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LEGAL BATTLE

Pender alcohol retailers facing tribal tax unsure of future

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PENDER, Neb. | Four years ago, Rich and Jessica Frazey bought a convenience store that stands along one of two highways passing through Pender and began planning how to make Frazey's Food & Fuel more profitable.

But some of those plans are on hold while the Frazeys wait to see if the U.S. Supreme Court decides whether Pender businesses that sell alcohol are subject to an Omaha Tribe of Nebraska ordinance that would require them to buy a tribal liquor license and pay sales taxes to the tribe on top of what they already pay in state licensing fees and taxes.

"We would have to look at not having beer or liquor. I'm worried it's going to cripple our business," Jessica Frazey said of what would happen if the Supreme Court rules with previous courts that have said Pender sits within the Omaha Indian Reservation, thus giving the tribe authority to regulate the businesses and impose taxes.

The Frazeys have put off replacing the roof and floor in their store, not wanting to spend money on a business that they're not sure they could continue to operate if subject to more taxes and fees.

"It is not feasible," Frazey said of undertaking repairs amid the uncertainty. "We're literally a mom-and-pop gas station."

On Oct. 1, the Supreme Court granted certiorari, agreeing to hear the state of Nebraska's appeal of lower court rulings that said the sale of 50,000 acres of land on the western portion of the Omaha Reservation, an area in southwest Thurston County where Pender now sits, to white settlers in the 1880s did not change reservation boundaries.

When the court issues its ruling, it will end a legal battle now eight years long. More important to owners of establishments that sell alcohol in Pender, it likely will end the uncertainty of making business decisions while not knowing if they will be subject to tribal regulations.

"I'd kind of like to know what's going on," said Tom Welsh, owner of Welsh's Bar, which sits on Pender's Main Street.

In addition to beer and liquor sales, the bar serves food and has a popular pizza business. If Welsh ultimately must pay the tribal taxes, he'll face a decision on whether it's worth continuing to sell alcohol. Not only would he have to pay more taxes, but people in Pender also may choose to buy beer and liquor in neighboring towns off the reservation, such as Bancroft and Emerson, cutting into alcohol sales.

"If we have to quit selling alcohol, we will. We'll just go to strictly selling food," Welsh said. "We'll just have to wait and see. Hopefully we don't have to find out."

In 2006, the Omaha Tribe, which has its tribal offices on the other side of Thurston County in Macy, passed an alcohol ordinance requiring businesses that sell alcohol on the reservation to buy liquor licenses ranging from $500 to $1,500 annually. The ordinance also placed a 10 percent sales tax on all alcohol purchases. Those taxes and fees would be paid in addition to what retailers already must pay to state regulators.

"The initial thought was to initiate the license and work out the tax after that," said Maurice Johnson, Omaha Tribe of Nebraska attorney general. "We had never gotten to the point to where we would be able to work out how the tax would be applied."

Those discussions never took place because soon after the ordinance went into effect on Jan. 1, 2007, owners of seven Pender establishments, including Welsh, sued the tribe in U.S. District Court in Omaha, saying they were not subject to the ordinance because Pender is not on the reservation.

But in a 2014 decision, U.S. District Judge Richard Kopf said an 1882 act of Congress that opened land on the reservation for sale and settlement did not diminish the reservation. Kopf ruled that Congress had basically acted as a sales agent and held proceeds in trust for Omaha Tribe members but did not change reservation boundaries.

In May, the 8th Circuit Court of Appeals upheld Kopf's ruling, affirming that all of Thurston County and a portion of Cuming County are within the Omaha Reservation. (In the 1860s, part of the Omaha Tribe's northern land in Thurston County was ceded to the Winnebago Tribe, which has its tribal offices in Winnebago.)

The Nebraska Attorney General's Office appealed the 8th Circuit ruling to the Supreme Court.

Gene Summerlin, a Lincoln attorney representing the Village of Pender, which is also a party in the lawsuit, said determining whether Pender is within the reservation is about more than alcohol taxes. If the tribe prevails, it opens up questions about enforcement of tribal regulations on a town populated mostly by white, nontribal members. The tribe could seek to require licenses for other types of business, Summerlin said.

"The dispute we're currently having involves alcohol but in reality goes far beyond that," he said.

Pender alcohol retailers are trying to figure their costs if the Supreme Court rules in the tribe's favor.

They currently pay for state liquor licenses that range from $100 to $300 annually. There's also a 5.5 percent sales tax and a 1 percent local sales tax Pender residents passed in 2008 to help pay for the legal expenses the village was incurring in this case. Pender has spent $770,000 so far on the case, village clerk Connie Miller said.

The tribe amended its ordinance in 2013. The cost of the liquor licenses remains the same, but the 10 percent sales tax has been changed to a rate, the ordinance says, that "shall be consistent with that of the prevailing base sales and use tax rate of the state ...."

Williams said the tribe would be willing to discuss that tax rate and how it would be collected with Pender retailers.

"We would enter into discussions with them," Williams said.

Since enacting the ordinance, Williams said, the tribe has granted licenses to a bar in Walthill and another in Rosalie, though it has put off collecting taxes until the lawsuit is resolved. The case has cost the tribe $1 million in legal fees, Williams said, plus the lost tax revenue, which the ordinance says is for the prevention and treatment of substance abuse on the reservation.

"It's certainly affected the tribe," Williams said of the lawsuit and tax collection delay.

In Pender, Welsh continues to operate as usual. He's concerned, he said, but there's not much he can do while waiting for a resolution. Arguments before the Supreme Court could take place as early as January or February, with an order sometime after that.

Whenever that ruling comes, Welsh said, he'll worry about what he's going to do.

"You just kind of go with the flow," he said. "Whatever happens, happens."

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The U.S. Supreme Court has scheduled arguments for a case that will determine if Pender businesses that sell alcohol are subject to an Omaha Tribe of Nebraska ordinance requiring them to buy a tribal liquor license and pay taxes to the tribe.

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