Ramah Navajo School Bd., Inc. v. Bureau of Revenue

• Decision Date: 01 July 1980
• Docket Number: No. 4302,4302
• Citation: 1980 NMCA 94,625 P.2d 1225,95 N.M. 708
• Parties: RAMAH NAVAJO SCHOOL BOARD, INC. and Lembke Construction Company, Inc., Plaintiffs-Appellants, v. BUREAU OF REVENUE, State of New Mexico, Defendant-Appellee.
• Court: Court of Appeals of New Mexico

Page 1225

625 P.2d 1225

95 N.M. 708

RAMAH NAVAJO SCHOOL BOARD, INC. and Lembke Construction

Company, Inc., Plaintiffs-Appellants, v. BUREAU OF REVENUE, State of New Mexico, Defendant-Appellee.

No. 4302.

Court of Appeals of New Mexico.

July 1, 1980.

Rehearing Denied July 11, 1980.

Michael P. Gross, Ronald J. Van Amberg, Solomon, Roth & Van Amberg, Santa Fe, for plaintiffs-appellants

Jeff Bingaman, Atty. Gen., Gerald B. Richardson, Asst. Atty. Gen., Taxation & Revenue Dept., Santa Fe, for defendant-appellee.

OPINION

WOOD, Chief Judge.

Lembke (Lembke Construction Company, Inc.) contracted with the School Board (Ramah Navajo School Board, Inc.) to build a school and related facilities on Indian land. The various contracts provided that Lembke was to pay New Mexico's gross receipts tax and Lembke has done so. Lembke and the School Board sued for a refund of these taxes. Section 7-1-26(A), N.M.S.A.1978 (Repl.Pamph.1979). Lembke has agreed to pay over to the School Board any rebate or recovery it might realize as a result of this suit for a refund. There is no issue as to proper parties. The trial court ruled in favor of the State, plaintiffs appeal. There are two issues: (1) the propriety of imposing the gross receipts tax and (2) the applicability of § 7-9-54, N.M.S.A.1978.

Propriety of Imposing the Gross Receipts Tax

Lembke is in the business of general construction and contracting. Moneys received for this activity are "gross receipts". Section 7-9-3(F), N.M.S.A.1978 (1979 Cum.Supp.). A tax is imposed on these gross receipts "(f) or the privilege of engaging in business * * * in New Mexico." Section 7-9-4, N.M.S.A.1978 (1979 Cum.Supp.).

The School Board is a non-profit corporation, incorporated under New Mexico law. The School Board is entirely operated by members of the Ramah Navajo Chapter, which is a local unit of government of the Navajo Indian Tribe. For the limited purpose of entering contracts with or receiving grants from the Bureau of Indian Affairs, the School Board is a Navajo Tribal organization. 25 U.S.C. § 450b(c) (1979 Supp.Pamph.).

The Bureau of Indian Affairs contracted with the School Board for actual construction of the school facilities; in turn, the School Board contracted with Lembke. All the construction money came from the federal government through specific congressional appropriations to the School Board.

There is no claim that New Mexico's gross receipts tax was directly imposed on the School Board; the tax was on the gross receipts of Lembke for the privilege of doing business. The contracts between the School Board and Lembke were cost-plus contracts. Pursuant to those contracts, the School Board paid Lembke an amount that included the tax and Lembke, in turn, paid the State. Thus the School Board has indirectly sustained the financial burden of the tax.

Lembke and the School Board challenge the imposition of the tax because the financial burden of the tax is on the School Board. We have held that the legal incidence of the gross receipts tax is upon one in the position of Lembke, First Nat. Bank of Santa Fe v. Commissioner of Rev., 80 N.M. 699, 460 P.2d 64 (Ct.App.1969); that a non-Indian, such as Lembke, is not exempt from state taxation because the receipts taxed were derived from activity on Indian land, G. M. Shupe, Inc. v. Bureau of Revenue, 89 N.M. 265, 550 P.2d 277 (Ct.App.1976); Tiffany Const. Co., Inc. v. Bureau of Revenue, 93 N.M. 593, 603 P.2d 332 (Ct.App.1979); that federal law did not preempt imposition of the tax, Shupe, supra; that the tax did not infringe on the right of reservation Indians to make their own laws and be governed by them, Shupe, supra; and that New Mexico's disclaimer to all rights and title to Indian lands did not bar imposition of the tax, Shupe, supra.

Lembke and the School Board suggest that we disregard New Mexico decisions, particularly the decision as to the incidence of the tax. Federal decisions have reached the same result as New Mexico. The legal incidence of the tax is on Lembke, the tax does not interfere with tribal self-government, the tax is not a tax on the Indian tribe or tribal property and federal laws do not preempt the tax. See Mescalero Apache Tribe v. O'Cheskey, 439 F.Supp. 1063 (D.N.M.1977), aff'd by the 10th Circuit June 5, 1980, 625 F.2d 967.

Both federal decisions recognized the indirect burden of the tax was on the Indians but, nevertheless, sustained the New Mexico tax. In so doing, the 10th Circuit cited, with approval, its decision in United States v. State of N. M., 581 F.2d 803 (10th Cir. 1978) where there was a cost-plus contract, and where the indirect and ultimate burden of the tax was on the United States government. Here there is a cost-plus contract and the ultimate economic burden was on the School Board. The federal district court decision recognized that the indirect burden reduced the money that the Indians could spend, but held this burden was not prohibited by decisions of the United States Supreme Court nor preempted by federal legislation. Lembke and the School Board would distinguish the federal decisions on the basis that school facilities are involved and that school facilities require a different result. They refer us to provisions in the treaty with the Navajos whereby the federal government was to provide schools and to congressional appropriations for these particular school facilities. Our answer, suggested by Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980), is that the appropriations for the these specific school facilities do not show an intent to prohibit New Mexico from taxing the gross receipts of the non-Indian contractor who builds the school.

Lembke and the School Board also contend that New Mexico may not impose its gross receipts tax upon Lembke's receipts absent specific federal legislation authorizing the tax. This contention is based on the view in McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973) that absent express authority from Congress, a state may not tax Indians or Indian property. The application of the gross receipts tax to Lembke does not require express authority from Congress because the tax is not on Indians or Indian property. The tax is on Lembke's gross receipts; the fact the indirect burden of the tax is on the Indian School Board is not a basis for holding that express authority from Congress is required for its imposition.

The trial court correctly ruled that the tax was applicable to Lembke's gross receipts....