Blue Lake Rancheria v. United States

Summarized by:

  • Court: 9th Circuit Court of Appeals Archives
  • Area(s) of Law: Tax Law
  • Date Filed: 08-11-2011
  • Case #: 10-15519
  • Judge(s)/Court Below: Circuit Judge Silverman for the Court; Circuit Judges Hug, Jr. and Graber
  • Full Text Opinion

Under 26 U.S.C. § 3306(c)(7), employee services are exempt from the Federal Unemployment Tax Act tax liability when they are performed for an Indian tribe acting as a common-law employer.

Blue Lake Rancheria Indian Tribe is the owner of Mainstay Business Solutions, an employee leasing company. Mainstay Business Solutions conducts primary human resource activities, such as benefit handling and wage payment, for the employees it leases to client companies. Blue Lake seeks a full refund for the Federal Unemployment Tax Act (“FUTA”) taxes paid by Mainstay for years 2003-04. Blue Law argues that Mainstay is exempt from FUTA tax liability under 26 U.S.C. § 3306(c)(7) which provides an employment tax exemption for tribal employers. The district court granted the government’s motion for summary judgment, holding that for the § 3306(c)(7) exception to apply, the Tribe must be a common-law employer instead of functioning merely as a statutory employer who is only in charge of paying employees. The Ninth Circuit upheld the district court’s reasoning that the § 3306(c)(7) exception language “in the employ of,” relates to only a common law employment relationship and held that it could not exempt statutory tribal employers from FUTA tax liability. However, the Court also found that because Mainstay maintained considerable control over the leased employees, it and the client companies, were both common law employers for purposes of FUTA tax liability. REVERSED and REMANDED.

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