The Feds Fear a Huge Tax Refund for Indian Country

Jay Daniels

Desmond Tutu once said “When the missionaries came to Africa they had the Bible and we had the land. They said 'Let us pray.' We closed our eyes. When we opened them we had the Bible and they had the land.”

The same could be said today, “they took our land, and when we tried to survive on what was left, and began to profit in our economic developments, they went after our resources using compact agreements and taxation”.

Recently, King County Superior Court Judge Mary Roberts ruled in favor of the city of Snoqualmie against the Washington Department of Revenue and repealed ESHB 1287 on March 4, 2015. The bill would have given property tax exemptions to tribes on non-reservation lands purchased before March 1, 2014, and subsequently shifted the tax burden to residents. At issue before the Court was “does the Payment in Lieu of tax, or PILT, violate the uniformity requirements in Article VII of the Washington Constitution” because it is not imposed at an equal tax rate and does not produce equality in valuing the property taxed.

The following case law is applied by the Courts to make determinations on taxation:

·      In McClanahan v. Arizona State Tax Commission, the U.S. Supreme Court decided that the State of Arizona has no jurisdiction to impose a tax on the income of Navajo Indians residing on the Navajo Reservation and whose income is wholly derived from reservation sources.

·      Oklahoma Tax Comm’n v. Chickasaw Nation, 515 U.S. 450, 462-67 (1995), members of an Indian tribe who reside outside of a reservation are subject to State taxes on income, regardless of whether the income was derived from within an Indian reservation.

·      Oklahoma Tax Commission v. Sac and Fox Nation, 508 U.S. 114 (1993) favors Indian interests. Without explicit congressional direction to the contrary, it must be presumed that a state does not have jurisdiction to tax tribal members who live and work in Indian country, (emphasis added) whether the lands are part of a formal or informal reservation, allotted lands, or dependent Indian communities.

Former Justice Sandra Day O'Connor delivered the opinion of a unanimous U.S. Supreme Court which stated that Oklahoma's argument that a tribal member must live on a reservation to be exempt from state taxes was incorrect. All that is required is that the member lives in "Indian country", which Congress has defined to "include formal and informal reservations, dependent Indian communities, and Indian allotments, whether restricted or held in trust by the United States.” O'Connor noted that the Tenth Circuit should have determined the residence of the tribal members as inside or outside of Indian country, not if they were within the reservation.

In Flat Center Farms v. State of Montana, MT Supreme Ct., 310 Mont. 206, 49 P.3d 578, Flat Center Farms Inc. is a tribally chartered corporation owned and operated by Indians, conducts business entirely on Fort Peck Reservation, and does not "carry on business" in Montana, and therefore the lower court did not err in applying long-standing rule--that state lacks power to tax Indian income generated from on-reservation activities absent express authorization by Congress.

Duro v. Reina, 495 U.S. 676 (1990), was a United States Supreme Court case in which the Court concluded that Indian tribes could not prosecute Indians who were members of other tribes for crimes committed by those nonmember Indians on their reservations. Congress responded by amending the Indian Civil Rights Act and its definition of the "powers of self-government" to expressly "recognize" and "reaffirm" the inherent power of Indian tribes to exercise criminal jurisdiction over all "Indians" on their reservations. The legislation defines "Indians" as those individuals recognized as "Indians" for purposes of being subjected to federal jurisdiction under certain federal offenses.

In Department of Revenue of the State of Montana v. Jay R. and Twilia M. Daniels, the question was “May the State of Montana impose and collect income taxes on income earned on a tribal reservation in Montana by a member of a tribe located in an out-of-state Indian tribe reservation.”

Daniels stated that he was an enrolled member of the Cherokee Nation of Oklahoma, lived in Poplar , Montana, Fort Peck Indian Reservation. Daniels said he lived in a house held in trust by the United States for and on behalf of the Fort Peck Assiniboine & Sioux Tribes. Daniels was employed by the Department of the Interior, Bureau of Indian Affairs, Fort Peck Agency and his office was located on tribally-owned trust land. Twilia M. Daniels, former spouse to Daniels at the time of the appeal, is a tribal member of the Fort Peck Assiniboine & Sioux Tribes, a federally recognized tribe.

Daniels argued in LaRoque, 178 Mont. at 324, 583 P.2d at 1064 that the State of Montana Supreme Court (“Court”) held that Montana may not collect or impose taxes on an Indian earning income on a reservation regardless whether he is an enrolled member of the tribe on whose reservation he is living.

In 1994, the Department revised Administrative Rule, A.R.M. 42.15.121(1) “Rule”) and changed the previous rule to read “An enrolled tribal member who resides on that Indian Reservation and is enrolled of that reservation is not taxable with respect to income derived from sources within the exterior boundaries of that Indian reservation. Daniels contended there was no legislative authority for the Department to amend the Rule and argued it was invalid from the date of its adoption and all taxes paid by Daniels from 1994 to present be refunded. Daniels contended that the Court’s decision, in LaRaque (1978) and Flat Center Farms, Inc. (2002), controls the issue and decision of this appeal.

The Department contended that Washington v. Confederated Tribe of the Colville Indian Reservation, 447. U.S 134 (1980) and Duro v. Reina, 495 U.S. 676 (1990) were the controlling decisions in this case, not LaRoque and Flat Center Farms, Inc.

The Court stated that Daniels was unlawfully taxed under the unlawful ARM since 1994, however due to the 5-year statute of limitations, the Court directed that Daniels be refunded only for taxes paid since 1997, the date of the appeal to the Department's Board of appeals.

The Appeal was granted and proceeded to the Court. The Department had previously offered settlement of the matter and subsequently both parties agreed to accept the settlement offer a few days prior to the Supreme Court hearing. The Department feared that a decision in favor of Daniels would result in a mass refund for other Indians who experienced the same issue.

It would probably be in our best interest to not close our eyes when negotiating with lawyers and politicians. If we do, we will be on the short end of the stick again.

Jay Daniels has 30 years of experience working in Indian Country, managing trust lands and is a member of the Cherokee Nation of Oklahoma. You can find resources and information at http://roundhousetalk.com.

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