Amicus Curiae Brief — McClanahan v. Arizona Tax Comm'n

JPREME COURT

OF THE

UNITED STATES

OCTOBER TERM, 1971

Nos. 71-738, 71-834, 71-1031

> APACHE Tux, Petitioner,

un OF THE STATE or New Mexico, and

En

pn 1 on behalf of herself

I others similarly — Appellant,

a Srarz Tax an Appellee.

lamp TONASEKET, Appellant,

Fi v.

= or WASHINGTON, et al., Appellees.

7 EI RTIORARI TO THE COURT OF APPEALS

MEXICO, AND ON APPEAL FROM

REME COURT OF ARIZONA AND

JF PREME COURT OF WASHINGTON

or AMICUS CURIAE MULTISTATE TAX

„ 6 %%% % D»ũ∘ę %%% „„ „ „AQitv

„ 5 52 „%%% fl „„ „„

„ % % % %rn %%% %%% %%% % % %%% %%% „„ „ „„ „ 4 „„ „ „ „

5 1. An Indian Indian Reservation is Within the Territorial

© Jurisdiction of the State in Which it is Located.... 8

‘i * Be n of the Taxes in the Instant Causes Is Not

a tee . . ee ee ee

: flict With the Right of Self-Government.... 27

5. Squire v. Capoeman, 351 U.S. 1, 100 L ed 883 (1956)

Does Not Preclude Application of the Taxes in the

%%% C „„ „ 29

GONcLUSICkc( „ 31

TABLE OF CASES

Agua Caliente Band of Mission Indians v. County of

_ Riverside, 442 F 2d 1184 (CCA 9th, 1971), cert. den.

U.S. Supreme Court Feb. 22, 1972...........----+++-

Alabama v. King & Boozer, 314 U.S. 1, 86 L ed 3 (1941)..

Choteau v. Burnet, 283 U.S. 691, 75 L ed 1353 (1931)..

. v. Walker, 326 F 2d 261 gag

Curry v. United States, 314 U.S. 14, 86 L ed 9 (1941)..... 19

Draper v. United States, 164 U.S. 240, 41 L ed 419 (1896).. 4

Esso Standard Oil v. Evans, 345 U.S. 495, e eee

Civilized Tribes v. Com'r of Int. Rev., e x 418,

L ed 1517 (1983 )))j)õ)) ...d 7, 23, 24, 25

Graves v. New York, 306 U.S. 466, 83 L ed 927 (1939) 12, 19, 31

Helvering v. Mountain Producers Corp., 303 U.S. 376, 82

+ Led . 7, 19, 20, 21, 23

James v. Dravo Contracting Co., 302 U.S. 134, 82 L ed 155

(1937) 19

eeeeeeseseeseeeeeeeeeeeeeeeeeseeeeeeeeeeeeeeeee

2 Indians Jacket v. Johnson Coun’ 80,

8 Wall 737, ied oT 1888). eee,

v. State Treasurer of Oklahoma, 297 U.S. 420 80

Ted 771 (1936) PVP 7, 23, 24

urdy v. United States, 246 U.S. 263, 62 L ed 706 (1918) 7

tana Catholic Missions v. Missoula County, 200 U.S.

// „„ „ „„ „„ „„

14

As Chief Justice Marshall stated: “(T]he power of

taxing the people and their property is essential to the

very existence of government. If the Indian self-

government guaranteed by treaties and acts of Congress

is to be a reality, Indians must have effective power to

raise the revenue necessary to support governmental fune-

tions. The severe economic poverty on most Indian reser-

vations, including the Navajo reservation, creates a meager

tax base. To reduce this base still further by allowing state

taxation of individual tribe members will seriously under-

cut the American Indians’ efforts toward self-improvement

and self-government. Such taxation would effectively de-

stroy the “choice” of self-government offered the Indians’

by treaty and under the Indian Reorganization Act of

1934," and would eviscerate the Indians’ right to promul-

gate, administer, and enforce their own tribal civil and

criminal laws recognized in Title IV of the Civil Rights

Act of 1968. ‘

State taxation of the income of individual Indians re-

siding on reservations does, contrary to the holding of the

Arizona Court of Appeals below, significantly interfere

with the Indians’ right to be self-governing. If, as recog-

nized by this Court in Williams v. Lee, 358 U.S. 217 (1959),

state assumption of jurisdiction over the personal debt of

an individual Navajo can affect tribal sovereignty, it is

clear that the asserted power to tax the income of all tribal

Indians will have a more serious and direct impact on the

ability of the Navajo Tribe to exercise its sovereign gov-

ernmental functions. See also Kennerly v. District Court

of Montana, 400 U.S. 423, 426-427 (1971).

23 McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 428 (1819).

25 U.S.C. §§ 461-479.

15

II.

Due process of the law prevents states from levying

taxes upon Indians for whom it has only minimal gov-

ernmental responsibilities.

Amicus Curiae believes that a state should not have

jurisdiction to tax Indians to whom it provides only mini-

mal governmental services. The argument draws support

from the proposition, discussed above, that where a tribe

continues to govern its members and provide traditional

governmental services to them, the states may not exercise

conflicting jurisdiction. In Warren Trading Post v. Arizona

Tax Commission, 380 U.S. 685, 691 (1965), Justice Black

compared in detail the nature of the governmental services

provided to individual Indians by the State and by the

tribe with the assistance of the federal government, con-

eluding : |

[S]ince federal legislation has left the State with no

duties or responsibilities respecting the reservation

Indians, we cannot believe that Congress intended to

leave to the State the privilege of levying this tax.

Even where a state’s power to tax Indians has been sus-

tained, as in Oklahoma Tax Commission v. United States,

319 U.S. 598 (1942), this Court has stressed that the nature

and quantity of governmental services received by Indians

from the State, and the failure of the Indian tribes to pro-

vide such services, were critical factors in determining

whether the State might “reasonably” levy a tax. Speaking

of the Oklahoma Indians, Justice Black noted:

Oklahoma supplies for them and their children schools,

roads, courts, police protection and all the other ben-

16

efits of an ordered society. Citizens of Oklahoma must

pay for these benefits. (319 U.S. at 608-609)

A state’s lack of power to tax the members of self.

governing Indian tribes, such as the Navajo Tribe of

Arizona and the several tribes of Montana, may be further

demonstrated by analogy to a state’s lack of power to

tax a foreign entity. In the leading case of Wisconsin v.

J. C. Penney Co., 311 U.S. 435 (1940), this Court noted that

such power is subject to the due process requirements of

the Fourteenth Amendment,“ and that consequently due

process requires that the power to tax bear some relation

to the protection, services, and benefits conferred by the

state upon the taxed entity.

“Taxable event,” “jurisdiction to tax,” “business

situs,” “extraterritoriality,” are all compendious ways

of implying the impotence of state power because

state power has nothing on which to operate. These

tags are not instruments of adjudication but state-

ments of result in applying the sole constitutional test

for a case like the present one. That test is whether

property was taken without due process of law, or, if

paraphrase we must, whether the taxing power exerted

by the state bears fiscal relation to protection, opportu-

nities and benefits given by the state. The simple but

% Indians were made citizens of the United States for purposes

of the Fourteenth Amendment by the 33 Act of 1924, 43

Stat. 253, as amended, 8 U.S.C. § 1401(a) (2) (1966) :

(a) the following shall be nationals and citizens of the

United States at birth:

* * * * *

(2) a person born in the United States to a member of

an Indian, Eskimo, Aleutian or other aboriginal tribe: Pro-

vided, That the granting of citizenship under this subsection

shall not in any manner impair or otherwise affect the right

of such person to tribal or other property ;

See ConEn at 153, 179.

17

controlling question is whether the state has given

anything for which it can ask return. (311 U.S. at 444)

(Emphasis supplied.)

This test was reaffirmed as recently as 1967 in National

Bellas Hess, Inc. v. Dep’t of Revenue, 386 U.S. 753, 756

(1967). See also General Motors Corp. v. Washington, 377

U.S. 436, 441 (1964); Northwestern States Portland Ce-

ment Co. v. Minnesota, 358 U.S. 450, 465 (1959); Interna-

tional Harvester Co. v. Dep’t of Taxation, 322 U.S. 435,

442 (1943); and Porto Rico Telephone Co. v. Descartes, 255

F.2d 169, 175 (1st Cir. 1958).

In National Bellas Hess, supra, the State of Illinois was

prohibited from imposing the duty of use tax collection

and payment upon an out of state, mail-order seller. The

minimal benefits provided by Illinois to the seller in that

case, such as the use of banking and credit facilities and

access to Illinois courts,“ were not considered sufficient to

justify the imposition of the tax on the foreign entity.

The services provided to the Navajos solely by the State

of Arizona are minimal compared to those provided by the

Navajos themselves, by the federal government, and by

the State with all but complete reimbursement from the fed-

eral government.* The Navajos, like the Montana tribes,

provide their own executive administration, police force,

tribal courts—both civil and criminal, educational pro-

grams and health programs. The Navajo Tribe has an

* 386 U.S. at 762 (Fortas, J. dissenting).

™* See inter alia, 20 U.S.C. §§ 631 et seg. (school aid in federally

impacted area) ; 25 U.S.C. § 318(a) (Reservation roads) ; 25 U.S.C.

§452 (Educational, medical, social programs); 25 U.. C. § 639

welfare programs) ; 42 U.S.C. § 2002 (health service program) ; 25

R. § 33.4 (education).

2

The Multistate Tax Commission is the official

seative agency of the Multistate Tax Com

pact entered into by twenty-one states as full men-

bers, and by fifteen states as associate members.

It is significant to the Multistate Tax Commis.

sion that the applicability of various state excises as

pertains to Indians and the Indian tribal organiza-

tions both on and off the reservations and in reference

to sales to both Indians and non-Indians be clarified

by this court. In Mescalero, there is a question posed

concerning the the excise tax status of business op-

erations off the reservation, apparently conducted

by an organized Indian tribe through a corporation

organized by the tribe. McClanahan involves the ap-

plication of an income tax to an Indian in her individ-

ual capacity as a resident of the state of Arizona re-

siding on the Navajo reservation where she earns the

income. Tonasket is concerned with cigarette sales

primarily to non-Indians by an individual Indian on

his allotted land on the Colville tribe reservation, jur-

isdiction over which has been conceded to the state of

Washington. 4

Each of these cases poses serious tax problems

for many of the Multistate Tax Commission mem-

bers. Stretched to their ultimate conclusions, argu-

ures of 21 states have

3

ments in these three cases against state tax jurisdic-

tion would free from any state excise taxes the busi-

ness and other income-producing activities of all

Indians, whether carried on within the confines of

an Indian reservation or outside the Indian reserva-

tion, and whether carried on by an individual Indian

or by a tribe or by an independent corporation cre-

ated by the tribe.

STATEMENT OF FACTS

The significant facts in each of these cases have

been set forth in other briefs, and need not be re-

peated here in any detail. In bare outline, they are

as follows:

1. Tonasket.

Tonasket, a full blood member of the Colville

tribe, conducts a retail business (primarily for the

sale of cigarettes) which he owns on his allotted lands

on the Colville Indian reservation. He purchases

name brand cigarettes from out-of-state distributors

and then sells them primarily to non-Indians free of

any state tax. The federal cigarette tax is paid on all

cigarettes which he sells. It is clear that profits from

Tonasket’s business are subject to the federal in-

come tax. The Colville tribe has given its consent to

the state of Washington to assume criminal and civil

jurisdiction, which Washington has done pursuant

= gs Law 83-280, 67 Stat. 588, 28 U.S.C.A. §

1360 (1964), and chapter 37.12 Revised Code of

Washington (RCW).

2. McClanahan.

McClanahan is a full blood member of the Nav-

4 ;

‘ajo tribe; resides on the Navajo reservation in Ari-

zona; and earns wages from employment on the res-

ervation. It is clear that her income in question is

subject to the federal income tax.

3. Mescalero ;

The Mescalero Apache tribe has constructed and

operates ski resort facilities on properties off the res-

ervation leased by a tribal corporation from the

United States Forest Service. The development of

the facilities was made possible by loans from the

United States under authority of 25 U.S.C. 470, but

the facilities were built by and are operated by the

tribal corporation subject to federal approval as to

plans for initial facilities, construction of improve-

ments and arrangements for sub-leasing, budgeting

and accounting.

SUMMARY OF ARGUMENT

There is no question, as pertains to these three

cases (Mescalero, McClanahan and Tonasket), that

the location of the respective taxable activities is

within the territorial limits of the respective states

which are asserting jurisdiction. No treaties, state-

hood enabling legislation or federal statutes remove

these locations from the territorial limits of the re-

spective states. Surplus Trading Co. v. Cook, 281

U.S. 647, 74 L ed 1091 (1930); State of New York

ex rel. Ray v. Martin, 326 U.S. 496, 90 L ed 261

(1946) ; United States v. McGowan, 302 U.S. 535,

82 L ed 410 (1938); United States v. McBratney,

104 U.S. 621, 26 L ed 869 (1882) ; Draper v. United

States, 164 U.S. 240, 41 L ed 419 (1896); Thomas

ts

gsi 5

v. Gay, 169 U.S. 264, 42 L ed 740 (1898) ; Wagoner

—

v. Evans, 170 U.S. 588, 42 L ed 1154 (1898); Mon-

‘tana Catholic Missions v. Missoula County, 200 U.S.

118, 50 L ed 398 (1906) ; Williams v. Lee, 358 U.S.

217, 3 L ed 2d 251 (1959); Organized Village of

‘Rake v. Egan, 369 U.S. 60, 7 L ed 2d 573 (1962). It

is clear then that jurisdiction exists in a general

sense. The question is whether or not it exists in

terms of the spécific manner in which it is exercised

in these tax cases. 2

_ The question is answered by an analysis of the

legal principles which apply to these respective mat-

ters. None of these principles would preclude the ex-

ercise of jurisdiction. The states of Washington,

‘New Mexico and Arizona are not taxing any prop-

erty or interests in property. The taxes in issue are

general excise taxes imposed on income or receipts

derived from employment or business operations.

7 In the Tonasket case, there is an affirmative as-

‘sumption of criminal and civil jurisdiction by the

state of Washington and a relinquishment of juris-

dietion by the Colville tribe pursuant to applicable

federal (PL 83-280, 67 Stat. 588, 28 U.S.C.A. §

1360 (1964), supra), state (chapter 37.12 RCW,

supra), and tribal law (Colville Business Council

Resolution 1965-4). Any claimed tax immunity in

the Tonasket case must first be predicated on the

argument that the controlling federal statute does

not mean what it says. Assuming, arguendo, that

the federal statute (PL 280) does not mean what it

(Says, Tonasket must establish either (1) that he is

e referred to as PL 280.

a federal instrumentality and thus impliedly immune

from state excise taxes in his private profit propri-

etary endeavors, or (2) that the United States has

preempted. the field. Since there is no reason to sup-

pose that the doctrine of implied governmental im-

munity is broader as pertains to Indians in their

individual capacity than to anyone else, it is clear

that this doctrine does not grant Tonasket any en-

emption. Furthermore, there has been no preemption

because Tonasket is not in any way regulated by the

fetieral governines, in regard to the. sties In wht

the state of Washington is interested, namely, his

sales to non-Indians (Washington exempts from its

cigarette tax laws sales by Indians to Indians).

In McClanahan, the only restriction applicable

is that of implied governmental immunity. It is no

more applicable to McClanahan than to Tonasket.

In Mescalero, the issues are again those pertain-

er

ty. There is no preemption be-

der Act applies only to traders

on the reservation. Furthermore, no exemption from

state taxation can be inferred from the fact that the

federal government loaned money to finance and

took the normal lender precautions of overseeing the

utilization of that money within the terms of the

Joan: Nor may immunity be inferred from the fact

that the ski resort is located on federal forest lands

leased to the tribe. Finally, in conducting a propri

etary enterprise, the tribe is not impliedly immune

trom state excise taxes under the doctrine of implied

“governmental immunity.

7

Apart from any consideration of express federal

legislation (PL 280), Mescalero, McClanahan and

‘onasket are controlled by the tax decisions of this

court upholding taxation of Indians in the Oklahoma

estate tax cases of Oklahoma Tax Com. v. United

States, 319 U.S. 598, 87 L ed 1612 (1943), and West

v. Oklahoma Tax Commission, 334 U.S. 717, 92 L ed

1676 (1948) ; the United States income tax cases of

Five Cwilized Tribes v. Com’r of Int. Rev., 295 U.S.

418, 79 L ed 1517 (1935), Choteau v. Burnet, 283

U.S. 691, 75 L ed 1353 (1931) ; Com’r of Int. Rev. v.

Walker, 326 F.2d 261 (CCA 9th, 1964) ; and Helver-

ing v. Mountain Producers Corp., 303 U.S. 376, 82 L

ed 907 (1938); and the state income tax case of

Leahy v. State Treasurer of Oklahoma, 297 U.S. 420,

80 L ed 771 (1936); and property and excise tax

cases such as McCurdy v. United States, 246 U.S.

263, 62 L ed 706 (1918), Shaw v. Gibson-Zahniser

Oil Corp., 276 U.S. 575, 72 L ed 709 (1928), and

Agua Caliente Band of Mission Indians v. County of

Riverside, 442 F 2d 1184 (CCA 9th, 1971), cert. den.

U.S. Supreme Court February 22, 1972.

Arguments for appellants’ position in these

causes proceed upon the erroneous assumption, con-

trary to the Kake case, supra, and to decisions re-

ferred to both herein and in Kake, that the states

‘possess no tax jurisdiction over Indians except as

specifically authorized by Congress. Since there is no

expressed or implied prohibition to the tax imposi-

tions here questioned, appellants’ arguments are

eleariy fallacious.

8

The Kake case, ewpra, and Williams v. Lee,

supra, establish the principle that the states have a

residual jurisdiction over Indian affairs subject to

two conditions: (1) That Congress has not pre-

empted the field, and (2) that the exercise of state

jurisdiction does not interfere with the Indians’

right of self-government. —

Where there is no conflict between federal and

state authority, and when the state action is in an

area left void in fact by Indian local self-government,

both logic and necessity dictate that state law should

fill the gap.

ARGUMENT

1. An Indian Reservation is Within the Territorial Jur-

isdiction of The State in Which it is Located.

Premised on the early cases of Worcester v.

Georgia (U.S.), 6 Pet. 515, 8 L ed 483; Kansas In-

dians (Blue Jacket v. Johnson County) (U.S.), 5

Wall 737, 18 L ed 667 (1866) ; and New York Indians

(Fellows v. Denniston) (U.S.), 5 Wall 761, 18 L ed

708 (1866), the argument is made on behalf of the

appellants in these causes that the states have no

jurisdiction over Indian reservations except as ex-

pressly authorized by Congress. This argument is

best expressed in terms of geography; an Indian res-

ervation is off limits” to state jurisdiction. However,

under later cases such as Kake v. Egan, supra, 369

U.S. 60, 70 L ed 2d 573 (1962); Surplus Trading

Co. v. Cook, supra, 281 U.S. 647, 74 L ed 1091

(1930); New York ex rel. Ray v. Martin, supra,

326 U.S. 496, 90 L ed 261 (1946) ; United States v.

2 9

0 15

.

- MeGowan, supra, 302 U.S. 536, 82 L ed 410 (1938);

and Williams v. Lee, supra, 358 U.S. 217, 3 L ed 2d

251 (1959), any such territorial approach to the

problem of state taxing jurisdiction is unwarranted,

and obscures the true nature of the problems in the

instant cases.

Surplus Trading Co. v. Cook, supra, described

the conditions under which the states may exercise

jurisdiction over Indian reservations, as follows:

“It is not unusual for the United States to own

Within a state lands which are set apart and

uséd for public p Such ownership and

use without more do not withdraw the lands

from the jurisdiction of the state. On the con-

trary, the lands remain part of her territory

and within the operation of her laws save that

the latter cannot affect the title of the United

States or embarrass it in using the lands or in-

terfere with its right of disposal.

“A typical illustration is found in the usual

dian reservation set 1 within a state as

a place where the United States may care for its

Indian wards and lead them into habits and

Ways of civilized life. Such reservations are part

of the state within which they lie and her laws,

civil and criminal, have the same force therein

as elsewhere within her limits, save that they

can have only restricted oo to the In-

dian wards. * * (281 U.S. at 650-651.)

An even more unqualified statement was made

in State of New York ex rel. Ray v. Martin, supra:

_ “* : in the absence of a limiting treat

obligation or Congressional enactment each

State had a right to exercise jurisdiction over

Indian reservations within its boundaries.

_ * * *” (326 U.S. at 499, quoted with ap-

proval in Rabe v. Egan, 369 U.S. at 74.)

10

In United States v. McGowan, eupra, this court

held, with reference to the Reno Indian colony in

Nevada, which was purchased by the United States

for use of Indians:

“The Federal prohibition against taking intoxi-

cants into this Indian colony does not deprive

| guard

affect the within the colony, of

pe | state —— with the Federal en-

actments.” (302 U.S. at 539.)

As more recently stated by this court in Kake v.

Egan, supra: |

‘ general notion drawn from Chief Justice

26 L ed 869, and v United

States, 164 US 240, 41 L. ed 419, 17 8 Ct 107,

the Court held that murder of one non-Indian by

another on a reservation was a matter for state

law.” (369 U.S. at 72-73.) (Emphasis added.)

11

In Wiliams v. Lee, supra, this court, in com-

menting on the principles enunciated in Worcester

v. Georgia, supra, stated as follows:

Over the years this Court has modi-

fied these principles in cases where essential tri-

440 * *

TABLE OF CASES—Continued

25, 26, 28

es, 319 U.S. 508, 87 L

J. 15, 18, 19, 21, 22, 23, 25, 27, 2

„„ „„ „ „ 4 „„ „

—

700 (195) e eee 7

Squire v. Capoeman, 351 U.S. 1, 100 L ed 888 (1956) 13, 29, 30

State of New York ex rel. Ray v. Martin, 326 U.S. 496, 90

Led 1 (1946) /½ůn iH nee reeesereseces 4, 8, 9

Sullivan v. United States, 208 U.S. 160, 23 L. ed 2d 162.

(6 ꝶ:nun . . . . „ .

Trading Co. v. Cook, 281 U.S. 647, 74 L. ed 1,

410

ns. bbb @ 6,8,3

(1938)

United States v. Rickert. 188 U.S. 482, 47 L ed 532 (1903) .. 3

=

(1948)

Williams v. Lee, 358 U.S. 217, 3 L ed 2d

Worcester v. Georgia (US), 6 Pet. 515, 8 L ed 483... .8, 11, &

FEDERAL STATUTES—Continued

Page

Indian Reorganization Act of 1994 (48 Stat. . (1934), 25

88 r 16. 17

32 Stat. 1008 (25 USC § 2 %%/ 3

Public Law 83-280, 67 Stat. 588, 28 USCA § 1360 (1964) 3,5, 7

STATE STATUTES

r Chapter 37.12 Revised Code of Washington.......... 3, 5

OTHER AUTHORITY

Colville Business Council Resolution 1965-4............. 5

D FAK. &ͤ ³˙!A;·¹u 16

% õ οͤ⸗ nnr. 5 17

TEXTS ?

Cooley on Taxation, Vol. 1 (ich ed.), § 260, 292. 413

IN THE

OF THE

UNITED STATES

OCTOBER TERM, 1971

Nos. 71-738, 71-834, 71-1031

Mescateno APACHE TRIBE, Petitioner,

: v.

FRANKLIN Jones, COMMISSIONER OF THE BUREAU

or Revenve or THE State or New Mexico, and

tue Bureat or RevenveE or THE STATE OF

New Mexico

* Respondents.

RosaLinp McCLANAHAN, on behalf of herself

and all others similarly 2 Appellant,

Amon State Tax Constants. Appellee.

LzonaRD TONASKET, Appellant,

v.

Tae Strats or WASHINGTON, et al., Appellees.

ON CERTIORARI TO THE COURT OF APPEALS

OF NEW MEXICO, AND ON APPEAL FROM

SUPREME COURT OF ARIZONA AND

SUPREME COURT OF WASHINGTON

BRIEF OF AMICUS CURIAE MULTISTATE TAX

COMMISSION

STATEMENT OF INTEREST

This brief is submitted, with the written con-

sent of the parties, to permit the Multistate Tax

Commission to supplement the arguments of the ap-

pellees in each of these causes.

1

es

14

fact that not all property of every citizen is available

to meet validly imposed tax obligations. This alone

does not invalidate a tax.

In United States v. Alabama, 313 U.S. 247, 85

Led 1327 (1941), this court recognized the validity

of a state tax and the lien arising thereunder, even

though the lien could not be enforced against the

United States without its consent because of federal

ownership of the property subject to the lien.

The precise question of collection of a state tax

from Indian restricted or trust property was faced

by the court in West v. Oklahoma Tax Commission,

supra, 334 U.S.717, 92 L ed 1676 (1948). This court

there noted:

Bho tas

8.

2

—

ge

1 80 a8 to avoid the

“The result of

‘

tive

that the transfer be

Commission Case ts

n Us at 727)

iH

|

i

15

toward the Indians and their lands supports the tax

exemption here claimed. This protective policy which

placed the Indian in a ward or dependent status was

not only implemented by restrictions on the Indian’s

ability to dispose of his land, but was also imple-

mented by the Indian Trader Act (25 USC 58 261-

264) and specific policies and programs of the gov-

ernment for the economic rehabilitation of the In-

dians. :

However, the fact that in these particulars Con-

gress has sought to treat the Indian as a ward or

dependent of the United States does not create any

general immunity from state taxation.

As noted by this court in Oklahoma Tax Com.

v. United States, supra:

It is true that our interpretation of the

1933 statute must be in

sider the wardship or dependency status of the Indian

as a basis for tax exemption is reinforced by the

limited nature of the overall protective policy men-

tioned above.

Coupled with this protective policy was the pol-

icy of removing the Indian and his land from any

dependent or wardship relation with the United

States, while preserving tribal customs and laws.

Such, for example, was the purpose of the Indian Re-

organization Act of 1934 (48 Stat. 984 (1934), 25

U.S.C. 461 et seq.). The following sections of the

United States Code are provisions of this act and em-

body those dual policies.

25 U.S.C. § 465 authorizes acquisition of lands

for Indians which are tax-exempt and held in trust.

Up to $2 million may be appropriated for this pur-

pose. In congressional debate on this section, the

purpose was stated to be consolidation of badly

checker-boarded reservations and supplementation

of Indian stock grazing and forest lands, 78 Cong.

Rec. 11730.

25 U.S.C. § 470 establishes a $20 million revolv-

ing fund and authorizes loans to Indian chartered

for the purpose of promoting economic

development of tribes and members. Congress in-

tended this provision to be broad enough to permit

loans to corporations or individual members, 78

Cong. Rec. 11730. .

17

An Indian chartered corporation for profit does

not have the same status as an Indian tribe under the

Indian Reorganization Act of 1934. The latter is

organized for governmental purposes under 25

U.S.C. § 476. The former is organized under 25

U.S.C. § 477 and requires petition by one-third of

the adult Indians and ratification by a majority of

them of a corporate charter. Such charter may con-

vey to the incorporated tribe power to manage real

and personal property and “such further powers as

may be incidental to the conduct of corporate busi-

ness, not inconsistent with the law,” 25 U.S.C. § 477.

(Emphasis added. )

The intent of congress in separating its appro-

priations for land acquisition and loans, as well as ‘

its provisions for tribal and corporate organization,

is clear. Tribal organization and the consolidation of

reservations further the federal policy of preserving

Indian customs and management of their own affairs.

Corporate organization and the loan fund further

the federal policy of integrating the Indians into the

American economic life. As the sponsor of the Indian

Reorganization Act stated:

! the program of self-support and of

business and civic experience in management

of their own affairs * * will permit in-

numbers of Indians to enter the white

world on a footing of equal competition.” (78

Cong. Rec. 11732) (Emphasis added. )

This goal of economic integration is being at-

tained ; as instances of this, we need only look to the

cigarette selling activities of Mr. Tonasket, and the

_ tiki resort enterprise of the Mescalero Apache Tribe.

18

Their activities are in direct competition with sim-

ilar non-Indian business enterprises, and their finan-

cial success depends upon essentially non-Indian mar-

ket or clientele. -

: ‘Neither property tax exemptions on trust or re-

stricted land, nor possible collection problems, nor

wardship status should exempt these activities from

the common tax burden, or provide the basis for im-

plying a congressional intent that there be such an

exemption.

“This Court has ia

dose ube aot granted by tn: .

(ha applied that rule ang a

Indians as to all others. 2

v. Vnited States, 215 U 84 606)

3. The Principle of Implied Governmental Immunity

Does Not Free The Appellants From the Taxes in

Question.

In substance, the appellants and amici curiae

in these causes argue for the application of the prin-

ciple of implied governmental immunity. However,

the fact that the taxes in.question here may have i in-

direct or remote effect on some United States govern-

ment policy concerning Indian affairs, or on self-

government reserved to the Indian tribes by treaty,

does not control.

The instant cases present, we suggest, a famil-

iar problem in a perhaps less familiar context, i. e.,

the problem of implied governmental tax immunity.

The decisions of this court on the question of state

taxing power as it affects federal activities, and the

decisions on the question of federal taxing power as

19

t affects state activities, provide clear guidelines for

“resolving the problem of state taxing power as it

affects Indian activities. We also suggest that the

pattern of this court’s decisions is to resolve questions

in each of these three separate areas on a consistent

basis, and that the clear trend of these decisions, in

each of the three areas, is to narrow the scope of im-

plied tax immunity, be that immunity invoked on be-

half of the United States, a state, or an Indian. This

narrowing has occurred primarily through a com-

plete discarding of the former “economic burden”

test. See generally Graves v. New York, supra, 306

U.S. 466, 83 L ed 927 (1939); Helvering v. Mountain

Producers Corp., supra, 303 U.S. 376, 82 L ed 907

(1938) ; Oklahoma Tax Com. v. Texas Co., 336 U.S.

342, 93 L ed 721 (1949) ; Alabama v. King ck Boozer,

314 U.S. 1, 86 Led 3 (1941) ; Curry v. United States,

314 U.S. 14, 86 L ed 9 (1941) ; James v. Dravo Con-

tracting Co., 302 U.S. 134, 82 L ed 155 (1937); Penn

Dairies, Inc. v. Milk Control Com. of Pennsylvania,

$18 U.S. 261, 87 L ed 748 (1943); Esso Standard

Oil Co. v. Evans, 345 U.S. 495, 97 L ed 1174 (1958) ;

United States v. City of Detroit, supra, 355 U.S. 466,

2 Led 2d 424 (1958).

Of these cases, Oklahoma Tax Com. v. Texas Co.,

supra, Helvering v. Mountain Producers Corp., su-

pra and Oklahoma Tax Com. v. United States, supra

are of special importance. ee

In Oklahoma Taz Com. v. Texas Co., supra, this

court had before it the question of:

whether a lessee of mineral rights

5 in allotted and restricted Indian lands is immu-

from such lands. (836 U.S. at 348)

In answering this question, the court noted:

“* ©. *fT}t has long been established that

owned by a private person and used

in performing services for the Federal

t is subject to state and local ad

valorem taxes. * * (336 U.S. at 350)

“Moreover, even if the status of respondents as

federal instrumentalities, in the sense in which

use the term, were fully conceded, it seems

to imagine how any substantial inter-

ference with performing their functions as such

in developing the leaseholds could be thought to

flow from requiring them to pay the small tax

The Court then noted the uniform pattern which

had developed both in the area of state taxation and

in the area of federal taxation:

4 * * this Court’s more recent pronounce-

ments have beaten à fairly large t from

its formerly prevailing ideas concerning the

breadth of so-called intergovernmental immu-

nities from taxation, a retreat which has run in

both directions—to restrict the scope.of immu-

nity of private persons seeking to clothe them-

selves with governmental character from both

federal and state taxation. The history of the

immunity, by and large in both aspects, repre-

sents a or expanding curve, tapering off

352) falling or con one.“ 1336 US.

This court then analyzed in detail the history

of some of the immunity cases as pertained to In-

dians. It attributed particular importance to Helver-

5

21

8 ing v. Mountain Producers Corp., supra, 303 U.S.

376, 82 L ed 907 (1988), a case involving federal

taxing power over an alleged state instrumentality.

In Helvering the court found that a lessee under

an oil and gas lease of state school lands is not entitled

to immunity, as a state instrumentality, from federal

taxation in respect of income derived from operations

under the lease. This same rule was applied in Okla-

homa Tax Com. v. Texas Co., supra, to the state

taxes there involved. The Helvering v. Mountain

Producers Corp. test, quoted in Oklahoma Tax Com-

v. Texas Co., supra, is that:

immunity from non-discriminatory

taxation sought a private person for his

property or use he is engaged in op-

erations under a government contract or lease

cannot be supported by merely theoretical con-

ceptions of interference with the functions of

government. Regard must be had to substance

and direct effects. *” (303 U.S. at 386)

In Helvering, the court further refined the test

by stating:

And where it merely appears that

one operating under a government contract or

lease is subjected to a tax with respect to his

profits on the same basis as others who are en-

gaged in similar businesses, there is no sufficient

d for holding that the effect upon the

cannons is other than indirect and remote.

(303 U.S. at 386-387)

In Oklahoma Taz Com. v. United States, supra,

319 U.S. 598, 87 L ed 1612 (1943), in upholding an

“Oklahoma estate tax, the court again affirmed Hel-

v. Mountain Producers Corp., supra, and

that:

a well

in

has

e

92 L ed 1676

1 128

ie ö te

States, oupra, was reaffirmed in West v. Oklahoms

Tax Commission, ewpra, 384 U.S, 717,

\|

23

(1948), and extended to property held in trust by

the United States for the benefit of the decedent In-

-dian and his heirs. The court there noted that its de-

cision in Oklahoma Tax Com. v. United States, supra,

‘foreclosed an application of United States v. Rickert,

188 U.S. 482, 47 L ed 582 (1903).

Thus, Rickert provides no basis for resurrecting

discarded notions of implied immunity, and should

be confined to its facts, i. e., to a situation in which a

property tax was imposed directly upon property

owned by the United States for the use and benefit

of an Indian.

The reference, in Oklahoma Tax Com. v. United

States, swpra, to the applicability of the federal es-

tate tax to Indians highlights an important principle

‘established by Helvering v. Mountain Producers

Corp., supra, Oklahoma Tax Com. v. Texas Co., su-

“pra, and Oklahoma Tax Com. v. United States, supra.

“Absent a clearly expressed congressional intent to the

contrary, Indian immunity from state taxation (or

lack thereof) should parallel Indian immunity from

25

federal taxation (or lack thereof) and each should

‘be determined by the same test.

mz principle is aleo established by decisions of

“this Court involving state and federal taxation of

“. Choteau v. Burnet, supra, 288 U.S. 691, 75 L ed

1858 (1981) ; Five Civilized Tribes v. Com’r of Int.

“Bev., supra, 295 U.S. 418, 79 L ed 1517 (1935);

Lean v. State Treasurer of Oklahoma, supra, 297

US. 420, 80 L ed 771 (1986). Choteau upheld the

imposition of the federal income tax on income re-

ceived by a member of an Indian tribe as his share of

royalties from oil and gas leases of tribal land, which

was payable to him without restriction. Leahy up-

held the imposition of a state income tax upon a com-

petent member of the Osage tribe on income from his

share of restricted mineral resources of the tribe.

This court there noted:

“The facts are substantially the same as those

presented in Choteau v. Burnet, supra, which

8 a federal income tax on a like payment.

licable statutes and decisions are dis-

cussed there. As Leahy was entitled to have the

income paid to him and was free to use it as he

saw fit, no reason appears why it should not be

taxable also by the State.” (297 U.S. at 421)

In Five Civilized Tribes v. Com’r of Int. Rev.,

supra, the court upheld the imposition of the federal

income tax on income derived from investment of

surplus income from restricted land which was ex-

empt from taxation as long as the title remained in

the original allottee. Upholding the tax, the court

noted: P

federal statutes

restricted land purchased for a full-blood Creek

ard of the United States—with trust funds

was not free from state taxation, and declared

that such exemption could not be implied merely

because of the restrictions upon the Indian’s

power to alienate.” (295 U.S. at 421) (Empha-

sis added.) ( n

The taxpayers in the instant cases are no more

federal instrumentalities, and immune as such from

state taxation, than were the taxpayers in Oklahoma

Tax Com. v. United States, supra, and Oklahoma Tax

Com. v. Texas Co., supra. And just as their income

producing activities are not immunized from the

seope of federal taxation, neither should they be im-

munized from the scope of state taxation.

In New York v. United States, 326 U.S. 572, 90

Led 326 (1946), this court refused to exempt the

state of New York from a federal tax imposed upon

sales of mineral waters when the state engaged in

the business of selling mineral waters. The court

then noted:

“It is en for present purposes that the im-

ri State from federal taxation would,

in this case, accomplish a withdrawal from the

taxing power of the nation a subject of taxation

of a nature which has been tionally within

that er from the beginning. Its exercise

a non-discrimina’ tax, does not cur-

3 nt more

pellants have not pointed to and do not rely upon any

express federal statutes or regulations which ex-

pressly prohibit the imposition of the state taxes in

question. However, a common argument of the ap-

pellants and amici curiae for appellants pertaining

to conflicting federal legislation stems from the no-

tion that the taxes in question are taxes somehow im-

posed upon restricted or trust lands or funds of the

Indians and Indian tribal organization in question,

such lands themselves being exempt from taxation by

reason of express treaty provisions. Such an argu-

ment misconceives the legal incidence and nature of

the taxes with which we are here concerned. McClan-

ahan involves a general income tax on earnings. It

has long been settled that an income tax is not a tax

on property or an interest in property. An income

tax, by its very nature, is an excise tax imposed upon

an abstract concept of taxable income. As stated in

Graves v. New York, 306 U.S. 466, 83 L ed 927

(1939) : :

4% ¢* * The theory, which anes wan. qual

. y or

cally a tax on its source, is no longer

= [cases cited] * * *” (806 U.S. at

The same is true in regard to the New Mexico

gross receipts tax and compensating (use) taxes in-

volved in Mescalero and the Washington cigarette

tax involved in Tonasket. A tax upon the use or sale

of property is not a tax on the property. Sullivan v.

United States, 395 U.S. 169, 23 L ed 2d 182 (1969);

United States v. Detroit, 355 U.S. 466, 2 L ed 2d 424

13

(1958). Indeed, if these taxes were considered prop-

erty taxes, they would undoubtedly be invalid by

reason of state law, as their imposition would violate

state constitutional property tax uniformity require-

ments.

The congressional policy of exempting from

state and federal taxes trust or restricted property

of Indians or Indian tribal organizations is not ap-

plicable to these causes. This type of property was

the subject of taxation involved in Squire v. Capoe-

man, 351 U.S. 1, 100 L ed 883 (1956). That case

properly held that the federal income tax could not be

applied to the proceeds of timber taken from the land

since it was in substance a tax on the land. In con-

trast, the taxes in the instant causes are personal

income or general business excise taxes. Their inci-

dence does not fall on any property or interest in

property.

A second common argument, related to the first,

is that since the taxes in question under state law

can create liens for collection against tax exempt

property of the Indians, the taxes themselves are in-

valid. However, the validity of the imposition of a

tax does not turn on whether or not all of the assets

or property of the taxpayer are available for enforce-

ment of the tax by lien, attachment, execution, or

otherwise. This court can take judicial notice of the

_. “This conclusion follows because the imposition of an additional

bia, aoe iis, 408 269 US

51 0 L.“ ad 354, S82 S Ct

15 (326 USS. at 888.886 18

eee it

is clear that none of the taxes in question so affect the

Indians or the federal government that they must be

stricken. They have only an indirect or remote effect

‘on any governmental operations or policies. The

Tonasket case revolves around the ability of an in-

dividual Indian to carry on the business of selling

cigarettes free of the Washington cigarette tax. The

McClanahan case involves the individual income tax

liability of an individual Indian. In Mescalero, an

Indian tribe claims to have the right to construct

and operate a ski resort business of substantial mag-

nitude without incurring any state liability what-

soever. It makes this claim even though the property

and business in question are located off reservation

property. :

_ Indirectly, the appellants and their amici cu-

riae are asking this court to do one of two things:

tions are instrumentalities of the federal government

or that Indians and their tribal organizations, to the

extent that they implement federal economic policy

for the Indians, are so closely related to a federal

instrumentality that immunity is to be implied.

Neither of these requests is supportable by the case

law defining the scope of governmental immunity of

the Indians from either state or federal taxation.

Furthermore, if the government’s objective is to

assimilate the Indians into society as competent

27

equal members of the business community—the

stated objective—it is difficult to see how this can be

accomplished without them sharing generally in the

privileges and responsibilities of government, which

includes their bearing their share of general business

tax obligations.

Indeed, a striving for equality of tax burdens has

been the source for this Court’s narrowing of the

scope of implied governmental immunity, including

the federal instrumentality doctrine. As stated in

ene sees beende United States, supra:

equality of sbigaton lon shuld be inser

we have recently swept awa

n — —

Should the Congress wish to resurrect such fa-

voritism and reverse the trend, it may do so by ex-

press enactment. But until it does, the trend of this

Court in sweeping away tax favoritism should con-

tinue.

4. The Taxes Imposed in These Causes Do Not Conflict

With the Indian Right of Self-Government.

In Kake v. Egan, supra, 369 U.S. 60, 7 L ed 2d

573 (1962), this court rightly noted that:

“Decisions of this Court are few as to the power

of the States when not granted Congressional

thori regulate matters affecting Indians.

en 9 0 (369 U.S. 74)

As to these decisions, however, the court noted:

These decisions indicate that even on reserva-

tions state laws may be applied to Indians unless

bead 1 would interfere with —

“government or impair a t

— e by federal law. righ gran ie (369

U.S. 75)

Does the right of reservation-self-government

prohibit the state taxes involved in the instant cases?

We suggest that it does not, and that these taxes are

perfectly compatible with that right.

I that right be conceived of as including the

right to impose a tax upon the same activities or

income as the state attempts to tax, no conflict there-

by arises. An exercise of the taxing power of even

such a sovereign as the federal government in no

way precludes state taxation of the same subjects.

Concurrent exercise of taxing powers by different

sovereigns is an inherent part of our governmental

system.

But should that right be conceived of as includ-

ing the right to be immune from any exercise of state

taxing power over commercial enterprises of the

tribe or its members? This problem is perhaps pre-

sented in its most acute form by the Mescalero case,

in which either the tribe or a corporation owned by

it is the taxpayer. We suggest that, even if the tribal

enterprise were fully on the reservation—which it is

not—its taxation by New Mexico would not be in

conflict with the tribe’s right of self-government.

Again, a case from the field of intergovern-

mental immunity provides the guideline.

The test applied by this court in New York v.

United States, supra, preserves unrestricted the tra-

ditional sovereign powers of the state, while at the

same time refusing to allow that sovereignty to be

a basis for immunizing from taxation state enter-

prises of the same type as are conducted by private

businesses. Certainly, the right of a tribe to self-

government should no more be a shield against taxa-

tion than is the sovereignty of a state. Again, tax

favoritisms may be established—both for a state or

a tribal business enterprise—as a matter of con-

gressional grace. But no such favoritisms should be

implied from the concept of self-government or sov-

ereignty, be it tribal or state.

5. Squire v. Capoeman, 351 U.S. 1, 100 L ed 883

(1956), Does Not Preclude Application Of The Taxes

In The Instant Causes.

In this brief, we have placed great reliance upon

Oklahoma Tax Com. v. United States, 189 U.S. 598,

87 L ed 1612 (1943), and West v. Oklahoma Tax

Com., 334 U.S. 717, 92 L ed 1676 (1948). By reason

of a Court of Claims’ decision (Mason v. United

States, June 16, 1972, appended to the Brief of Ami-

cus Estate of Rose Mason, filed in McClanahan) the

question arises as to whether this reliance is mis-

placed. For the Court of Claims held that Squire v.

Capoeman, supra, has overruled at least West, if not

both cases.

Note first that Squire v. Capoeman starts with

two basic principles which are central to our whole

brief:

We agree with the Government that In-

dians are citizens and that in ordinary affairs

of life, not governed by treaties or remedial leg-

islation, they are subject to the payment of in-

come taxes as are other citizens. We also agree

that, to be valid, exemptions to tax laws should

be clearly expressed. * *” (351 US. at 6)

Thus, the tax exemption found in Squire v. Capoe-

80

man rested upon a specific congressional enactment,

i. e., section 6 of the General Allotment Act, 25 USC

349. In applying this provision, this Court stated:

ment shall be free from all taxes, those in

being ane Sines wiitich milght tn the future be

. (351 U.S. at 83)

And the court in Squire v. Capoeman, supra, went

on to hold where timber on the allotment is converted

to money through sale of that timber, the exemption

applies to the proceeds of the sale, so as to preclude

a federal capital gains tax.

This holding does indeed cast doubt on one of

the grounds of West, i. e., it casts doubt on the propo-

sition that a tax, such as inheritance tax (or a capital

gains tax as in Squire) be valid as applied to

trust property even though its direct effect is to dim-

inish the corpus of the trust.

However, we do not rely, in the instant cases, on

this aspect of West. In none of the instant cases is the

tax involved either imposed upon or measured by

trust property or the proceeds from the conversion

thereof into money.

In essence, Squire held that Congress did not

intend to take away with one hand, through the capi-

tal gains tax, a tax exemption which it had granted

with the other hand, through section 6 of the General

Allotment Act. In the instant cases, in contrast, we

can find no congressional enactment which grants

any applicable tax exemption in the first place.

31

CONCLUSION

if not expressly forbidden by congressional enact-

ment. No exemptions are implied. Here, the Indians

have sought to engage in general business activities

or employment within the state. There is no reason to

not they are “competent” or “incompetent” pertains

solely to their relationship with their interests indi-

vidually or collectively in land set aside for their

benefit. It does not remove them as individuals from

the general jurisdiction of a state for the imposition

of genera] nondiscriminatory taxes which reach all

residents and citizens alike.

It should be further noted that these tax cases

upholding the state’s power to impose the taxes here

reservation self-government. To tax the Indians in

the instant cases does not any more interfere with

their exercise of the right of self-government than

does the state taxation of a judge’s salary interfere

with the right of the United States to govern itself.

Graves v. New York, supra, 306 U.S. 466, 88 L ed

927 (1939).

32

The argument of the appellants and amici cu-

rias for the appellants in these cases in effect isolates

the Indians and the Indian communities from the rest

of the United States. In substance, their argument is

a return (1) to the sovereign-nation concept of Wor-

cester v. Georgia, supra, which has been repudiated,

and (2) to the assumption that the federal govern-

ment has preempted all powers, duties and responsi-

bilities not exercised by the Indians themselves. The

history of adjudications by this court, the progres-

sion of the law on the subject of Indian affairs, and

the general application of governmental immunity

forcefully preclude any rule today of isolation of

Indians. Further, the pattern of federal legislation

in dealing with Indian questions has been to protect

the Indian in his dependent status and at the same

time to relieve him from that dependency by making

him a responsible citizen of the state, community

and nation in which he lives. This includes duties,

responsibilities and privileges concerning the whole

gamut of governmental affairs, including state taxa-

tion. 1

In closing, it should be observed that the states

of Washington, New Mexico and Arizona and the

Multistate Tax Commission are as much concerned

about the plight of the Indian as is the United States.

The businesses and the individual income here sought

to be taxed would not be a reality were it not for the

substantial commerce between Indians, on the one

hand and non-Indian residents of the states of Wash-

ington, Arizona, and New Mexico on the other hand.

It is not believed that this court will countenance, as