Good morning, Mr. Chairman. My name is John Lattauzio. I am President of J & J Mini Markets of Alamogordo, New Mexico. J & J operates six convenience stores with motor fuels operations in southern New Mexico.

I am appearing today in my capacity as a member of the board of the National Association of Convenience Stores. NACS is a trade association of over 2,300 companies that operate over 60,000 convenience stores nationwide with some 750,000 employees. Over 75 percent of NACS member companies are classified as small businesses. NACS member companies collectively sell over 55 percent of all gasoline marketed in the United States every year. I also am privileged to serve on the board of the New Mexico Petroleum Marketers Association.

As an initial matter, Mr. Chairman, I would like to thank you for calling this hearing today. For years, NACS and other petroleum marketing organizations have called for congressional attention to the issue of state tax evasion by Native American tribes and Native American corporations. We welcome this hearing on this important issue, and thank the Committee for allowing us the opportunity to express our concerns.

Second, I want to be crystal clear regarding the issue under discussion in my testimony. NACS does not advocate, and has not advocated, permitting states to tax Native American tribes, tribal corporations, or tribal members. Instead, NACS advocates that states receive an express authorization from Congress to enforce U.S. Supreme Court decisions that Native American tribes and tribal corporations must collect and remit state excise taxes imposed on non-Native Americans when these non-Native Americans purchase commodities such as motor fuels and tobacco products from Native American tribes or tribal corporations.

This issue is fairly easy to understand. When a non-Native American customer buys ten gallons of gasoline from one of my stores in New Mexico, I am required by the state to add 17 cents per gallon to the cost to the customer in state gasoline excise taxes. If, on the other hand, a tribal member buys that same ten gallons of gasoline from a tribe-owned convenience store, the Supreme Court has stated that the state gasoline excise tax may not be imposed. See Moe v. Confederated Salish & Kootenai Tribes of Flathead Reservation, 96 S.Ct. 1634 (1976) ("Moe"); New York Dept. of Taxation & Finance v. Milhelm Attea & Bros., 114 S.Ct. 2028 (1994) ("Attea"); Oklahoma Tax Com'n v. Chickasaw Nation, 115 S.Ct. 2214 (1995)("Chickasaw"). These two fact patterns are not in dispute.

Under a third scenario, however, the Supreme Court has stated that if a non-Native American buys ten gallons of gasoline from the tribe-owned convenience store, then the state gasoline excise tax is to be imposed on the non-Native American and the tribe has an obligation to assist the state by collecting and remitting the tax to the state. See Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134, 160-61, 100 S.Ct. 2069, 2084-85 (1980)("Colville"); Oklahoma Tax Commission v. Citizen Band Potawatomi Indian Tribe of Oklahoma, 111 S.Ct. 905 (1991)("Potawatomi"). ". . . Indian retailers on an Indian reservation may be required to collect all state taxes applicable to sales to non-Indians." Potawatomi at 911. It is this third scenario that is at issue here today.

We are not talking about taxing Native Americans. We are talking about taxing non-Native Americans and the responsibilities the Supreme Court has stated that tribes have to assist the states in collecting these excise taxes from non-Native Americans.

The Court, in a series of decisions stretching back three decades, has examined the issue of Native American state excise tax evasion closely and issued an invitation for Congress to address this problem. First, the Court has settled the question as to whether Native American tribes must collect and remit state excise taxes on motor fuels and tobacco products imposed on non-Native Americans when it is a Native American tribe or tribal corporation that sells these products to non-Native Americans. The Court has held that tribes have the obligation to assist the states by collecting and remitting these taxes on non-Native Americans. Attea at 2035-36; Moe 1638.

Second, due to the doctrine of tribal sovereign immunity, the Court has stated that states generally cannot enforce this obligation on Native American tribes. Potawatomi at 905. In other words, the states have a right to require the assistance of the tribe, but does not have a method for enforcing this right.

Third, the Court has stated that only Congress has the authority under the Constitution to correct this legal inconsistency. Potawatomi at 912. Thus, if Native American excise state tax evasion is to be curbed, it is up to Congress to act.

This is the reason for my appearance before you today. NACS respectfully urges this Committee to consider and adopt legislation to give states the right to enforce the tribes' obligation to collect and remit lawfully-imposed state excise taxes on sales to non-Native Americans by Native American retailers. According to the Supreme Court, only Congress has the authority to grant this relief.

My home state of New Mexico currently is grappling with this legal disconnect. Truck stops, convenience stores, and smoke shops operated by Native American tribes will be evading approximately $14 million in state excise taxes on motor fuels and tobacco by the end of this year. These tribes are not paying to the state either the 17 cents per gallon state excise tax on gasoline or the state's 32 cents per pack excise tax on cigarettes when they sell these products to non-Native Americans.

As a direct result, New Mexico's tax base is diminished at a time of record demands on the state government. In addition, motor fuels and tobacco retailers such as myself and other New Mexico marketers find it impossible to compete against a group with such a cost advantage -- a cost advantage achieved only through tax evasion.

New Mexico is not alone in facing this problem. To varying degrees, the following states are grappling with motor fuels or tobacco excise tax evasion by Native American tribes: New York, Michigan, Oklahoma, North Dakota, South Dakota, Arizona, California, and Washington. Together, it has been estimated that states are losing over $500 million annually in tax revenues from Native American excise tax evasion.

NACS supports the approach taken by Senator Gorton in Section 3 of S. 1691 to address this issue. Simply stated, this section of Senator Gorton's legislation would give a state the express right to sue a tribe in federal court to collect lawfully-imposed state excise taxes imposed on sales to non-Native Americans. My company, and other private parties, would not be permitted a cause of action under Section 3. Only a state could bring such a suit against a Native American tribe. Thus, any argument that this section would subject tribes to scores of frivolous lawsuits simply is not supportable.

This section also would require a tribe to waive its tribal sovereign immunity only to the extent necessary for a state to enforce the obligations imposed by this section. Section 3 would not require a blanket waiver of sovereign immunity. Instead, it would simply stop a tribe from hiding behind a legal "loophole" to escape the obligation the Supreme Court has sanctioned.

It is important to me and to NACS that our support for Section 3 is not mischaracterized. NACS is not seeking to vilify all Native Americans or even those Native American retailers that are evading these taxes. Given the opportunity, I am sure that I and the other members of NACS would take advantage of a "loophole" that would allow us to avoid paying state or federal taxes. That would not make us bad people -- that would make us business people.

NACS supports the economic development and success of Native American tribes and corporation and would welcome the opportunity to assist these tribes and corporations in achieving this success. But even the Supreme Court has stated that the sale of a tribe's general exemption from state taxation to persons not entitled to that exemption is not economic development.

The first paragraph of Section 3 imposes an affirmative obligation, under federal law, on tribes, tribal corporations, and members of a tribe to collect and remit to a state lawfully-imposed, nondiscriminatory state excise, use, and sales taxes on purchases by non-tribal members by a tribe, a tribal corporation, or a tribal member. Paragraph (1) codifies the U.S. Supreme Court's decision in Moe and Colville.

To gain access to the federal court system to bring a suit to enforce the collection of state taxes, a state must assert a "federal question" under 28 U.S.C. § 1331. A "federal question" action is described by the Court as follows:

"[A] suit arises under the Constitution and laws of the United States only when the plaintiff's statement of his own cause of action shows that it is based upon those laws or that Constitution."

Louisville & Nashville Railroad v. Motley, 211 U.S. 149, 153 (1908).

To bring a suit against a tribe, tribal corporation, or tribal member for failure to collect and remit state taxes, a state must invoke the protection of a particular federal statutory, constitutional, or treaty provision either authorizing it to collect taxes or requiring the tribe, tribal corporation, or tribal member to pay such taxes. Therefore, paragraph (1) of Section 3 provides such a federal statutory provision.

Paragraph (1) of Section 3 only creates an obligation on Native Americans if the incidence of the state tax is on the non-Native American consumer, as required by the Supreme Court. The Court has stated that states may not impose taxes on Native American tribes selling to members of their own tribes. Chickasaw at 2214. Therefore, only those taxes imposed by the state on sales to non-Native Americans by Native American tribes, tribal corporations, or individual tribal members are subject to the obligation of paragraph (1). A state tax whose incidence is on Native American wholesalers or retailers may not be enforced under the provisions of paragraph (1) of Section 3.

Paragraph (2) of Section 3 affirmatively grants a state the authority to bring an action to enforce paragraph (1) in a federal district court. While it can be argued that this authority is inferred by paragraph (1) and 28 U.S.C. § 1331, the authority is stated expressly in this paragraph to avoid any ambiguity.

The Court has held consistently that if tribal sovereign immunity is to be limited by Congress, the federal statute must do so expressly and unambiguously.

"Suits against Indian tribes are thus barred by sovereign immunity absent a clear waiver by the tribe or congressional abrogation. . . Congress has always been at liberty to dispense with such tribal immunity or to limit it."

Potawatomi at 909.

"Indian tribes have long been recognized as possessing the common-law immunity from suit traditionally enjoyed by sovereign powers. This aspect of tribal sovereignty, like all others, is subject to the superior and plenary control of Congress. But without congressional authorization, the Indian Nations are exempt from suit. . . It is settled that a waiver of sovereign immunity cannot be implied but must be unequivocally expressed."

Santa Clara Pueblo v. Martinez, 436 U.S. 49, 58-59 (1978)(internal quotations and citations omitted).

Thus, paragraph (3) of the Section 3 of S. 1691 provides an express limited waiver of tribal sovereign immunity only to the extent necessary to enforce the obligation imposed in paragraph (1).

The Native American state excise tax evasion issue addressed by Section 3 of S. 1691 generally occurs at one of two geographic locations: (1) on an Indian "reservation;" or, (2) on Indian trust land under the superintendence of the federal government. Tribes, tribal corporations, and tribal members generally do not attempt to evade state taxes on land other than reservation or trust lands, because "[a]bsent express federal law to the contrary, Indians going beyond reservation boundaries have generally been held subject to nondiscriminatory state law otherwise applicable to all citizens of the State." Mescalero-Apache v. Jones, 411 U.S. 145, 148-149 (1973).

Section 3 does not restrict the authority of a state to bring an action against a tribe, tribal corporation, or tribal member, for tax evasion only to evasion occurring on a reservation or trust land. Instead, it codifies the Jones decision, stating that evasion of lawfully-imposed, nondiscriminatory state sales, use, or excise taxes by a tribe, tribal corporation, or tribal member may be prosecuted by a state in federal court no matter where this evasion occurs geographically.

Mr. Chairman, I thank you for your interest in my testimony. I am prepared to answer any questions you may have.