Colonial Trust Co. v. Lewellyn

• Decision Date: 31 December 1925
• Docket Number: No. 3271,3272.,3271
• Citation: 12 F.2d 481
• Parties: COLONIAL TRUST CO. v. LEWELLYN, Former Collector of Internal Revenue. SAME v. HEINER, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Pennsylvania

12 F.2d 481 (1925)

COLONIAL TRUST CO. v. LEWELLYN, Former Collector of Internal Revenue.

SAME v. HEINER, Collector of Internal Revenue.

Nos. 3271, 3272.

District Court, W. D. Pennsylvania.

December 31, 1925.

Sterrett & Acheson, of Pittsburgh, Pa., and Allen & Underwood, of Tulsa, Okl., for plaintiff.

John D. Meyer, U. S. Atty., and W. J. Aiken, Asst. U. S. Atty., both of Pittsburgh, Pa., for defendants.

THOMSON, District Judge.

These two actions involving the same legal questions are brought by the executor of the last will and testament of Glenn T. Braden, deceased, to recover back the amount of certain taxes assessed on the income of decedent from a certain lease for oil and gas purposes from the Osage Tribe of Indians under lands located in Osage county, Okl. The taxes were paid by the decedent to the respective Collectors of Internal Revenue under protest, to avoid distraint and sale of decedent's property. An affidavit of defense identical in character was filed in each case, and the parties, recognizing that the facts on which plaintiff's right of recovery depends are not in dispute, and that the fundamental questions involved are of law, have filed stipulations of record covering the material facts, leaving the issue, one of law, for the determination of the court. Under the admissions in the pleadings as modified by the stipulations, the following facts appear:

(1) The oil deposits in question in Osage county, Okl., were, and still are, the exclusive property of the Osage Indian Tribe, and in its capacity as a tribe or nation.

(2) The Osage Tribe of Indians have at all times been, and now are, wards of the national government, the relation of the United States as guardian of said tribe rests upon treaty obligations, acts of Congress, and policies adopted by the government in dealing with the tribe, and the tribe has at all times been, and now is, considered by the United States as a dependent people.

(3) From time immemorial all tribal funds and property, including the oil deposits in question, of the Osage Tribe of Indians have been and are held in trust for them as wards of the government of the United States as their guardian, and this status as to these oil deposits will not expire before April 17, 1946. The acts of Congress which deal with these matters are special and not general acts.

(4) Under the terms of this legislation, the setting apart of the land, under which are these oil deposits, was in order to provide the tribe with a reservation, and the same was so set apart for them.

(5) Under this legislation, the oil and other minerals covered by these lands were reserved for said period for the use of the tribe, the royalty in respect thereof to be paid to the tribe, the leases for all oil to be made by the Osage Tribe, through its tribal council, with the approval of the Secretary of the Interior, and under such rules and regulations as he may prescribe, all funds belonging to the tribe, which may become due, or found to be due to the tribe, to be held in trust by the United States.

(6) The rules and regulations which, by the stipulations, are made a part of the statement of claim, are pursuant to the special congressional legislation, and contain a copy of the form of the oil-mining leases.

(7) The United States, by virtue of this guardianship relation, has exercised absolute dominion and control as guardian over these oil deposits, and is, and has been at all times, holding the same in trust for the use and benefit of the Indians, except that the lease, as stated, made pursuant to these acts of Congress, is required by Congress to be executed by the tribal council, but is not valid unless approved by the Secretary of the Interior.

(8) Glenn T. Braden, the decedent, in his lifetime was owner of an interest in such a lease in respect of said oil deposits from a date prior to the year 1917, as oil lessee, under due approval by the Secretary of the Interior, to wit, as to a particular portion of the property of the said tribe, and as described in paragraph 8 of the plaintiff's statement of claim, and, in compliance with the terms of said lease and the rules and regulations of the Department of the Interior, Braden controlled a number of oil wells thereon and produced large quantities of oil therefrom.

(9) The royalty which the said Braden, under the terms of said lease, was to pay on the oil produced from the lease was 16 2/3 per cent. of the gross proceeds from the sale of the oil produced thereon from wells producing 100 barrels or less, and exceeding that amount, 20 per cent.

(10) Upon threat of the respective collectors to enforce payment of the taxes assessed, with penalties and interest, by distraint and sale of his property, Braden paid the taxes set forth in the statement of claim under protest, no part of which has been refunded.

In these circumstances, the question is, As the law now stands, can the United States lawfully assess and collect from the lessee of the lands of its ward, the Osage Indian Tribe, a tax on the net income arising from such lease?

If the state of Oklahoma were attempting by legislative act to levy a tax for the support of the state from this same net income of the lessee, it would certainly fail. The Supreme Court has distinctly announced certain principles in decisions closely touching the question now before the court, which would not only preclude the state from collecting such tax, but, by analogy, are practically conclusive against the government's claim.

The taxing powers of a state are of the broadest character. This is an incident of sovereignty, and all subjects over which the sovereign powers of a state extend are objects of taxation. Concerning these, the federal government undertakes to exercise no supervision or control, never attempting to interfere unless the state taxation results in national interference. In Shaffer v. Carter, 40 S. Ct. 221, 252 U. S. 37, 64 L. Ed. 445, the Supreme Court, quoting from Justice Brewer in a former case, said:

"`We have had frequent occasion to consider questions of state taxation in the light of the federal Constitution, and the scope and limits of national interference are well settled. There is no general supervision on the part of the nation over state taxation, and in respect to the latter the state has, speaking generally, the freedom of a sovereign both as to objects and methods.' * * * `The power of taxation, however vast in its character and searching in its extent, is necessarily limited to subjects within the jurisdiction of the state. These subjects are persons, property, and business. * * * It * * * may touch business in the almost infinite forms in which it is conducted, in professions, in commerce, in manufactures, and in transportation. Unless restrained by provisions of the federal Constitution, the power of the state as to the mode, form, and extent of taxation is unlimited, where the subjects to which it applies are within her jurisdiction.'"

But, vast as the powers of state taxation are, they must not and cannot interfere with the functions and operations of the federal government.

In Choctaw, Oklahoma & Gulf Railroad Co. v. Harrison, 35 S. Ct. 27, 235 U. S. 292, 59 L. Ed. 234, appellant was a railroad corporation with power to lease and operate coal mines in the region formerly known as Indian Territory, now in the state of Oklahoma. The Choctaw and Chickasaw Indians as wards of the United States owned a large area of segregated and unallotted lands, containing coal deposits which are not subject to taxation by ...