Court Opinion

ID: 223059
Source: CourtListenerOpinion
Date Created: 2011-08-12 15:25:00+00
Date Added: 2024-06-11T09:06:37.016496
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                  ___________

                                  No. 10-1236
                                  ___________

Fond du Lac Band of Lake Superior      *
Chippewa,                              *
                                       *
       Plaintiff - Appellant,          *
                                       * Appeal from the United States
       v.                              * District Court for the
                                       * District of Minnesota.
               1
Myron Frans, in his official capacity  *
as the Commissioner of the Minnesota *
Department of Revenue,                 *
                                       *
       Defendant - Appellee.           *
                                  ___________

                            Submitted: November 18, 2010
                               Filed: August 12, 2011
                                ___________

Before MURPHY, SMITH, and BENTON, Circuit Judges.
                           ___________

BENTON, Circuit Judge.

      The Fond du Lac Band of Lake Superior Chippewa (“Band”) sued the
Commissioner of the Minnesota Department of Revenue to prevent taxation of the
out-of-state pension income of Band members. The Band advances two arguments

      1
       Myron Frans has been substituted for his predecessors under Fed. R. App. P.
43(c)(2).
against the taxation: due process and preemption. The district court2 ruled for the
Commissioner. Having jurisdiction under 28 U.S.C. § 1291, this court affirms.

        The federally-recognized Band occupies a reservation created by the Treaty of
LaPointe, 10 Stat. 1109 (1854), which predates the State of Minnesota. Minnesota
taxes the entire net income of its residents. See Minn. Stat. 290.014, subd. 1. The
state taxed a Band member’s pension earned in Ohio but received on the reservation,
and the Band sued to enjoin taxation of the out-of-state income of reservation-residing
members.3 The district court denied the Band’s Motion for Summary Judgment, and
upheld the taxation. The sole issue having been decided, the Band stipulated to
judgment for the Commissioner and now appeals.

       The district court’s decision receives de novo review. See Kessler v. Nat’l
Enters., Inc., 238 F.3d 1006, 1011 (8th Cir. 2001) (“The district court granted
summary judgment after the case was submitted to it on a stipulated record without
trial. Therefore, de novo is the proper standard of review.”).

       The Band argues that the taxation violates due process. See U.S. Const.
amend. XIV, § 1. “The Due Process Clause ‘requires some definite link, some
minimum connection, between a state and the person, property or transaction it seeks
to tax.’” Quill Corp. v. North Dakota, 504 U.S. 298, 306 (1992), quoting Miller
Bros. Co. v. Maryland, 347 U.S. 340, 344-45 (1954). “‘[I]ncome attributed to the
State for tax purposes must be rationally related to values connected with the taxing

      2
       The Honorable Paul A. Magnuson, United States District Judge for the District
of Minnesota.
      3
       The Tax Injunction Act, 28 U.S.C. § 1341, does not bar the Band’s suit. See
Moe v. Confederated Salish & Kootenai Tribes of Flathead Reservation, 425 U.S.
463, 474-75 (1976).

                                         -2-
State.’” Id., quoting Moorman Mfg. Co. v. Bair, 437 U.S. 267, 273 (1978) (further
marks omitted). The Supreme Court has recognized that:

      domicile or residence, more substantial than mere presence in transit or
      sojourn, is an adequate basis for taxation, including income, property,
      and death taxes. Since the Fourteenth Amendment makes one a citizen
      of the state wherein he resides, the fact of residence creates universally
      reciprocal duties of protection by the state and of allegiance and support
      by the citizen. The latter obviously includes a duty to pay taxes . . . .

Miller Bros. Co., 347 U.S. at 345 (footnotes omitted).

       The Band urges that its right to occupy the reservation comes from the 1854
Treaty, rather than the state. Even if Congress may have originally recognized Band
members’ residency rights separate from any state or territory, see United States v.
Thomas, 151 U.S. 577, 582-85 (1894), Congress later altered the landscape. In 1868,
the Fourteenth Amendment established, “All persons born or naturalized in the United
States, and subject to the jurisdiction thereof, are citizens of the United States and of
the State wherein they reside.” U.S. Const. amend. XIV, § 1.4 In 1924, Congress
conferred citizenship on all Native Americans born in the United States. Act of June
2, 1924, ch. 233, 43 Stat. 253, current version codified as 8 U.S.C. § 1401(b). Band
members living on the reservation now hold full Minnesota citizenship. See Shakopee
Mdewakanton Sioux Cmty. v. City of Prior Lake, Minn., 771 F.2d 1153, 1156 (8th
Cir. 1985). See also Goodluck v. Apache County, 417 F. Supp. 13, 16 (D. Ariz.
1975), aff’d sub nom. Apache County v. United States, 429 U.S. 876 (1976) (mem.).

      4
        As the dissent notes, the Fourteenth Amendment mentions “Indians not
taxed.” See infra at 9, citing U.S. Const. amend. XIV, § 2. This phrase concerns
who is counted for purposes of Congressional apportionment. See Lazore v. Comm’r,
11 F.3d 1180, 1188 (3d Cir. 1993).

                                          -3-
        A proviso to the 1924 Act states that “the granting of such citizenship shall not
in any manner impair or otherwise affect the right of any Indian to tribal or other
property.” Act of June 2, 1924, ch. 233, 43 Stat. 253, current version codified as 8
U.S.C. § 1401(b). In the dissent’s view, this “decoupled Indians’ taxation status from
their citizenship.” Infra at 9. The history of Native American citizenship reveals a
different Congressional intent. Some prior naturalization laws had required Native
Americans to abandon their tribal connections. See, e.g., Elk v. Wilkins, 112 U.S. 94,
105 (1884); Oakes v. United States, 172 F. 305, 308 (8th Cir. 1909). “Originally, the
test of the right of individual Indians to share in tribal lands, like the Chippewa
reservations in Minnesota, was existing membership in the tribe, and this was true of
all tribal property.” Id. at 307. The inclusion of tribal property provisos in citizenship
laws showed “a settled and persistent purpose on the part of Congress so to broaden
the original rule respecting the right to share in tribal property as to place individual
Indians who have abandoned tribal relations . . . upon the same footing, in that regard,
as though they had maintained their tribal relations.” Id. at 308-09. In becoming
United States and Minnesota citizens, Band members kept their pre-existing right to
tribal and other property. The proviso does not create a tax exemption.

     Because citizenship provides a constitutional nexus, Minnesota’s taxation
complies with due process.

       The taxation must clear a second barrier. Federal law generally provides for
“tax immunity of reservation Indians . . . premised on the preemption of state laws by
treaty and statute and informed by notions of tribal self government.” United States
ex rel. Cheyenne River Sioux Tribe v. South Dakota, 105 F.3d 1552, 1559 (8th Cir.
1997). Absent Congressional authorization, a state may not “tax a reservation Indian
for income earned exclusively on the reservation.” McClanahan v. Ariz. State Tax
Comm’n, 411 U.S. 164, 168 (1973). However: “Absent express federal law to the
contrary, Indians going beyond reservation boundaries have generally been held
subject to non-discriminatory state law otherwise applicable to all citizens of the
state.” Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148-49 (1973) (citations
                                           -4-
omitted). The Band does not identify any specific federal statute preempting the
taxation of pensions. Cf. 4 U.S.C. § 114(a) (“No State may impose an income tax on
any retirement income of an individual who is not a resident or domiciliary of such
State (as determined under the laws of such State).”)

       The facts here lie between McClanahan, involving only on-reservation activity,
and Mescalero Apache Tribe, involving operation of a ski resort within the taxing
state but off the reservation. See McClanahan, 411 U.S. at 165-66; Mescalero
Apache Tribe, 411 U.S. at 146. McClanahan limits itself, referring to Mescalero
Apache Tribe as governing taxation of off-reservation activity:

      Nor, finally, is this a case where the State seeks to reach activity
      undertaken by reservation Indians on nonreservation lands. See, e. g.,
      Mescalero Apache Tribe v. Jones, ante, p. 145. Rather, this case
      involves the narrow question whether the State may tax a reservation
      Indian for income earned exclusively on the reservation.

McClanahan, 411 U.S. at 168. See also Okla. Tax Comm’n v. Chickasaw Nation,
515 U.S. 450, 464 (1995) (“the rule that Indians and Indian tribes are generally
immune from state taxation, McClanahan v. Arizona Tax Comm’n, . . . does not
operate outside Indian country”), citing Okla. Tax Comm’n v. Sac & Fox Nation, 508
U.S. 114, 123-26 (1993).5

      5
         The dissent emphasizes this court’s observation that reservation-residing
Native Americans are not subject to “municipal civil regulatory control.” Shakopee
Mdewakanton Sioux Cmty., 771 F.2d at 1157, citing Bryan v. Itasca County, Minn.,
426 U.S. 373, 388 (1976) (reservation Native Americans are not subject to “the full
panoply of civil regulatory powers . . . of state and local governments”) (footnote
omitted). As Shakopee Mdewakanton Sioux Community’s principal authority states,
“McClanahan held that Arizona was disabled in the absence of congressional consent
from imposing a state income tax on the income of a reservation Indian earned solely
on the reservation.” Bryan, 426 U.S. at 377. This confirms the general rule that
Native Americans receiving off-reservation income are subject to non-discriminatory
state taxation. See Mescalero Apache Tribe, 411 U.S. at 148-49.
                                         -5-
      The Band attempts to confine Mescalero Apache Tribe’s principle of taxability,
emphasizing that the ski resort there, while off-reservation, had a nexus with the
taxing state. Yet “‘[f]ederal courts . . . are not free to limit Supreme Court opinions
precisely to the facts of each case. Instead, federal courts are bound by the Supreme
Court’s considered dicta almost as firmly as by the Court’s outright holdings . . . .’”
Jones v. St. Paul Cos., 495 F.3d 888, 893 (8th Cir. 2007), quoting City of Timber
Lake v. Cheyenne River Sioux Tribe, 10 F.3d 554, 557 (8th Cir. 1993) (further
quotation marks and citations omitted).

       The dissent reads Kiowa Tribe of Oklahoma v. Manufacturing Technologies,
Inc., 523 U.S. 751 (1998), as narrowing Mescalero Apache Tribe. See infra at 11-12.
In passing, Kiowa Tribe states the holding of Mescalero Apache Tribe as: “a State
may have authority to tax or regulate tribal activities occurring within the State but
outside Indian country.” Kiowa Tribe, 523 U.S. at 755, citing Mescalero Apache
Tribe, 411 U.S. at 148-49; Organized Vill. of Kake v. Egan, 369 U.S. 60, 75 (1962).
However, applying Mescalero Apache Tribe to narrower contexts does not limit its
application to broader ones. The Kiowa Tribe opinion does not disclaim or qualify the
principle of Mescalero Apache Tribe, and this court may not read between the lines
in an attempt to do so. See generally Rodriguez de Quijas v. Shearson/Am. Express,
Inc., 490 U.S. 477, 484 (1989) (“the Court of Appeals should follow the case which
directly controls, leaving to this Court the prerogative of overruling its own
decisions”).

       The dissent also cites an Indian law treatise’s conclusion that “a state may not
collect income tax from tribal members who reside in Indian country but earn income
outside the state’s boundaries.” Infra at 12, citing Cohen’s Handbook of Federal
Indian Law § 8.03[1][b], p. 695 (Neil Jessup Newton et al. eds., 2005). The treatise
relies on Lac du Flambeau Band of Lake Superior Chippewa Indians v. Zeuske, 145
F. Supp. 2d 969 (W.D. Wis. 2000). See id. n.207. The Lac du Flambeau Band case
dealt with a Wisconsin reservation resident earning out-of-state income. Lac du
Flambeau Band, 145 F. Supp. 2d at 971-72. The district court there held that
                                          -6-
“Congress has never authorized the states to tax tribal members living on
reservations,” and “the state cannot use as a reason to tax a residence that it has not
provided.” Id. at 976-77. Mescalero Apache Tribe works from the opposite premise:
“Absent express federal law to the contrary,” states may tax off-reservation income.
Mescalero Apache Tribe, 411 U.S. at 148-49 (citations omitted). To the extent Lac
du Flambeau Band rests on due process grounds, state citizenship suffices in light of
the Fourteenth Amendment and the 1924 Act.

       In this case, Minnesota is taxing income from outside Indian country. The
McClanahan rule applies only to a limited category of income, variously described
as “wholly from reservation sources,” “earned exclusively on the reservation,” and
“generated on reservation lands.” McClanahan, 411 U.S. at 165, 168, 181. This case
is controlled by the general rule: “Absent express federal law to the contrary, Indians
going beyond reservation boundaries have generally been held subject to non-
discriminatory state law otherwise applicable to all citizens of the state.” See
Mescalero Apache Tribe, 411 U.S. at 148-49 (citations omitted). Minnesota’s
taxation is not preempted.

                                     * * * * * * *

       The judgment of the district court is affirmed.

MURPHY, Circuit Judge, dissenting.

       I respectfully dissent, for the majority has failed to give full consideration to all
relevant Supreme Court precedent and other authority which supports the Band's
position in this case.

      Charles Diver, the subject of the Band's case, was born on the Fond du Lac
Reservation in a hospital administered by the Bureau of Indian Affairs. Diver moved
to Ohio in 1960 under the federal Indian relocation program. That program was part
                                         -7-
of an era of federal Indian policy which terminated recognition of certain tribes and
"progressively decreased" Indian programs other than relocating individual Indians
off reservations. F. Cohen, Handbook of Federal Indian Law, § 1.06, pp. 91–92
(2005). Many tribal members "were pressured to . . . relocate to urban areas." Sioux
Tribe of Indians v. United States, 7 Cl. Ct. 468, 477 n.8 (1985).

       Although many Indians who relocated lived in poverty and isolation, Cohen,
§ 1.06, p. 93, Diver found work in Ohio as a dockworker. He worked there for thirty
years, earning a pension through a union plan based in Illinois. Upon retirement in
1998, Diver returned to the Fond du Lac Reservation where he still lives. It does not
appear that Diver has ever worked in Minnesota or lived anywhere in the state other
than the reservation. Nevertheless, he paid Minnesota taxes on his pension for ten
years before the Band brought this action on his behalf. The Band asserts that
Minnesota lacks authority to tax Diver's pension income generated by his thirty years
of labor in Ohio.

       While citing general principles permitting taxation of state residents consistent
with due process and of income earned by Indians working outside the reservation but
within the state, the majority overlooks significant limitations to those principles when
a state's right to tax conflicts with recognized rights of Indian citizens. It
acknowledges that "Congress may have originally recognized [Fond du Lac] Band
members' residency rights separate from any state or territory." Congress certainly did
so, since it set aside land for the tribe's use four years before approving statehood for
Minnesota. See Treaty with the Chippewa, 10 Stat. 1109 (1854); Minnesota Enabling
Act, 11 Stat. 285 (1858). Unlike other Minnesota citizens, Band members' rights of
occupancy derive from that treaty, not from the state. United States v. Thomas, 151
U.S. 577, 582–85 (1894).

      Tribal members living on the reservation are United States citizens. In
extending citizenship broadly, the Fourteenth Amendment excluded only "Indians not
taxed," U.S. Const. amend. XIV, § 2; Goodluck v. Apache County, 417 F. Supp. 13,
                                         -8-
15 (D. Ariz. 1975), aff'd, 429 U.S. 876 (1976). Congress extended citizenship to all
Indians in 1924, including those taxed, but included an important caveat which is
significant here:

      The following shall be nationals and citizens of the United States at
      birth: . . . a person born in the United States to a member of an Indian . . .
      tribe: Provided, That the granting of citizenship shall not in any manner
      impair or otherwise affect the right of such person to tribal or other
      property.

8 U.S.C. § 1401(b).

       The majority concludes that § 1401(b) "altered the landscape" to create a
constitutional nexus between state taxation and reservation Indians, but "conferring
rights and privileges on . . . Indians cannot affect their [taxation] situation, which can
only be changed by treaty stipulation, or a voluntary abandonment of their tribal
organization." McClanahan v. State Tax Comm'n of Ariz., 411 U.S. 164, 173 n.12
(internal punctuation omitted). Section 1401(b) in fact decoupled Indians' taxation
status from their citizenship, and a state may not deny an on reservation tribal member
voting rights and equal protection even if that member does not pay state taxes.
Goodluck, 417 F. Supp. at 16. Issued by a three judge panel and summarily affirmed
by the Supreme Court, Goodluck undermines the majority's position because it held
that Congress could and did extend citizenship to Indians without increasing states'
ability to tax them. Id.

      In citing Shakopee Mdewakanton Sioux Community v. City of Prior Lake,
Minnesota, 771 F.2d 1153, 1156 (8th Cir. 1985), for the proposition that "[b]and
members living on the reservation now hold full Minnesota citizenship," the majority
opinion conflicts with significant aspects of that decision. In that case we rejected the
attempt by the city of Prior Lake to reverse its annexation of the Shakopee reservation
and to exclude reservation residents from municipal elections and services. Id. at
1159. We confirmed that Shakopee reservation "residents would be entitled to the
                                           -9-
benefits of citizenship in Prior Lake" even though the city could not "subject
Reservation residents to municipal taxes or ordinances." Id. at 1157, 1159. Any
failing to distinguish between the protections and the obligations of citizenship is not
consistent with the principles enunciated in Shakopee and in Goodluck.

       The Supreme Court has not directly defined what nexus would allow state
taxation of a tribal member living on a reservation in order to comply with due
process. The Court has indicated, however, that more of a nexus is required for taxing
such tribal members than for taxing non Indians or for off reservation Indians. For
example, the Court has held that a state may tax on reservation cigarette purchases by
non tribal members, Washington v. Confederated Tribes of the Colville Indian
Reservation, 447 U.S. 134, 159 (1980), but not by tribal members, Moe v.
Confederated Salish & Kootenai Tribes, 425 U.S. 463, 477 (1976), even though those
members are state citizens.

       Justice Rehnquist wrote separately in Colville, pointing out that the state's
attempt to tax on reservation sales raised issues of "not only Indian sovereignty, but
also necessarily state sovereignty." 447 U.S. at 181. He concluded that "the State, by
taxing its own non-Indian residents, has exerted its power in relation to opportunities
which it has given, to protection which it has afforded, to benefits which it has
conferred." Id. at 182 (emphasis added and internal punctuation omitted). He did not
claim that due process allows state taxation of reservation tribal members, who
frequently receive opportunities, protection, and benefits from tribal and federal
entities rather than state governments. Throughout Diver's Minnesota citizenship, he
has been an on reservation member of a tribe that today operates its own schools,
transit system, public health and housing services. See www.fdlrez.com (website of
the Fond du Lac tribal government). The majority has in effect "confused [Supreme
Court] cases about state taxation of non-Indians with those about state taxation of
Indians." See Okla. Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 459 n.8 (1995).

                                         -10-
       The majority's analysis of federal Indian law is incomplete. It does recognize
that "tax immunity of reservation Indians [is] . . . informed by notions of tribal self-
government." United States ex rel. Cheyenne River Sioux Tribe v. South Dakota, 105
F.3d 1552, 1559 (8th Cir. 1997). The Court made clear in McClanahan v. State Tax
Commission of Ariz., 411 U.S. 164, 167, that a state may not tax income earned on
the reservation by a tribal member who lives there. And on the same day it decided
Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148–49, approving the taxation of
income from a tribally operated ski resort located within the taxing state but outside
the reservation. Although it recognizes that the facts of the Band's case "lie between"
those in McClanahan and Mescalero, the majority would limit McClanahan to its facts
while overlooking the significant distinction between Diver's income and that taxed
in Mescalero where the tribe was operating a lucrative business off the reservation but
within the taxing state.

       There is no indication from the Supreme Court that it would apply Mescalero
to out of state activity. In fact, Kiowa Tribe v. Manufacturing Technologies, Inc., 523
U.S. 751 (1998), cited Mescalero for the principle that a state "may tax . . . tribal
activities occurring within the State but outside Indian country" (emphasis added). In
the case before our court the majority states that we "are bound by the Supreme
Court's considered dicta almost as firmly as [its] outright holdings," Jones v. St. Paul
Cos., 495 F.3d 888, 893 (8th Cir. 2007), yet it dismisses Kiowa Tribe's on point
characterization of Mescalero. In Kiowa Tribe the Court explicitly characterized
Mescalero as applying to within state activity. No published case has applied
Mescalero in any other context. Nevertheless, the majority suggests that Mescalero
"directly controls" here despite having acknowledged that our case "lie[s] between"
Mescalero and McClanahan.

       One federal court has previously decided almost the exact issue before us. It
ruled in favor of the Lac du Flambeau Band after fully considering the applicable
precedent. Lac du Flambeau Band of Lake Superior Chippewa Indians v. Zeuske, 145
F. Supp. 2d 969 (W.D. Wis. 2000). In Zeuske, Wisconsin attempted to tax the income
                                        -11-
of a tribal member who lived on a reservation within the state but who earned his
income from work in Minnesota. The district court observed that the Supreme Court
had "categorical[ly]" rejected taxes whose legal incidence falls on tribal members
living on the reservation absent explicit Congressional authorization. Id. at 976 (citing
 Chickasaw Nation, 515 U.S. at 459). In Chickasaw Nation, the Court "accord[ed] due
deference to the lead role of Congress in evaluating state taxation as it bears on Indian
tribes and tribal members." 515 U.S. at 459. Since Congress had not authorized the
tax Wisconsin imposed, the court enjoined its collection. Id. at 977. The state did not
appeal. The Zeuske court did what should be done here, for it considered how due
process tax doctrine and federal Indian law interact rather than viewing each in
isolation. In its ongoing review of developments in Indian law, the leading treatise
endorsed the reasoning and conclusions of the Zeuske court. Cohen, § 8.03[1][b], p.
695. The majority rejects both in favor of an overbroad application of Mescalero.

       When due process and tribal sovereignty principles are considered together, the
weakness in Minnesota's position becomes clear. Diver has never earned income
while working off the reservation as a citizen of Minnesota. His pension was earned
entirely in the state of Ohio, where he lived and worked for thirty years. Minnesota
could not have taxed his wages as he received them because the state did not have the
required nexus. Now that Diver has retired and returned to the Fond du Lac
reservation, tribal sovereignty precludes Minnesota from imposing a tax on a pension
earned during thirty years of work in Ohio. Just as Minnesota could not tax Diver's
preretirement Ohio wages simply because he now resides on a reservation located in
the state, the same is true for the pension tied to those wages. His situation is not at
all similar to that in Mescalero, where Indians were taxed on income generated by an
off the reservation ski resort they ran within the state. 411 U.S. at 146. There, the
resort's operation was earning income for the Indians from a business based in that
state. Here, Diver's pension funds earned in Ohio are directed to him from Illinois for
his retirement on the Fond du Lac Reservation.

      For the foregoing reasons I dissent.
                      ______________________________
                                       -12-