Source: https://law.justia.com/cases/federal/appellate-courts/F2/625/910/57310/
Timestamp: 2020-07-04 22:37:26
Document Index: 586655271

Matched Legal Cases: ['§ 5', '§ 348', '§ 6', '§ 466', '§ 5', '§ 5', '§ 5', '§ 5', '§ 5', '§ 6', '§ 466', '§ 18', '§ 16', '§ 476', '§ 16', '§ 16', '§ 5']

United States of America, Plaintiff-appellant, v. George Anderson, Defendant-appellee, 625 F.2d 910 (9th Cir. 1980) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1980 › United States of America, Plaintiff-appellant, v. George Anderson, Defendant-appellee
United States of America, Plaintiff-appellant, v. George Anderson, Defendant-appellee, 625 F.2d 910 (9th Cir. 1980)
US Court of Appeals for the Ninth Circuit - 625 F.2d 910 (9th Cir. 1980) Argued and Submitted May 22, 1980. Decided Aug. 21, 1980
The General Allotment Act provided that at the end of the statutory trust period (subject to extension), Indian allottees were to receive their lands "in fee, discharged of said trust and free of all charge or incumbrance whatsoever," and that then "all restrictions as to sale, incumbrance, or taxation of said land shall be removed." §§ 5, 6, 25 U.S.C. §§ 348, 349. The courts have construed this language to exempt from federal taxation the land held in trust for an Indian and the income that the Indian derives from it. Squire v. Capoeman, 351 U.S. 1, 76 S. Ct. 611, 100 L. Ed. 883 (1956); Stevens v. Commissioner, 452 F.2d 741 (9th Cir. 1971).
The district court below, relying on the regulations under IRA § 6, 25 U.S.C. § 466, held on summary judgment that the federal policies of promoting optimal land use on Indian reservations and eventual Indian economic independence precluded all taxation of the income Anderson derived from the licensed grazing unit. United States v. Anderson, 442 F. Supp. 10, 13 (D. Mont. 1977).
Despite our sympathy for Anderson and similarly situated Indians, we must reverse the district court. Other courts have held, and we are forced to agree, that a noncompetent Indian's income allocable to cattle grazing on others' trust land is taxable. Holt v. Commissioner, 44 T.C. 686 (1965), aff'd, 364 F.2d 38 (8th Cir. 1966), cert. denied, 386 U.S. 931, 87 S. Ct. 952, 17 L. Ed. 2d 805 (1967); Stevens v. Commissioner, 52 T.C. 330 (1969);4 see also Strom v. Commissioner, 6 T.C. 621 (1946), aff'd, 158 F.2d 520 (9th Cir. 1947).
The rule that ambiguous statutes and treaties are to be construed in favor of Indians applies to tax exemptions, Choate v. Trapp, 224 U.S. 665, 675, 32 S. Ct. 565, 569, 56 L. Ed. 941 (1912); see, e. g., Squire v. Capoeman, 351 U.S. 1, 76 S. Ct. 611, 100 L. Ed. 883 (1956) (construing General Allotment Act §§ 5-6 to create exemption from not-yet-created federal income tax), but this rule "comes into play only if such statute or treaty contains language which can reasonably be construed to confer income (tax) exemptions." Holt v. Commissioner, 364 F.2d 38, 40 (8th Cir. 1966) (before panel including Blackmun, J.), cert. denied, 386 U.S. 931, 87 S. Ct. 952, 17 L. Ed. 2d 805 (1967). "The intent to exclude must be definitely expressed, where, as here, the general language of the Act laying the tax is broad enough to include the subject-matter." Choteau v. Burnet, 283 U.S. 691, 696, 51 S. Ct. 598, 601, 75 L. Ed. 1353 (1931).
In Squire v. Capoeman, 351 U.S. 1, 76 S. Ct. 611, 100 L. Ed. 883 (1956), the Supreme Court construed these sections to create an express tax exemption for an Indian deriving income directly from his own trust allotment.6
What distinguishes Anderson's case from Capoeman is that there "the income which was held to be exempt to the allottee was from operations conducted on his own allotted land." Fry v. United States, 557 F.2d 646, 648 (9th Cir. 1977) (emphasis in original), cert. denied, 434 U.S. 1011, 98 S. Ct. 722, 54 L. Ed. 2d 754 (1978). In Fry, we held that a noncompetent Indian engaged, as a subcontractor to a non-Indian company, in logging on tribal trust land was taxable. There, we recognized that Capoeman 's point was that if an Indian's allotted land (or the income directly derived from it) was taxed, and the tax was not paid, the resulting tax lien on the land would make it impossible for him to receive the land free of "incumbrance" at the end of the trust period. The purpose of §§ 5 and 6 was "to provide the allottee with unencumbered land when he became competent. (Citation) It was not to benefit him simply because he was an Indian, or to benefit Indians generally." Id. at 649 (footnotes omitted). By contrast, "taxation of the taxpayer's individual profit derived from his lease of tribal (or other allottees' trust) land cannot possibly represent a burden or encumbrance upon the tribe's (or other allottees') interest in such land." Holt v. Commissioner, 364 F.2d at 41.
It is argued that we should give a broader meaning to the word "incumbrance," and recognize that taxation of Anderson "encumbers" the interest of the noncompetent Indians whose land he uses under land-use program licenses. If the use of the land subjects Anderson to federal income tax, the right to use it is worth less to him, and he will probably not be willing to pay as high a license fee as he otherwise would. Therefore, federal taxation of Anderson theoretically reduces the (tax-free) licensing income of other noncompetent Indians. See Agua Caliente Band of Mission Indians v. County of Riverside, 442 F.2d 1184, 1186 (9th Cir. 1971), cert. denied, 405 U.S. 933, 92 S. Ct. 930, 30 L. Ed. 2d 809 (1972).
Nonetheless, this effect is not a General Allotment Act "incumbrance." Federal taxation of a (non-Indian) lessee of tribal trust land is permissible even if it has a "perceptible economic effect" on the tribe. Heiner v. Colonial Trust Co., 275 U.S. 232, 234-35, 48 S. Ct. 65, 66, 72 L. Ed. 256 (1927). We were not deterred by this argument when, in Fry, we upheld federal taxation of a noncompetent Indian subcontractor engaged in logging on tribal trust land.7 557 F.2d at 649 n.7.
The amici claim that noncompetent Indians were not considered federally taxable in 1934; therefore, they contend that we should ignore the rule of inclusio unius est exclusio alterius and read IRA § 5 to create a federal tax exemption. In fact, the Board of Tax Appeals held on December 26, 1933, that a noncompetent Indian's reinvestment income was federally taxable. Superintendent v. Commissioner, 29 B.T.A. 635 (1933), aff'd, 75 F.2d 183 (10th Cir.), aff'd, 295 U.S. 418, 55 S. Ct. 650 (1935).
Finally, the Supreme Court has held that, even as to state and local taxes, IRA § 5 provides an exemption only from property taxes, not from income taxes. Mescalero Apache Tribe v. Jones, 411 U.S. 145, 155-58, 93 S. Ct. 1267, 1274-75, 36 L. Ed. 2d 114 (1973). Thus § 5 is hardly an exemption from federal income taxation.
The General Allotment Act was in no way an undertaking by the Government to manage the land resources of Indian reservations for the optimum economic benefit of the Indians. See United States v. Mitchell, --- U.S. ----, ----, 100 S. Ct. 1349, 1354-55, 63 L. Ed. 2d 607 (1980). On the other hand, the IRA did involve such an undertaking. IRA § 6, 25 U.S.C. § 466, reads:
A three-judge district court concluded that the election requirement of § 18 was intended to affect only §§ 16 and 17, 25 U.S.C. §§ 476, 477, and that a vote against the IRA would not affect the applicability to the tribe of the remainder of the IRA. Mancari v. Morton, 359 F. Supp. 585, 588 (D.N.M. 1973), rev'd on other grounds, 417 U.S. 535, 94 S. Ct. 2474, 41 L. Ed. 2d 290 (1974). We agree.9 Thus, the Fort Peck Tribes' vote against the IRA precludes the application of § 16 here, even if that section created a federal tax exemption.
However, even if § 16 were available to the Fort Peck Tribes, it would not promote Anderson's cause. See Fort Mojave Tribe v. County of San Bernardino, 543 F.2d 1253, 1256 (9th Cir. 1976) (516 does not preclude state taxation of leasehold of tribal land), cert. denied, 430 U.S. 983, 97 S. Ct. 1678, 52 L. Ed. 2d 377 (1977). The word "encumbrance," read in context and in pari materia with General Allotment Act § 5, see Stevens v. Commissioner, 452 F.2d at 746, refers only to a tribe's power to prevent the unconsented encumbrance of its land interests by removing from its agents and members the legal authority to alienate or cloud, without official tribal consent, its equitable title to its trust land. Moreover, no provision in a tribal constitution could limit the taxing power of the United States, a superior sovereign, any more than such a provision in a state constitution could.
The classes Anderson says are treated differently are (1) noncompetent Indians who buy the equitable fee to land held in trust for others (nontaxable, under Stevens), and (2) noncompetent Indians who buy licenses to use land held in trust for others (taxable). Also, says Anderson, the Government treats differently (1) noncompetent Indians who derive income from their own trust land (nontaxable, under Capoeman), and (2) noncompetent Indians who derive income from land held in trust for others (taxable).
These are not suspect classifications, and no fundamental interest is involved. Therefore the rational relation test applies, and the classifications "will not be set aside if any state of facts rationally justifying (them) is demonstrated to or perceived by the courts." United States v. Maryland Savings-Share Insurance Corp., 400 U.S. 4, 6, 91 S. Ct. 16, 17, 27 L. Ed. 2d 4 (1970). Congress could rationally want to help Indians and tribes by exempting them from tax on income derived from their own trust land, but refuse to extend the additional benefit of allowing them to market the advantage of tax exemption to others while still retaining the equitable fee in the land.
The majority fails to give effect to the reason and logic of the opinion of the Supreme Court in Squire v. Capoeman, 351 U.S. 1, 76 S. Ct. 611, 100 L. Ed. 883 (1956). The Court found in that case that the income which came directly from the land was tax-exempt. It specifically rejected the argument that the case should be viewed as an ordinary tax case without regard to relevant treaties and statutes, congressional policy concerning Indians, or the guardian-ward relationship existing between the United States and Indians. In determining that the income at issue here was tax-exempt, Judge Battin found, as did the Supreme Court, that those matters were relevant, and that they required a holding that Anderson's income was not subject to federal taxation.
Judge Battin's decision is consistent with the proposition, stated by the Attorney General in 1924, that "(i)t is not lightly to be assumed that Congress intended to tax the ward for the benefit of the guardian." 34 Op.Atty.Gen. 275, 281 (1924), quoted in Squire v. Capoeman, supra, 351 U.S. at 8, 76 S. Ct. at 616. It is also consistent with the following statement of the Supreme Court in Squire v. Capoeman, supra, 351 U.S. at 8-9, 76 S. Ct. at 616 (footnote omitted):
A noncompetent Indian's income from "non-land-based" businesses conducted on his trust land is taxable; for example, income from a law practice would be taxable, whereas income from mining or agriculture would not be. See Critzer v. United States, 597 F.2d 708 (Ct. Cl.), cert. denied, 444 L. Ed. 2d 920, 100 S. Ct. 239, 62 L. Ed. 176 (1979) (income from motel/restaurant/gift shop on possessory holding similar to an allotment is taxable, at least in part, because derived primarily from personal investment and services rather than from the land itself). However, the IRS has conceded that income obtained from grazing one's own cattle on one's own trust allotment, or from licensing or leasing grazing rights to another, is obtained "directly" from the land and is tax-free. Rev.Rul. 56-342, 1956-2 C.B. 20; Rev.Rul. 62-16, 1962-1 C.B. 7
The Supreme Court noted that the purpose of the General Allotment Act was to bring Indians to the point where they could compete with whites in the economic world. Therefore the Government should not be allowed to tax Capoeman's timber sales; after logging off, his land would be worthless, and could no longer "serve the purpose of bringing him finally to a state of competency and independence. Unless the proceeds of the timber sale are preserved for respondent, he cannot go forward when declared competent with the necessary chance of economic survival in competition with others." 351 U.S. at 10, 76 S. Ct. at 617
When federal policy conflicts with state attempts to tax or regulate Indians, the Supremacy Clause may come into play. See, e. g., White Mountain Apache Tribe v. Bracker, --- U.S. ----, ----, 100 S. Ct. 2578, 2587, 65 L. Ed. 2d ---- (1980). We deal here, however, with a conflict between federal Indian policy and an explicit federal tax statute