Court agrees with tribes on state profit sharing

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April 21, 2010

The 9 th U.S. Circuit Court of Appeals ruled that Indian tribes can't force to share gaming profits with the State of California.

In 2008 a federal judge in San Diego ruled in favor of North County's Rincon Indian band against the state. The Circuit Court up held the decision stating Gov. Arnold Schwarzenagger negotiation tactics with the tribe amounted playing dirty.

By requesting money from the tribe's gambling profits for the state's general fund and not offering something of value in return the governor would be imposing an illegal tax. "This is a great, big message to the state," Rincon Chairman Bo Mazzetti said. "Your days of trying to bully tribes around … those days are over."

Judge Milan Smith Jr. of Pasadena compared the state's tactics to those of the federal government when they took the Black Hills in South Dakota from the Sioux. "Today, many tribes have struck figurative gold with casino gaming, and again, some state governments, just like their predecessors, are maneuvering to take, or at least share in, some of that figurative gold," Smith wrote for a two-judge majority.

Though tribes around the country have agreed to share revenue with state and local governments the issue boils down tribal governments can't be taxed. In 1988 the Federal government created the Indian Gaming Regulatory Act to control how tribes can conduct Las Vegas-style casinos on their land. Under the act IGRA states tribal governments and their operations are exempt from federal or state taxes but require the tribes to get state approval to open casinos.

This has led to tribes entering in to contracts with states that allow them to open casinos only if they share profits with the states. "Everyone agrees that's a violation of IGRA, and we turn a blind eye because that's the only way to do gaming," Michigan State University law professor Matthew L.M. Fletcher r said, calling the idea that those payments aren't a tax a "legal fiction."

Schwarzenegger won the office of governor in 2003 partly by campaigning the promise he would make tribes "pay their fair share" for casino expansions. "It's about millions and millions of dollars to the state of California," Fletcher said.

In negotiations with Rincon, the state asked for money for the general fund in exchange for exclusive right to offer gambling. Rincon rejected the offer stating they already had exclusive rights to Las Vegas-style gambling through the states constitution. It also said federal law prevented the state from demanding general-fund contributions in exchange for additional machines.

The tribe feels it is getting a raw deal from the state. The states offer would allow 900 new machines to be added the 1600 it currently has at its Harrah's casino. The tribe would see an increase in revenue from $59 million to $61 million. In contrast the state would see a $38 million increase in revenue.

The state will seek to have Tuesday's decision reviewed by a larger panel of 9th Circuit judges, said Jeff Macedo, a spokesman for Schwarzenegger.

If the decision stands a 60 day negotiation period between the tribe and the state will in sue. If they can't agree after the 60 days the decision would be left to an arbitrator.

Return to California Casinos.