Local Taxation on Tribal Land in Arizona: An Update

By Heidi McNeil Staudenmaier and Caitlin Vanderkarr

On June 30, 2025, the United States Supreme Court denied certiorari in an Arizona taxation case involving tribal sovereignty and preemption. South Point Energy Center, LLC (South Point) submitted a Petition for a Writ of Certiorari to the Court on March 3, 2025, to address both express and implied preemption of state and local taxes on permanent improvements owned by nontribal entities but situated upon tribal trust land.¹ The Court denied certiorari on June 30, 2025.²

Case History

In March of 2024, the Arizona Court of Appeals ruled that the Indian Reorganization Act (IRA), 25 U.S.C. § 5108, did not implicitly preempt Mohave County from levying property tax on the South Point Energy Center power plant (and personal property to operate it) (the Plant).³ Prior to the Court of Appeals’ decision, the Arizona Supreme Court held that the IRA did not expressly preempt local taxation of the Plant in 2022.⁴

Background

The Plant, a permanent improvement owned by nontribal lessees, is situated on land leased to it by the Fort Mojave Indian Tribe (the Tribe) within the Tribe’s Reservation in Mohave County, Arizona.⁵ Mohave County and the State of Arizona had assessed South Point north of $20 million in taxes as of 2024.⁶ The Tribe’s Reservation sits on tribal trust land.⁷ Under the IRA, Indian Trust lands are exempted from state and local taxes.⁸

In challenging the state and county’s ability to tax South Point’s Plant, South Point asserted that its real property improvements — the Factory — were located on tribal land and thus exempt from local taxes.⁹ South Point asserted the IRA expressly preempted Mohave County and the State of Arizona from imposing taxes on the Plant.¹⁰ South Point further asserted that the IRA implicitly preempts such taxation under the Bracker test.¹¹

In 2022, the Arizona Supreme Court analyzed the express preemption argument and found South Point’s arguments unpersuasive based upon lease language designating improvements (the Plant) as belonging exclusively to South Point.¹² The Court then remanded the implied preemption question and Bracker analysis to the Court of Appeals.¹³

On remand, the Arizona Court of Appeals employed the Bracker analysis and held that local taxation of the Plant was not implicitly preempted by the IRA because (1) the tax supported local services benefitting South Point and the Tribe, (2) the tax was an indirect — rather than direct — burden on the Tribe’s economic development (profitability), and (3) the economic burden fell on the Plant and South Point rather than the Tribe or tribal land.¹⁴ Snell & Wilmer’s 2024 legal alert discussed the case’s alignment with precedent rejecting nontribal entities’ application of sovereign immunity to preclude local taxation where the nontribal entity conducted business on lands leased from a tribe.¹⁵

Ninth Circuit Precedent

Some legal observers expected the U.S. Supreme Court to grant certiorari in the South Point case to clarify precedent and avoid a jurisdictional conflict within the Ninth Circuit. The Ninth Circuit Court of Appeals in Chehalis held that the IRA prohibited state and local taxation on permanent improvements upon off-Reservation land held in trust for a tribe.¹⁶

In the Chehalis case, a tribe and commercial entity formed an LLC; the tribe owned a 51% majority interest in the LLC.¹⁷ The LLC then leased the land (held in trust by the U.S. for the tribe) from the tribe to build a hotel thereon.¹⁸ The lease stated that improvements during the lease term would be owned by the LLC but would revert to the tribe at the lease termination.¹⁹

However, the Chehalis Court expressly stated that immunity from taxation was not defined by the LLC’s ownership of the improvement during the lease.²⁰ Further, the Court was not persuaded by the state’s classification of permanent improvements as personal property for taxation purposes.²¹ The Court in Chehalis instead classified the state action as property taxation and acknowledged that it was bound by Mescalero’s holding that § 465 (now § 5108) expressly preempted such tax “without regard to the ownership of the improvements.”²²

In 1973, the U.S. Supreme Court in Mescalero exempted permanent improvements — a ski resort — on tribal trust land from state and local taxes; the tribe had created the entity that constructed and operated the resort.²³ The Mescalero Court clarified that the manner in which the tribe conducted business — as the tribe or through a business entity — was immaterial to its holding.²⁴

The Chehalis Court did not find it necessary to “consider Bracker or any other theory of preemption” as it viewed Bracker as applicable only where a tax was levied against nontribal entities “engaged in a transaction with tribes. . . on the reservation.”²⁵ The Court in Chehalis, however, hinted at distinguishing between “possessory interest taxes,” which were “not per se preempted,” from “property taxes,” which implicated the express preemption in § 5108 (previously § 465) upon nontribal lessees to land held in trust for a tribe.²⁶

Arizona Taxation Going Forward

South Point can likely be read as consistent with Chehalis and Mescalero if express preemption turns on the ownership of a permanent improvement on tribal land beyond lease termination. In Arizona in 2025, a nontribal entity that owns a permanent improvement on leased tribal land may be subject to state and local tax on that improvement if the lease states that the nontribal entity retains ownership of the improvement after lease termination. Where permanent improvements are made on tribal lands by an entity with both nontribal and tribal ownership or where ownership reverts to the tribe at lease termination, Arizona courts will likely employ Bracker to determine the applicability of state and local taxes, particularly if the tribe is not the majority owner.

Impacts on Commercial Lessees

The Arizona rulings establish that nontribal entities that establish improvements on tribal lands and seek to retain ownership of such improvements, may not receive the benefit of tribal immunity from taxation. As a result, non-tribal entities will need to consider budgeting for local county and state taxes, in addition to any tribally assessed taxes where the entity operates and makes permanent improvements on tribal land and retains ownership of the improvements.²⁷