Anderson v. Wisconsin Dept. of Revenue

• Decision Date: 28 May 1992
• Docket Number: No. 91-0167,91-0167
• Citation: Anderson v. Wisconsin Dept. of Revenue, 169 Wis.2d 255, 484 N.W.2d 914 (Wis. 1992)
• Parties: , 61 USLW 2041 John A. ANDERSON, Petitioner-Appellant-Petitioner, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent. . Oral Argument
• Court: Wisconsin Supreme Court

Page 914

484 N.W.2d 914

169 Wis.2d 255, 61 USLW 2041

John A. ANDERSON, Petitioner-Appellant-Petitioner, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent.

No. 91-0167.

Supreme Court of Wisconsin.

Oral Argument May 28, 1992.

Decided June 23, 1992.

For the petitioner-appellant-petitioner their briefs by Michael D. Flanagan and Foley & Lardner, Milwaukee and oral argument by Mr. Flanagan.

For the respondent-respondent the cause was argued by Gerald S. Wilcox, Asst. Atty. Gen., with whom on the brief was James E. Doyle, Atty. Gen.

CECI, Justice.

This case is before the court on petition for review of a published decision of the court of appeals, Anderson v. Dept. of Revenue, 163 Wis.2d 1015, 473 N.W.2d 520 (Ct.App.1991). The court of appeals affirmed a judgment of the circuit court for Sawyer County, Alvin L. Kelsey, Circuit Judge, which had affirmed a decision and order of the Wisconsin Tax Appeals Commission (the commission). The commission had determined that John A. Anderson (Anderson), an enrolled member of the Lac Courte Oreilles Band of the Lake Superior Chippewa Indians (the tribe), owed income taxes for income he earned on the Lac Courte Oreilles reservation (the reservation). The issue presented is whether the state of Wisconsin has the authority to tax the income of a member of the tribe, earned from tribal educational activities conducted on the reservation, when the member lives off the reservation. We hold that it does.

The relevant facts are as follows. Anderson is an enrolled member of the tribe. Anderson did not file Wisconsin income tax returns for the years 1980-83. During those years, Anderson lived in Hayward, Wisconsin, and was employed in various educational capacities by the tribe on the reservation. From 1980 to August 1982, he served as a guidance counselor at the tribe's high school, as director of education for the tribe, and as public information officer for the tribe's elementary and high schools. From August 1982 until the end of 1983 he served as president of the Lac Courte Oreilles Community College.

The Department of Revenue (the department) issued a notice of assessment against Anderson based upon the department's estimate of his income for the years 1980-83. Anderson filed a petition for redetermination of that estimate, which was denied. Anderson then filed a petition for review of the department's action with the commission.

Anderson subsequently filed Wisconsin individual income tax returns for the years 1980-83. On those returns, he identified his income earned from investment income and outside speaking income as taxable by the state, but subtracted his wages earned on the reservation as nontaxable.

At the hearing before the commission, Anderson contended that he had no obligation to pay Wisconsin state income taxes on the wages he earned while employed by the tribe on the reservation. The commission did not agree and determined that because Anderson lived off the reservation, his income was subject to the state income tax. The commission therefore affirmed the department's assessment against Anderson.

Anderson argues that Wisconsin's ability to tax his on-reservation income is preempted by federal law, that the tax places an impermissible burden on the tribe and infringes on the tribe's sovereignty, and that the tax is contrary to the Supreme Court's decision in McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973). The department responds that because Anderson is a resident of the state and not the reservation, his income is subject to taxation; that the state's ability to tax Anderson's income is not preempted by federal law; that the tax does not impermissibly burden the tribe nor infringe upon the tribe's sovereignty; and that the tax does not violate McClanahan. We agree with the department's arguments.

This case involves the application of law to undisputed facts. Because this is a question of law, we are not bound by the commission's conclusions. Local No. 695 v. LIRC, 154 Wis.2d 75, 82, 452 N.W.2d 368 (1990). As this is a case of first impression and there is no evidence that the commission has any special expertise or experience in deciding the issue presented by this case, we give the commission's determination no weight and review its decision de novo. Id. at 84, 452 N.W.2d 368.

Wisconsin may levy an income tax on all citizens domiciled within the state, as "domicile in itself establishes a basis for taxation." Lawrence v. State Tax Comm., 286 U.S. 276, 279, 52 S.Ct. 556, 557, 76 L.Ed. 1102 (1932). "Enjoyment of the privileges of residence within the state, and the attendant right to invoke the protection of its laws, are inseparable from the responsibility for sharing the costs of government." Id. Pursuant to this authority to tax, Wisconsin imposes a personal income tax upon "every natural person residing within the state...." Section 71.01(1), Stats. 1983-84. In Wisconsin, all income of resident individuals follows the residence of the individual. Section 71.07(1), Stats. Therefore, because Anderson lives in Hayward, Wisconsin, and not on the reservation, he is subject to the state income tax on all of his income, whether earned in this state or elsewhere. See Dromey v. Tax Comm., 227 Wis. 267, 273, 278 N.W. 400 (1938). As the income tax is nondiscriminatory, it applies to Indians outside the reservation unless preempted. See Webster v. Department of Revenue, 102 Wis.2d 332, 337, 306 N.W.2d 701 (Ct.App.1981).

Anderson argues that Wisconsin's ability to tax his on-reservation income is preempted by federal law and that the court of appeals erred in its analysis of White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980), and Ramah Navajo School Bd. v. Bureau of Revenue, 458 U.S. 832, 102 S.Ct. 3394, 73 L.Ed.2d 1174 (1982). We do not agree.

Under the preemption analysis developed by the U.S. Supreme Court in federal Indian law cases, we must avoid rigidly applying "mechanical or absolute conceptions of state or tribal sovereignty...." White Mountain, 448 U.S. at 145, 100 S.Ct. at 2584. "[Q]uestions of preemption in this area are not resolved by reference to standards of pre-emption that have developed in other areas of the law...." Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 176, 109 S.Ct. 1698, 1707, 104 L.Ed.2d 209 (1989). Rather, we must apply "a flexible pre-emption analysis sensitive to the particular facts and legislation involved." Id. We must therefore conduct "a particularized inquiry into the nature of the state, federal, and tribal interests at stake, an inquiry designed to determine whether, in the specific context, the exercise of state authority would violate federal law." White Mountain, 448 U.S. at 145, 100 S.Ct. at 2584. "[A]mbiguities in federal law should be construed generously, and federal pre-emption is not limited to those situations where Congress has explicitly announced an intention to pre-empt state activity." Ramah, 458 U.S. at 838, 102 S.Ct. at 3399.

The state has an interest in ensuring that all residents of the state bear their responsibility for sharing the costs of government. Wisconsin has imposed an income tax upon all residents, and upon Anderson in this case, to help bear the cost of government. Here, the state is seeking to assess its tax in return for the governmental functions the state provides to those who must bear the burden of paying the tax. We find that this is a vital state interest.

In contrast to the vital state interests at stake in this case, the federal interests implicated here are minimal. Anderson attempts to characterize the federal interests at stake here as significant by comparing this case to White Mountain and Ramah, where the U.S. Supreme Court found state taxes preempted. For the reasons stated below, we find that Anderson's comparison fails.

In White Mountain, the Supreme Court held that a state motor carrier license tax and a state excise use fuel tax levied upon a logging company whose activities were performed solely on an Indian reservation were preempted by the pervasive federal regulatory scheme governing timber operations on Indian reservations. The Court noted that "the Federal Government's regulation of the harvesting of Indian timber is comprehensive. That regulation takes the form of Acts of Congress, detailed regulations promulgated by the Secretary of the Interior, and day-to-day supervision by the Bureau of Indian Affairs." White Mountain, 448 U.S. at 145, 100 S.Ct. at 2584. The Court noted that timber on Indian land may be sold only with the consent of the Secretary of the Interior, and the Secretary is granted power to determine the disposition of the proceeds from timber sales. Id. at 146, 100 S.Ct. at 2585.

The Secretary had promulgated "a detailed set of regulations" with the objective of "promoting self-sustaining communities, to the end that the Indians may receive from their own property ... the benefit of whatever profit it is capable of yielding...." Id. at 146-47, 100 S.Ct. at 2585. The regulations governed almost every aspect of the timber operations, and the Court noted that "the Bureau of Indian Affairs exercises literally daily supervision over the harvesting and management of tribal timber." Id. at 147, 100 S.Ct. at 2585. In addition, the state tax was being imposed for operations that were being conducted solely upon Bureau and tribal roads. Id. at 148, 100 S.Ct. at 2586.

The Court held that there was "no room for these taxes in the comprehensive federal regulatory scheme. In a variety of ways, the assessment of state taxes would obstruct federal policies. And equally important, respondents have been unable to identify any regulatory function or service performed by the State that would justify the assessment of taxes for activities on Bureau and tribal roads within the reservation." Id. at 148-49, 100 S.Ct. at 2586. The Court reiterated that White...