United States: Flandreau Santee Sioux Tribe Receives Partial Victory In South Dakota Tax Case

Tim Evans is Senior Counsel for Holland & Knight's Los Angeles office.

Kathleen Nilles is a Partner for Holland & Knight's Washington, D.C. office.


  • In a recent case before the U.S. District Court for the District of South Dakota, Flandreau Santee Sioux Tribe v. Gerlach, the Flandreau Santee Sioux Tribe (Tribe) won a partial, but significant, victory in preventing the state of South Dakota's imposition of a use tax on purchases by nonmembers of goods and services at the Tribe's on-reservation casino and related amenities.
  • The case also has further potential implications for tribal-state gaming compacting and alcohol regulation in Indian country.
  • The reasoning in this case may be informative for other courts or regulatory bodies charged with determining which amenities at a tribal casino are "directly related" to tribal gaming operations so as to require compacting for any regulation of those amenities.

In a recent case before the U.S. District Court for the District of South Dakota, Flandreau Santee Sioux Tribe v. Gerlach, Case No. 14-4171 (D.S.D. Sept. 15, 2017), the Flandreau Santee Sioux Tribe (Tribe) won a partial, but significant, victory in preventing the state of South Dakota's imposition of a use tax on purchases by nonmembers of goods and services at the Tribe's on-reservation casino and related amenities. The case also has further potential implications for tribal-state gaming compacting and alcohol regulation in Indian country, including:

  • an expansive interpretation of which ancillary businesses are gaming-related for Indian Gaming Regulatory Act (IGRA) purposes
  • a narrow interpretation of the Bracker balancing test that declines to recognize a tribe's significant investment in gaming as value-added when evaluating the sale of products in an ancillary structure, such as a convenience store near (but not in) a tribe's casino
  • judicial refusal to allow states to hold tribal liquor licenses hostage when a tribe refuses to collect state sales taxes unrelated to liquor sales


The Tribe owns and operates the Royal River Casino & Hotel (Casino) and an affiliated, but separately constructed, convenience store and gas station (Convenience Store) on the Tribe's reservation. The Casino operations are governed by a Tribal-State gaming compact (Compact), but it is silent as to the imposition and collection of South Dakota's use tax on nonmember activity at the Casino as well as application of the state's alcohol regulatory laws. South Dakota issued separate alcoholic beverage licenses to the Tribe for the Casino, the Convenience Store, and a now-defunct bowling center. Pursuant to South Dakota law, the licenses' renewals were conditioned on the Tribe's remittance to South Dakota of the use tax for nonmember purchases. The Tribe did not remit the tax, and when it sought renewal of the licenses, South Dakota denied the requests. The Tribe instituted a state administrative hearing and filed this federal court lawsuit to review the denials.

The Court's Analysis

The court held, based on pre-emption of South Dakota law by the Indian Gaming Regulatory Act, 25 U.S.C. §2710 et seq. (IGRA), that the South Dakota use tax could not be imposed on nonmember purchases at the Casino or related amenities that are "directly related to the operation of gaming activities," as contemplated in IGRA, unless negotiated and included within a tribal-state gaming compact (which had not occurred in this case). The Casino-related amenities at issue included a gift shop, hotel, RV park, food and beverage services, and live entertainment events. The court found those amenities to be "directly related" to tribal gaming operations because the only significant purpose of the amenities is to facilitate gaming activities, as shown by their complementary nature (i.e., increases in demand for an amenity such as alcohol are directly tied to increases in demand for gaming activities) and by the fact that the Casino and the amenities are mutually dependent upon one another for their existence. The Tribe did not present sufficient evidence, however, to show that nonmember purchases at the Convenience Store are sufficiently complementary to gaming or that such purchases were necessary for the Casino's existence so as to preclude the tax by means of IGRA pre-emption.

Though it ruled that use taxes on Convenience Store purchases were not pre-empted by IGRA, the court considered whether the use tax on nonmember Convenience Store purchases might be otherwise pre-empted by federal law according to the Supreme Court's balancing of federal, tribal, and state interests in White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980). The court held that the use tax was not pre-empted under Bracker and therefore South Dakota could insist on its collections from nonmember consumers at the Convenience Store.

In its balancing of interests, the court noted that the Tribe's interest in raising revenue is strongest when derived from value generated on the reservation by activities involving the Tribe and when the taxpayer is a recipient of Tribal services. The court asserted that the Tribe must serve as more than "a conduit for the products of others" to generate on-reservation value and must do so by activities in which the Tribe has a significant interest. However, the court found the federal and Tribal interests in supporting tribal sovereignty and economic development insufficient by themselves to preclude South Dakota's generally-applicable tax from being imposed on nonmember purchases. It also determined the comprehensive federal regulation of tribal gaming by the National Indian Gaming Commission to be only tangentially connected to the Convenience Store and not so extensive as to completely crowd out state regulation. Furthermore, the use tax imposed on the Convenience Store's nonmember patron purchases will be placed in South Dakota's general fund, and the court asserted that South Dakota residents (including Tribal members) will benefit generally from services provided by that fund. The court deemed South Dakota to have an inherent interest in the uniform application of its tax laws. It also said the use tax as applied to on-reservation nontribal members would not interfere with the Tribe's power to regulate tribal enterprises or contravene Tribal self-government because nonmember patrons are not Tribal constituents. Based on the foregoing, the court concluded that under Bracker, South Dakota's interests outweigh those of the federal and Tribal governments and held that federal law does not pre-empt the imposition of the use tax on nonmember purchases at the Convenience Store.

Notwithstanding the Bracker balancing test outcome, the Tribe scored another victory when the court determined that even though South Dakota could impose its use tax on nonmember purchases at the Convenience Store, it could not condition the renewal of the Tribe's alcoholic beverage licenses on the collection and remittance of that tax. Federal law effectively delegates congressional authority over liquor regulation in Indian country concurrently to tribes and states. In theory a state could impose virtually any of its laws on tribes by superficially connecting compliance with such laws (in this case, the collection of a general use tax) with alcohol regulation. But the court in this case determined that a state's conditions placed on the renewal of an alcohol license must be reasonably necessary to further the state's interest in alcohol regulation. Although South Dakota had an interest in regulating alcohol within its borders because of the potential for off-reservation impacts, conditioning the Tribe's license renewals on collection of a use tax entirely unrelated to alcohol did not further South Dakota's alcohol-related interest. (This finding coincides with a similar finding by the U.S. District Court for the Western District of Oklahoma in Citizen Potawatomi Nation v. State of Oklahoma, Case No. 5:16-cv-00361-C (memorandum and order filed June 21, 2016), holding that a tribe's failure to report or collect state sales taxes could not serve as a basis for the state to revoke the tribal casino's alcohol permits when the tribal-state gaming compact failed to mention any such taxes. That case is currently on appeal to the U.S. Court of Appeals for the Tenth Circuit.)

Potential Impact of the Court's Decision

While not controlling outside of the South Dakota district court, the reasoning in this case may be informative for other courts or regulatory bodies charged with determining which amenities at a tribal casino are "directly related" to tribal gaming operations so as to require compacting for any regulation of those amenities. The district court favorably cited the U.S. Court of Appeals for the Ninth Circuit's test for determining direct relation by examining whether an amenity's "only significant purpose" is to facilitate patronage of gaming activities. The district court's extension of this test to rely upon the economic concept of "complementary goods" – those in which increased demand for one ties directly to increased demand for another – may also provide guidance to tribes as to how the significant purpose test may be fulfilled and what subject matter must be part of a tribal-state gaming compact. That in turn will provide tribes with guidance as to what areas a state will have to provide meaningful concessions as part of compact negotiations.

The court's determination that the Tribe simply had not presented enough evidence to conclude that nonmember purchases at the Convenience Store were "directly related" to tribal gaming operations, and therefore the use tax not pre-empted by IGRA, left an opening to expand the scope of "directly related" activities in future cases. But this shortcoming also left open the door for the court's disappointing application of the Bracker balancing test. When the court asserted that the Tribe must serve as more than "a conduit for the products of others" to generate on-reservation value, it rejected a key part of the Ninth Circuit Court's statement in Cabazon Band v. Wilson as to on-reservation value generation in the gaming context: "It is sufficient that the Bands have made a substantial investment in the gaming operations and are not merely serving as a conduit for the products of others." The court buttressed its one-sided focus on the second part of that statement by referencing the U.S. Court of Appeals for the Second Circuit's determination in Mashantucket Pequot Tribe v. Ledyard that tribal sovereignty is not sufficient by itself to outweigh a state's interest in a generally-applicable tax on non-Indian purchases on reservations. In addition, the district court extended the Ledyard analysis – without explanation – by stating that even tribal sovereignty and economic development together are insufficient interests. This extension seems unsupported in view of the fact that Congress has explicitly found that "a principal goal of Federal Indian policy is to promote tribal economic development, tribal self-sufficiency, and strong tribal government." (25 U.S.C. §2701).

Notwithstanding the court's faulty application of the Bracker balancing test, tribal governments and their attorneys will applaud the limits the court placed on a state's ability to withhold tribal alcohol licenses based on the tribe's compliance with other state laws. The court determined that a state's insistence on tribal compliance with laws unrelated to alcohol or its potential for substantial off-reservation impacts must be reasonably necessary to further the state's interest in alcohol regulation. A state's insistence on tribal collection of an unrelated general use tax (and presumably by extension, most other taxes of general application) as a pre-condition for a finding of tribal alcohol compliance (and license issuance) will not pass muster.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.