A working group to examine dual taxation of federally recognized tribal nations, established as part of the biennial budget, held its first meeting on July 25.

Jeffrey Beckham, the Secretary of the Office of Policy Management, and chair of the working group, noted that the group is charged with examining “taxation of reservation land held in trust for federally recognized Indian tribes in the state and tangible personal property located on such reservation land” and must submit a report of its findings to the legislature by no later than January 1, 2024.

At issue is the dual taxation tribes can be subject to if they are subject to state-assessed taxes on reservation property as well as taxes tribes collect. Matt Dayton, the undersecretary for legal affairs with the Office of Policy and Management, provided an overview of the two subjects the task force is authorized to review.

The first of these is property taxation, which is the simpler of the two issues. According to Dayton, reservation land is federally preempted and immune from real property taxation as long as it is held in trust by the federal government.

The issue of taxation of tangible personal property on tribal land is less straightforward. Dayton said that if there is a legal incidence of tax on a tribe or tribal member, it is exempt unless Congress has created an express authorization to tax it. The Supreme Court has reinforced this. However, the property of nontribal members that is located on tribal land can be taxed in some circumstances. Dayton cited a two-part test from the Supreme Court’s ruling in White Mountain Apache Tribe v. Baker. The case, which involved taxes the state of Arizona was assessing on a logger who was not a member of the tribe operating on tribal land.

The two part test asked whether the tax was expressly preempted by federal law and, if not, whether it unlawfully infringed on the rights of the reservation to make their own laws. The court ruled the taxes in the case were preempted by federal law.

Dayton also cited a case between the Mashantucket-Pequot tribe and the town of Ledyard, where the tribe challenged the town’s assessment of personal property taxes on slot machines operated by vendors who were not tribe members at Foxwoods Casino. Applying the White Mountain test, the Court of Appeals for the Second Circuit found that federal law did not bar the tax and that the economic effect of the tax on the tribe was negligible but was not negligible on the town. It allowed the tax to go forward.

Dayson noted that the Second Circuit has jurisdiction over Connecticut and that the Oklahoma Supreme Court ruled the opposite way in a case with a similar fact pattern, highlighting the issues the working group will face.

Members of the working group discussed relevant issues to the subject matter they’re tasked with reviewing and also raised questions they would like to see explored at future meetings.

Betsy Conway, senior legal counsel for the Mashantucket-Pequot tribe, noted that the Oklahoma ruling was one of the things that makes the issue challenging because the balancing test “can come out one way one day, and one way another day,” which makes economic development difficult and has led states to jump into the arena to develop their own laws on tax policy.

Sen. Cathy Osten, D-Sprague, raised several points related to the interactions between the reservations, the vendors that work on them, and adjoining municipalities. Osten noted that both tribal nations have their own governments, including their own utilties. She also noted that Mohegan upgraded Montville’s sewer treatment and that all services that occur on tribal lands are not paid for by municipalities.

Osten, whose district includes Montville and Ledyard which respectively adjoin the Mashantucket-Pequot and Mohegan reservations and the Mohegan Sun and Foxwoods casinos, said that the tribes are impactful to communities, through things like nonprofit events and sponsoring food banks. Additionally, she noted that vendors are different than businesses that might be in the community and the working group needed to make sure it understands vendors get services from tribal nations.

She also suggested that, in order to make sure towns don’t suffer if they lose tax revenue from tribal reservations, the Mashantucket Mohegan/Pequot Fund would be the “perfect vessel” to provide financial amelioration to municipalities. The fund, which draws revenue from casino gaming and which Osten said has increased because of onlinge gambling, provides annual grants to municipalities in the state.

Following Osten’s comments, which included a history of broken promises made to tribes by the U.S. government, Rep. Holly Cheeseman, R-East Lyme, raised the point that the legislature has made and broken promises to municipalities and that the working group needed to be aware that any decisions it makes for a two-year period are not made in perpetuity.

“As municipalities face potentially significant loss to revenue, [municipalities] must have some certainty that the remediies we propose can actually be carried out.” said Cheeseman.

The working group concluded its meeting by discussing questions it would like to explore at future presentations. Beckham noted that a Department of Treasury committee produced a report on dual taxation in 2020 and asked whether it would be useful to have a presentation on the report at the next meeting and have both tribes provide perspective and answer questions from the panel. Members generally agreed to this.

Beckham also listed questions he thought it would be useful to have the panel discuss, including whether it is dual taxation to have vendors on the reservations, whether there are settled expectations the tribes have on the issue, and why states would enter into the issue before the federal government settles it.

Members agreed to hold a second meeting sometime in late August or early September.

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