Interim guidance statement on the taxation of Class II and Class III gaming equipment leased by a non-tribal lessor to a tribal casino

August 3, 2023

Purpose & Scope

This interim guidance statement addresses whether state and local governments may impose personal property tax on leases of Class II and III gaming equipment to an Indian tribe for use in a tribal casino located in a tribe’s Indian Country (within the territorial boundaries of Washington).

The guidance in this interim guidance statement is limited to personal property tax on specific types of personal property.[1]

The scope of this interim guidance statement is limited to the personal property taxation of personal property used directly and exclusively in Class II or Class III gaming,[2] as defined in the Indian Gaming Regulatory Act (IGRA) and does not apply to other types of taxes. This interim guidance statement also does not address the property tax implications for other types of real or personal property. This interim guidance statement supersedes previous guidance.

Background

Generally, nonmembers (persons who are not enrolled members of the tribe within whose Indian Country[3] the property is located) are subject to property tax on their property located in Indian Country. However, a state or local government’s jurisdiction to tax on a nonmember’s property in Indian Country may be preempted in certain circumstances either directly by a federal law or when federal and tribal interests outweigh the state and local interests in imposing the tax. 

In White Mountain Apache Tribe v. Bracker,[4] the U.S. Supreme Court set forth an analytical framework to resolve questions regarding a state’s assertion of authority over the conduct of nonmembers engaging in activities on a tribe’s reservation. The Court summarized the Bracker framework in New Mexico v. Mescalero Apache Tribe:

Particular factors balanced in the Bracker inquiry include "the degree of federal regulation involved, the respective governmental interests of the tribes and states (both regulatory and revenue raising), and the provision of tribal or state services to the party the state seeks to tax.”[6]

In 1988, the United States Congress enacted the federal Indian Gaming Regulatory Act, which authorizes and regulates the conduct of gaming on Indian Lands[7] and intends to allow Indian tribes to operate gaming as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments.

Class III. Does federal law preempt personal property tax on Class III gaming equipment located in Indian Country?

Yes, it is preempted. Class III gaming equipment located in Indian Country is not subject to state or local personal property tax. The Department has determined that personal property tax (including the state and local portions thereof) on Class III gaming equipment located in Indian Country used directly and exclusively for a Class III gaming activity is preempted by federal law through application of Bracker balancing because the state and local interests involved do not outweigh the tribal and federal interests.

• Tribal and Federal interests.
  • Class III gaming is governed and regulated by IGRA. Slot machines and other types of Class III gaming equipment are used directly and exclusively in Class III gaming activities and regulated by federal law (IGRA). The gaming equipment is inextricably intertwined with, and not merely tangential or peripheral to, the operation of the gaming activity regulated by IGRA. Accordingly, there is a strong federal interest, under IGRA, when the activity is directly part of the gaming operation.
  • Tribal interests in sovereignty and economic development. The personal property tax also implicates tribal interests in economic development and sovereignty. While the personal property tax is directly imposed on the lessor, at least some of the economic burden ultimately falls on a Tribe. Further, tribal sovereignty is impacted by a personal property tax on property located in a tribe’s Indian Country and used by a Tribe in operating its economic activity and by the potential remedies if the state or local government were to enforce a tax not paid by the lessor.
• State and local interests.
  • State and local interests may include raising revenue and uniform application of the tax law that may fund services to the state or local area, including services that may relate to or benefit a tribe or the gaming operation. However, Washington’s personal property tax (including the state and local portions) does not fund any of the state’s regulatory services relating to tribal gaming operations.
• State and local interests do not outweigh federal and tribal interests.
  • In the case of Class III gaming equipment, the heightened federal interest under IGRA is significant. The state and local interests in raising revenue and uniform application of tax law do not outweigh the significant federal regulation involved combined with the tribal interests in sovereignty and economic development. While the provision of state or local services to the lessor, as the party the state seeks to tax, may vary, such services are not significant enough in the case of Class III gaming equipment used directly and exclusively in the operation of the gaming activity itself.

Class II. Does federal law preempt personal property tax on Class II gaming equipment located in Indian Country?

Yes, it is preempted. Class II gaming equipment located in Indian Country is not subject to state or local personal property tax. The Bracker analysis above for the preemption of Class III gaming equipment is equally applicable to Class II gaming equipment because the state and local interests (revenue raising and uniformity of tax laws) in imposing the tax do not outweigh the tribal and federal interests (tribal and federal regulation under IGRA, as well as tribal sovereignty and economic development) in not imposing the tax.

Moreover, in respect to the personal property taxation of Class II gaming equipment, the state and local interests involved are less than for Class III gaming equipment. This is because under IGRA the state’s involvement in regulating Class II gaming equipment is significantly lower than its interest in Class III gaming equipment, as regulatory authority for Class II gaming is predominately within tribal (not state) jurisdiction with oversight by the National Indian Gaming Commission.[8] And because the state does not provide regulatory services for Class II gaming, none of the property tax revenue would fund services related to Class II gaming. In which case, the balance of interests weighed under the Bracker analysis is even more tipped in favor of preemption for Class II than Class III gaming equipment.

Illustrative Example: Personal Property Tax Preempted by Federal Law

In the following scenario, we present facts, weigh relevant considerations, and then state a conclusion regarding the state’s authority to levy personal property tax.

Facts

• ABC Gaming Machines, Inc. (ABC) manufactures and leases Class II and Class III gaming equipment to casino operators located throughout the United States.
• In January 2020, ABC enters into a leasing agreement with DEF Enterprises (DEF), a wholly-owned instrumentality of a tribe located in Washington. DEF owns and operates a casino located in the Tribe’s Indian Country.
• Under the terms of the lease, ABC agrees to deliver, install, maintain, and lease 50 electronic bingo machines (Class II gaming equipment) and 150 electronic slot machines (Class III gaming equipment) at DEF’s casino. The Tribe’s Indian Country and DEF’s casino is located in GHI County.
• The electronic bingo and slot machines are used only in DEF’s casino and only for the purpose of the gaming activity.
• As of January 2020, a State-Tribe Gaming compact exists between the Tribe and Washington in respect to the Class III slot machines.
  • Under the terms of the compact, the Tribe compensates the state for all services provided in the regulation of DEF’s gaming operations, which includes regulation of the gaming equipment leased by ABC.
  • The compact also requires the Tribe to make all provisions for adequate emergency accessibility and service to the casino, including services to casino property and patrons.
• The Tribe has jurisdiction over the Class II bingo machines and has passed a tribal ordinance authorizing and regulating the Class II bingo machines, subject to oversight by the National Indian Gaming Commission.

Conclusion

• Federal law preempts the state from imposing personal property tax on both the Class II bingo machines and the Class III slot machines that ABC leases to DEF. This is because the combined tribal and federal interests in not imposing the personal property tax outweigh the state and local government interests in imposing the tax. This conclusion is based on the following considerations:
  • Heightened federal and tribal interests in regulating Class II and III gaming under tribal and federal law (IGRA);
  • Tribal interests in sovereignty and economic development; and
  • Lack of connection between Washington’s personal property tax and the tax-funded services or benefits received by ABC.

Department Authority to Interpret and Apply Title 84 RCW.

With respect to property taxes, the Department must exercise general supervision and control over the administration of the assessment and tax laws of the state and has the legal authority to decide all questions that arise in reference to the true construction and interpretation of Title 84 RCW. See RCW 84.08.010 and 84.08.080.

Taxpayer instructions

The Department will continue to review this issue for purposes of developing final guidance. This interim statement will remain in effect until the Department completes consultation with the Tribes and issues its final guidance or cancels the interim statement.

If you have any questions about this guidance, please contact Sam Seal at 360-763-7105.