Flat Center Farms, Inc. v. State Dept. of Revenue

• Citation: 2002 MT 140,310 Mont. 206,49 P.3d 578
• Decision Date: 21 June 2002
• Docket Number: No. 00-358.,00-358.
• Parties: FLAT CENTER FARMS, INC., Petitioner and Respondent, v. STATE of Montana, DEPARTMENT OF REVENUE, Respondent and Appellant.
• Court: United States State Supreme Court of Montana

49 P.3d 578

2002 MT 140

310 Mont. 206

FLAT CENTER FARMS, INC., Petitioner and Respondent, v. STATE of Montana, DEPARTMENT OF REVENUE, Respondent and Appellant.

No. 00-358.

Supreme Court of Montana.

Argued and Submitted June 5, 2001.

Decided June 21, 2002.

Chris Tweeten (argued), Assistant Attorney General, Roberta Cross Guns, Special Assistant Attorney General, Charlena Toro, Special Assistant Attorney General, Helena, Montana, For Appellant.

Laura Christoffersen (argued), Ryan Rusche (argued), Christoffersen & Knierim, P.C., Culbertson, Montana, For Respondent.

Maylinn Smith, Attorney at Law, University of Montana School of Law, Missoula, Montana (for The Assiniboine and Sioux Tribes), For Amicus Curiae.

Justice TERRY N. TRIEWEILER delivered the Opinion of the Court.

¶ 1 The Petitioner, Flat Center Farms, Inc., appealed the Respondent Department of Revenue's imposition of the Corporation License Tax to the State Tax Appeal Board. The State Tax Appeal Board upheld the Department of Revenue's assessment. Flat Center appealed to the District Court for the Fifteenth Judicial District in Roosevelt County. The District Court reversed the decision of the State Tax Appeal Board and held that the Corporation License Tax did not apply to Flat Center. The Department of Revenue now appeals from the order of the District Court. We affirm the order of the District Court.

¶ 2 The sole issue presented on appeal is whether the District Court erred when it concluded that the Montana Corporation License Tax may not be imposed on an Indian-owned corporation which does business entirely within the exterior boundaries of the Fort Peck Reservation.

FACTUAL BACKGROUND

¶ 3 The relevant facts to this dispute were agreed upon by the parties. Flat Center Farms, Inc. was incorporated pursuant to the laws of Montana on December 3, 1993, and chartered by the Fort Peck Tribes as a Tribal Corporation on October 7, 1996. Flat Center's sole business activity is farming and the farming operation is located entirely within the exterior boundaries of the Fort Peck Reservation.

¶ 4 Kim Murray is an enrolled member of the Fort Peck Tribes. He and his wife, Denise Murray, each own 200 shares of Flat Center stock. There is no non-Indian ownership of the corporation. Denise Murray is an enrolled member of the Turtle Mountain Chippewa, a tribe that has allotted lands within the Fort Peck Reservation and whose members receive social services offered by the Fort Peck Reservation.

¶ 5 Flat Center leases all the land it farms. Some of this land is owned in fee simple by individual Indians; the remainder is held in trust by the federal government for Mr. Murray, the Tribes, or individual Indians. All of the leased lands are within the Fort Peck Reservation boundaries.

¶ 6 On July 12, 1996, the Department of Revenue assessed Flat Center for taxes owed pursuant to the corporation license tax for the tax year ending October 31, 1994. The corporation license tax provides that every corporation engaged in business in the State of Montana pay an annual license fee "for the privilege of carrying on business in this state." § 15-31-101(3), MCA. The tax is assessed based on a percentage a corporation's total net income during the tax year. Flat Center appealed imposition of the tax to the Division Administrator on August 8, 1996. After the Director of the Department of Revenue upheld the Division Administrator's assessment of the corporation license tax, Flat Center petitioned to the State Tax Appeal Board (STAB). STAB also upheld the Department's assessment.

¶ 7 Flat Center appealed STAB's decision to the District Court for the Fifteenth Judicial District in Roosevelt County. The District Court reversed STAB and the Department and granted Flat Center's motion for summary judgment. The District Court held that 1) the beneficiaries of the income were ultimately Indian persons; 2) the situs of the activity generating the income was wholly within the reservation; and 3) the assets generating the income were Indian trust lands. The District Court further held that the corporate license tax impermissibly taxed lands held in trust for the Tribes and individual Indians. The Department now appeals from the order of the District Court.

STANDARD OF REVIEW

¶ 8 Our standard of review of appeals from summary judgment is de novo. Motarie v. Northern Montana Joint Refuse Disposal Dist. (1995), 274 Mont. 239, 242, 907 P.2d 154, 156. We apply the same criteria which is applied by the district court pursuant to Rule 56(c), M.R.Civ.P. Spinler v. Allen, 1999 MT 160, ¶ 14, 295 Mont. 139, ¶ 14, 983 P.2d 348, ¶ 14. The moving party must establish both the absence of genuine issues of material fact and entitlement to judgment as a matter of law. Hadford v. Credit Bureau of Havre, Inc., 1998 MT 179, ¶ 14, 289 Mont. 529, ¶ 14, 962 P.2d 1198, ¶ 14. Once the moving party has met its burden, the opposing party must present material and substantial evidence, rather than mere conclusory or speculative statements, to raise a genuine issue of material fact. Hadford, ¶ 14.

DISCUSSION

¶ 9 Did the District Court err when it concluded that the corporation license tax may not be imposed on an Indian-owned corporation which does business entirely within the Fort Peck Reservation?

¶ 10 The heart of the State's argument is that there is a distinction between individual Indians and corporations. The State contends that because corporations are created by state law, they are not the legal equivalent of a tribal member and therefore Flat Center is not an "Indian" for purposes of Montana's tax code. Consequently, the income against which the license tax is assessed is not the individual income of an Indian, but rather corporate income subject to Montana's state tax laws like any other corporation doing business in Montana.

¶ 11 The longstanding rule is that a state is without power to tax reservation lands and Indian income generated from on-reservation activities absent the express authorization of Congress. Mescalero Apache Tribe v. Jones (1973), 411 U.S. 145, 148, 93 S.Ct. 1267, 1270, 36 L.Ed.2d 114. While the State concedes that it lacks the authority to tax the on-reservation activities of enrolled tribal members or to directly tax reservation lands, it contends that its authority to tax non-Indians on the reservation should be presumed. According to the State, unless Flat Center falls under an exemption to that presumptive authority, the corporate license tax should apply.

¶ 12 However, the State's position reverses the presumption established by federal Indian law. Indian tribes have long been recognized as distinct, independent political communities qualified to exercise powers of self-government by virtue of their original tribal sovereignty. FELIX S. COHEN'S HANDBOOK OF FEDERAL INDIAN LAW, 232 (1986). Chief Justice John Marshall wrote that Indian tribes are "domestic dependent nations" whose relationship with the federal government resembles that of a ward to a guardian. Cherokee Nation v. Georgia (1831), 30 U.S. (5 Pet.) 1, 17, 8 L.Ed. 25. As a consequence of this special relationship between co-equal sovereigns, tribal powers of self-government are limited only by federal statutes, the terms of treaties with the federal government, and by restraints implicit in the nature of the relationship itself — in all other respects the tribes remain independent and self-governing communities. COHEN'S HANDBOOK, at 235.

¶ 13 The exercise of state jurisdiction over activities occurring entirely on Indian lands is an infringement on inherent tribal authority and is contrary to principles of self-government and tribal sovereignty. Williams v. Lee (1959), 358 U.S. 217, 220-23, 79 S.Ct. 269, 271-72, 3 L.Ed.2d 251. In the area of state taxation, where "Chief Justice Marshall's observation that `the power to tax involves the power to destroy' has counseled a more categorical approach," the exercise of state jurisdiction is even more circumscribed. County of Yakima v. Confederated Tribes and Bands of Yakima Indian Nation (1992), 502 U.S. 251, 258, 112 S.Ct. 683, 688, 116 L.Ed.2d 687.

¶ 14 That is not to say that state taxation is precluded in every instance. There is ample federal authority to the contrary. See, e.g., Washington v. Confederated Tribes of Colville Reservation (1980), 447 U.S. 134, 156, 100 S.Ct. 2069, 2083, 65 L.Ed.2d 10; Moe v. Confederated Salish and Kootenai Tribes of Flathead Reservation (1976), 425 U.S. 463, 483, 96 S.Ct. 1634, 1646, 48 L.Ed.2d 96. The point here is that the State should not be presumed to wield the sword of on-reservation tax authority absent an express Congressional provision. While we have not previously addressed the precise issue in this case, this Court has repeatedly recognized the need to promote tribal self-determination by deferring to tribal authority on matters of essential importance to tribes and their members. See, e.g., In re Marriage of Skillen, 1998 MT 43, ¶ 41, 287 Mont. 399, ¶ 41, 956 P.2d 1, ¶ 41 (recognizing tribal sovereignty and the right of self-government include authority to control the internal relations of tribal members); Balyeat Law, P.C. v. Pettit, 1998 MT 252, ¶ 36, 291 Mont. 196, ¶ 36, 967 P.2d 398, ¶ 36 (holding that Montana courts lack subject matter jurisdiction over debt collection action brought by non-Indian creditor whose rights arose on reservation); In re Adoption of Riffle (1995), 273 Mont. 237, 242, 902 P.2d 542, 545 (holding that the tribe is the ultimate authority on eligibility for tribal membership). Furthermore, we have considered whether tribal membership is critical to a determination of whether the State can tax income earned by Indians on tribal land. See LaRoque v. State (1978), 178 Mont. 315, 583 P.2d 1059 (holding that tribal membership was not determinative).

¶ 15 With these principles in mind, and based on the parties' stipulated facts, we conclude that Flat Center is not subject to the...