McClanahan v. State Tax Commission

• Decision Date: 28 April 1971
• Docket Number: CA-CIV
• Citation: 484 P.2d 221,14 Ariz.App. 452
• Parties: Rosalind McCLANAHAN, Individually and On Behalf of All Others Similarly Situated, Appellant, v. The STATE TAX COMMISSION of Arizona, Appellee. 11316.
• Court: Arizona Court of Appeals

Page 221

484 P.2d 221

14 Ariz.App. 452

Rosalind McCLANAHAN, Individually and On Behalf of All Others Similarly Situated, Appellant, v. The STATE TAX COMMISSION of Arizona, Appellee.

1 CA-CIV 1316.

Court of Appeals of Arizona, Division 1, Department B.

April 28, 1971.

Rehearing Denied June 8, 1971.

Dinebeina Nahiilna Be Agaditahe, by Theodore Mitchell, Bruce Bridegroom and Donald Juneau, Window Rock, for appellant.

Gary K. Nelson, Atty. Gen., by James D. Winter, Asst. Atty. Gen., Phoenix, for appellee.

JACOBSON, Presiding Judge.

Are Navajo Indians living and working within the confines of that portion of the Navajo Indian Reservation lying within the State of Arizona, subject to the Arizona State Individual Income Tax laws?

Plaintiff-appellant, Rosalind McClanahan, brought an action in Apache County, Arizona, on behalf of herself and all others similarly situated, ¹ against the State Tax Commission of Arizona, seeking a refund of $16.20 withheld by her employer during the taxable year 1967 as Arizona income tax, against which the State of Arizona claimed an alleged tax liability of $11.84. Plaintiff's complaint alleged that she is a Navajo Indian and that at all times during the tax year 1967 she resided on, and all her income for that year was derived from sources within the confines of, the Navajo Indian Reservation. By reason of her status and the source of her income, plaintiff contends she is not subject to the assessment, collection or retention of the Arizona tax on income collected under the authority of A.R.S. § 43--101 et seq. ²

The defendant State Tax Commission filed a motion to dismiss for failure to state a claim for relief pursuant to Rule 12(b), Rules of Civil Procedure, which was granted. Plaintiff appealed from the judgment of dismissal of her complaint.

For the purposes of this appeal, we must consider the facts pled in plaintiff's complaint as true. Lakin Cattle Co. v. Engelthaler, 101 Ariz. 282, 419 P.2d 66 (1966).

Plaintiff does not contend that she is not a 'resident' of the State of Arizona, within the meaning of the Arizona state tax law, but bases her theory of non-taxability by the State of Arizona primarily upon the oft-quoted pronouncement of the United States Supreme Court in Worcester v. Georgia, 31 U.S. (6 Pet.) 515, 8 L.Ed. 483 (1832):

'The Cherokee (Navajo) Nation * * * is a distinct community occupying its own territory * * * in which the laws of Georgia (Arizona) can have no force.'

However, it is generally conceded, even by the plaintiff here, that the relationship of the Indian, be he reservation oriented or otherwise, to the rest of the citizens of the United States and to the states themselves has drastically changed in the approximate 140 years since Worcester v. Georgia. This changed relationship has been reflected in decisions delineating the State-Indian status.

'Over the years this original concept of tribal sovereignty has been modified to permit application of state law to reservation Indians in matters Not considered essential to tribal self-government, but the basic principle that the Indian tribes retain exclusive jurisdiction over Essential matters of reservation government, in the absence of specific Congressional limitation, has remained.' Arizona ex rel. Merrill v. Turtle, 413 F.2d 683 (9th Circuit 1969), cert. denied, 395 U.S. 1003, 90 S.Ct. 551, 24 L.Ed.2d 494 (1970). (emphasis added)

To determine the effectiveness of state laws on reservation Indians '* * * the question has always been whether the state action infringed on the right of the Reservation Indians to make their own laws and he ruled by them.' Williams v. Lee, 358 U.S. 217, 79 S.Ct. 269, 3 L.Ed.2d 251 (1959). Williams also speaks in terms of 'the internal affairs of the Indians' remaining 'exclusively' within the jurisdiction of the tribal government.

It is also apparent from reading the State-Indian cases, that the extent of control that a state may exercise over Indians residing within its borders is in direct relationship to the amount of tribal government in existence which could affect that Indian. Thus, in Leahy v. State Treasurer of Oklahoma, 297 U.S. 420, 56 S.Ct. 507, 80 L.Ed. 771 (1936) and in Oklahoma Tax Commission v. United States, 319 U.S. 598, 63 S.Ct. 1284, 87 L.Ed. 1612 (1943), the State of Oklahoma was allowed to impose a state tax on a pro rata share of tribal income and an estate tax on Indians' estates where 'these Indians have no effective tribal autonomy * * * and * * * are actually citizens of the State with little to distinguish them from all other citizens except for their limited property restrictions and their tax exemptions.' Oklahoma Tax Commission v. United States, Supra.

Likewise, Alaska state fishtrap laws were applied to the Metlakatla Indians who have no reservation in the self-government sense because 'the principle of Indian national sovereignty enunciated in Worcester v. Georgia * * * does not apply to them.' Metlakatla Indian Community v. Egan, 369 U.S. 45, 82 S.Ct. 552, 7 L.Ed.2d 562 (1962).

A like result was reached in Organized Village of Kake v. Egan, 369 U.S. 60, 82 S.Ct. 562, 7 L.Ed.2d 573 (1962), dealing with non-reservation Indians.

Applying the rationale of these decisions it is apparent that the infringement referred to in Williams v. Lee, Supra, is not whether the Arizona state income tax infringes on plaintiff's rights as an individual Navajo Indian, but whether such a tax infringes on the rights of the Navajo tribe of Indians to be self-governing. In making this determination, we must first make an analysis of the nature of a net income tax. A workable analysis was first expressed in Black on Income and Other Federal Taxes (Fourth Edition) as quoted in Poorman v. State Board of Equalization, 99 Mont. 543, 45 P.2d 307 (1935):

"An income tax is distinguished from other forms of taxation in this respect: that it is not levied upon property, nor upon the operations of trade or business or the subjects employed therein, nor upon the practice of a profession or the pursuit of a trade or calling, but upon the acquisitions of the taxpayer arising from one or more of these sources, or all combined, annually or at other stated intervals, and generally, but not necessarily, upon only the excess of such acquisitions over a certain minimum sum."

An income tax has been said to be a personal tax, Pennsylvania Cement Co. v. Bradley Contracting Co., 274 F. 1003 (S.D.N.Y.1960), assessed upon the income of the person. Young v. Illinois Athletic Club, 310 Ill. 75, 141 N.E. 369 (1923). Because of the nature of a net income tax we are not persuaded by the reasoning of those cases dealing with the attempt by the state to control or affect Indian real property. See The Kansas Indians, 72 U.S. (5 Wall.) 737, 18 L.Ed. 667 (1866); Your Food Stores, Inc. (NSL) v. Village of Espanola, 68 N.M. 327, 361 P.2d 950 (1961).

Having previously determined that the prohibition against applying state law to reservation Indians was not intended as a prohibition against individual infringement, but deals with interference with tribal autonomy we have no difficulty in holding that the fact that the plaintiff is a Navajo Indian and is required to pay a personal tax, does not in and of itself make such a tax ineffective. Nor do we believe the fact that plaintiff as a Navajo Indian is required to pay the income tax on income derived solely from sources within the reservation results in an infringement on the Navajo tribe's right to self government. In determining whether such an infringement exists, we are aided by an examination of those early cases dealing with the federal-state dichotomy of income taxation. Thus, as was held in Helvering v. Gerhardt,304 U.S. 405, 58 S.Ct. 969, 82 L.Ed. 1427 (1938), when dealing with the problem of whether state employees were required to pay federal income taxes and the extent that such taxation infringed upon the sovereignty of the state:

'Even though, to some unascertainable extent, the tax deprived the state of the advantage of paying less than the standard rate for the services which they engage, It does not curtail any of those functions which have been thought hitherto to be essential to their continued existence as states.

'(W)e decide only that the present tax neither precludes nor threatens unreasonably to obstruct any function essential to the continued existence of the state government.' (emphasis added)

Likewise, the corresponding right of a state to levy an income tax upon an employee of the federal government was upheld in Graves v. New York ex rel. O'Keefe, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927 (1939). This case, in attempting to determine whether the State income tax...