[00:00:02] Speaker 02:
Mr. Narvaez, right?

[00:00:04] Speaker 03:
Narvaez, your honor.

[00:00:06] Speaker 03:
May it please the court.

[00:00:08] Speaker 03:
Gregory Narvaez for the appellant, Mr. Rose.

[00:00:11] Speaker 03:
If I could, I'd like to reserve two.

[00:00:12] Speaker 03:
You represent Azuma as well, right?

[00:00:15] Speaker 03:
Your honor, Azuma has been dismissed from the litigation.

[00:00:19] Speaker 03:
And so this is one of the wrinkles in the litigation.

[00:00:22] Speaker 03:
I didn't intend to get to that heavily today.

[00:00:26] Speaker 03:
But I'm happy to go there if those questions come up during the argument.

[00:00:29] Speaker 03:
I'd like to reserve two minutes for rebuttal, please.

[00:00:31] Speaker 03:
Keep your eye on the clock.

[00:00:33] Speaker 03:
Your honors, the district court abused its discretion in entering the preliminary injunction because it applied the law incorrectly.

[00:00:40] Speaker 03:
And it did so in two main ways today that I would like to highlight.

[00:00:44] Speaker 03:
First, it entered the preliminary injunction under a provision of the PACT Act that has no application on this record.

[00:00:52] Speaker 03:
Applying that provision, the district court failed to apply the required legal test to determine whether Azuma's downstream customers, the tribal retailers, are lawfully operating.

[00:01:07] Speaker 03:
And the reason that we are focused on the downstream customers in this particular case is because the PAC Act is downstream focused.

[00:01:17] Speaker 03:
So to the first point, Section 376A E2A has no application.

[00:01:23] Speaker 03:
And this much is clear from the plain language of the statute.

[00:01:27] Speaker 03:
The statute provides that two categories of persons shall not engage in any delivery-related conduct for an entity listed on the list.

[00:01:38] Speaker 03:
The natural reading of that is that it's not the person on the list,

[00:01:43] Speaker 03:
who may not deliver, but it's third parties who may not deliver.

[00:01:47] Speaker 03:
Now, the district court didn't engage with the text, and so it's difficult to really understand its interpretation.

[00:01:54] Speaker 02:
Council, forgive me.

[00:01:55] Speaker 02:
I know you said that Azuma has been dismissed from litigation.

[00:02:00] Speaker 02:
That's the guts of the case.

[00:02:02] Speaker 02:
When did this happen?

[00:02:04] Speaker 02:
I have no record of it being dismissed from the case.

[00:02:07] Speaker 03:
When did that happen, and who did it?

[00:02:12] Speaker 03:
on a motion to dismiss, Azuma's motion to dismiss based on sovereign immunity.

[00:02:16] Speaker 03:
And so this is a- And that was granted?

[00:02:19] Speaker 03:
That was granted as to Azuma Corporation.

[00:02:21] Speaker 03:
And the reasoning was this.

[00:02:23] Speaker 03:
So the court's position and the state's position will be is that the district court is still nonetheless reaching Azuma by enjoining Mr. Rose as an official of the tribe.

[00:02:35] Speaker 01:
It's kind of an ex parte young fiction.

[00:02:37] Speaker 01:
It's ex parte young.

[00:02:38] Speaker 01:
If you enjoin Mr. Rose, who would be doing this on behalf of

[00:02:42] Speaker 01:
the tribe, you are in joining the corporation from doing the deliveries under the package.

[00:02:49] Speaker 03:
Yes, it is under Ex parte Young, but there is an additional wrinkle there, an error that I believe is glaring.

[00:02:56] Speaker 04:
Council, before you get to that, and I'm fine with your bringing that up,

[00:03:01] Speaker 04:
I have a different question, different area.

[00:03:06] Speaker 04:
And the first issue you were talking about a couple of minutes ago is we're looking at de novo as a matter of statutory interpretation.

[00:03:12] Speaker 04:
That's correct, John.

[00:03:13] Speaker 04:
Yes.

[00:03:15] Speaker 04:
And if we were for some reason to decide the district court got it wrong, then that's probably legal error.

[00:03:20] Speaker 04:
But if we disagree with you, then it isn't.

[00:03:24] Speaker 04:
I think that's correct.

[00:03:25] Speaker 04:
Okay, so here's my question.

[00:03:29] Speaker 04:
There's been a lot of focus here on the retailers qua retailers.

[00:03:36] Speaker 04:
and the test over them.

[00:03:41] Speaker 04:
California makes an argument at page 21 of its brief, Azuma holds no license under the Licensing Act.

[00:03:51] Speaker 04:
Accordingly, whether or not any particular customer

[00:03:55] Speaker 04:
of Azuma's is licensed or unlicensed.

[00:03:59] Speaker 04:
Azuma's lack of its own license means that none of Azuma's customers are lawfully engaged in the cigarette business.

[00:04:06] Speaker 04:
As I read California law that you can't buy cigarettes from an unlicensed manufacturer or distributor.

[00:04:15] Speaker 04:
There's no dispute Azuma had no such license, right, from California?

[00:04:19] Speaker 04:
That's correct, Your Honor.

[00:04:20] Speaker 04:
So, according to California, all of the retailers

[00:04:25] Speaker 04:
are violating the law, not operating lawfully, and so are consumers under the PACT Act because they're buying from somebody who isn't licensed, which is different than they're selling and unlicensed.

[00:04:43] Speaker 04:
First of all, why is California right that because the retailers are buying from unlicensed manufacturer distributor, they are a consumer under the PACT Act?

[00:04:59] Speaker 03:
For two reasons, your honor.

[00:05:00] Speaker 03:
First is that California law has a carve out under the licensing act that provides that on reservation, well,

[00:05:11] Speaker 03:
The legislative history says on reservation, tribal retailers may buy from anyone without a license and are not required to have a license themselves.

[00:05:20] Speaker 03:
And so that's a matter of state law.

[00:05:22] Speaker 03:
And what that does, I think, is it's a recognition of federal law principles.

[00:05:28] Speaker 03:
And so in your honor's scenario there, and the issue with the state's argument is,

[00:05:36] Speaker 03:
The state's argument, essentially the fruit of the poisonous tree, that by buying from Azuma, who doesn't have a license, it's operating unlawfully, assumes, well, it begs the question, what law applies on reservation to the tribal retailers

[00:05:51] Speaker 03:
So that causes their purchase to be unlawful.

[00:05:54] Speaker 04:
So in your view, for example, and I'm going to give you a hypothetical that what your argument is, is the same whether the tribal retailers are buying cigarettes from Azuma or buying cigarettes from Jimmy who's making them in his basement.

[00:06:10] Speaker 03:
Well, Jimmy, who's making him in his basement, Your Honor, likely isn't complying with the FDA requirements associated with cigarettes.

[00:06:17] Speaker 04:
But I'm talking about California law.

[00:06:19] Speaker 04:
California law, your client putting aside federal law.

[00:06:26] Speaker 04:
Under state law, your client, California can't regulate the retailers who are selling to other people, buying them from somebody who's making cigarettes in their basement.

[00:06:38] Speaker 03:
Your honor, no, my position is not that it can't regulate.

[00:06:42] Speaker 03:
My position is that to determine whether it can regulate, there's a legal test that's established.

[00:06:50] Speaker 03:
And the district court failed to conduct the test.

[00:06:54] Speaker 01:
Is that the Bracker test?

[00:06:56] Speaker 03:
Well, the tests are laid out in this case, your honor.

[00:07:02] Speaker 03:
Well, the cases lay out a framework, okay?

[00:07:04] Speaker 03:
And Big Sandy lays this out.

[00:07:06] Speaker 03:
If the state's regulating an Indian on his reservation, state law is generally inapplicable.

[00:07:12] Speaker 03:
The district court acknowledged that, okay?

[00:07:15] Speaker 03:
But you can move beyond that.

[00:07:17] Speaker 03:
And you can move, there's a minimal burden test.

[00:07:21] Speaker 03:
But the minimal burden test, if you read it through the case law, says the state can apply minimal burdens on on-reservation retailers, right?

[00:07:29] Speaker 03:
This is an exception that's been carved out from the general presumption that state law does not apply.

[00:07:34] Speaker 03:
But the minimal burden test has to be attached, and the state acknowledges this in its brief, that it has to be attached to a valid tax.

[00:07:43] Speaker 01:
Why doesn't the Big Sandy case control here?

[00:07:45] Speaker 01:
Because we have

[00:07:49] Speaker 01:
inter-tribal sales and then on reservation sales to non-members.

[00:07:57] Speaker 01:
Why isn't that all controlled by Big Sandy?

[00:07:59] Speaker 01:
How would you distinguish it?

[00:08:00] Speaker 01:
Is it just, oh, go ahead.

[00:08:02] Speaker 03:
Big Sandy is very helpful in that it lays out the applicable tests.

[00:08:06] Speaker 03:
And the takeaway from Big Sandy is that the court's test depends on the who and the where.

[00:08:13] Speaker 03:
of what the state is seeking to regulate.

[00:08:16] Speaker 01:
What are the differences on taking each?

[00:08:19] Speaker 01:
What are the who and where differences between Big Sandy in this case?

[00:08:24] Speaker 03:
I'm glad you asked that.

[00:08:26] Speaker 03:
The who in Big Sandy was an Indian that left its reservation, was a tribal corporation.

[00:08:35] Speaker 03:
Where?

[00:08:35] Speaker 03:
Off the reservation.

[00:08:38] Speaker 03:
in the middle of San Francisco.

[00:08:40] Speaker 03:
And the question there, the court said, well, when you're an Indian and once you leave your reservation, state law generally, you're subject to state laws of general application.

[00:08:50] Speaker 03:
And so if you look at Big Sandy, what it said is it said, this corporation is leaving its reservation, so that's the where, it's subject to state laws of general application, and so state law applies to Big Sandy.

[00:09:06] Speaker 03:
Here, we are, as the PACT Act requires, we're looking downstream to an Indian on its reservation.

[00:09:16] Speaker 03:
And so we gotta formulate the test.

[00:09:19] Speaker 03:
And the district court, it started down the path.

[00:09:22] Speaker 03:
It said, look, when the state's regulating on reservation, generally inapplicable, but then it went to minimal burden.

[00:09:28] Speaker 03:
But to get to minimal burden,

[00:09:31] Speaker 03:
You have to have a valid tax.

[00:09:33] Speaker 03:
To determine whether there's a valid tax, you have to engage in BRACOR.

[00:09:38] Speaker 03:
And here, that's where the district court went awry.

[00:09:41] Speaker 03:
It never engaged in Bracker.

[00:09:43] Speaker 01:
And so the- Well, what level, I guess, because there are pre-Bracker cases, and Moe, and there are cases from our court and others that suggest that it is not a sufficient intrusion into tribal sovereignty for a state to tax the sale of cigarettes.

[00:10:05] Speaker 01:
to non-members, even when it's on the reservation.

[00:10:09] Speaker 01:
So why isn't that this case?

[00:10:12] Speaker 01:
What's missing?

[00:10:13] Speaker 03:
Glad you asked that question.

[00:10:17] Speaker 03:
From the cases, and it starts in Colville, and it's reiterated in, it's laid out in Millhelm, and you can,

[00:10:27] Speaker 03:
And this was what was at issue in Chemowave.

[00:10:29] Speaker 03:
Where's the legal incidents?

[00:10:31] Speaker 03:
And in Chemowave, they said, yes, in California's tax scheme, the legal incidents is not on the non-Indian.

[00:10:36] Speaker 03:
But there's an additional sub area of that in the case law.

[00:10:41] Speaker 03:
And that's where the non-Indian is coming on the reservation and due to value added on the reservation.

[00:10:48] Speaker 01:
OK, so that's where I thought you were going to go.

[00:10:53] Speaker 01:
So I guess looking at the Ferris declaration and others, so your client is selling

[00:11:01] Speaker 01:
to tribal retailers where it's established, doesn't seem to be disputed, that most of them are not located within tribal gaming or other enterprises that might bring it within that value added piece.

[00:11:17] Speaker 01:
Most of them are in gas stations or far away or not co-located with casinos.

[00:11:22] Speaker 01:
Only a minority are actually part of casinos.

[00:11:25] Speaker 01:
Is that your value added argument that somehow that distinguishes the typical kind of sale to non-members that seems to be covered by these cases?

[00:11:37] Speaker 03:
And I think most are in tribal establishments or tribal casinos or near tribal casinos.

[00:11:42] Speaker 01:
But tribal establishments doesn't seem to distinguish it because I think a smoke shop without additional factors that was owned by tribal members and selling to non-members would be covered.

[00:11:53] Speaker 01:
So you need to show something else, some other form of value added to, I believe, all of these casinos or, I'm sorry, all of these retailers in order to evade the PACT Act.

[00:12:05] Speaker 01:
Do you not?

[00:12:06] Speaker 03:
And the value added, I would highlight, Your Honor, is an interest to be taken into consideration as part of bracker balancing.

[00:12:15] Speaker 01:
The value added by what?

[00:12:17] Speaker 01:
Because under the cases, can it be the value added from selling cigarettes to non-members?

[00:12:22] Speaker 01:
I think that's already covered.

[00:12:23] Speaker 03:
Well, the value added can be on reservation developments, economies that tribes have invested in.

[00:12:29] Speaker 03:
Here, tribes have invested millions of dollars, in some cases in fuel stations that complement casinos, that complement hotels, right?

[00:12:37] Speaker 03:
They're attracting people to their reservation.

[00:12:39] Speaker 03:
The draw and the issue that was in Colville is what the court found there is that, hey, the only reason these people wouldn't otherwise come to your reservation.

[00:12:49] Speaker 03:
The only reason they're coming here is they can buy Marlboros short of the state tax.

[00:12:55] Speaker 04:
And so I want to go back to your answer to one of my questions.

[00:12:58] Speaker 04:
I think I heard you say that California law says retailers on tribes don't need to buy from a licensed person.

[00:13:09] Speaker 04:
Is that what you said?

[00:13:10] Speaker 04:
It's under the Licensing Act.

[00:13:13] Speaker 04:
And are you referencing 22980.1b2?

[00:13:20] Speaker 03:
Yes.

[00:13:20] Speaker 03:
And the statute does not say that.

[00:13:23] Speaker 03:
But if you look in the legislative history.

[00:13:25] Speaker 04:
I just wanted to make sure that I was looking at the section that you, or subsection, that you were referencing.

[00:13:32] Speaker 04:
Do you want to save your time?

[00:13:33] Speaker 03:
Yeah, and I want to save my time.

[00:13:34] Speaker 03:
That's under the Licensing Act of 03.

[00:13:36] Speaker 03:
We also have the Tax Act, which I'm sure my friend from the other side will discuss.

[00:13:39] Speaker 03:
Well.

[00:13:40] Speaker 03:
I'll reserve.

[00:13:43] Speaker 02:
All right.

[00:13:44] Speaker 02:
So Mr. Nussensee.

[00:13:51] Speaker 00:
Good morning, and may it please the court.

[00:13:52] Speaker 00:
Peter Nussensee on behalf of the state of California.

[00:13:56] Speaker 00:
I think it's important to start with what's not in dispute here.

[00:14:00] Speaker 00:
Rose doesn't dispute that Azuma's on the PACT Act non-compliant list.

[00:14:04] Speaker 00:
He doesn't dispute that he delivers cigarettes or causes cigarettes to be delivered on Azuma's behalf.

[00:14:10] Speaker 00:
And he doesn't dispute that neither Azuma nor its customers comply with state law.

[00:14:15] Speaker 00:
Instead, he just makes some unconvincing technical arguments to avoid the clear weight of the law.

[00:14:21] Speaker 00:
Those arguments should be rejected.

[00:14:24] Speaker 01:
Well, I guess, Mr. Nissense, if we're talking about the Brackard test, the matter of tribal sovereignty and the protection of that under these cases and under federal law, it's not a mere technicality.

[00:14:36] Speaker 01:
I guess we're maybe talking about the application of it, but what's your response to

[00:14:40] Speaker 01:
That question about the incidence of it, how do you think our cases control the sale of cigarettes on a reservation to non-members with respect to the value-added arguments that your friend makes?

[00:14:56] Speaker 00:
Sure.

[00:14:59] Speaker 00:
In order for minimal burdens to attach, there has to be a valid tax applied.

[00:15:04] Speaker 00:
Chemawavy found that the California tax was validly applied to non-members.

[00:15:09] Speaker 00:
And so that first step is accomplished, and now minimal burdens can attach.

[00:15:15] Speaker 00:
And then there has been decades of Supreme Court precedent outlining the contours of what those permissible minimal burdens are, and then followed by the panel in Big Sandy applying those decades of precedent to the California law in particular and found them to be minimal burdens.

[00:15:34] Speaker 00:
I think what's also important is that those minimal burdens attach regardless of whether any particular Indian retailer's sales are in fact taxable.

[00:15:45] Speaker 00:
As the court in Big Sandy said, minimal burdens may be imposed on Indian businesses that report to engage only in tax-exempt transactions.

[00:15:54] Speaker 00:
So my friend on the other side has a couple of theories for why perhaps some of Azuma's customers

[00:16:00] Speaker 00:
might be able to sell tax-exempt cigarettes to non-members, but that doesn't bring them out of the minimal burdens test.

[00:16:09] Speaker 00:
And if you look at Supreme Court precedent, starting with Colville, in Colville, the district court looked at the minimal burdens and said, yes, state, you can apply the minimal burdens to taxable sales, but not to untax sales.

[00:16:24] Speaker 04:
So counsel?

[00:16:26] Speaker 04:
In the state's view, is the balancing and the calculus any different?

[00:16:34] Speaker 04:
Because here, not only are they unlicensed to sell, but they are also buying from unlicensed sellers.

[00:16:44] Speaker 04:
Does that affect the record test or the burdens?

[00:16:50] Speaker 00:
No, Your Honor.

[00:16:51] Speaker 00:
I don't think it changes the burdens.

[00:16:53] Speaker 00:
I think to continue sort of along the legacy of the minimal burdens test, in Colville, as I said, the district court said, no, you can't apply it to untaxed sales.

[00:17:05] Speaker 00:
And the Supreme Court reversed.

[00:17:07] Speaker 00:
And then you have Milhelm in 95, some 15 years later or something, saying, you can apply minimal burdens only to untaxed sales.

[00:17:18] Speaker 00:
Here, the cigarettes are undoubtedly untaxed, and so the minimal burdens apply regardless of the particular... My friend on the other side would prefer that the Bracketax test be applied to each individual sale and determine whether the tax can particularly attach to that

[00:17:39] Speaker 00:
sail before those minimal burns attach, but that's not the case law.

[00:17:43] Speaker 01:
Well, yeah, I guess I think that frames it well.

[00:17:48] Speaker 01:
How particularized is the particularized inquiry that we should do?

[00:17:53] Speaker 01:
So I think the state's position is that that question is answered.

[00:17:58] Speaker 01:
I think with Gila River, the Eighth Circuit case, there is this separate line of cases and Big Sandy relays the test that you have value created here in a way that's distinguishable.

[00:18:15] Speaker 01:
I guess, setting aside the question of, I guess that raises two questions.

[00:18:20] Speaker 01:
First, we do have, I think, undisputed some casino-based retailers in the record.

[00:18:29] Speaker 01:
And so there's one question about whether that changes.

[00:18:31] Speaker 01:
That requires a separate, particularized inquiry under the cases.

[00:18:35] Speaker 01:
But I guess then there's a separate question over

[00:18:38] Speaker 01:
whether that changes the overall analysis if the company is selling mostly to standard smoke shops that are not tied to that value creation.

[00:18:51] Speaker 01:
As to the first question, should that change the analysis if the cigarettes are part of the value added created by these tribal enterprises as we've seen in Gila River and elsewhere?

[00:19:01] Speaker 00:
No, Your Honor, and I think that the Eighth Circuit case of Flandreau illustrates this point pretty well.

[00:19:08] Speaker 00:
In Flandreau, the tribe there was, there were two alcohol outlets on the tribe's land.

[00:19:17] Speaker 00:
One was in the casino and one was not.

[00:19:21] Speaker 00:
And the, one in the casino, well both of them,

[00:19:24] Speaker 00:
did not pay taxes on the alcohol sales claiming they were exempt.

[00:19:28] Speaker 00:
And so the state revoked their licenses.

[00:19:31] Speaker 00:
The tribe then sued to get the state to give them back their licenses.

[00:19:38] Speaker 00:
And so what's different here is that my friend on the other side is not arguing these are tax exempt.

[00:19:47] Speaker 00:
He is arguing that these are tax exempt and therefore state, you don't get to see what's going on here.

[00:19:53] Speaker 00:
You don't get to get your reporting.

[00:19:55] Speaker 00:
You don't get to see, you know, you don't have to, we don't have to be licensed at all.

[00:20:00] Speaker 00:
We don't have to make reports of exactly where they're being made, where the sales are being made.

[00:20:05] Speaker 00:
The California regime is designed to look into the transactions and collect tax when and only when the tax is owed.

[00:20:13] Speaker 00:
As I said before, those minimal burdens apply whether or not the tax is actually owed.

[00:20:22] Speaker 00:
The Supreme Court has already done the Bracker analysis here.

[00:20:26] Speaker 00:
And the regime applies, again, regardless of whether the sales might be untaxed.

[00:20:33] Speaker 00:
So even if this court would agree with Flandreau that those sales are non-taxable, the state still has the right to be able to look and get reports from the tribe saying, we sold X number of cigarettes to non-members at our casino, and they were not taxed.

[00:20:52] Speaker 02:
Council, I want to get, for a moment, get back to the state law aspect of it.

[00:20:56] Speaker 02:
As I read the licensing act, I'm not sure that it's clear that retailers on Indian reservations are required to hold a license under that act.

[00:21:08] Speaker 02:
What's your best argument that state law requires that they have such a license?

[00:21:13] Speaker 00:
Well, there are two relevant licenses.

[00:21:15] Speaker 00:
There's the

[00:21:17] Speaker 00:
There's the licensing act, which applies to retailers, wholesalers, distributors, manufacturers, up and down the chain.

[00:21:25] Speaker 00:
And then there's the older tax act, which has its own license that applies only to distributors.

[00:21:33] Speaker 00:
The district court relied on the tax act, but both apply here.

[00:21:38] Speaker 00:
So first for the licensing act,

[00:21:42] Speaker 00:
My friend on the other side likes to reference the legislative analyst view of the law.

[00:21:48] Speaker 00:
But if you look at the text of the statute itself, it makes clear that the licensing requirement goes as far as the state has authority to impose it.

[00:21:59] Speaker 02:
It doesn't... So that gets back to the federal record kind of.

[00:22:03] Speaker 00:
Exactly, Your Honor.

[00:22:05] Speaker 00:
And in Milhelm, the Supreme Court made clear that more onerous requirements than the California licensing regime can be placed on tribal retailers.

[00:22:15] Speaker 00:
There, the tribal retailers had to have a certificate of exemption.

[00:22:21] Speaker 00:
They could only purchase from licensed distributors.

[00:22:24] Speaker 00:
And more than that, the individual consumers had to have a certificate of individual Indian exemption.

[00:22:30] Speaker 00:
So the panel in Big Sandy,

[00:22:32] Speaker 00:
looked at that and said, okay, well, California's regime is less burdensome than that.

[00:22:38] Speaker 00:
If the Supreme Court says that that's a minimal burden, then this necessarily is a minimal burden.

[00:22:42] Speaker 02:
So to encapsulate what I'm understanding you to say, the licensing act says

[00:22:50] Speaker 02:
the state can impose it to the degree permitted constitutionally.

[00:22:53] Speaker 00:
Correct.

[00:22:53] Speaker 02:
And then we get the Bracker analysis.

[00:22:55] Speaker 02:
So basically, you don't know from looking at the act itself clearly what's covered.

[00:23:00] Speaker 02:
We have to go through the constitutional analysis.

[00:23:02] Speaker 02:
If we conclude that it can be done, then it applies.

[00:23:05] Speaker 02:
If it can't be done, then there is no tax.

[00:23:08] Speaker 02:
Is that right?

[00:23:10] Speaker 00:
Well, it's a license.

[00:23:12] Speaker 00:
The taxes is a different question.

[00:23:14] Speaker 00:
Well, yeah.

[00:23:15] Speaker 00:
I should have said license.

[00:23:17] Speaker 00:
And I think also looking to the legislative analysis, first, the legislative analysis just got the law wrong.

[00:23:26] Speaker 00:
But even assuming that they got the law right, if you go on to the next sentence, it's very clear that what they're concerned with

[00:23:32] Speaker 00:
is being able, not for retailers to be able to purchase or to not hold a license, but it was that licensed distributors would not be penalized for selling to people that would otherwise be unlicensable.

[00:23:47] Speaker 00:
So if you have a military base that has a store and the distributor sells to them and that's preempted for the store on the military base to have a license,

[00:23:56] Speaker 00:
the state didn't want to penalize the licensed distributor for making that sale.

[00:24:00] Speaker 00:
And that comports with the text of the statute, where that carve-out is specifically for distributors.

[00:24:07] Speaker 00:
And that, again, makes sense based off of the California scheme, where distributors are at the center of it.

[00:24:13] Speaker 00:
They're the ones who collect the taxes.

[00:24:15] Speaker 00:
They apply the tax stamps.

[00:24:17] Speaker 00:
Although everybody in the chain has record-keeping requirements, distributors are the ones that are required to make monthly reports

[00:24:24] Speaker 00:
to the state of all their distribution, taxed and untaxed.

[00:24:28] Speaker 00:
And that goes back to the district court's opinion, which focused on that.

[00:24:36] Speaker 00:
Chemuwevi makes it clear that retailers have the, or Indian businesses located on the reservation

[00:24:45] Speaker 00:
have the duty to collect and remit tax to the state when and only when it's owed.

[00:24:50] Speaker 00:
And the only method that the, well, the method that the state has created for those taxes to be collected and remitted is the Tax Act distributor license.

[00:25:01] Speaker 00:
So even if the licensing act doesn't apply, nobody in this chain has a distributor's license.

[00:25:11] Speaker 00:
Nobody is making the reports to the state saying,

[00:25:14] Speaker 00:
these many are taxed, these many are untaxed.

[00:25:20] Speaker 00:
Again, my friend on the other side has some theories for why perhaps more cigarettes might be untaxed than the state would agree, but all the state is requiring here is

[00:25:32] Speaker 00:
for them to be within the license change and to make those reports to the state of what is taxed and untaxed, and if there's a dispute, that's where the dispute happens about taxability.

[00:25:44] Speaker 02:
From California's perspective, even arguing, though, if a license is required, there's no constitutional limitation that you're aware of that would, if you will, prohibit or limit your requirement that they report

[00:25:59] Speaker 02:
Sales, right?

[00:26:00] Speaker 00:
Correct.

[00:26:01] Speaker 00:
And I think Milhelm and Colville and Big Sandy make it clear that those are all permissible burdens.

[00:26:06] Speaker 00:
And they're not doing that now?

[00:26:07] Speaker 00:
Correct.

[00:26:08] Speaker 00:
And I think it's important to focus a bit.

[00:26:11] Speaker 01:
Why doesn't that turn on whether the tax is valid?

[00:26:14] Speaker 00:
Well, it depends on whether the tax is valid, not whether it is owed.

[00:26:18] Speaker 00:
So the tax is valid.

[00:26:20] Speaker 00:
It is properly applied.

[00:26:22] Speaker 00:
It is not categorically barred as a tax on Indians in their own reservation.

[00:26:28] Speaker 00:
it can apply on occasion, so it is a valid tax.

[00:26:32] Speaker 01:
Or on the value of tribal enterprises that are supporting tribal sovereignty.

[00:26:37] Speaker 00:
That could prevent the tax from being owed, but that's not a categorical, this could never apply, so therefore the state does not need to look into your- What does the particularized part of the particularized industry mean then?

[00:26:49] Speaker 01:
Inquiry, right, that we're supposed to be doing.

[00:26:53] Speaker 00:
I'm not sure I follow the question.

[00:26:56] Speaker 00:
There's a particularized inquiry as to specific categories of transactions, but that's separate from whether minimal burdens attach.

[00:27:10] Speaker 01:
Great.

[00:27:10] Speaker 01:
Well, isn't it upstream of it?

[00:27:14] Speaker 01:
Only if the tax is valid and isn't either federally preempted or interfere with tribal sovereignty can the state impose the minimal burdens that you're discussing.

[00:27:25] Speaker 00:
Well, I think that's framed slightly incorrectly, Your Honor.

[00:27:32] Speaker 00:
And I think, for example, if a tribal retailer were to sell only to its own members on the reservation, that is clearly under the Brackertest preempted.

[00:27:46] Speaker 00:
those are not taxable.

[00:27:48] Speaker 00:
The tax is still valid and it still allows for the state to impose minimal burdens because the state has the authority to actually get those reports of those transactions, see them and say, yes, these were all untaxable sales, carry on.

[00:28:06] Speaker 00:
That's exactly what the Supreme Court reached in Colville and Milhelm where, again,

[00:28:14] Speaker 00:
Even if you purport to engage only in tax-exempt sales, the minimal burdens still apply to ensure that that is true.

[00:28:25] Speaker 00:
Just because one tribe might have a casino and make sales at a casino, and maybe that would be preempted, that doesn't mean that the state just has to take the tribe's word for it.

[00:28:40] Speaker 00:
you know, they need to report to the state, we made X amount of sales.

[00:28:45] Speaker 00:
This is where they took place so that we don't have this, you know, so that the tribe actually gets the benefit of the tax exemption that it's entitled to and no more.

[00:28:57] Speaker 02:
Your time is up.

[00:28:58] Speaker 02:
Let me ask my colleagues whether or not they have a question.

[00:29:00] Speaker 02:
Thank you very much, Council.

[00:29:01] Speaker 00:
Thank you.

[00:29:02] Speaker 02:
You have some rebuttal time.

[00:29:07] Speaker 03:
Your Honors, thank you briefly.

[00:29:09] Speaker 03:
Judge, you're hitting the issue on the head.

[00:29:12] Speaker 03:
The state and the district court got to minimal burdens before they got to the tax.

[00:29:16] Speaker 03:
And I will also go back to 376A, E2A.

[00:29:20] Speaker 03:
had the state moved under subsection D, so that's 376 A.D., that subsection governs deliveries by delivery sellers, and part of the elements of that subsection are that the state tax

[00:29:41] Speaker 03:
have to be paid, applicable state taxes, and applicable stamps have to be affixed.

[00:29:46] Speaker 03:
So had the state moved under the correct provision of the PACT Act, the district court would have before it these precise issues.

[00:29:55] Speaker 02:
So is it your position that, notwithstanding the minimal burden context, that unless there's a valid tax, there can't be a requirement for a report?

[00:30:05] Speaker 02:
Is that right?

[00:30:06] Speaker 03:
The licensing scheme has to be attached to a valid tax.

[00:30:09] Speaker 03:
You're hitting it.

[00:30:10] Speaker 03:
And the licensing scheme has the reporting and that sort of thing.

[00:30:13] Speaker 03:
But the state concedes as much.

[00:30:16] Speaker 03:
But then when you get to the question of where's the valid tax, they want to point back to Chemowave.

[00:30:21] Speaker 03:
All of these distinguishable cases.

[00:30:23] Speaker 03:
We're talking here about, as Your Honor has hit and understand, is the value added piece.

[00:30:29] Speaker 03:
What value is on this?

[00:30:31] Speaker 03:
What's the weight of that interest vis-a-vis the state interest in that case?

[00:30:34] Speaker 01:
So this comes to us on a preliminary injunction.

[00:30:36] Speaker 01:
And we don't have the tribal retailers

[00:30:40] Speaker 01:
here, and without getting into the merits of that determination, isn't it enough for California to find that your client falls under the PACT Act if they can establish that some of the sales are clearly controlled by these earlier balancing tests?

[00:30:59] Speaker 01:
Or do you believe you've established clearly that you win on the value proposition side of these things?

[00:31:08] Speaker 03:
I think the issue has to at least be raised and addressed.

[00:31:12] Speaker 01:
Why can't that be on the merits, given what's the limited record before us, excluding the retailers on a preliminary injunction?

[00:31:21] Speaker 03:
Because that inquiry would not be, first of all, it would be done in the abstract, because we're under a different provision of the PACT Act, right?

[00:31:31] Speaker 03:
We're dealing with one that

[00:31:33] Speaker 03:
in the first instance doesn't get to value added.

[00:31:37] Speaker 01:
OK, but on the validity part of it, all we have is a list that the fact that some of these sales go to tribal casinos and that others of them go to smoke shops on reservation that seem to primarily sell to nonmembers.

[00:31:53] Speaker 03:
And the interests, Your Honor, are in addition to, I think, the locale of the resale.

[00:32:00] Speaker 03:
These are all individual tribes that regulate and license these entities on the reservations, have their own respective interests.

[00:32:07] Speaker 03:
And I think we'd run headlong into Rule 19 issues were the court to just weigh those interests based on the limited record before us, which I should note was primarily in a declaration by Azuma's compliance director who goes out and vets these tribes before engaging with them.

[00:32:23] Speaker 03:
So, we would be, I think, not doing right by the tribal retailers to be here and express their own interests in maintaining these streams of commerce.

[00:32:34] Speaker 02:
Okay.

[00:32:35] Speaker 02:
Other questions from my colleagues?

[00:32:36] Speaker 02:
Thanks to both counsel.

[00:32:37] Speaker 02:
Your arguments have been very helpful.

[00:32:38] Speaker 02:
We thank you.

[00:32:40] Speaker 02:
The case just argued is submitted.