South Dakota Tribal Casino Expansion Work Subject to $480K Excise Tax, Circuit Court Rules

Posted on: September 10, 2019, 01:32h. 

Last updated on: September 10, 2019, 02:21h.

Steve Bittenbender Read More
Expertise: Legislation, Sports Betting, Horse Racing.

A federal appellate court ruled last week that the state of South Dakota had the right to apply an excise tax on a nontribal contractor who renovated and expanded a casino for the Flandreau Santee Sioux.

The Royal River Casino VIP room, shown above, was part of the work done by the Henry Carlson Company for the Flandreau Santee Sioux. South Dakota officials levied a 2 percent excise tax on the nontribal construction company for the work, and a federal court ruled in favor of the state collecting the $480,000 in taxes last week. (Image: Henry Carlson Company)

The case stems from the tribe’s 2016 gaming compact with the state. That agreement allowed it to expand its Royal River Casino and Hotel, a class III venue, from 500 slot machines to 1,000. The casino is located in Flandreau, less than eight miles from the Minnesota state line.

In December of that year, the Henry Carlson Company started its work as the construction manager for the $24 million expansion project, with all the construction work taking place on the reservation.

However, South Dakota officials decided to enforce its 2 percent excise tax on the construction company. Even though the project took place on tribal ground, the state pursued the funding because it did not meet the criteria for an exemption, which is typically granted for a tribal school or government building project.

After having its appeal denied twice, the company asked the state to refund the tax money to the tribe. When that did not take place, the tribe sued, saying the tax violated the Indian Gaming Regulatory Act (IGRA), among other laws. Among the arguments made was that the casino was a revenue-generating necessity in order to provide for the tribe’s public welfare and safety.

District Judge Ruled for Tribal ‘Self-Sufficiency’

In July 2018, US District Judge Karen E. Schrier ruled the state violated the IGRA and that the casino renovation was a necessity.

“Also, the federal and tribal interest in promoting tribal self-sufficiency through Indian gaming outweigh the State’s interest in raising revenue for the general fund,” Schrier wrote.

A month later, South Dakota officials asked the Eighth Circuit Court of Appeals to take up the case.

Circuit Court: Tax Burden ‘Pales’

In a 2-1 decision filed on Friday, the circuit judges ruled that the tribe failed to prove that the excise tax levied on a contractor would impinge on the tribe’s ability to operate a casino. In addition, the state has the right to generate revenue to provide services for its residents and businesses, including the Henry Carlson Company.

To be sure, revenues from the Casino are of great financial importance to the Tribe,” wrote US Circuit Judge James B. Loken. “In 2016 and 2017, the Casino enterprise generated roughly 40% of the Tribe’s budget and more than 90% of its yearly sales tax revenue. The burden of the State’s contractor excise tax pales in comparison. The projected total tax that would be paid when the Casino’s renovation is completed is $480,000. While substantial, that is only a small percentage of the gross Casino revenues generated in 2016 and 2017 alone.”

In her dissent, Circuit Judge Jane L. Kelly countered that the Flandreau Santee Sioux interest in keeping the $480,000 was more important than South Dakota’s right to generate revenue.

It is unclear how the tribe will proceed with the case. Tribal officials could not be reached for comment Monday.