Blue Lake Rancheria v. United States

Blue Lake Ranchería, an Indian tribe, seeks a refund of Federal Unemployment Tax Act taxes paid by Mainstay Business Solutions, an employee leasing company wholly owned by the Tribe. Section 3306(c)(7) of Title 26 of the United States Code excepts from the definition of “employment” — and thus exempts from the payment of employment tax — “services performed in the employ of an Indian tribe, or any instrumentality” of a tribe. We hold today that this exception does not apply where a tribe is merely a “statutory employer” — in essence, nothing more than a paymaster. The exception granted by § 3306(c)(7) applies only where a tribe is the common-law employer. However, undisputed facts show that Mainstay was, indeed, the common-law employer of the workers at issue here and, therefore, was entitled to the special tax treatment Congress saw fit to grant to Indian tribes.

I. Background

Blue Lake Ranchería is a 53-member, federally recognized Indian tribe located in Humboldt County, California. In May 2003, the Tribe established Mainstay Business Solutions as a for-profit business owned by and operated for the benefit of the Tribe. Mainstay provided employee leasing and…