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Ledyard - A federal judge may soon rule on a nearly 6-year-old lawsuit that could set a far-reaching precedent on the right of municipalities to collect taxes on personal property owned by non-Indians on reservation lands.
Property owned by the Mashantucket Pequot tribe within the reservation is not subject to taxation by the town. Ledyard, however, has argued in response to a lawsuit brought by the tribe and a slot-machine leasing company that equipment owned by private companies on tribal land is taxable.
The imminent ruling by U.S. District Judge Warren W. Eginton in Bridgeport would likely set a precedent not only for the Mashantucket Pequot Tribal Nation and Foxwoods Resort Casino but also for other Indian-owned casinos across the country.
The legal battle involving the town, the Mashantuckets and Atlantic City Coin & Slot Service began in 2006 when the tribe and AC Coin sued Ledyard for levying taxes on slot machines that AC Coin leased to the tribe.
The suit claims the town disregards well-established principles of federal Indian law and interferes with the tribe's gaming operations, self-determination and sovereign immunity.
So far the suit has cost Ledyard taxpayers almost $900,000.
The town began levying property taxes on the slot machines in 2003. The tribe claims the town does not have the authority to collect personal property taxes on gaming machines leased from the Pleasantville, N.J., company, although it does allow taxes to be collected on non-Indian owned personal property in casino restaurants and commercial shops.
Additionally, the tribe claims that the town does not have the authority to tax the slot machines because they are a primary source of revenue for the tribe's gaming operations.
Benjamin Sharp, an attorney from the Washington D.C.-based law firm Perkins Coie, is representing the town in the suit. He said the town doesn't have a means of identifying either the existence of taxable property or its value because the Mashantuckets may not be reporting all of the property. Because of this, Sharp said, it is difficult to provide an exact number of machines or estimate how much the town could receive in taxes.
"In a given year, it may be that the cost of the litigation was greater than the revenue that might have been attained in that year, but there's no way the cost of this litigation will approximate the total amount of money at stake if the town didn't fight it," Sharp said.
Legal counsel for the Mashantuckets declined to comment.
While the lawsuit proceeds, AC Coin has been paying taxes to the town, but WMS Gaming, another slot machine-leasing company, has not filed a tax declaration in six years, Sharp said. The town filed a lawsuit against WMS Gaming in 2009.
As of Jan. 19, the town has billed WMS Gaming for $200,546.94 in personal property taxes. The company did pay a total of $7,901.51 in taxes for 2004 and 2005.
Mayor John Rodolico, who was elected last November but served on the Town Council from 2007 to 2009, in the early years of the suit, said the town's situation is unfortunate.
"Being a small town, we're a victim of decisions that were made by the federal and state government, and much of the law is being made up as we go along on this case," he said. "The primary issue we have in the case is protecting our taxpayers.
"We're trying to level the playing field in terms of how we treat individuals in terms of taxation. We're also looking to get legal and financial help from the federal and state government by indicating to them that they created this situation and they need to step up to the plate in terms of helping us in solving the problem and reimbursing us when we incur significant legal costs."
Bethany Berger, a professor of Indian law at the University of Connecticut School of Law, said that taxation of non-Indians and their property on tribal lands is complicated. Berger, co-author and member of the editorial board of Felix S. Cohen's Handbook of Federal Indian Law, the pre-eminent treatise in the field, does not think Ledyard's case is a strong one.
"The machines are leased by the tribe as part of this federally regulated business that the tribe has a big interest in," she said, adding that the interests of the state of Connecticut in the matter may not be as strong as Ledyard officials hope.
"With respect to state interest, it can't just be revenue-raising interest," Berger said. "Ledyard wants to make money by taxing the machines, and that's not the kind of interest that's really important. The federal interest is very strong because of the Indian Gaming Regulatory Act and the tribal interest is also strong because this is the business that provides most of the tribe's revenue."
Sharp, the town's lawyer, said he does not expect Eginton to hear oral arguments before issuing a ruling. He admitted that the case, which is nearing its six-year mark in August, has been unusually slow, something he blamed on the plaintiffs.
"The tribe fights about every single issue. They've objected to every single discovery request. They dispute every single thing and it takes time to resolve those disputes," Sharp said Wednesday. "The tribe isn't willing to cooperate in any respect."
Former Mayor Fred B. Allyn Jr. said the legal cost of fighting the case has been "horrendous," but he still questions the town's intent of continuing to fight for the principle of taxing non-tribal personal property.
"What hasn't been focused on are the benefits," he said in a recent interview. "What is it that we're fighting over? What kind of money are we fighting over? That's a difficult thing to qualify."
In the neighboring town of Montville, the Mohegan tribe owns and operates Mohegan Sun Casino on its reservation. The town and the tribe share a memorandum of understanding that establishes that Mohegan Sun will pay taxes on non-tribal personal property to the town, Mayor Ronald K. McDaniel Jr. said Thursday.
Personal property in casino restaurants and commercial shops is also taxed.
"The two reservations really developed in completely different ways, and Ledyard and Preston really had no chance to work with the casino," McDaniel said. "Montville came up with the MOU ahead of time and learned from Ledyard and the Mashantuckets. There will always be a question as to what is and isn't taxable personal property, and it's a complicated, uncharted area. Once the judge does make a decision, it does set a precedent, so they need to get it right on the first try."
AC Coin and WMS Gaming also have slot machines at Mohegan Sun. In 2010, AC paid $78,018 and WMS Gaming $868,755 in personal property taxes to Montville.
Rodolico, Ledyard's mayor, said it is hard to determine how much is really at stake in terms of property taxes.
"It could be hundreds of thousands of dollars. If we were to lose this case, there may be other organizations that say, 'We don't have to pay these taxes,' and if they stop doing that, there would be a significant revenue loss. Right now, we're still realizing most of the revenues," Rodolico said.
"We don't doubt that one of the drivers here is that the tribe has the lead on this issue, but this has implications across the nation. It does set a precedent for other tribes. It's not just one tribe, it's one tribe representing many tribes."
• $875,221.71 in legal fees since 2005
• $208,448.45 owed in back taxes from WMS Gaming
• $76,569.17 in current taxes from AC Coin