable privilege who engages in the business of renting, leasing, letting, or granting a license for the use of any real property and that [f]or the exercise of such privilege, a tax is levied in an amount equal to percent of and on the total rent or license fee charged for such real property by the person charging or collecting the rental or license fee. Fla. Stat..0. The legal incidence of Florida s rental tax falls directly on the Seminole Tribe, which federal law prohibits. The Eleventh Circuit explained that [t]he ability to lease property is a fundamental privilege of property ownership, and by taxing the Tribe s privilege to rent land, the State of Florida is taxing a privilege of ownership. F.d at 0. The Eleventh Circuit did question the Ninth Circuit s interpretation of the PIT as a tax imposed upon the use of property [as] something distinct from a tax imposed upon the property itself. Id. at ; Agua Caliente, F.d at ). But ultimately, the Eleventh Circuit did not consider California s PIT to be equivalent to Florida s rental tax. Id. (questioning the extent that a tax on the full-cash value of a lessee s possessory interest can be viewed as analogous to a tax on the payment of rent ). Accordingly, U.S.C. does not preempt the PIT because the PIT does not tax the Tribe or tribal land. It is a tax on non-indian possessory interests, which do not fall within the ambit of the tax exemption in U.S.C.. --

18 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 B. The leasing regulations were not comprehensive before 0 and they are not now. Under Bracker, a state tax may be barred if federal law preempts the tax or if the tax infringes the right of reservation Indians to make their own laws and be ruled by them. U.S. at -. With respect to the first prong, intent to preempt state law can be inferred in one of two ways: () field preemption, where Congress has occupied the field of a specific area so completely that it crowds out any possible state regulations; or () conflict preemption, where a state law would make compliance with federal law impossible or would stand as an obstacle to the accomplishment of Congress objectives. See English v. General Elec. Co., U.S., - (0). Neither are present here. The Indian leasing regulations are not comprehensive. Further, compliance with the leasing regulations and the PIT is easily achieved; Indians have been complying with Part and lessees with the State PIT without issue both before and after 0.. The leasing regulations are not comprehensive or pervasive. The Ninth Circuit has rejected arguments that the leasing regulations are sufficient to preempt state taxes on several occasions. See, e.g., Yavapai-Prescott Indian Tribe v. Scott, F.d 0, (th Cir. ) (upholding business transaction privilege taxes on room rentals and food and beverage sales on private lessee of hotel on reservation and noting that the Ninth Circuit accorded the leasing regulations little weight); Gila River Indian Community v. Waddell, F.d, (th Cir. ) (upholding sales tax on entertainment events on an Indian reservation and rejecting argument that leasing regulations were pervasive). The Federal Circuit reached the same conclusion in Brown v. United States, where it concluded that the leasing regulations were not comparable, for example, to the timber management regulations addressed in Bracker. F.d, (Fed. Cir. ). Although the court in Brown was determining whether the agency --

19 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 had a fiduciary duty to the plaintiff, its observations about the nature of the leasing regulations are directly relevant to the Tribe s argument that Part is pervasive. As the Brown court noted, the Secretary lacks ongoing management responsibility over the day-to-day administration of commercial leases concerning allotted lands. Id. In fact, the government argued to the Court of Federal Claims that neither section (a) nor part impose[s] comprehensive management responsibilities upon the government. Id. at. These conclusions are clearly correct, as demonstrated by a comparison of the leasing regulations to other regulatory regimes examined in the applicable case law. In Bracker, the Supreme Court concluded that certain taxes imposed by Arizona were preempted because the federal regulatory scheme [governing the harvesting and sale of timber from Indian lands] is so pervasive as to preclude the additional burdens sought to be imposed by the state taxes. U.S. at. The Bureau of Indian Affairs (BIA) had promulgated extensive regulations that governed all aspects of the timber operation, including which trees and how much timber would be cut, a fee schedule established by BIA, what logging equipment was appropriate for use, and even acceptable speeds of travel for various types of equipment. Id. at -. The Court observed that BIA exercise[d] literally daily supervision over the harvesting and management of tribal timber, id. at, including the activities of the non-indian contractors. The regulations involved in Ramah Navajo School Bd., Inc. v. Bureau of Revenue of New Mexico, U.S. () were equally comprehensive. There, a contractor built a school under a cost-plus contract for an Indian school board. The school board sued New Mexico for refund of gross receipts taxes the contractor paid to the State. In concluding that federal law preempted the gross receipts tax, the Court observed that BIA was required to conduct preliminary on-site inspections, and prepare cost estimates for the project in cooperation with the tribal organization. U.S. at. The regulations required approval of any --

20 Case :-cv-0000-dmg-dtb Document 0 Filed // Page 0 of Page ID #:0 0 0 architectural or engineering agreements executed in connection with the project, and BIA could impose subcontract requirements, including bonding requirements, pay scales, and hiring preferences. Id. Based on these regulations, the Court concluded that the [f]ederal regulation of the construction and financing of Indian educational institutions is both comprehensive and pervasive, and was at least as comprehensive as the federal scheme found to be pre-emptive in White Mountain. Id. at,. Again, BIA directly regulated the non-indian contractor. The Indian leasing regulations at issue here are not comparable. The regulations were first promulgated in at C.F.R. Part and were relatively simple. They required leases to be for fair market value (subject to certain exceptions), required surety bonds of not less than one year s rental and the estimated cost of any improvements, and in some cases required liability insurance. C.F.R..(b), (c),(d) (). The regulations specified permissible lease duration, required periodic lease reviews at not less than five-year intervals, and limited the terms of leases for grazing, farming, and those granted by the Secretary. Id... Subleases, assignments, and encumbrances generally required Secretarial approval. Id... The regulations did not dictate the activities that could be conducted on leased land and did not involve BIA overseeing non-indian activity on leased lands. As the Court of Federal Claims noted, [t]he government is not required to pursue leases on allotted lands or to seek out potential lessees. Brown v. United States, Fed. Cl. 0, (). Nor does the Secretary have responsibility to manage or administer leases once they enter into effect. Id. (observing that [f]rom the plain language of [ U.S.C. ], the role of the Secretary is simply confined to approval and fails to contemplate any comprehensive or on-going management responsibilities ). --

21 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 The 0 revisions do not change that conclusion. To the contrary, when the Secretary revised the leasing regulations in 0, she did so for the explicit purpose of delete[ing] regulatory burdens and limit[ing] BIA s involvement in substantive lease contents. Fed. Reg. at 0-. The 0 revisions eliminate certain requirements, defer to private negotiations, and impose timing restrictions on the Secretary s approval process to minimize agency delays. Id. The new regulations, for example, waive the regulatory requirement of fair market rents on individually-owned Indian land and leased land on which a tribe or lessee constructs infrastructure improvements. Id. at 0- (citing C.F.R..0(a),.). The Secretary no longer conducts periodic rental reviews of leases for housing for public purposes on individually owned Indian land and eliminated bonding and insurance requirements for all residential leases. Id. at (citing C.F.R..,.,.(a)). These types of efforts to accord Indians greater discretion in leasing decisions are what prompted the Court of Claims to determine that C.F.R. Part differs drastically from the pervasive nature of the statutes and regulations governing management of oil, gas, and timber resources under which [the government] assumes full responsibility. Cherokee Nation of Oklahoma v. United States, Cl. Ct., (0).. The Secretary s interpretation of the scope of the leasing regulations is incorrect and not entitled to deference. The Tribe s reliance (Doc. at ) on the 0 Preamble to the leasing regulations to support its claim that the leasing regulations are comprehensive without addressing the regulations themselves or the Ninth Circuit cases that conclude that the leasing regulations are not comprehensive or pervasive is In 00, the Secretary revised portions of the leasing regulations, but retained the regulations with respect to business and residential leases. See Fed. Reg. 0 (Jan., 00) (recodified at C.F.R. Part ). --

22 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 unpersuasive. The Preamble asserts that [t]he Federal statutory scheme for Indian leasing is comprehensive... [and] pervasive and leaves no room for State law, Fed. Reg. 0-0, (Dec., 0), but that statement is not entitled to deference, as this Court has already found. Doc. at ( [A] court is not required to defer to an agency s p[roclamations of pre-emption. ). In addition, the Secretary s view as to the comprehensive scope of the regulations which obviously differs from the position she has taken in cases like Brown is not due any deference, because the Preamble does not clarify any regulatory ambiguity. Auer v. Robbins, U.S., () (courts may defer to an agency interpretation of an ambiguous regulation). Moreover, preamble language in a regulation does not have the same binding effect that regulations themselves have. See, e.g., Norfolk Energy, Inc. v. Hodel, F.d, - (th Cir. 0) (refusing to consider a sentence in a preamble to the BLM s regulations because the overall regulatory and statutory scheme supported a contrary interpretation). Ultimately, Section.0 itself cannot preempt the PIT because that regulation does not actually regulate Indians or leases, which is all that Congress authorized the Secretary to do under U.S.C.. See Brown, Fed. Cl. at. Agencies are creatures of statute and they cannot exceed the authority granted them by Congress. See Food & Drug Admin. v. Brown & Williamson Tobacco Corp., U.S. 0, (000) (invalidating agency regulation of tobacco products because it exceeded agency s statutory authority). Because Section.0 does not regulate lease terms, relying on it to preempt the PIT would not The Tribe discusses (Doc. at -) Segundo v. City of Rancho Mirage, F.d (th Cir. ), but the later Ninth Circuit cases conclude or assume that the leasing regulations are not pervasive. The Tribe s reliance on Segundo is misplaced because the municipal rent control ordinance directly conflicted with the fair market lease requirement of the leasing regulations whereas there is no such conflict presented by this case. Id. at. --

23 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 be a valid exercise of the Secretary s authority under U.S.C.. And while the Secretary may have broad authority under U.S.C. and, neither those two sections nor give her the power to restrict state taxing authority. See, e.g., Organized Village of Kake v. Egan, U.S. 0, () ( the Interior Department itself is of the opinion that the sole authority conferred by [ ] is... to implement specific laws, and by [ ]... over relations between the United States and the Indians not a general power to make rules governing Indian conduct. ) Since the 0 Rule was issued, the Secretary seems to have changed her mind about whether the regulation itself preempts state taxes. According to the Secretary s amicus brief filed in this case, C.F.R..0 is of very limited effect. Doc. No.. It merely describes one aspect of the federal and tribal interests that a court must weigh in addressing whether federal law prohibits the imposition of such taxes under Bracker and its progeny, and left room for courts to undertake a particularized inquiry into the nature of the state, federal, and tribal interests at stake before determining the validity of a specific tax. Id. at. Of course, this is already what courts consider when determining the validity of a state tax. See e.g., Colville, U.S. at (noting that there must be an accommodation between the interests of the Tribes and the Federal Government, on the one hand, and those of the State, on the other )). Thus, the regulation may have prompted considerable litigation, but as the Secretary now acknowledges, it is merely declaratory of a federal interest already understood to exist. Rule-making authority for the management of all Indian affairs and of all matters arising out of Indian relations is conferred by U.S.C.. U.S.C. delegates rule-making authority to effect the various provisions of any act relating to Indian affairs

24 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 C. Bracker balancing strongly favors upholding the PIT. The PIT does not undermine federal or Tribal interests Although the Tribe relies (Doc. at ) on the Preamble s statement that the leasing regulations are intended to allow Indian landowners to use their land profitably for economic development, ultimately contributing to tribal well-being and self- government to argue that the PIT is preempted, it is well-established that federal interests in economic development are insufficient to preempt state taxes. As the Supreme Court has repeatedly recognized, promoting tribal economic development is an important federal interest, but it is not an overriding force that preempts an otherwise valid state tax on non-indians. Washington v. Confederated Tribes of the Colville Reservation, U.S., - (0) ( It can no longer be seriously argued that the Indian Commerce Clause, of its own force, automatically bars all state taxation of matters significantly touching the political and economic interests of the Tribes. ). The Court rejected returning to the longdiscarded and thoroughly repudiated doctrine of invalidating every state tax that has [a]ny adverse effect on the Tribe's finances caused by the taxation of a private party contracting with the Tribe. Cotton Petroleum v. New Mexico, 0 U.S., (); see also Salt River Pima-Maricopa Indian Community v. Arizona, 0 F.d, (th Cir. ) (although the federal government has expressed an interest in assisting tribes in their efforts to achieve economic self-sufficiency... that interest does not, without more, defeat a state tax on non-indians ). The Tribe raises a number of objections, none of which supports preempting the PIT. First, the Tribe argues (Doc. at ) that its economic interests are harmed because it has held its own possessory interest tax in abeyance as long as the PIT is being assessed and collected against lessees. The Supreme Court has flatly rejected that argument, noting that concurrent federal, state and local taxation occurs throughout the country. As the Court observed in Colville, [t]here is no direct conflict between the state and tribal schemes, since each government is free --

25 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 to impose its taxes without ousting the other. U.S. at ; see also Wagnon, U.S. at - ( Nor is the Nation entitled to interest balancing by virtue of its claim that the Kansas motor fuel tax interferes with its own motor fuel tax. ); Cotton Petroleum Corp., 0 U.S. at - ( since [Congress] has not exercised that power [to prohibit state taxes] concurrent taxing jurisdiction over all of Cotton s on-reservation leases exists ). The Tribe next argues (Doc. at ) that it is being deprived of more than $0 million per year that could be spent to provide governmental services to both Agua Caliente members and Indian trust lands within the Reservation. Specifically, the Tribe objects to PIT revenues being distributed throughout all of Riverside County or used to offset statewide funding obligations. But AB refutes that objection, and even a cursory look at the budget materials the County produced demonstrates that PIT revenues primarily serve the communities that generated them. State law AB not the County controls how PIT revenues are distributed and under State law, and property revenues are allocated to each unique TRA, of which there are several within the Agua Caliente Reservation. SF. In 0, for example, the County collected approximately $,,000 in PIT revenues, but retained only % for County services. SF. The Palm Springs school districts and community college which serve residents of Agua Caliente land received $0,, in PIT revenues and the Educational Revenue Augmentation Fund (ERAF) received $,0,. SF. Palm Springs, Cathedral City, and Rancho Mirage the communities within which the Reservation is located received $,,. Id. The water districts that serve the Reservation received $,0,0. SF. Of the PIT revenues the County retained, most were used to fund fire In any event, the Tribe provides no explanation of how it intends to collect a PIT from lessees, given that the details of leases on allotted lands are all kept confidential from the Tribe. See SF. --

26 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 protection, health and sanitation, and road districts, including emergency services for non-indian lessees and for the Tribe. SF. The Tribe argues (Doc. at ) that under the current regime, it has no say in the expenditure of tax revenues generated within its Reservation, but that is not true. Members of the Tribe have as much say over the expenditure of PIT revenues as do the County citizens who pay the taxes. And because the lessees paying the PIT are not tribal members, their ability to have representation is important. Indeed, the Tribe does not provide government services to lessees or even regulate the vast majority of leases. The Tribe only leases out. acres of tribal land under four commercial leases, and two residential leases. SF. By contrast, individual Indians lease out approximately,00 acres of allotted lands under close to 0,000 lease arrangements. SF,. The Tribe does not consider regulation of those lessees its responsibility and it plays no role in approving lessees, the improvements they build on allotted lands, whom those lessees might hire to conduct business, or even the terms of the leases. SF,, 0. The Tribe in fact does not have knowledge of, access to, or control over any of the leases covering allotted lands, and the information related thereto is proprietary, confidential information the Tribe is not entitled to see. SF. Finally, the Tribe objects (Doc. at ) that the economic burden falls on the Indian lessor because [i]t goes without saying that increasing the non-rent costs of a non-indian lessee s leasing of Indian land reduces the proceeds that the Indian lessor can obtain through the lease. The Tribe relies on the Ninth Circuit s decision in Agua Caliente for that proposition, which is strange at least for the fact that the Ninth Circuit concluded that the PIT was not preempted, notwithstanding the economic burden. F.d. As a matter of law, of course, the PIT assessment is against the private citizen, and it is the private citizen s usufructuary interest in the government land and improvements alone that is being taxed. -0-

27 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 County of Fresno, 0 Cal. App. d at 0. Neither the Tribe nor its members are liable if a lessee fails to pay the PIT. SF It may be the case that today, there is some economic impact from the PIT on the Tribe, although the Tribe acknowledges that it did not do any quantification or any unique technical studies on that. SF. Rather, the Tribe perceives that the PIT would be a burden on [the members who are allottees] as a disincentive to have their property marketed and purchased and/or leased. SF. But the facts in the record suggest that the impact if there is any at all is insubstantial. Since, the amount of land Agua Caliente Indians lease out has grown from to approximately,00 acres. SF. The value of the possessory interests in those lands and improvements (most of which were undertaken by the lessees) is approaching $ billion (based on the over $,, million collected in % PIT), which means that the value to the Indian owner is likely greater. SF. There does not seem to be any factual basis for the Tribe s concern that the PIT has undermined any federal objectives or hampered the ability of its 0 members to lease their lands. But even if the Tribe had some evidence to support its concerns, the Supreme Court has rejected a rule that would hold that [a]ny adverse effect on the Tribe s finances caused by the taxation of a private party contracting with the Tribe would be ground to strike the state tax. Cotton Petroleum, 0 U.S. at.. The State interests in imposing the PIT are very strong Although the Tribe suggests (Doc. at, ) that the County s use of PIT revenues is disconnected from the community that generates them, 0 State law There is no evidence to support the claim that the Tribe is economically burdened by the PIT, and several reasons to doubt its validity. Leases produced in the record contain provisions that control raising lease rates, and the leases are long-term. SF. This suggests that if the PIT were invalidated, and the Tribe did not impose its own PIT as a substitute, Indian lessors could not capture the value of the PIT in increased rents on all existing leases. 0 As a legal matter, this argument fails, because there need not be a direct connection between the state sales tax revenues and the services provided to the --

28 Case :-cv-0000-dmg-dtb Document 0 Filed // Page of Page ID #: 0 0 actually dictates how local governments fund their operations: the County and subordinate taxing jurisdictions rely heavily on property tax and PIT revenues to fund the governmental services they provide. SF. Pursuant to AB, the County allocates the property tax and PIT revenues it assesses and collects to 0 recipient entities that carry out government functions throughout the County. SF. Of the approximately -% of PIT revenues the County retains, approximately 0% is placed in the general fund, which is restricted for specific uses, such as fire protection, health and sanitation and road districts. SF. Those revenues were used to fund the Sheriff s Office, Corrections, the District Attorney, Health and Mental Health, the Public Defender, Probation, Code Enforcement, and Animal Services in fiscal year 0- services that benefit everyone living in Riverside County. SF. The County also services all unincorporated areas, including those portions of the Agua Caliente Reservation and trust lands that are outside of Palm Springs, Cathedral City, and Rancho Mirage. SF 0. Indeed, the County services the Tribe directly: from 0 to 0, the County Fire Department responded to,,, and 0 incidents on the Reservation, respectively. SF. Approximately % of the PIT revenues collected go directly to fund two school districts in Palm Springs, the Desert Community College, and the Riverside County Office of Education, and approximately.% goes to the ERAF (Education Revenue Augmentation Fund). SF. Thus, the greatest portion of PIT revenue goes to education, from K- public schools to community colleges. SF. Those schools are available to everyone, including tax-exempt Tribal members and lessees of Agua Caliente land. Cal. Constitution, art. IX, section ; Jonathan L. v. Sup r Court, Cal. App. th 0, 0 ( The state is responsible for educating Tribe.... Gila River II, F.d at ; Salt River Pima-Maricopa Indian Community, 0 F.d at (noting that there is no requirement that a tax imposed on non-indians for reservation activity be proportional to the services provided by the State). --