US Supreme Court to Decide whether Schwarzenegger Can Tax Native American Casinos

Last April, the Ninth U.S. Circuit Court of Appeal located in San Francisco declared California Governor Arnold Schwarzenegger did not have the federal authority to require taxes from Native Americans gambling revenue. To the contrary, federal law forbids states from levying any taxes against Native American tribes.

American gambling laws under federal authority require Native American tribes to bargain for casino agreements within the state where the casinos will be hosted. States are allowed to collect some casino revenue to cover regulatory costs, pay the local government’s casino related costs, and support financially those tribes which don’t operate casinos. However, the legislation forbids direct taxation of Native American tribes to generate state revenue.

This case began in San Diego County in 2003. The Rincon Band of Luiseno Mission Indians already had 1,600 slot machines and wished to add 900 more. Schwarzenegger gave conditional approval, requiring that California must receive $38 million out of the $40 million expected.

The Ninth Circuit Court ruled 2 against 1 that Schwarzenegger’s stipulation is effectively a tax. Judge Milan Smith, speaking for the majority, interpreted Federal law as granting neither California nor Governor Schwarzenegger such authority over Native American gambling that "each state can put the opportunity to operate casinos up for sale to the tribe willing to pay the highest price."

Now, hundreds of millions of dollars are currently at stake. The state of California has appealed this ruling to the U.S. Supreme Court, which has queried the Obama administration for an opinion. California illustrated their case with examples of the U.S. Interior Department allowing tribal compacts which included revenue-sharing agreements. These examples have occurred in many states, including California. Last July, 15 Native American tribes generated $370 million in revenue for the state of California.

The potential for gambling to generate enormous revenue has both federal and state legislatures revisiting the law books, looking to either pass new laws or find loopholes in the old ones. For examples, the United States senate may “secretly” legalize internet gambling and New Jersey could be the first American state to legalize online gambling.