FL controversy Alert: Seminole Tribe Takes on Florida Department of Revenue Under Federal Native American Taxation Law Grounds

Few attorneys or tax professionals practice in the area of Native American Taxation. Think about it, have you ever even heard of an attorney specializing in this Native American Tax Law? Probably not. Despite the rarity of this relatively unexplored area of the law, it is extremely fascinating. Similar to many areas of state and local tax work, Native American Taxation is poorly developed, the rules are unclear, and the cases largely don't make any sense. While living in a gray area of the law is uncomfortable for most lawyers and professionals, it is common place for state and local tax attorneys like me to live in a world with no clear answers and we thrive on it.

Over the past few months, two recent Florida decisions have caught my attention. Specifically, the two cases involved disputed by Taxpayers against the Florida Department of Revenue in Ark Hollywood LLC v. Department of Revenue and Ark Tampa LLC v. Department of Revenue. Both cases were filed in November of 2012 involved companies that leased restaurant space at the Hardrock Casinos in Hollywood and Tampa Florida, respectively. (copies of the original complaints in both of these cases can be found at the end of this article)

At the heart of both cases and most state taxation issues involving Native Americans, is the struggle of a state's power to tax transactions on tribal reservations versus the Indian Commerce Clause. Many lawyers and tax professionals have heard of the Commerce Clause. The Commerce Clause states in Article I, section 8, that Congress shall have the power, "To regulate Commerce with foreign Nation, and among the several states." However, there is also a provision in the United States Constitution that gives Congress the power to regulate commerce "with the Indian Tribes." It is this provision, the Indian Commerce Clause, which has led to enormous debate and controversy in the world of state taxation with the regards to Native Americans.

Turning back to the Ark Complaints, Ark operates a food court in the Hardrock Casinos and remits a percentage of its sales to the Tribe. Under the agreements at issue, the document was coined a "Lease" and the payments were labeled as "rent." Pursuant to section 212.031, Florida Statutes ("F.S."), Florida happens to be one of the rare jurisdictions that charges sales tax on commercial rent. Based on that premise, Florida conducted an audit of Ark and ultimately assessed sales and use tax on the "rent" payments to the tune of $110,306 for the Hollywood property and $100,735 for the Tampa location.

Ark's argument in both cases centers around whether a state has the power to levy a tax on Indian land or if this power is preempted by the United States government under the Indian Commerce Clause or the Indian Trader Statutes. This recurring issue has been around since the beginning of state tax jurisprudence.

The Supreme Court of the United States ("SCOTUS") has struggled the issue over the years and the cases seem to be in Ark's favor. McClenahan v. Arizona, a famous SCOTUS case seems to stand for the notion that a state income tax on an individual on a Reservation is unlawful because it is preempted by federal statute. The well-recognized and often cited, Warren Trading Post v. Arizona, also stands for the proposition that tax on transactions on the Reservation could not be taxed by a state. Interestingly, in Mashantucket Pequot Tribe v. Ledyard, a recent 2012 Federal decision out of Connecticut, ruled that a state could not tax the land of a tribe under a traditional state property tax regime.

In Ark, the sales tax in on the privilege to use real property seems to be a stronger set of facts. Preventing state interference with Tribal lands serves as the basis for all of the decisions mentioned above. The fear of the government and the purpose of the Indian Commerce Clause was to prevent State's from interfering with separate and distinct Indian nations. Therefore, it seems that Ark has a great chance of success on the merits of this case.

Ark also appears to be arguing in both cases, that even though the document says Lease and the payments are called "rent," the payments really aren't "rent" in the sense that they are not for the use of property. Conversely, the Seminole's really control the entire operation and the payment from Ark to the Tribe is a royalty type payment. This argument appears to be more of a stretch because of the form driven nature of sales tax, however, this type of argument has been successful in cases such as US Cardio Vascular, a colossal loss for the Department of Revenue.

It will be interesting in the coming months to see how the court disposes of this issue. I will certainly be watching and provide everyone with an update as they become available.

FLORIDA SALES TAX HELP, FLORIDA SALES TAX ATTORNEY, FLORIDA SALES TAX AUDIT, FL TAX INDIANAbout the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., based in Fort Lauderdale, Florida. Mr. Donnini's primary practice is Florida sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in all of the Florida state taxation areas including Native American Taxation, Tobacco Tax, and Motor Fuel Tax. Mr. Donnini has a heavy concentration on the petroleum industry at the wholesale and retail level. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.


United States Constitution, Article I, Section 8 (Commerce Clause)

Sec. 212.031, F.S.


ARK HOLLYWOOD LLC v FL DOR, Case No. 2012 CA 3609, 2nd Cir Fla. (Original Complaint as filed Nov. 2, 2012)

ARK TAMPA, LLC v FL DOR, Case No. 12 017222, 13th Cir Fla. (Original Complaint as filed Nov. 2, 2012)

US CARDIO VASCULAR vs FL DOR, Case No. 1D07-3811, Fla. 1st DCA (2008).

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