United States of America, and the Commissioner of the Internal Revenue Service,
Civ. No. 4-92-1147
United States District Court For The District Of Minnesota, Fourth Division
861 F. Supp. 841, 96-1 U.S. Tax Cas. (CCH) P50,072, 76 A.F.T.R.2d (P-H) 7968, 1994 U.S. Dist. Decision
August 26, 1994, Decided
For RED LAKE BAND OF CHIPPEWA INDIANS, THE, on its own behalf and on behalf of its members, Red Lake, Minnesota 56671, GERALD F BRUN, Red Lake, Minnesota 56671, LUELLA R BRUN, Red Lake, Minnesota 56671, plaintiffs: David Lawrence Sasseville, Lindquist & Vennum, Mpls, MN. Mason D Morisset, Pirtle Morisset Schlosser & Aver, Seattle, WA. For UNITED STATES OF AMERICA, defendant: John A Marrella, US Dept of Justice, Tax Division, Washington, DC.
MEMORANDUM OPINION AND ORDER
This is a tax refund case begun in the United States District Court for the District of Columbia in which plaintiff Red Lake Band of Chippewa (the Tribe) sued on its own behalf and as parens patriae on behalf of its members seeking declaratory and other relief concerning the imposition of federal income tax on income derived from logging activity on tribal trust land. Band members Gerald and Luella Brun also sued on their own behalf seeking a tax refund and other relief. The District of Columbia court granted defendant’s motion to dismiss all claims except the Bruns‘ refund claim. The case was then transferred here pursuant to 28 U.S.C. § 1406(a). Now before the court is defendants’ motion for summary judgment.
I. When this action was originally filed in the District of Columbia, the Tribe sought a declaratory judgment that the income its members derived from the harvest of timber from Tribal lands is not subject to federal income tax, a permanent injunction enjoining the IRS from assessing or collecting federal income tax on such income, and a remedy in the nature of mandamus to require the Commissioner of Internal Revenue to "recognize and implement tribal members‘ rights to harvest tribal timber free of federal taxation." Complaint at PP 10.1, 10.2.
On September 24, 1992, United States District Judge Gehard Gesell granted defendants’ motion to dismiss the complaint on the basis that "this is not the proper venue for a refund claim and that the court lacks jurisdiction under the Declaration of Judgment and Anti-Injunction Acts because of alternative remedies. . .". Order dated September 24, 1992. Later, on October 27, 1992, the court granted in part plaintiffs‘ motion to Amend the Judgment:
In all other respects plaintiffs’ motion to reconsider is denied.
The Bruns seek refunds in the amount of $ 22,944.06 (Tax Year 1983), $ 9,024.45 (Tax Year 1984), and $ 4,608.74 (Tax Year 1985). The taxes were assessed on income the Bruns derived from the cutting and sale of timber from tribal lands pursuant to a permit issued by the Tribe. The basis for their refund claim is that the assessment of federal taxes constitutes a "molestation" of the Tribe‘s right to quiet enjoyment of tribal lands in violation of the Treaty of Greenville. The Bruns cite three treaties which they argue create a federal tax exemption: the Treaty of Greenville, the Treaty of Old Crossing, and the Supplement to Treaty of Old Crossing. In particular the Bruns point to the language in Article V of the Treaty of Greenville which states:
According to their pretrial statement of the case, the Bruns seek a trial on the following issues:
2. The specific meaning of the following treaty phrases:
"without any molestation from the United States"
II. The United States argues that like the income of other citizens, income earned by Indians is subject to federal income tax unless expressly exempted by a treaty or specific statute. It argues exemptions cannot be granted by implication, and that other courts have held that the treaties cited by plaintiffs do not contain any language which could reasonably be interpreted as an express tax exemption.
The Bruns respond that the assessment of federal income taxes on proceeds derived directly from tribal lands upon which the members have a right to dwell under federal treaties and statutes violates the members’ rights under those laws. They contend treaties must be construed favorably towards the Indians and according to the understanding of the Indians at the time the treaty was signed. Plaintiffs believe the treaties at issue here must be interpreted in light of the economic importance of timber harvesting to the Band and the historical context of the treaties themselves. The Bruns submit the declaration of Dr. Melissa Meyer in which she discusses the past history of the Band and the various treaties and concludes that the signers of the treaties would not have intended to subject themselves to federal taxation.
As a general principle, all income is subject to taxation unless exempted by a statute or rule of law. HCSC-Laundry v. U.S., 450 U.S. 1, 5, 67 L. Ed. 2d 1, 101 S. Ct. 836 (1980). This principle applies equally to income earned by citizens who are Indians:
Plaintiffs cite Squire v. Capoeman, 351 U.S. 1, 100 L. Ed. 883, 76 S. Ct. 611 (1956) for the proposition that courts will imply tax exemptions. Capoeman involved the taxability of income derived from cutting timber on allotted Indian lands. The court held that timber income from allotted lands was not taxable. Id. at 10. Allotted lands are lands allotted to individual tribe members from the treaty-guaranteed reservation under the General Allotment Act of 1887. Id. at 3-4. Under the allotment system the land is held by the United States in trust for the individual Indian for a specified period of years and then is conveyed to him in fee simple. Id. Under the terms of the General Allotment Act, the land is conveyed "free of all charge or encumbrance whatsoever". 25 U.S.C. § 348.
Plaintiffs in Capoeman were an Indian couple who derived income from the cutting of timber on their allotted land. In deciding plaintiffs‘ claim for a tax refund, the Court stated:
Plaintiffs here did not log on allotted land and do not even argue that the General Allotment Act or its proviso apply. They rely solely on the language of the treaties regarding "quiet enjoyment" and "without molestation".
The Eighth Circuit has already interpreted the Treaty of Greenville as not granting a tax exemption in Jourdain v. Commissioner, 617 F.2d 507 (8th Cir. 1980), cert denied, 449 U.S. 839, 66 L. Ed. 2d 46, 101 S. Ct. 116 (1980). In Jourdain, the Eighth Circuit agreed with the decision of the Tax Court which "held that the ’molestation‘ prohibited by the Treaty of Greenville was interference with the rights of Indians to hunt and otherwise enjoy their land, not the ’right‘ to be free from federal taxation," Id. at 509.
Jourdain was a member of the Red Lake Band of Chippewa and served as chairman of its tribal council. Id. at 508. His salary and expenses were paid out of monies dispersed to the Tribe by the Bureau of Indian Affairs from trust funds held for the Tribe’s benefit. Id. Jourdain failed to report his tribal income and upon being assessed deficiencies, petitioned the Tax Court for a redetermination of his liability. Id. Relying on Squire v. Capoeman, he argued that the General Allotment Act exempted his tribal income from taxation. Id. The Court of Appeals upheld the ruling of the Tax Court that "the Capoeman exemption applies only to income derived from allotted land." Jourdain, 617 F.2d at 508.
Jourdain next argued that his income was exempt because taxation would be "molestation by the United States" prohibited under the language in the Treaty of Greenville. Id. The Court of Appeals rejected this argument and expressly agreed with the rulings of the Tax Court that Indians are subject to taxation unless specifically exempted by treaty or statute and the Treaty of Greenville did not provide a right to be free from taxation. Id. at 509.
The Bruns argue that the Jourdain case is distinguishable from the case at bar because the income which was taxed in Jourdain was the salary paid to a tribal official. They argue that their income here was derived directly from the land and therefore should be exempt from taxation under the "quiet enjoyment" and "without molestation" clauses of the treaty. No language in Jourdain limits its holding in this way, however, and in fact, other cases which did involve income derived from the land have held no tax exemption existed under the treaty. In Holt v. Commissioner, 364 F.2d 38 (8th Cir. 1966), cert denied, 386 U.S. 931, 17 L. Ed. 2d 805, 87 S. Ct. 952 (1967), for example, the Court of Appeals refused to extend the Capoeman exemption to an individual tribe member‘s income derived from grazing cattle on tribal lands pursuant to a tribal grazing permit analogous to the timber permit in this case. Id. at 42. The source of the income in this case thus does not distinguish it from prior cases finding no tax exemption in the Treaty of Greenville.
Plaintiffs’ income is not exempt under the express exemption of the General Allotment Act because admittedly it was not derived from allotted lands. The only other source of exemption language identified by plaintiffs is the treaty language which the Court of Appeals has already found to be insufficient to create a federal tax exemption. No exemption may be found in a treaty‘s silence. Confederated Tribes of Warm Springs Reservation of Oregon v. Kurtz, 691 F.2d 878, 882 (9th Cir. 1982). "Absent a ’definitely expressed exemption‘ Indian tribes and their members are subject to federal taxation." Id. Plaintiffs have not identified any other treaty language which they believe creates a tax exemption, and no genuine issues of material fact exist with respect to the Treaty of Greenville. Accordingly, defendants’ motion for summary judgment should be granted.
Accordingly, based upon the above, and all the files, records, and proceedings herein, IT IS HEREBY ORDERED that:
1) plaintiffs‘ motion to amend their earlier admission is granted and the admission shall read:
LET JUDGMENT BE ENTERED ACCORDINGLY.
Date: August 26, 1994
Diana E. Murphy
1 The United States argues that the Commissioner of Internal Revenue should no longer be a named defendant in this action because a suit for refund of taxes "may be maintained only against the United States and not against any officer or employee of the United States." 26 U.S.C. § 7422(f)(1). Plaintiffs raise no objection and the Commissioner of Internal Revenue should be dismissed as a party.
2 Plaintiffs have filed a motion to amend or withdraw an earlier admission. Plaintiffs did not answer a request for admission which stated that they were relying solely on the Treaty of Greenville, the Treaty of Old Crossing, and the Supplement to the Treaty of Old Crossing. Because they did not answer, the admission is deemed admitted under Fed. R. Civ. P. 36(a). Plaintiffs request they be allowed to withdraw the admission or amend it to say:
Plaintiffs claim for refund is based on all treaties, statutes, congressional acts, executive orders, decided cases and other legal authorities which are pertinent to or support plaintiffs’ claim of income tax exemption.Defendant does not object to this amendment to the extent that it did not intend its requested admission to limit plaintiffs‘ legal arguments. Defendant has no objection to plaintiffs relying on any of the treaties, statutes, regulations, and Interior Department publications identified in their complaint, pre-trial statement of the case and interrogatory responses.
Granting plaintiffs’ motion will not affect the merits of defendant‘s summary judgment motion because plaintiffs have not cited any treaties besides the three listed above and there is no objection to plaintiffs’ citation of statutes, regulations and case law in its responsive papers. Plaintiffs‘ motion to amend their admission should be granted.