Many Indians Exempt From State Taxes, Fees

Deron Marquez, 33, drives a Mercedes coupe valued at more than $96,000 and oversees a high-profit business that generates tens of millions of dollars a year.

State and local authorities collect no tax on the business’ profits or property, and for one of the two years he has owned his Mercedes-Benz, Marquez paid no vehicle license fee, state records show. By law, Marquez, like many Native Americans, didn’t have to do so.

As chairman of the San Manuel Band of Mission Indians, he is one of roughly 26,000 Native Americans enrolled in the 53 California tribes that own casinos. Although some have grown wealthy on gambling profits, they need not pay many taxes shouldered by other Californians.

While other motorists brace for their license fees to triple, many Indians can shrug. If lawmakers raise the sales tax, many Native Americans will be unaffected. And it would be no big deal if lawmakers raised the state income tax on the richest Californians, as Gov. Gray Davis suggested early this year.

Davis, struggling to fill the state’s $38-billion budget hole, raised the issue of taxes and tribes in January by proposing that an expansion of Indian gambling be dependent on tribes’ agreeing to give the state $1.5 billion a year.

Since then, the governor, facing a recall campaign, has reduced that request to $680 million for this fiscal year. Most tribes have resisted, so far successfully. Those sovereign groups are among the most influential interests in California, having spent more than $120 million on state politics in the last five years.

“No state tax of any kind applies to a tribe unless Congress expressly allows it,” said lawyer Art Bunce, who represents the Agua Caliente Band of Cahuilla Indians, owners of a casino in downtown Palm Springs and one off Interstate 10.

That dismays activists and local officials most affected by the traffic, noise and demands on public services that accompany casinos and the crowds they draw, as well as some Capitol denizens alarmed by the depth of the state’s financial morass.

“Major business making major money ought to be paying taxes,” said Lenny Goldberg, a lobbyist and head of the labor-backed California Tax Reform Assn., a nonprofit group that advocates higher taxes as a way to solve the state’s yawning budget gap.

Tribes’ Tradeoff

In exchange for the right to run casinos, tribes pay into two funds, with the money going to assist tribes without casinos and to help state and local governments cover casino-related costs. Some tribes are open to renegotiating their payments to the state; others denounce Davis’ effort to extract more money from them.

“The state stole our ancestral lands and now Davis wants us to pay for it?” Mark Macarro, chairman of the Pechanga Band of Mission Indians in Temecula, wrote in an e-mail to The Times shortly after Davis made his proposal. “When my tribal nation had a budget deficit before gaming, no one forced the state to step in and fill our coffers....

“We shouldn’t have to have Davis extorting revenues from tribal nations -- that is an illegal tax -- to solve his mess,” he said.

The state and local levies that tribes could pay if they were taxed are impossible to calculate. Taxing agencies don’t assess their holdings. And tribes keep their casino profits private. But there are some hints:

* Estimates of California Indian casino revenue are $5 billion to $6 billion a year, and their profit margins could be 40%, said professor William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno. Even if profits were half that amount, and if they paid corporate taxes at the state rate of 8.84%, their annual tax bill would be $88.4 million.

* Tribe members do pay income taxes to Uncle Sam. But they need not pay state income taxes if they live on a reservation, their income is generated by the reservation, and their checks come from the tribe.

* Tribes also are exempt from many smaller fees. Four tribes, for example, offer off-track wagering on horse races, but don’t pay a fee levied on 30 satellite betting establishments. That saved those tribes $1.1 million in 2002, according to the California Horse Racing Board. The fee helps support county fairs and expositions.

* Property taxes don’t apply to reservations. Some tribes have built sizable houses for their members; if the homes are on reservations, the property is not taxed. And there are no property taxes on casinos -- though there could be an exception.

In Madera County, the Chukchansi tribe and its management firm, Cascade Entertainment Group of Sacramento, built a $200-million casino-hotel on land next to their 29 tax-exempt acres. The 1,800-slot-machine casino and 192-room hotel opened last month in the Sierra foothills 30 miles from Yosemite National Park.

The Madera County assessor is seeking to appraise it, and the tribe is resisting. Given the cost of the facility, property taxes, imposed at 1% of fair market value, could exceed $1 million a year.

* Then there’s the vehicle license fee, also known as the “car tax.” In 1999, Davis signed legislation exempting tribes from the fee.

The legislation put into statute form a federal court ruling from the 1980s that excused Native Americans from such taxes, said attorney Steven McGee of the California Department of Motor Vehicles. It specifies that the vehicles be used primarily on reservation land; however, the state does not check.

“We don’t follow them around,” McGee said.

San Manuel Chairman Marquez is the registered owner of a 2001 Mercedes-Benz, valued by the DMV at $96,400. DMV records show that in 2001, he paid the basic registration fee of $45, but not the full car tax. At the time, his address was a gated community of mansions on the reservation in the hills above San Bernardino. He paid the full amount of $679 in 2002 after he moved from the reservation.

“[Marquez’s] records show that the appropriate payments have been made,” said San Manuel spokeswoman Jill Eaton, “and if there was any type of question, the matter would be taken up between the chairman and the DMV.”

At the Agua Caliente reservation in Palm Springs, vehicles using the exemption in 2001 and 2002 included two 2001 BMWs, one valued at $62,000 and the other valued at $64,600, according to DMV records.

19,478 Vehicles Exempt

At the DMV’s last count, the Indian exemption was used on 19,478 cars, trucks, trailers and motorcycles. The number has soared in the last decade. According to the DMV, the number of autos exempted had grown to 15,289 at the end of 2002, up from 10,420 five years earlier and 5,676 at the end of 1992.

* California’s most ubiquitous levy is the sales tax. But tribe members generally can avoid it by making purchases on reservations. In recent years, tribes have won new exemptions to the sales tax.

The Agua Caliente in Palm Springs sued to block the state from collecting sales taxes on restaurant food and beverages sold on their reservation. A federal judge in Los Angeles sided with the tribe, and the state Board of Equalization, which oversees state sales taxes, dropped the matter in 2001.

That year, when there were 45 tribal casinos in California, the Board of Equalization estimated restaurant and bar sales on reservations to be $200 million annually. Sales taxes would have been about $16 million. The board staff estimated that tribes passed along less than $3 million on restaurant and bar sales.

The sales tax exemption also applies to the material used to build $1.5 billion worth of new casinos since 2000. That was the year voters approved the state constitutional amendment authorizing the casinos.

Construction costs at Thunder Valley, in suburban Sacramento, exceeded $200 million, a figure that represents everything from labor to Sheetrock, tiles and slot machines. The once-impoverished United Auburn Indian Community owns the casino. Station Casinos Inc. of Las Vegas financed and operates it.

Non-Indian owners would have had to pay $2 million in sales taxes on its 1,900 slot machines, which cost an average of $15,000 each; the tribe didn’t. Nor did it have to pay roughly $42,000 in sales taxes on 2,000 ergonomically correct slot machine chairs, purchased at $275 each. And it was not subject to nearly $21,000 in taxes on two limousines costing $75,000 and $85,000, or on a $110,000 luxury bus, which will be used to chauffeur gamblers to Thunder Valley.

The Board of Equalization is considering extending the sales tax exemption to some other goods sold on reservations, despite protests from counties, which receive sales tax money. The California State Assn. of Counties protested in a recent letter to the board that such policies are establishing “sales tax sanctuaries that have the potential to expand over time.”

Steve Peace, Davis’ finance director, described himself as a “big believer in Indian sovereignty.” But he said questions about the money that tribes pay and don’t pay to state and local government could fuel a public backlash eventually.

“I guarantee you,” he said, “that there aren’t 50 Californians who know that not only is all this money being made but it is protected from the same tax treatment that everyone else is being subjected to.”

Sacramento attorney Howard Dickstein, who represents the United Auburn and several other tribes, said he has been negotiating with the Davis administration on the issue of payments to the state. But talks have been moving slowly.

Dickstein said he counsels his clients to “recognize that different governments and their constituencies have legitimate interests, and need to be accommodated.”

“Some of the tribes have no problem paying their fair share,” Dickstein said. “Politically, the tribes I represent think it is in their long-term best interest.”

Eleven tribes have agreements with local governments to make payments to help defray gambling-related costs. They will make annual payments of $11.9 million to counties, and already have made $17.6 million in one-time payments for road improvements, according to the counties association.

The United Auburn have such an agreement. They will pay Placer County about $4 million a year, and have spent about $15 million on road improvements, Dickstein said.

The Rumsey Band of Wintun Indians, planning to more than double the size of its casino-resort in the otherwise rural Capay Valley west of Sacramento, agreed to pay Yolo County $100 million over the next 18 years. In exchange, the Board of Supervisors dropped its opposition to the expansion.

To counter the perception that Indians are not paying their share, the San Manuel Band is broadcasting ads detailing its charitable largess.

Donations Criticized

Critics say donations aren’t the same as taxes: Donations generally are used for popular programs and causes; taxes pay for less glamorous services such as welfare or care for the mentally ill or sewage plants.

“All big companies make donations. So?” said San Bernardino City Councilman Neil Derry, who is battling the San Manuel over their plan to expand their casino in a residential neighborhood. “It’s like scraps from the table.... Our police and fire departments have to answer calls there all the time. There is no way any of the payments cover that.”

Increasingly, tribes’ tax-exempt status weighs on cities and counties, local officials say.

An example is Palm Springs, where the Agua Caliente operate the Spa Hotel and Casino in the heart of downtown.

The tribe is building a new hotel-casino across from the spa and, unlike other developers, did not have to pay the city $47,000 for a building permit. Nor was it obliged to pay the $47,000 city construction tax or the $3,000 state fee used to map earthquake faults, city officials say.

The tribe saves $45,000 a year by not paying the city’s 5% utility users tax. And earlier this year, the tribe announced that it would cease paying the city’s 12.5% hotel occupancy tax.

Attorney Bunce said the tribe makes up for such sums by donating more than $1 million a year to charities and to the city. Some city firetrucks, for example, bear Agua Caliente logos as a thank-you for the help with Fire Department costs.

“Overall, the city comes out ahead,” Bunce said.

Palm Springs Mayor William G. Kleindienst said he respects the tribe’s sovereign status and he acknowledges that the city has no power over the tribe. But he also called the casino’s tax status a “funny game.”

“It’s a business,” Kleindienst said in an interview in his office. “It’s a non-taxpaying business.”