Tribe Sues the State – Claims Members Living Off-Reservation Should Not Pay State Income Tax

The Twenty-Nine Palms Band of Mission Indians has filed suit against Gov. Arnold Schwarzenegger and the State of California claiming that the state is violating federal law and tribal sovereignty by imposing state income tax on casino revenues received by members of the tribe who live off the reservation.

California does not collect state income tax from tribal members who live on a reservation and derive their income from on-reservation sources.

In the suit the tribe claims that, "It would be financially, socially and politically very difficult to construct housing on the reservation. If the (personal income tax) is permitted to continue, the tribal council's activities will be consumed by addressing financial, environmental, regulatory and other issues involving construction of housing on the reservation.”

State lawyers said California is entitled to collect income tax from tribal members who do not live on the reservation, regardless of the reasons.

The attorney general's office is seeking a dismissal and in a motion filed last week stated, "Only a tribal member living on her tribe's reservation and earning income from on-reservation sources is exempt from state personal income tax on that income. The Tribe's attempt to explain why its members live off-reservation is irrelevant to a determination whether the exemption applies."

The tribe operates the Spotlight 29 Casino on tribal land near Coachella and Indio in central Riverside County and also has land near the city of Twentynine Palms in San Bernardino County. As part of the lawsuit the tribe claims that the tribe's Riverside County land is taken up by a casino and a parking lot and the San Bernardino County land has almost no public works, and the tribe would have to build all that before putting up houses.

"The Tribe is impacted unlike many other tribes because of the minimal amount of land it was granted by the federal government as a reservation," the suit says.

The state's response challenges the tribe's contention that it has no on-reservation housing options and points out that past proposals by the tribe to expand the Spotlight 29 Casino and to build a second casino, a hotel, an RV park and residential housing on its Twentynine Palms land.

Professor I. Nelson Rose, an expert on tribal and gambling law at Whittier College, said the Twenty-Nine Palms tribe's suit is the first time he can recall a tribe challenging the state's collection of the personal income tax. "But I don't think it's going to fly," Rose said of the lawsuit. "I've never heard of that argument. Second, they built a casino there. It's not necessarily that anyone would want to live there, but it's not a physical impossibility."

A hearing on the case is scheduled for January in Riverside.