Hoptowit v. C.I.R.

• Decision Date: 28 June 1983
• Docket Number: No. 82-7419,82-7419
• Citation: 709 F.2d 564
• Parties: 83-2 USTC P 9449 William H. HOPTOWIT, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 564

709 F.2d 564

83-2 USTC P 9449

William H. HOPTOWIT, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 82-7419.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 6, 1983.

Decided June 28, 1983.

Jonathan Cohen, Washington, D.C., for respondent-appellee.

R. Wayne Bjur, Yakima, Wash., for petitioner-appellant.

Appeal from the United States Tax Court.

Before HUG, POOLE, and NORRIS, Circuit Judges.

HUG, Circuit Judge:

The question presented by this case is whether payments to a Yakima Indian for service as a Tribal Council Member are exempt from federal income taxation under the Treaty with the Yakimas. The Tax Court, 78 T.C. 137, ruled that these payments are taxable. We affirm.

I

Appellant William Hoptowit is a noncompetent, ¹ enrolled member of the Yakima Indian Nation (the "Tribe").

In November 1975, Hoptowit was elected by the Tribe to the Yakima Tribal Council. The Tribal Council is the Tribe's governing body. Council Members handle the Tribe's business on a day-to-day basis. Serving as a Council Member is not a full-time job, but involves a significant expenditure of time.

Council Members receive per diem payments for time spent on Council matters. The per diem amount is determined annually by the Tribe, and the payments are made from funds originally held in trust by the United States for the Tribe's benefit. Approximately 90 percent of the funds held in trust by the United States is generated from "trust resources," primarily the sale of timber from reservation land. The remaining ten percent of Tribal funds is from interest on money deposited with the Bureau of Indian Affairs.

In 1976, Hoptowit received $18,000 in per diem payments for his work as a Council Member. Taxes were not withheld from these payments. Hoptowit did not report this $18,000 as taxable income.

After an audit, the Commissioner of Internal Revenue determined a deficiency of almost $40,000 for 1976. Only a portion of this deficiency is attributable to the per diem payments. The remainder is attributable to income from a smokeshop operated by Hoptowit on the Yakima Reservation.

Hoptowit petitioned the Tax Court for a redetermination of his tax liability. The Tax Court held that neither the per diem payments nor the smokeshop income is exempt from federal income taxation. Hoptowit appeals the Tax Court's ruling only as to the per diem payments.

II

As a general rule, Indians are subject to federal income taxation, like other United States citizens, unless exempted by a treaty or an act of Congress. Fry v. United States, 557 F.2d 646, 647 (9th Cir.1977), cert. denied, 434 U.S. 1011, 98 S.Ct. 722, 54 L.Ed.2d 754 (1978). Although ambiguous statutes and treaties are to be construed in favor of Indians, they are not to be construed to grant tax exemptions unless they contain language which can reasonably be so construed. United States v. Anderson, 625 F.2d 910, 913 (9th Cir.1980), cert. denied, 450 U.S. 920, 101 S.Ct. 1367, 67 L.Ed.2d 347 (1981). The intent to exempt from taxation must be clearly expressed. Squire v. Capoeman, 351 U.S. 1, 6, 76 S.Ct. 611, 614-15, 100 L.Ed. 883 (1956); Anderson, 625 F.2d at 913.

Hoptowit's claim that the per diem payments are exempt from taxation is based on the Treaty with the Yakimas of 1855 (the "Treaty"). 12 Stat. 951. In that Treaty, the Yakimas ceded their claims to certain lands in what was then the Washington Territory, excepting the tract that is now the Yakima Indian Reservation. The paragraph on which Hoptowit relies concerns the land set aside for the reservation. It reads as follows:

All which tract shall be set apart, and, so far as necessary, surveyed and marked out, for the exclusive use and benefit of said confederated tribes and bands of Indians, as an Indian reservation; nor shall any white man, excepting those in the employment of the Indian Department, be permitted to reside upon the said reservation without permission of the tribe and the superintendent and agent. And the said confederated tribes and bands agree to remove to, and settle upon, the same, within one year after the ratification of this treaty. In the mean time it shall be lawful for them to reside upon any ground not in the actual claim and occupation of citizens of the United States; and upon any ground claimed or occupied, if with the permission of the owner or claimant.

12 Stat. at 952 (emphasis added).

Hoptowit contends that the "exclusive use and benefit" language expresses a tax exemption as clearly as was possible a half century before the enactment of federal income taxation. He argues that this language guarantees the Tribe's right to distribute the income from the reservation's resources for the exclusive benefit of its members. He further argues that the word "exclusive" precludes taxation of these distributions to Tribal members.

The Commissioner interprets the Treaty as giving the Yakima Indians the right to the exclusive use and benefit of reservation lands, but not as protecting the income of tribal members from taxation. If the Treaty gives rise to a tax exemption, the Commissioner argues, it is limited to income produced directly by reservation land.

The Commissioner relies in part on cases which hold that although the income from certain Indian lands may be tax exempt, the payment of that income to tribal members in exchange for services is a...