Herzog Bros. Trucking, Inc. v. State Tax Commission, 69 N.Y.2d 536 (1987)

Federal law preempts state tax laws that impose burdens on Indian traders engaged in trade with Indians on reservations, even if the legal incidence of the tax falls on non-Indian consumers.

Summary

Herzog Bros. Trucking, Inc., a Pennsylvania corporation, challenged New York State’s attempt to impose motor fuel and sales taxes on its wholesale distribution of motor fuel to Seneca Indian retailers on reservations. The New York Court of Appeals held that the state’s tax scheme was preempted by federal law, specifically the Indian trader statutes, which grant the federal government broad authority to regulate trade with Indians. Even though the tax was intended to be passed on to non-Indian consumers, the court found that imposing the tax collection burden on the wholesale trader was an impermissible intrusion into an area of trade comprehensively regulated by the federal government. The court reversed the Appellate Division’s denial of a preliminary injunction and remitted the case for further proceedings.

Facts

Herzog Bros. Trucking, Inc., a Pennsylvania corporation, engaged in the wholesale distribution of motor fuels.
In June 1984, Herzog began selling motor fuel to authorized Seneca Nation of Indians retail establishments on reservations in New York.
The Seneca retailers refused to pay state taxes on these transactions, believing they were exempt.
In October 1984, the State Tax Commission began assessing motor fuel taxes against Herzog.
In June 1985, New York amended its Tax Law to require sales tax on motor fuel to be collected upon importation or first sale by the distributor.

Procedural History

Hertzog brought a declaratory judgment action seeking a declaration that the state’s imposition of motor fuel and sales taxes was unconstitutional and unlawful.
Herzog moved for a preliminary injunction to prevent the state from collecting the taxes.
Special Term granted the preliminary injunction, finding that the plaintiffs were likely to succeed on the merits.
The Appellate Division reversed, holding that Herzog had not shown a clear likelihood of success on the merits because the tax scheme imposed only a minimal burden of collecting taxes from non-Indian consumers.
The New York Court of Appeals granted permission to appeal and certified the question of whether the Appellate Division erred in reversing the order of Special Term and denying the preliminary injunction.

Issue(s)

Whether federal law preempts New York State from imposing motor fuel and sales taxes on a non-Indian wholesale distributor’s sales of motor fuel to Indian retailers on Indian reservations, even if the legal incidence of the tax ultimately falls on non-Indian consumers.

Holding

Yes, because the Indian trader statutes grant the federal government broad authority to regulate trade with Indians, and state tax laws that impose burdens on Indian traders are preempted, regardless of whether the legal incidence of the tax falls on non-Indian consumers. Imposing tax collection obligations on the distributor impermissibly intrudes into an area of commerce comprehensively regulated by the federal government.

Court’s Reasoning

The court emphasized that Indian affairs occupy a unique place in Supremacy Clause jurisprudence, with the federal government possessing plenary and preemptive power over matters concerning Indians.
The court distinguished between state tax schemes that merely require Indian retailers to collect taxes from non-Indian customers (which are generally permissible) and those that burden persons engaged in trade with Indians on reservations (which are generally preempted).
The court relied on Warren Trading Post v. Arizona Tax Commission, 380 U.S. 685 (1965), and Central Machinery Co. v. Arizona State Tax Commission, 448 U.S. 160 (1980), which held that the Indian trader statutes preempt the field of transactions with reservation Indians, leaving no room for state laws that impose additional burdens on traders.
The court found that New York’s motor fuel tax scheme, by imposing obligations on Herzog as a trader to the Seneca Nation, was preempted by the federal Indian trader laws. Even if the burden was minimal, the comprehensive federal regulatory scheme precluded state imposition. The court quoted Warren Trading Post, stating that the federal regulations were “apparently all-inclusive…[leaving] no room for state laws imposing additional burdens upon traders”.
The court rejected the argument that the tax scheme was permissible because the legal incidence of the tax fell on non-Indian consumers, reasoning that the focus should be on whether the tax imposed any burden on the trader in its dealings with the tribe.