Yesterday’s Oral Arguments: Wagnon v. Prairie Band Potawatomi Nation

By Amy Howe
on Oct 4, 2005 at 2:52 pm

Note: This post was authored by Julia Lipez, a third-year law student at Stanford.

As anticipated, yesterday’s oral argument in Wagnon v. Prairie Band Potawatomi Nation centered on the nature of Kansas’s motor fuel fax. Specifically, the justices were concerned with who bears the “legal incidence” of the tax and what the term “legal incidence” actually means. In the end, the Court seemed poised to uphold the Kansas tax on the grounds that the off-reservation distributor bears the legal incidence of the tax, and Kansas thus is not infringing on the Tribe’s sovereign power to impose its own taxes.

Ted Olson, arguing for the State of Kansas, asserted that the plain language of the Kansas statute indicated that the off-reservation distributor bears the legal incidence. Chief Justice Roberts, who early on took an active role in the questioning, suggested that the Kansas Supreme Court, the ultimate interpreter of Kansas state law, in a case called Kaul v. State Department of Revenue, had already held that the legal incidence in effect falls on the Tribe, and not on the distributor. Olson responded that the Kaul decision should perhaps be read to mean that the economic burden, but not the legal incidence, falls on the Tribe. Olson also argued that it is the consumer, and not the retailer, who bears the ultimate burden. Roberts then asked what “legal incidence” meant, if not an economic burden. Olson admitted that the Court’s precedents are unclear, but contended that the “legal incidence” is a term of art that describes who is responsible for paying the tax and who would be liable for any unpaid tax. If that is the case, as Justice Ginsburg noted, then under the Court’s Chickasaw decision, the Court would have to engage in a balancing test to determine whether to invalidate the tax, because the tax is non-discriminatory and is incurred off-reservation. Olson briefly questioned the wisdom of using a balancing test to determine tax policy, but did not push the point, as the Court did not seem inclined to overrule its precedent. The Court’s questions quickly indicated support of Kansas’s position, a feeling that was only strengthened when the Tribe’s lawyer began arguing.

Justice Souter pushed Ian Gershengorn, arguing for the Tribe, on the issue of to what exactly the Tribe thinks it is entitled. It seems, according to Souter, that currently both Kansas and the Tribe are collecting fuel taxes, and if the taxes can coexist, Justice Souter wondered why there is a conflict at all. Gershengorn responded that the Tribe is currently subsidizing its gas station because it is experiencing losses as a result of the double taxes. Souter quickly noted that lost profits alone surely is not enough for the Tribe to claim that the Kansas tax interferes with the Tribe’s own sovereign authority to tax.

In an attempt to move away from the seemingly difficult economic arguments, Gershengorn returned to the text of the statute, which requires a tax on the “use, sale, or delivery” of fuel. He claimed that this language suggests that the legal incidence falls on the retailer, i.e. the gas station, rather than on the distributor. Justice Ginsburg quickly retorted that the statute explicitly says that the legal incidence falls on the distributor. Nearly all of the Justices echoed this proposition at some point in their questioning.

Justice Breyer, who seemed most skeptical of the Tribe’s position all along, asked Gershengorn, somewhat rhetorically, how the Court should balance the interests at stake, given that it seemed as if the balance weighs in favor of the State. Breyer was particularly concerned with the Tribe’s suggestion that negative downstream effects of the state tax should lead to its invalidation. After all, if that is the principle, nearly every state tax could have a negative downstream economic impact on the Tribe, and where should the line be drawn? Gershengorn asserted that the balance of interests weighs in favor of the Tribe because it uses the proceeds of their fuel tax to repair their roads, and the federal government has implemented regulations supporting such tribal use of tax revenue.

Justice Souter suggested to Gershengorn that his strongest argument is not that the tax is neutral and that the balancing weighs in favor of the Tribe, but rather that the tax is discriminatory because it provides for exemptions for distribution to the federal government or to other states, but not to the Tribe. Gershengorn claimed that the Tribe was making that argument, but it seemed to be lost on the Justices, a majority of whom had already indicated that they viewed the tax as non-discriminatory.

Deputy Solicitor General Ed Kneedler attempted to bolster the Tribe’s case by arguing that it is economically impossible for the Tribe to benefit from its own tax as a result of the tax on the distributor, but the Court didn’t seem to buy it. Justice Souter stated once again that he could not understand how the Tribe’s loss of profits was sufficient to warrant preemption, and Justice Breyer again voiced his concern that under the Tribe’s theory, every upstream state tax would have to be invalidated.

One would be hard-pressed to find an observer in the courtroom who did not think that Kansas came out on top in this argument. The Court appeared poised to uphold the Kansas tax, as it ultimately seemed unconvinced that the Tribe’s sovereign authority had been infringed by this neutral off-reservation tax.