An appeals court has rejected claims by the Mashantucket Pequot Tribe that the slot machines they lease from non-tribal businesses are exempt from local personal property taxes.

In what the town of Ledyard is calling “a precedent-setting decision in favor of state and local governments,” the U.S. Court of Appeals for the Second Circuit reversed a previous decision and ruled Monday that two non-tribal businesses must pay personal property taxes on property they own but lease for gaming activities to the Mashantucket Pequot Tribe.

The case dates back to 2005 when New Jersey-based Atlantic City Coin & Slot Co. refused to pay town personal property taxes on slot machines leased to the tribe, claiming the taxes would interfere with Mashantucket Pequot tribal sovereignty. In 2008, WMS Gaming, another slot machine company, joined the suit.

Last year, a federal judge in Bridgeport ruled in favor of the tribe, granting the tribe’s motion for a summary judgment that had cited Indian Trader Statutes, the Indian Gaming and Regulatory Act, and a U.S. Supreme Court case called Mountain Apache Tribe v. Bracker, which weighs federal, tribal and state interests.

The appeals court ruled Monday that the district court erred and that none of the arguments bar a state from taxing a non-tribal entity.

“With this decision, the Town of Ledyard will be able to collect taxes that are critically important to providing government services, including those that result from being a host community for the Foxwoods casino,” said Ledyard Mayor John Rodolico in a statement.

“This case was just the tip of the iceberg, and our tax revenues would have taken a huge hit if we had not persevered throughout this eight-year legal battle to achieve this victory,” he said.

A spokesman for the Mashantucket Pequot Tribe was not immediately available to comment Monday night.

Ledyard Council Chair Linda Davis, in a written statement, said, “This was a very complex case, and the Town is gratified the Second Circuit addressed all of the key issues so there will be no future uncertainty that we can collect these taxes.”

The town spent more than $900,000 on legal fees in the case.

Rodolico thanked former Attorney General Richard Blumenthal and his successor, George Jepsen, for working with lawyers from Perkins Coie, who have represented Ledyard for more than 20 years on Indian law issues and donated considerable time to the effort.

“The result of this case is a victory for the taxpayer, for fairness and equity in taxation, and for ensuring the Town has a consistent revenue stream for the years to come,” Rodolico said.

g.smith@theday.com