Laguna Industries, Inc. v. New Mexico Taxation and Revenue Dept.

• Decision Date: 05 October 1992
• Docket Number: No. 12635,12635
• Citation: 845 P.2d 167,1992 NMCA 109,114 N.M. 644
• Parties: LAGUNA INDUSTRIES, INC., and Raytheon Services Company, Plaintiffs-Appellees, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

Page 167

845 P.2d 167

114 N.M. 644

LAGUNA INDUSTRIES, INC., and Raytheon Services Company Plaintiffs-Appellees, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Defendant-Appellant.

No. 12635.

Court of Appeals of New Mexico.

Oct. 5, 1992.

Certiorari Granted Nov. 19, 1992.

[114 N.M. 645] Wayne H. Bladh, Nordhaus, Haltom, Taylor, Taradash & Frye, Santa Fe, for plaintiffs-appellees.

Tom Udall, Atty. Gen., Frank D. Katz, Sp. Asst. Atty. Gen., Santa Fe, for defendant-appellant.

OPINION

APODACA, Judge.

The New Mexico Taxation and Revenue Department (the Department) appeals from an order of the district court granting summary judgment to Raytheon Services Industry (Raytheon) and Laguna Industries, Inc., (Laguna) and denying the Department's own motion for summary judgment. The order required the Department to refund gross receipts taxes paid by Raytheon on services performed for Laguna on the Laguna Pueblo (the Pueblo), an Indian reservation. The primary issue on appeal is whether the Indian trader statutes, 25 U.S.C. Secs. 261 to 264 (1988), preempt the Department's authority to impose a gross receipts tax on Raytheon. Under a second issue, in support of its argument against the district court's denial of the Department's motion for summary judgment, the Department argues that no other federal statutes preempt state taxation on the services rendered.

The United States Supreme Court, in Warren Trading Post Co. v. Arizona Tax Commission, 380 U.S. 685, 85 S.Ct. 1242, 14 L.Ed.2d 165 (1965), and Central Machinery Co. v. Arizona State Tax Commission, 448 U.S. 160, 100 S.Ct. 2592, 65 L.Ed.2d 684 (1980), held that the Indian trader statutes preempted a similar tax in connection with transactions involving a sale of goods. We hold that the Indian trader statutes govern trade in services as well as trade in goods. The Department concedes that if we so interpret those statutes, the holdings of Warren Trading Post and Central Machinery compel the conclusion that the Indian trader statutes preempt the taxes imposed by the Department on Raytheon. Because we conclude that the statutes govern trade in services, it becomes unnecessary for us to address the Department's second issue to determine whether other federal legislation has preempted the Department's authority to impose the tax. We affirm the district court's decision.

BACKGROUND

1. Facts.

Laguna Industries, Inc., is a New Mexico corporation wholly owned by the Pueblo of Laguna, an Indian tribe organized under the Indian Reorganization Act, 25 U.S.C. Sec. 476 (1988 & Supp.1992). In the early 1980s, the Pueblo sought to invest capital accumulated from uranium mining operations and to find employment for tribal members who were unemployed because of the decline of the uranium industry. To accomplish this purpose, the Pueblo incorporated Laguna with the goal of obtaining federal contracts from the Department of Defense (DOD). To assure DOD that Laguna would be competent to handle these contracts, Laguna contracted with Raytheon, a major defense contractor, for technical, training, and management assistance.

From the Pueblo itself, Laguna received capital investment, a line of credit, and the use of a Pueblo-owned building. Laguna also received assistance, including grants, from various federal programs, including the Administration for Native Americans (ANA) within the Health and Human Services Department, the Small Business Administration (SBA), DOD, the Bureau of Indian Affairs (BIA), and Congress.

Some of the funds for the establishment of Laguna came from an ANA economic development grant of $655,140 to the Pueblo, conditioned on the Pueblo's receiving a DOD contract under the Buy Indian Program. Other funds were a BIA grant of $500,000, matching funds from the Pueblo of $900,000, a line of credit of $1,500,000 from the Pueblo, a loan from the Pueblo of $127,000, a Pueblo-owned building valued at $1,600,000, and federal funding under the Job Training Partnership Act, 29 U.S.C. Secs. 1501 to 1781 (1988) (JTPA), that totalled $147,344.

For more than two years, Raytheon employees worked with Laguna employees on the reservation to provide technical assistance in setting up and operating the business and ensuring quality work. Laguna paid Raytheon from the ANA grant, the Pueblo line of credit and Laguna's operating profits, the BIA grant, and the JTPA funding. The Raytheon employees lived in Albuquerque and commuted daily to the reservation. Raytheon paid gross receipts tax on its receipts from the contract with Laguna and passed on the cost of those taxes to Laguna. It assigned its right to any tax refund to Laguna.

No New Mexico governmental agency made any capital contribution to Laguna or contributed any funds to pay Raytheon. However, most Laguna employees were educated in New Mexico schools. Raytheon employees lived in Albuquerque and used the roads and other services there. State professional licensing boards ensured the competency of the architects and builders of the Laguna building, the banks and insurance companies Laguna used, and the attorneys handling the litigation.

2. Procedural history.

In 1988, Raytheon and Laguna filed a claim for the refund of $53,750.86 paid by Raytheon to the Department from March 1986 through May 1988. The Department took no action on the claim within 120 days. Raytheon and Laguna then filed an action in district court pursuant to NMSA 1978, Section 7-1-26(A) (Repl.Pamp.1990), challenging the Department's failure to refund the tax. The parties filed cross motions for summary judgment. The district court granted Raytheon and Laguna's motion and denied the Department's motion, ruling that, as a matter of law, the sale of services to the tribe was "trading" under the Indian trader statutes. On that basis, the district court concluded that the Indian trader statutes preempted the state's authority to impose the tax on Raytheon and ordered the state to refund the taxes paid, together with interest and costs.

3. The state tax.

The Gross Receipts and Compensating Tax Act, NMSA 1978, Secs. 7-9-1 to -82 (Repl.Pamp.1990 & Supp.1991), provides for the imposition of a gross receipts tax on any person engaging in business in this state based upon the privilege of engaging in business within New Mexico. Sec. 7-9-4(A). The tax is imposed on the sale of services performed in New Mexico. Sec. 7-9-3(F).

4. The Indian trader statutes.

The Indian trader statutes, 25 U.S.C. Secs. 261 to 264, state:

Sec. 261. Power to appoint traders with Indians

The Commissioner of Indian Affairs shall have the sole power and authority to appoint traders to the Indian tribes and to make such rules and regulations as he may deem just and proper specifying the kind and quantity of goods and the prices at which such goods shall be sold to the Indians.

Sec. 262. Persons permitted to trade with Indians

Any person desiring to trade with the Indians on any Indian reservation shall, upon establishing the fact, to the satisfaction of the Commissioner of Indian Affairs, that he is a proper person to engage in such trade, be permitted to do so under such rules and regulations as the Commissioner of Indian Affairs may prescribe for the protection of said Indians.

Sec. 263. Prohibition of trade by President

The President is authorized, whenever in his opinion the public interest may require the same, to prohibit the introduction of goods, or of any particular article, into the country belonging to any Indian tribe, and to direct all licenses to trade with such tribe to be revoked, and all applications therefor to be rejected. No trader to any other tribe shall, so long as such prohibition may continue, trade with any Indians of or for the tribe against which such prohibition is issued.

Sec. 264. Trading without license; white persons as clerks

Any person other than an Indian of the full blood who shall attempt to reside in the Indian country, or on any Indian reservation, as a trader, or to introduce goods, or to trade therein, without such license, shall forfeit all merchandise offered for sale to the Indians or found in his possession, and shall moreover be liable to a penalty of $500: Provided, That this section shall not apply to any person residing among or trading with the Choctaws, Cherokees, Chickasaws, Creeks, or Seminoles, commonly called the Five Civilized Tribes, residing in said Indian country, and belonging to the Union Agency therein: And provided further, That no white person shall be employed as a clerk by any Indian trader, except such as trade with said Five Civilized Tribes, unless first licensed so to do by the Commissioner of Indian Affairs, under and in conformity to regulations to be established by the Secretary of the Interior.

The United States Supreme Court examined the history of the Indian trader statutes in Warren Trading Post. The Court stated that "from the very first days of our Government, the Federal Government * * * had exercised through statutes and treaties a sweeping and dominant control over persons who wished to trade with Indians and Indian tribes." Warren Trading Post, 380 U.S. at 686-87, 85 S.Ct. at 1243-44 (footnotes omitted). The Court continued, stating that "[s]uch comprehensive federal regulation of Indian traders has continued from that day to this." Id. at 688, 85 S.Ct. at 1244. The Supreme Court stated that the Commissioner of Indian Affairs, acting under the authority granted to him under Sections 261 and 262, had:

promulgated detailed regulations prescribing in the most minute fashion who may qualify to be a trader and how he shall be licensed; penalties for acting as a trader without a license; conditions under which government employees may trade with Indians; articles that cannot be sold to Indians; and conduct forbidden on a licensed trader's premises. He has ordered that detailed business records be kept and that government officials be allowed to inspect these records to make sure that prices...