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June 8, 2015
Alabama Tribe Offers to Pay Taxes in Return for New Gaming Rights
by Eric Yauch

Full Text Published by Tax Analysts®

An Alabama tribe looking to expand its gambling operations is offering cash-strapped state officials millions of dollars in new taxes, while simultaneously challenging a local government's attempt to tax casino property.

The two-pronged strategy by the Poarch Band of Creek Indians to resolve a long-running battle with the state over gaming rights and tax issues comes as Alabama struggles to close a $700 million budget gap.

Efforts by Gov. Robert Bentley (R) to address the budget shortfall by raising tax rates, eliminating credits and exemptions, and moving to combined reporting have hit the wall, and a bill (SB 453) that would authorize a state lottery and allow casino gambling in the state has failed.

Amid the fiscal mess, sources told Tax Analysts that state and tribal officials have been negotiating to fill the budget gap by allowing the tribe to conduct Las Vegas-style gambling, with the tribe offering to prepay the state $250 million in taxes.

The tribe told Tax Analysts that it has reached out to the governor's office and is willing to negotiate the terms of a compact.

"The Tribe is willing to discuss ways in which we can assist the State during this economic crisis, which could possibly include a compact," Tribal Council Chair Stephanie Bryan said. "We have reached out to the Governor's staff for discussions, and as for the details of what a compact between the Tribe and State would consist of, that has yet to be determined."

Bentley's office did not respond to requests for comment.

The tribe is allowed to operate Class II games, which is defined in the federal Indian Gaming Regulatory Act as bingo, in its casinos.

However, in exchanges with the National Indian Gaming Commission, Alabama Attorney General Luther Strange (R) said that the tribe has blurred the line between Class II and Class III gaming, which includes slot machines and blackjack in the gaming regulatory act. The result has led to raids on tribal casinos and questions of whether some video gaming machines are prohibited under state law.

In 2012 Strange told the commission the tribe operates three Indian casinos that offer "ostensibly Class II gambling that approximates the same kind of slot machine gambling that one might find in Las Vegas or Atlantic City."

"The Tribe's ability to 'obscure the line between Class II and III' makes it harder for my office to enforce Alabama law outside of Indian land," the letter said. "Alabama citizens are understandably confused when Indian tribes are allowed to call their Class III slot machines 'bingo,' but gambling promoters within the State's jurisdiction cannot use the same gimmick. The solution to this problem is not for my office to relax or disregard the State of Alabama's gambling laws; the solution is for the Commission to strictly enforce federal law on Indian lands."

The attorney general also sought a bright-line rule between Class II and Class III gaming, and he pressed for enforcement power.

Bruce Ely of Bradley Arant Boult Cummings LLP said that the tribe's offer to fill a large part of the state's general fund deficit and resolve legal issues over their casinos is a smart political move, but he wondered about the details.

"The real question is, even if the governor decides to enter into negotiations with them, will we need an amendment to the Alabama Constitution?" Ely said. "It seems to ban not only this type of Las Vegas- style gaming but any sort of exclusivity agreement. That would require a statewide vote -- and would be a very close one, I think."

Regardless, the tribe on May 26 filed suit against the Escambia County tax assessor in the U.S. District Court for the Southern District of Alabama, alleging that the assessment of property taxes on real property held in trust by the United States, which includes their casino, violates federal law.

"This new lawsuit against the Escambia County tax assessor may cloud the issue," Ely said.

According to the complaint, the tax assessor, James Hildreth Jr., sent notification to the Poarch Band of Creek Indians on January 7, 2014, that his office planned on auditing its real and personal property. The tribe, in a March 17, 2014, response noted that tribal property is not taxable under federal law.

However, Hildreth notified the tribe in March 2015 that appraisal of the tribal property was complete and that his office planned to proceed with assessments, prompting the tribe's lawsuit.

The tribe's counsel, David Smith of Kilpatrick Townsend & Stockton LLP, said that since roughly 2012, Escambia County has "claimed that they had a right to tax land held by the federal government in trust for the tribe; we've pointed to them the statutory authority and case law . . . that says that they can't do that. The law is pretty clear."

Smith said that the tribe will seek a court order to halt the tax assessment and collection process.

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