United States: Florida Rental Tax Violates Federal Indian Law, But Utility Tax Permitted On Land Leased By Tribe To Non-Indians

The U.S. Court of Appeals for the Eleventh Circuit held on August 26, 2015 that federal law bars Florida's imposition of rental tax on commercial rent payments by non-Indian retailers for land owned by an Indian tribe.1 The Court also held that Florida's utility tax as applied to payments related to the same leased property is not federally preempted. The decision has been appealed to the U.S. Supreme Court. 2


The Seminole Tribe of Florida (Tribe), a federally recognized Indian tribe, leased real property located within its reservation to two non-Indian corporations beginning in 2005. The 25-year leases allow the corporations to conduct food court operations at the Tribe's Florida casinos and require the lessees to pay applicable taxes to the relevant authorities. The leases were approved by the Secretary of the Interior, as required by statute, and the leased land is exempt from state and local taxes under 25 U.S.C. Sec. 465. 3

The Florida Department of Revenue assessed rental tax against the lessee corporations for the period from July 2005 through June 2008. The Tribe had paid the related utility tax, which was stated as a component of its utility bills, and applied for a refund of the tax paid for the period from 2008 through July 2011. The corporations also applied for a refund of the assessed rental tax. Both applications for refund were denied by the Department.

In response to the denials, the Tribe filed a federal complaint in October 2012 seeking declaratory and injunctive relief with respect to both taxes against the Department. The lessee corporations subsequently filed suit in Florida state court, contesting the denial of their refund claims. The state claims remained pending at the time of the federal court decision discussed herein.

After determining that the federal relief sought by the Tribe was unrelated to the corporation's state claims, the District Court granted summary judgment to the Tribe for both claims, holding that Florida's application of rental tax was precluded by Sec. 465 as a tax on rights in federally-provided Indian land. 4 In the alternative, the District Court held that Florida's application of rental tax was preempted by federal law. Further, the District Court held that Florida's application of utility tax was prohibited by federal law as a tax on Indians for on-reservation activities. The Department appealed the District Court's holdings, resulting in this decision.

Analysis of Rental Tax

Florida imposes rental tax on commercial rent payments for the "privilege [of engaging] in the business of renting, leasing, letting or granting a license for the use of any real property" in Florida. 5 The tax is assessed against the lessee based on the total amount of rent paid, but is collected and remitted by the landlord. 6 The land owner is liable to pay the tax and incurs penalties if it fails to perform these duties. 7 However, the tax itself constitutes a lien on the personal property of the lessee, and not the land or property of the lessor. 8 As noted, the Tribe did not collect or remit any rental tax with respect to its land leased to the corporations. The corporations also failed to remit the tax until it was assessed by the Department.

The Eleventh Circuit Court of Appeals began its analysis by examining whether Sec. 465 precluded Florida's application of rental tax against the corporations. Noting that the District Court and the Tribe had relied on the U.S. Supreme Court's holding in Mescalero Apache Tribe v. Jones9 for the proposition that "§ 465 prohibits taxes on land rights that are so connected to the land that the tax amounts to a tax on the land itself," the Court of Appeals affirmed the District Court's application of Mescalero to the rental tax in the present case. The Court of Appeals found that by taxing the ability to lease, Florida was taxing a fundamental privilege of land ownership sufficiently connected to the federallyprovided land as to be exempt from state and local taxes under Sec. 465. While a state may be entitled to impose its taxation upon some income received from such lands, the Court of Appeals found the rental tax more similar to a tax upon land or land rights than to a tax upon economic activity taking place on the land.

In upholding the District Court's determination, the Court of Appeals rejected the Department's arguments that: (i) the rental tax was distinguishable from the tax at issue in Mescalero, limiting its application in this case;10 (ii) the U.S. Supreme Court foreclosed the Mescalero decision with its decision in Cotton Petroleum Corp. v. New Mexico;11 and (iii) case law from the U.S. Court of Appeals for the Ninth Circuit upheld the incidence of a similar tax in California.12

While the Court of Appeals' rejection of the Department's arguments regarding the rental tax disposed of the issue, the Court of Appeals also considered as a matter of first impression whether the Florida rental tax was preempted by federal law. Federal regulations promulgated by the Secretary of the Interior governing Indian land leasing include a regulation barring state taxation of leasehold interests13 and reference U.S. Supreme Court precedent, White Mountain Apache Tribe v. Bracker14 within their preamble. Specifically, the preamble analyzed Indian land leasing from the standpoint of Bracker and found that the federal and tribal interests involved were "very strong." 15

In Bracker, the U.S. Supreme Court called for a "particularized inquiry into the nature of the state, federal, and tribal interests at stake" when analyzing whether state regulation of non-Indian on-reservation activity was federally preempted. Based on its reading of case law applying the Bracker test, the Court of Appeals inferred that a federal regulatory scheme can be so pervasive as to require preemption of a state tax. While a state's interest in its tax can outweigh federal and tribal interests, "to do so, the state's tax must relate to services it provides in connection with the entity and activity being taxed and not merely serve a generalized interest in raising revenue."

While the District Court had deferred to the Secretary of the Interior's Bracker analysis in promulgating federal regulations which barred state taxation of leases on Indian land, the Court of Appeals held that the Secretary's analysis was not entitled to full deference. Although Bracker requires a balancing of the particular state, federal, and tribal interests at stake when analyzing whether a particular state action is federally preempted, the Secretary's preamble did not address Florida's rental tax with particularity.

The Court of Appeals proceeded to conduct an independent Bracker analysis. Despite denying full deference to the Secretary's regulations and analysis, the Court of Appeals viewed the regulations alongside dozens of prior Congressional statutes and federal regulations as providing evidence of the federal and tribal interests at stake. Therefore, the Court of Appeals found that leasing of Indian land was governed by an extensive and exclusive federal regulatory scheme.

Furthermore, the Court of Appeals held that the Department failed to demonstrate that Florida actually regulated commercial leasing of Indian land or provided any services to the parties of the lease transactions in their capacities as lessor and lessee. Finding that leasing of Indian land was regulated by a comprehensive federal scheme and that Florida had no state interest in its application of rental tax to Indian land leasing beyond the general raising of revenue to perform statewide services, the Court of Appeals held that Florida's application of rental tax was preempted according to the federal law under Bracker.

Analysis of Utility Tax

Florida imposes a tax on "gross receipts from utility services that are delivered to a retail consumer" in Florida. 16 A utility provider may elect to separately state the utility tax as a line item on customers' bills, but is not required to do so. 17 If the provider elects to separately state the tax, the consumer is required to remit the tax to the services provider and it becomes part of the debt owed to the service provider. The tax, however, is specifically "imposed upon every person for the privilege of conducting a utility or communications service business, and each provider of the taxable services remains fully and completely liable for the tax, even if the tax is separately stated as a line item or component of the total bill." 18

Related Florida regulations clarify that the tax is imposed on the privilege of doing business, and is an item of cost to the distribution company, who remains "fully and completely liable for the payment of the tax, even when the tax is wholly or partially separately itemized on a customer's bill." 19 A service provider may claim a credit of refund for net uncollected billings when it prepays the tax based on gross billings, as opposed to actual gross receipts. 20

In considering Florida's utility tax, the Court cited the U.S. Supreme Court's decision in Oklahoma Tax Commission v. Chickasaw Nation21 for the proposition that state taxes on Indians for on-reservation activities are generally constitutionally barred and adopted Chickasaw Nation's legal incidence test to determine whether the legal incidence of the utility tax impermissibly fell upon the Tribe.

In reversing the District Court, the Court held that the legal incidence of the tax fell upon the non-Indian utility distributors and not upon the Tribal consumers. In reviewing the Florida statutes and regulations authorizing the utility tax, the Court focused on language indicating that utility companies remain fully liable for payment of utility tax, even where the tax is separately itemized on the customer's bill. Specifically, the Court found this language indicative of a legislative intent to impose the legal incidence of the tax on utility companies, and held that the utility tax was not barred as an impermissible direct tax on the Tribe.

Finally, the Court held that the utility tax was not preempted by federal law under a Bracker analysis. Finding no pervasive federal interest or comprehensive federal regulatory scheme relating to on-reservation utility services, the Court of Appeals concluded that the Tribe failed to establish that the utility tax was federally preempted.

In the absence of a finding of federal statutes or regulations that would have constituted such a federal regulatory scheme, the Court of Appeals did not find it necessary to reach the question of whether Florida held a substantial interest in regulating on-reservation utility services beyond a generalized interest in raising revenue. Although Florida regulates utility services and provides substantial infrastructure relating to those service, the Court of Appeals did not address whether Florida held a state interest in applying utility tax to on-reservation activities.


Litigation involving the state taxation of Indian tribes and associated activities performed on Indian lands has grown in recent years given the increase in the number and scope of for-profit transactions engaged in by Indian tribes and non-Indian businesses. The proliferation of casinos on Indian reservations is a high-profile example of new economic development initiatives performed on Indian lands. Arrangements involving non-casino entertainment facilities and resource extraction have also become prevalent. With the additional economic development occurring on tribal lands, states are likely to concentrate their efforts in maximizing revenue through the taxation of these activities, even though it is often difficult to discern whether a transaction that is associated with tribal lands may be taxed.

Following the Court of Appeals' decision, the Tribe requested rehearing by the full court of the utility tax decision, which motion was denied. 22 Following the denial, the Tribe requested review by the U.S. Supreme Court, and its application for certiorari is currently under consideration. 23 If certiorari is granted, a substantive decision in this area would prove interesting to those impacted by the interplay of state taxation and Indian law.

Based on the Court of Appeals' holding, it stands to reason that whether a tax affecting land provided to Indians pursuant to Sec. 465 is precluded under the terms of the statute depends, at least in part, on whether the tax is determined to be impermissible taxation of land or a right in land or permissible taxation of economic activity or tangible property. Notably, the Court of Appeals drew a distinction between taxation of a right in land – impermissible under Sec. 465 – and permissible taxation of economic activity or tangible property "removed by one or more degrees from the land." Taxation of the ability to lease and taxation of use of materials as permanent improvements constitute impermissible taxation of a right in land under the Court of Appeals' holding and Mescalero, respectively. Taxation of sales receipts constitutes permissible taxation of economic activity under Mescalero. Additionally, the Court implied in this decision that taxation of oil and gas production may constitute permissible taxation of economic activity on tangible property, under the theory that such activity is removed by at least one degree from the land.

Although the Court allowed the Secretary of the Interior's balancing analysis to "serve as evidence of the federal and tribal interests involved" in Indian land leasing, the Court's holding does not address the validity of 25 C.F.R. Sec. 162.017, providing that activities under a lease conducted on leased Indian premises are not subject to state taxation.

Because federal preemption was lacking, the utility tax controversy was reduced in this case to the evaluation of which party the tax was imposed upon. This type of analysis has been conducted in the courts countless times in determining, for example, the inclusion in, or exclusion from, the sales tax base of taxes and fees imposed on utility gross receipts (with the result generally being "included"). The legal incidence inquiry, formulated by the U.S. Supreme Court in Chickasaw Nation as a means of determining whether the incidence of tax impermissibly falls upon an Indian tribe or its members for on-reservation activities, is related by the Court of Appeals as a two-part test whereby "[a]clear declaration of legal incidence or a mandatory 'pass through' provision requiring a tax to be passed on to the consumer is 'dispositive language' of legal incidence," and that in absence of such language, "the question is one of 'fair interpretation of the taxing statute as written and applied.'"


1 Seminole Tribe of Florida v. Stranburg, 799 F.3d 1324 (11th Cir. 2015).

2 Seminole Tribe of Florida v. Stranburg, petition for cert. filed, U.S. Sup. Ct., No. 15-1064, Feb. 19, 2016. Response due Mar. 24, 2016.

3 25 U.S.C. § 465. This federal law authorizes the Secretary of the Interior to acquire any interest in lands for the purpose of providing land for Indians and provides that the land is exempt from state and local taxation.

4 Seminole Tribe of Florida v. Florida, 49 F. Supp. 3d 1095 (S.D. Fla. 2014).

5 FLA. STAT. § 212.031(1)(a).

6 FLA. STAT. § 212.031(1)(c), (2)(a).

7 FLA. STAT. § 212.031(3).

8 FLA. STAT. § 212.031(4).

9 411 U.S. 145 (1973). In Mescalero, the U.S. Supreme Court began with the premise that § 465 "exempts land and rights in land, not income derived from its use" and ultimately held that while the exemption in § 465 did not bar New Mexico from applying its gross receipts tax to sales of goods and tangible property at a ski-resort built by Indians on federally-provided land, § 465 nonetheless exempted Indians from the application of New Mexico's use tax to purchases of materials used to construct ski lifts on such land.

10 Mescalero focused on the applicability of a gross receipts sales tax, rather than a rental tax akin to a right on land.

11 490 U.S. 163 (1989). In Cotton Petroleum, the U.S. Supreme Court confronted the question of whether New Mexico could impose taxes on oil and gas produced by non-Indian lessees of wells located on the tribe's reservation. The Court allowed New Mexico to impose the taxes, based in part on its application of the Bracker test.

12 Citing Agua Caliente Band of Missions Indians v. Riverside County, 442 F.2d 1184 (9th Cir. 1971); Fort Mojave Tribe v. San Bernardino County, 543 F.2d 1253 (9th Cir. 1976); and Confederated Tribes of Chehalis Reservation v. Thurston County Board of Equalization, 724 F.3d 1153 (9th Cir. 2013).

13 25 C.F.R. §162.017.

14 448 U.S. 136 (1980).

15 Residential, Business, and Wind and Solar Resource Leases on Indian Land, 77 Fed. Reg. 72440, 72447 (Dec. 5, 2013) (codified at 25 C.F.R. Part 162).

16 FLA. STAT. § 203.01(1)(a)(1)(2012). Note that a new version of the utility tax statute was adopted as of July 1, 2014. The current version includes minor language revisions that does not impact the analysis in the case.

17 FLA. STAT. § 203.01(4).

18 FLA. STAT. § 203.01(5).

19 FLA. ADMIN. CODE ANN. r. 12B-6.0015(3)(a).

20 FLA. ADMIN. CODE ANN. r. 12B-6.005(1)(e).

21 515 U.S. 450 (1995).

22 Seminole Tribe of Florida v. Stranburg, 799 F.3d 1324 (11th Cir. 2015), motion for rehearing denied, Oct. 27 2015.

23 Seminole Tribe of Florida v. Stranburg, petition for cert. filed, U.S. Sup. Ct., No. 15-1064, Feb. 19, 2016. Response due Mar. 24, 2016. In the petition, the Tribe alleges that the Circuit Courts are divided as to how to determine the legal incidence of a tax when the taxing scheme contains a permissive passthrough provision. Also, the Tribe argues that the decision is contrary to U.S. Supreme Court precedent, which the Tribe cites for the proposition that a mandatory pass-through provision is not required in order for the legal incidence of the tax to fall on the consumer.

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