South Dakota loses bid to force Flandreau Santee Sioux Tribe to pay tax

Jonathan Ellis | Argus Leader

South Dakota cannot force the Flandreau Santee Sioux Tribe to pay excise tax on the renovation of its casino, a federal judge has ruled.

The tribe filed suit against the state in 2017 after the state rejected the tribe’s contention that non-tribal contractors working on a $24 million expansion of the Royal River Casino were not required to pay. State law requires contractors to submit 2 percent of their gross receipts on construction projects, money that is used for the state’s general fund.

In its lawsuit, the tribe argued the requirement interfered with federal law. In an order granting the tribe summary judgment, Judge Karen Schreier agreed that the state violated the Indian Gaming Regulatory Act, a federal law that allowed tribes to establish casinos.

“The state’s excise tax undermines the objective of IGRA because the tax is passed from the contractor to the tribe which interferes with the tribe’s ability to make a profit from gaming activities,” Schreier wrote. “Thus, Congress intended for IGRA to completely regulate Indian gaming and there is no room for the state’s imposition of an excise tax.”

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The state’s compact with the tribe, Schreier noted, did not contain a provision permitting the collection of the tax.

Schreier also noted that the tribe faces increased competition from the Grand Falls Casino, which opened in Larchwood, Iowa in 2011, which is larger than Royal River. Failure to compete could doom Royal River, which provides about 40 percent of the tribe’s revenues.

“Updating the interior of the building and adding additional slot machines is a necessary expense in order to compete with bigger, newer casinos in the area and to attract patrons,” she wrote.

Tony Venhuizen, the chief of staff to Gov. Dennis Daugaard, said in an email: “The state will analyze the decision and decide next steps.”

The decision is the latest in a decades-long legal dispute between the tribe and the state over taxation and tribal sovereignty. Former Govs. Bill Janklow and Mike Rounds clashed with the tribe over sales tax payments and whether to amend its compact to allow for more slot machines. Daugaard ultimately agreed to a new compact that doubled the number of slots from 500 to 1,000.

The tribe needed to expand Royal River to accommodate the new slots.

The state and tribe have also clashed over the casino’s liquor license and whether marijuana could be legalized and sold to non-tribal members.

The state has tax collection agreements with most tribes, but not Flandreau.