In-N-Out Burger, the quintessentially Californian burger chain, will open its first restaurant on tribal land in early 2014 at the Morongo Casino on the Morongo Indian Reservation on the heavily trafficked Interstate 10. The reservation lies 90 miles west of Los Angeles and 20 miles east of Palm Springs. Similarly, the Wyandotte Nation of Oklahoma will open a Sonic restaurant on non-Indian land in Seneca, Missouri, about 10 miles from its Oklahoma reservation.
Fast-food restaurants have been noticeably lacking in Indian Country, primarily due to the lack of familiarity of restaurant franchises with tribal law. This is unfortunate as fast food is a perfect fit for tribal economic development. Fast-food restaurants are a magnet for highway traffic, bringing customers into the tribal business development that would otherwise not think to stop there. They complement tribally owned gas stations, gaming venues, and shopping centers with an inexpensive food alternative and bring in consistent revenue.
Deals may be as simple as a lease arrangement, as in the Morongo In-N-Out Burger, in which the franchise owner leases the land from the tribal owner and builds a restaurant there. Alternatively, the operation may be owned and operated by the Tribe, as in the Sonic restaurant, which is wholly owned by the Wyandotte Nation.
While tribally owned businesses operating on non-Indian land are clearly subject to local taxes, confusion surrounds taxation of non-Indian businesses on tribal land. In July, the Ninth Circuit precluded Thurston County in Washington State from imposing a property tax on Great Wolf Lodge, a waterpark on leased trust land, holding that state and local governments lack the power to tax permanent improvements built on Indian land. This means that a building owned by a non-Indian franchisee on tribal land is not subject to non-tribal property taxes. However, the Second Circuit recently decided that non-Indian personal property on tribal land – in that case, slot machines leased to the Tribe – is taxable.
Some fast-food restaurants on tribal land collect sales taxes for the tribe and other local governments. For example, while most businesses operating on the Navajo Reservation collect only a tribal sales tax of five percent, the McDonald’s restaurant in Shiprock, New Mexico, charges a 6.3 percent sales tax for San Juan County on top of the Navajo tax. While it is unclear that such a tax is required by law, some businesses may find it easier to pass sales taxes on to their customers than fight them.
With an ambiguous taxation framework, stand-alone businesses such as fast-food restaurants operating on tribal land must negotiate in advance who will pay these taxes should they be imposed and memorialize these decisions in the lease agreement.
Taxation is just one issue that makes doing business with Indian tribes unique. Other issues include tribal regulation, dispute resolution, and sovereign immunity. It is vital that experienced legal counsel be involved early in negotiations to ensure lasting and mutually beneficial businesses in Indian Country.