Opinion ID: 779070
Heading Depth: 2
Heading Rank: 2

Heading: Tax Exemption Analysis — Federal and State Standards

Text: 10 Ramsey argues that this case is controlled by Cree II 's exemption of the Yakama from state heavy vehicle taxes. In the alternative, Ramsey argues that the in common with language in the highway use provision of the Treaty creates an exemption from the federal heavy vehicle and diesel fuel taxes.
11 Ramsey's argument begins with Cree v. Waterbury, 873 F.Supp. 404 (E.D.Wash. 1994), in which several Yakama Indians who operated logging companies, including Ramsey, claimed that Article III of the Treaty precluded application of Washington's heavy vehicle tax to the Yakama. The district court agreed with the Yakama, but based its decision on the Supreme Court's construction of the in common with language in the Treaty's fishing rights provision without analyzing separately the in common with language in the highway use provision. Waterbury, 873 F.Supp. at 422-23 (citing Tulee v. Washington, 315 U.S. 681, 62 S.Ct. 862, 86 L.Ed. 1115 (1942), and United States v. Winans, 198 U.S. 371, 25 S.Ct. 662, 49 L.Ed. 1089 (1905)). 12 On appeal, this Court concluded that [s]tate tax laws applied to Indians outside of Indian country, such as those at issue here, are presumed valid `absent express federal law to the contrary.' Cree v. Waterbury, 78 F.3d 1400, 1403 (9th Cir.1996) ( Cree I ) (quoting Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148-49, 93 S.Ct. 1267, 36 L.Ed.2d 114 (1973)). We remanded the case and instructed the district court to examine the Treaty language as a whole, the circumstances surrounding the Treaty, and the conduct of the parties since the Treaty was signed in order to interpret the scope of the highway right. Cree I, 78 F.3d at 1405. The district court was to determine if the Treaty prohibited state heavy vehicle taxation of the Yakama based on the Treaty's language and the parties' intent when they signed the Treaty. 13 On remand, the district court considered extrinsic evidence of the Yakama's understanding of the treaty and found that the Treaty, as understood by the Yakama, unambiguously reserve[d] to the Yakamas the right to travel the public highways without restriction for purposes of hauling goods to market. Flores, 955 F.Supp. at 1248. In the alternative, the district court found that even if the Yakama's right to travel was not so unambiguously expressed in the Treaty, the Indian-friendly canons of construction required that it should be read in the Yakama's favor. Id. at 1249. We affirmed on these latter grounds in large part because the state offered no evidence to suggest that the parties to the Treaty intended to limit the Yakama's broad reading of this right. Cree II, 157 F.3d at 771. 14 In this case, the United States agrees that if Cree II 's interpretation of the Treaty is equally applicable to both state and federal taxes, Ramsey would be exempt from federal road use taxes. The government argues, however, that the Cree II analysis is inapplicable to federal taxes because there is a different standard for exemptions from federal taxation. We agree. 15 In fact, this Court recognized a distinction between the standard for state tax exemptions and federal tax exemptions in Cree I: 16 The State argues that the fees implement federal highway financing policy, and that consequently the fees are valid unless the Treaty creates a definitely expressed exemption. The State presents no authority for this court to find that the state-imposed truck fees should be judged according to the standard for federal fees. 17 78 F.3d at 1403 n. 4 (emphasis added) (citation omitted). The different standards stem from the state and federal government's distinct relationships with Indian tribes. The federal government has plenary and exclusive power to deal with tribes. Bryan v. Itasca County, 426 U.S. 373, 376 n. 2, 96 S.Ct. 2102, 48 L.Ed.2d 710 (1976). The right of tribal self-government is ultimately dependent on and subject to the broad power of Congress. White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 143, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980). States, on the other hand, interact with the tribes in a more limited capacity. A state's regulatory authority over tribal members is limited by the tribal right of self-government and the preemptive effect of federal law. Id. at 141-142, 100 S.Ct. 2578. For this reason, all citizens, including Indians, are subject to federal taxation unless expressly exempted, Hoptowit v. Commissioner, 709 F.2d 564, 566 (9th Cir.1983) (citing Squire v. Capoeman, 351 U.S. 1, 6, 76 S.Ct. 611, 100 L.Ed. 883 (1956)), while a state's authority to tax tribal members is limited depending on the subject and location of the tax, see McClanahan v. State Tax Comm'n, 411 U.S. 164, 170-71, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973) (holding that state taxes are not applicable to Indians on reservations absent congressional consent); Mescalero, 411 U.S. at 148-49, 93 S.Ct. 1267 (Absent express federal law to the contrary, Indians going beyond reservation boundaries have generally been held subject to nondiscriminatory State law[s].). 18 The applicability of a federal tax to Indians depends on whether express exemptive language exists within the text of the statute or treaty. The language need not explicitly state that Indians are exempt from the specific tax at issue; it must only provide evidence of the federal government's intent to exempt Indians from taxation. Treaty language such as free from incumbrance, free from taxation, and free from fees, are but some examples of express exemptive language required to find Indians exempt from federal tax. 19 Only if express exemptive language is found in the text of the statute or treaty should the court determine if the exemption applies to the tax at issue. At that point, any ambiguities as to whether the exemptive language applies to the tax at issue should be construed in favor of the Indians. In Karmun v. Commissioner, 749 F.2d 567, 569 (9th Cir.1984), we noted that [n]otwithstanding the canon of interpretation that resolves ambiguities in statutes and treaties in favor of Indians, we have recognized that the intent to exempt income of Indians from taxation must be clearly expressed. In addition, we stated that [p]olicy considerations by themselves are insufficient to justify the implication of a tax exemption absent express exemptive language. Id. Confederated Tribes of Warm Springs Reservation v. Kurtz, 691 F.2d 878, 881 (9th Cir.1982) (noting that the intent to exempt must be definitely expressed before the court can construe the statute or treaty to create an exemption), United States v. Anderson, 625 F.2d 910, 913 (9th Cir.1980) (noting that the canon of construction reading statutes and treaties in favor of the Indians does not come into play absent express exemptive language). Therefore, when reviewing a claim for a federal tax exemption, we do not engage the canon of construction favoring the Indians unless express exemptive language is first found in the text of the statute or treaty. Only if such language exists, do we consider whether it could be reasonably construed to support the claimed exemption. See Hoptowit, 709 F.2d at 566 (concluding that treaty language setting apart tribal lands for the exclusive use and benefit of the tribe could not be construed to support an exemption from federal income tax). 20 When a court interprets a state's taxation of Indians' off-reservation activities, the court determines if there is an express federal law prohibiting the tax. The federal law must be interpreted in the light most favorable to the Indians, and extrinsic evidence may be used to show the federal government's and Indians' intent. Unlike the federal standard, there is no requirement to find express exemptive language before employing the canon of construction favoring Indians. 21 In Cree II this Court implemented the Indian-friendly canon of construction and analyzed the history of the Treaty and the understanding of the Yakama to find an express federal law which exempted the Yakama from state taxation. Cree II, 157 F.3d at 769. We held that the Yakama Treaty should be interpreted to guarantee the Yakamas the right to transport goods to market over public highways without payment of fees for that use. Id. Ramsey argues that Cree II 's Treaty interpretation, finding an express federal law exempting the Yakama from state heavy vehicle taxes, controls this case when looking for express exemptive language to exempt the Yakama from similar federal taxation. Cree II 's interpretation, however, is not binding on the question of federal taxation because the initial inquiry when exempting Indians from federal taxes is whether the federal law in question contains express exemptive language at all. The canon of construction favoring the Indian when ambiguities are present in a statute or treaty does not come into play absent such language. We are not persuaded that the Supreme Court's recent reference in Chickasaw Nation v. United States, 534 U.S. 84, 122 S.Ct. 528, 535-36, 151 L.Ed.2d 474 (2001), to potential differences between the application of the Indian-friendly canons to congressional statutes and to Indian treaties has changed our long standing precedent in the treaty context which has already resolved any conflicts between those canons and the express exemption requirement. See, e.g., Squire, 351 U.S. at 6, 76 S.Ct. 611; Confederated Tribes, 691 F.2d at 881. Thus, Cree II 's analysis of the same Treaty provision utilizing extrinsic evidence and interpreting the provision most favorably to the Yakama does not control our analysis.
22 Applying the federal standard, we hold that the relevant Treaty provision contains no express exemptive language. The Treaty simply states that free access from the [reservation] to the nearest public highway, is secured to [the Yakama]; as also the right, in common with citizens of the United States, to travel upon all public highways. 12 Stat. at 953. This provision does not provide express language from which we can discern an intent to exempt the Yakama from federal heavy vehicle and diesel fuel taxation. The only exemptive language in the Treaty is the free access language. Free access, however, does not modify the right to travel upon the public roadways. Indeed, the clause granting the Yakama the right, in common with citizens of the United States, to travel upon all public highways contains no exemptive language. In common with does not express an intent to exempt the Yakama from taxes. Thus, there is no express exemptive language in the Treaty to exempt the Yakama from the generally applicable, federal heavy vehicle and diesel fuel taxes. Absent any express exemptive language to the contrary, the taxes at issue apply to the Yakama, and the district court's judgment in favor of Ramsey must be reversed and summary judgment entered in favor of the United States.