Petition — Fry v. United States

| Supra Coun,

ILED

SEP 17 1977

IN THE MICHAEL RODAK, JR., CLERI

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1977

77-429 -

LAWRENCE R. FRY §& NELLIE R. FRY,

Husband § Wife,

Petitioners,

Vv.

UNITED STATES OF AMERICA,

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES SUPREME COURT

J r ie

a,

’

WILLIAM J. WELL, o

counsel for

GUSTAFSON §& REYNOLDS, P.S.

1315 Washington Mutual Bldg.

Spokane, Washington 99201

Counsel for Petitioners

September 14, 1977

IN THE

‘ SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1977

LAWRENCE R. FRY §& NELLIE R. FRY,

Husband §& Wife,

Petitioners,

Vv.

UNITED STATES OF AMERICA,

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES SUPREME COURT

Bee,

WILLIAM ae,

WELL, o

counsel for

GUSTAFSON §& REYNOLDS, P.S.

1315 Washington Mutual Bldg.

Spokane, Washington 99201

Counsel for Petitioners

September 14, 1977

INDEX

Index .

Case Citations

Opinions Below.

Jurisdiction.

Questions Presented,..

Statutory and Constitutional

Provisions Involved.

Statement of Facts

Basis for Jurisdiction Below.

Reasons for Granting Writ

Conclusion. .... -«

Appendix A (Opinion of United

States Court of Appeals)

Appendix B (Opinion of United

States District Court,

Eastern District of

Washington .

oii

Le)

uo Oo ON

.10

27

CASE CITATIONS

Cases:

Squire v. Capoeman, 351

os. 1 T1585) i ee 8

Stevens v. C.I.R.,

1971)

452

I (9th cir.

Constitution and Statutes:

Constitution of the

United States,

Amendment

26 U.S.C. 61

26 U.S.C. 1401

28 U.S.C. Section

1254(1)

28 U.S.C. Section

1346(a)

offs

Sixteenth

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1977

LAWRENCE R. FRY §& NELLIE R. FRY,

6.7 Husband § Wife,

>

Petitioners,

Vv.

8

UNITED STATES OF AMERICA

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES SUPREME COURT

3,4

4 The Petitioners, LAWRENCE F. FRY and

4 NELLIE R. FRY, husband and wife, pray

that a Writ of Certiorari issue to re-

: view the opinion and judgment of the

6 United States Court of Appeals for the

: Ninth Circuit, rendered in these proceed-

ings on June 22, 1977.

oj.

OPINIONS BELOW

The opinion of the United States

Court of Appeals for the Ninth Cir-

cuit, 557 F.2d 646, appears at

Appendix A. The opinion of the

United States District Court, East-

ern District of Washington, is umnre-

ported, and appears at Appendix B.

The United States Court of Appeals

for the Ninth Circuit affirms the

opinion of the United States District

Court, Eastern District of Washing-

ton.

JURISDICTION

The order or judgment of the United

States Court of Appeals for the Ninth

Circuit was rendered and entered on

June 22, 1977. This petition for

certiorari was filed less than

90 days from the date aforesaid.

o De

The jurisdiction of this Court is in-

voked under 28 U.S.C. Section 1254(1).

QUESTIONS PRESENTED

Is income derived from logging

of standing timber off of unallotted

tribal lands by an unenrolled, non-

competent member of the Confederated

Tribes of the Colville Reservation,

in the State of Washington,subject

to federal income tax and old age,

survivors, and disability insurance

tax (self-employment tax), under the

Sixteenth Amendment to the United

States Constitution?

STATUTORY AND CONSTITUTIONAL

PROVISIONS INVOLVED

The Constitution of the United

States, Amendment XVI:

"The Congress shall have

power to lay and collect

taxes on incomes, from

whatever source derived,

o$-

without apportionment among

the several States, and with-

out regard to any census or

enumeration ."

26 U.S.C. 61:

"(a) General Definition. -

Except as otherwise provided

in this subtitle, gross in-

come means all income from

whatever source derived, in-

cluding (but not limited g

the following items:

26 U.S.C. 1401:

"(a) Old-Age, Survivors, and

Disability Insurance. - In

addition to the other taxes,

though there shall be imposed

for each taxable year, on the

self-employment income of

every individual, a tax as

follows:

(1) In the case of any

taxable year beginning

after December 31, 1965

and before January 1, 1967,

the tax shall be equal to

5.8% of the amount of the

self-employment income for

such taxable year;

STATEMENT OF FACTS

The facts relevant to the question

presented by this petition are uncon-

-4-

troverted and therefore may be intro-

duced to the Court in the summary

fashion.

Petitioners are husband and wife

and are both noncompetent enrolled

members of the Confederated Tribes

of the Colville Reservation and

live on the reservation. For the tax

years 1962 through 1966, inclusive,

Petitioners paid $21,498.62 in fed-

eral income tax, self-employment

tax and interest accrued thereon.

Petitioners’ sole source of in-

come for the tax years in question

was from contract logging and stand-

ing timber on unallotted tribal land

owned by the Confederated Tribes of

the Colville Reservation. The con-

tracts let out to log this land were

to non-Indian contractors and Peti-

tioners' acted as a subcontractor in

o $<

performing the actual logging. Peti-

tioner predominately utilized other

members of the Confederated Tribes

of the Colville Reservation on con-

ducting his logging operation.

BASIS FOR JURISDICTION BELOW

Petitioner had proper jurisdic-

tion with the District Court of the

United States for the Eastern District

of Washington under 28 U.S.C. Section

1346(a).

REASONS FOR GRANTING WRIT

The Court has not spoken in the

area of the Federal income taxation

of Indians since the "Landmark" case

of Squire v. Capoeman, 351 U.S.1

(1956). In Capoeman the Court car-

ved out a judicial exemption to the

application of the federal income

tax laws as they applied to income

-6-

realized by noncompetent Indian from

the sale of timber off of trust-

allotted land. The instant case dif-

fers from Capoeman in that the log-

ging activity conducted by the Peti-

tioner was from unallotted tribal

land.

A good deal of confusion and re-

sulting litigation has marked the era

Since the decision in the Capoeman

case. It is obvious that substantial

numbers of people are effected by these

decisions - i.e., the many thousands

of individuals in the United States

who maintain their heritage as American

Indians. Defining the rights of these

peoples as they concern the taxing

power of the federal government is of

extreme national importance.

The state of the law is now one

of confusion and inequity. If the

affe

Petitioner in the instant case had log-

ged allotted land acquired by him either

through gift, inheritance, or purchase,

he would have been clearly exempt from

the payment of federal income tax on his

logging income. (See Stevens v. C.I.R.,

452 F.2d 741 (9th Cir. 1971). Such a

result is not only inequitable but in-

explicable on any kind of meaningful

basis.

In the instant case the United

States Court of Appeals for the Ninth

Circuit found that to accept the argu-

ment of Petitioner would amount to

judicial legislation. The court ig-

nored the fact that the entire area

of federal taxation of Indians is a his-

tory of judicially made exemption and

the revocation of such exemptions, with-

out any apparent common thread running

through the cases.

-§8-

In short, the Court needs to

bring clarification to a trouble-

some area of significant impor-

tance.

CONCLUSION

For these reasons a Writ of

Certiorari should issue to review

the judgment and opinion of the

United States Court of Appeals

for the Ninth Circuit.

(Note: Since preparation of

Petition, Petitioners' found

Critees v. B.S... C&.Ck.. (7732/77)

which upholds broad federal income

tax exemption for Indians, includ-

ing timber sales. Reported U.S.

Tax Week, 1977, No. 36, p.1063).

RESPECTFULLY oe)

» O

counsel for

GUSTAFSON §& REYNOLDS, P.S.

1315 Washington Mutual Bldg

Spokane, Washington 99201

(S09) 455-9666

Counsel for Petitioners

September 14, te

APPENDIX A

Here is set forth the opinion

rendered in the United States Court

of Appeals for the Ninth Circuit.

-10-

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LAWRENCE R. FRY §& )

NELLIE R. FRY,

husband § wife, JNO. 76-1779

Plaintiffs-Appellants,)OPINION

vs. )

UNITED STATES OF AMERICA)

Defendant-Appellee. )

)

APPEAL FROM THE UNITED STATES DISTRICT

COURT FOR THE EASTERN

DISTRICT OF WASHINGTON

Before: CHAMBERS and CHOY, Circuit

Judges, and BONSAL, *

District Judge

CHOY, Circuit Judge:

Appellants, Lawrence and Nellie

Fry, are members of the Confederated

Tribes of the Colville Reservation

(the Tribe). They appeal from a judg-

ment of the district court holding that

their income derived from logging opera-

tions on Reservation land is not exempt

ofP-

from federal income taxation. We

Affirm.

Kettle Falls Lumber Company, a non-

Indian concern, contracted with the

Tribe to cut timber from unallotted

lands of the Reservation.1/ Lawrence

Fry, in turn, was hired by Kettle Falls

as a logging subcontractor, but Fry him-

self had no direct contractual rela-

tionship with the Tribe. The majority

of Fry's employees were Indians. Fry

and his wife paid income taxes on the

income derived from this logging opera-

tion and then sued for a refund.2/ The

district court granted the Commissioner's

motion for summary judgment. This

appeal followed.

At the outset, appellants concede

*Honorable Dudley B. Bonsal, United

States District Judge for the Southern

District of New York, sitting by desig-

nation. 12

that the general rule is that Indians,

like other United States citizens, are

subject to federal income taxation un-

less exempted by treaty or statute. >/

Sauire v. Capoeman, 351 U.S. 1. 6

(1956). In Squire, the Supreme Court

found such an exemption in Sections

5 and 6 of the General Allotment Act

of 1887 (the Act), 25 U.S.C. Section 348

and 349, as amended. It is held that,

because the Act "evinces a congression-

al intent to subject an Indian allot-

ment to all taxes only after a patent

in fee is issued to the allottee," 351

U.S. at 8, and because "'the exemption

according tribal and restricted lands

extends to the income derived directly

therefrom'," id. at 9, quoting F. Cohen,

Handbook of Federal Indian Law 265

(1940), the income realized by a non-

competent Indian allottee from the sale

-13-

of timber taken from his trust- it protected ordinary income as well

allotted land was exempt from federal as capital gains; and that it applied

capital gains tax. See 351 U.S. at in spite of the fact that the land from

9-10 & n.19.4/ . which Stevens' income directly derived

In Stevens v. C.I.R., 452 F.2d 741 was not acquired by him through origin-

(9th Cir. 1971), we had occasion to al allotment. See 452 F.2d at 744-49.

construe the meaning and scope of the See also Kirkwood v. Arenas, 243 F.2d

Squire exemption. There, we held that 863 (9th Cir. 1957); United States v.

income directly derived by a noncompe- Daney, 370 F.2d 791 (10th Cir. 1966);

tent Indian allottee from farming and United States v. Hallman, 304 F.2d 620

ranching operations on his allotted (10th Cir. 1962); Big Eagle v. United

lands was exempt from federal income : States, 300 F.2d 765 (Ct. Cl. 1962);

taxation regardless of whether he acquired Asenap V. United States, 283 F. Supp.

the land as part of an original allot- ; 566, 573 (W.D. Ok11 1968); Nash v.

ment, by gift from an original allot- Wiseman, 227 F. Supp. 552, 553-55

tee, or by purchase from an original al- (W.D. Okl. 1963). But compare Bird Bear

lottee or the estate thereof. See 452 v. McClean County, 513 F.2d 190, 193

F.2d at 746, 749. We did so on the basis (8th Cir. 1975); Quinault Allottee Ass'n

that the same exemption found in the , v. United States, 485 F.2d 1391-1400

Act and construed by the Supreme Court (Ct. Cl. 1973), cert. denied, 416 U.S.

in Squire covered Stevens’ tribe; that 961 (1974) .5/

-14- -15-

Appellants acknowledge that, since concerned are tax-exempt®/ appellants

allotted lands are not here at issue, ’ cannot show that their income derives

the exemption construed in Squire and "directly" from those lands. While

Stevens does not, by its terms, apply. the Tribe's income from appellants’

They also admit their inability to cite logging operations may indeed be said to

a statutory or treaty exemption which derive directly from its ownership of

does specifically apply to them or their the unallotted Reservation lands,

activities. Nevertheless, they still appellants' income derives from a con-

seek an exemption, basing their argu- tract entered into between them and

ment on an analogy to Squire and Stevens. Kettle Falls, whose income in turn de-

Basically, appellants maintain that, since rives from a contract between it and the

the income which the Tribe itself direct- Tribe.2/

ly derives from the logging operations In both Squire and Stevens, the

on tax-exempt land is exempt from fed- income which was held to be exempt to the

eral income taxation, their income too allottee was from operations conducted

should be shielded. This argument is on his own allotted land. Indeed,in

without merit. Stevens, the Tax Court had held taxable

First, appellants here fail to point income derived from the ranching and

to any treaty or statute which, in the farming of land which was leased from

first instance, exempts the tribal lands : other allottees by Stevens, and he did

from federal taxation. Second, even if not appeal that ruling. See 452 F.2d

. “3 -

we assume that the Reservation lands ’

oM-

at 743. We, therefore, were concerned

only with income directly derived from

land which was held by the taxpayer,

though acquired other than by original

allotment. The Eighth Circuit, however,

has held that, even if income derived

from tribal land may be tax-exempt to

the tribe itself, the income which a

noncompetent Indian derives from cattie

operations conducted on such lands pur-

Suant to a grazing permit from the tribe

is not tax exempt. Holt v. C.I.R.,

364 F.2d 38, 41 (8th Cir. 1966), cert.

denied, 386 U.S. 931 (1967). See also,

Strom v. C.I.R., 158 F.2d 520 (9th Cir.

1947), aff'g 6 T.C. 621 (1946).

Appellants, however, are not to

be deterred. Recognizing that the link

between their income and tax-exempt

Indian land is probably too tenuous to

meet the test of precedent in this area,

-18-

they advance to bold variant on their

basic argument. They suggest that we

read Squire and Stevens, not as turn-

ing on the construction of a statutory

exemption, but rather as standing for

the broader proposition that income de-

rived by an Indian from activities which

directly benefit other Indians is tax-

exempt. They bring their own case with-

in such a rule by pointing both to the

benefit which the Tribe obtains in hav-

ing its timber logged and to that which

their Indian employees enjoy through

employment.

It is true that both Squire and

Stevens contain language to the effect

that ambiguities in treaties and statu-

tes are to be resolved in favor of

Indians. See, 351 U.S. at 6-7; 452

F.2d at 744. But it is one thing to

say that courts should construe trea-

ties and statutes dealing with Indians

-19-

Tax Comm'n v. United States, 319 U.S.

liberally, and quite another to say

‘ 598, 606-07 (1943). Accord, Agua

that, based on those same policy con-

Caliente Band of Mission Ind. v.

siderations which promoted the canon .

County of Riverside, 442 F.2d 1184,

of liberal construction, courts them-

1187 §& n.15 (9th Cir. 1971), cert.

selves are free to create favorable

denied, 405 U.S. 933 (1972).

rules. See, Holt, supra, at 40. Cf.

The exemption construed in Squire

Wells Fargo §& Co. v. Wells Fargo Exp.

and Stevens was intended to provide

Co., No. 74-2109 (9th Cir. April 22,

the allottee with unencumbered land

1977) (slip opinion at 775-76). We é

when he became competent. See Squire,

have previously refused to accept such

351 U.S. at 9-10 & n.19. It was not

an argument in this context, pointing

. to benefit him simply because he was

out that Congress is the body which 9 / ‘

an Indian,’ or to benefit Indians gen-

grants tax exemptions. See, C.I.R, ’

erally.10/Moreover, the efforts of the

v. Walker, 326 F.2d 261, 264 (9th Cir.

taxpayer in C.I.R. v. Walker, 326 F.2d

1964).°/ and,

261 (9th Cir. 1964), who served as

"(the Supreme) Court has

repeatedly said that tax exemp- Treasurer for his Indian community,

tions are not granted by impli-

cation. .. . It has applied surely benefited Indians more clearly

that rule to taxing acts affect-

Indians as to all others. and directly than did appellants' log-

ging operations, yet we found Walker's

«24-

Mescalero Apache Tribe v. Jones, 411 U. °

S. 145, 156 (1973), quoting Oklahoma

- 20-

salary to be subject to federal income FOOTNOTES

taxation.

Appellants can point to no treaty 1. (reference on page 1)

or act of Congress that grants an exemp- Reservation land is divided into

tion which is applicable to their case. al a eee hg ge tell al

Accordingly, the general rule of taxa- rir ee Eger Ee ngs! Big dln -yogae

bility controls, and the judgment of of the entire community .

the district court must be cheb Gay, tesa) 526 F.2d 261, 265

AFFIRMED. - (reference on page 1)

It appears that Mrs. Fry was not

involved in the logging venture

which produced the income at issue

here. Her status as taxpayer and

appellant apparently derives from

the fact that, although filing

separately during the relevant

years, she reported a portion of

the subject income on her tax re-

turns.

3. (reference on page 3)

For recent Supreme Court cases

which delineate the rules govern-

ing state taxation of Indians and

their activities, see Moe v. Salish

§& Kootenai Tribes, 425 U.S. 463

(1976); McClanaham v. Arizona

State Tax Comm'n, 411 U.S. 164

; (1973); Mescalero Apache Tribe v.

Jones, 411 U.S. 145 (1973). See

-22- also, United States v. Antelope,

45° U.S.L.W. 4361 (U.S. April 19,

-23-

1977); Confederated B. & T. of

Yakima Indian Nat. v. Washing-

ton, 550 F.2d 443 (9th Cir. 1977)

(en banc).

(reference on page 2)

A noncompetent Indian is

one who holds allotted lands

only under a trust patent and

may not dispose of his property

without the approval of the Sec-

retary of the Interior, It does

not denote mental incapacity.

Stevens v. C.I.R., 452 F.2d 741, 742 n.

1 (9th Cir. 1971).

Ss.

6.

(reference on page 3)

We have been called upon to construe

the Act in contexts other than taxa-

tion as well. See, e. g., United

States v. Southern Pacific Transp.

Co., 543 F.2d 676, 694-95 (9th Cir.

1976); Dillon v. Antlear Land Co.,

507 F.2d 940 (9th Cir. 1974), cert.

denied, 421 U.S. 992 (1975); Akers

v. Morton, 499 F.2d 44, 47-48 (9th

Cir. 1974), cert. denied, 423 U.S.

831 (1975).

(reference on page 4)

Indian tax appellants seem regularly

to call upon appellate courts - a.

this unsupported assumption. ee, e€.g.,

C.I.R. v. Walker, 326 F.2d 261, 264,

(9th Cir. 1964); Holt v. C. I. R.,

364 F.2d 38. 41 (8th Cir. 1966). cert.

denied . 386 U.S. 931 (1967). The basis

for the instant, assumed exemption for

tribal lands was neither briefed nor

o22-

7.

discussed at oral argumen:i bv

the varties.

(reference on page 4)

We are aware that anv tax on

appellants' income may be said

to indirectly tax the Tribe it-

self -- denending. of course.

on the ability of appellants to

shift the burden -- and to that

extent undercuts the tribal land's

assumed tax exemption. Such a

nexus does not meet the require-

ment that the impact be "direct."

Compare Aqua Caliente Band of

Mission Ind. v. County of River-

side, 442 F.2d 1184, 1186 (9th

cir. 1971), cert. denied, 405 U.S.

933 (1972). Crt.Superintendent

of Five Civilized Tribes v. Com-

missioner, 295 U.S. 418, 421

(1935) (return from reinvestment

of exempt income directly derived

from exempt land held taxable),

discussed in Squire, 351 U.S. at

9.

(reference on page 5)

As appellants assert, a policy argu-

ment can be made that noncompetent

Indians should be exempt from feder-

al taxation on income derived from

services performed on the reserva-

tion where they live, for the bene-

fit of the Tribe, notwithstanding

that they were paid by an outside

contractor. Such policy considera-

tions, however, are matters to be

determined by the Congress and not

by the Courts.

-25-

9. (reference on page 6) APPENDIX B

Although the point was not pressed ;

here, it appears that appellants also

argued below that it is "unconsti- , —_

tutional" for the Federal Govern- : Here is set forth the opinion

ouch aiar [of eee rendered in the United States District

Be ULS at 6. These the Coust Court, Eastern District of Washington.

emphasized the point:

The Government also relies

upon Choteau v. Burnet, 283

U.S. 691, but that case also

is not controlling, since it

held only that a competent

Indian, who had unrestricted

control over lands and income

therefrom, was not exempt from

income tax solely because of his

status as an Indian. ‘

351 U.S. at 9-10 n.19 (emphasis in ori-

ginal). See LaFontaine v. C.1I.R., 533 ,

F.2d 382 (8th Cir. 1976).

10 (reference on page 6)

See note 7 supra.

27a

» 26-

IN THE UNITED STATES DISTRICT

COURT FOR THE EASTERN

DISTRICT OF WASHINGTON

LAWRENCE F. FRY and

NELLIE R. FRY, husband

and wife, CIVIL NO.

C-74-192

Plaintiffs,

JUDGMENT

vs.

UNITED STATES OF AMERICA,

Defendant.

Name ee Nae Ne Ne Ne Ne See” See See” See? eee”

This action having come on for

hearing on the defendant's motion for

summary, judgment, and the Court having

duly considered all the facts, written

briefs and oral arguments of counsel for

all parties, and the Court having con-

cluded that there is no genuine issue

of a material fact, and that the defen-

dant is entitled to judgment as a mat-

ter of law,

IT IS HEREBY ORDERED that the

- 20-

plaintiffs' complaint be dismissed

with prejudice.

D E ICT JUDGE

January 28, 1976

DATE

Entered in Civil Docket on 1/29/76

-29-