LaRock v. DOR

• Court: Wisconsin Supreme Court
• Citation: LaRock v. DOR, 241 Wis.2d 87, 2001 WI 7, 621 N.W.2d 907 (Wis. 2001)
• Decision Date: 13 February 2001
• Docket Number: No. 99-0951.,99-0951.
• Parties: Joan LAROCK, Petitioner-Appellant-Petitioner, v. WISCONSIN DEPARTMENT OF REVENUE, Defendant-Respondent.

241 Wis.2d 87

2001 WI 7

621 N.W.2d 907

Joan LAROCK, Petitioner-Appellant-Petitioner, v. WISCONSIN DEPARTMENT OF REVENUE, Defendant-Respondent.

No. 99-0951.

Supreme Court of Wisconsin.

Oral argument October 31, 2000.

Decided February 13, 2001.

For the petitioner-appellant-petitioner there was a brief by Gerald L. Hill, Jennifer L. Nutt Carleton and Oneida Law Office, Oneida, and oral argument by Gerald L. Hill and Jennifer Nutt Carleton.

For the defendant-respondent the cause was argued by F. Thomas Creeron, III, assistant attorney general, with whom on the brief (in the court of appeals) was James E. Doyle, attorney general.

An amicus curiae brief was filed by Brian L. Pierson, Donald E. Laverdure and von Briesen, Purtell & Roper, S.C., Milwaukee, and Sheila D. Corbine and Ho-Chunk Nation Department of Justice, Black River Falls, on behalf of the Oneida Indian Tribe of Wisconsin and Ho-Chunk Nation.

An amicus curiae brief was filed by Gregory B. Conway, Jeffrey S. Dunn and Liebman, Conway, Olejniczak & Jerry, S.C., Green Bay, and Sheldon E. Hochberg, John J. Duffy, Hilda A. Manuel and Steptoe & Johnson, LLP, Washington, D.C., on behalf of the Menominee Indian Tribe of Wisconsin.

An amicus curiae brief was filed by Larry B. Leventhal and Leventhal & Associates, Minneapolis, MN, and Glenn C. Reynolds and Reynolds & Associates, Madison, on behalf of the Lac Courte Oreilles Band of the Lake Superior Chippewa Indians and the Sokaogon Chippewa Community.

¶ 1. JON P. WILCOX, J.

The question presented in this case is whether an enrolled member of the Menominee Tribe, Joan LaRock (LaRock), is exempt from Wisconsin's income tax while living and working on the Oneida Reservation. Because LaRock is a member of the Menominee Tribe rather than the Oneida Tribe, we conclude that principles of tribal sovereignty do not bar the State from taxing her income earned on the Oneida Reservation.

¶ 2. The Department of Revenue (DOR) sent notice to LaRock in 1996 that she owed $588.00 plus interest for income she earned in 1994 and 1995. LaRock appealed the DOR's finding to the Wisconsin Tax Appeals Commission (Commission) on the ground that she is an "Indian" living in "Indian country." Therefore, LaRock contended, she is exempt from state income tax under the United States Supreme Court holding in McClanahan v. State Tax Comm'n of Arizona, 411 U.S. 164 (1973), which exempted an enrolled member of the Navajo Tribe living and working on the Navajo Reservation from Arizona's income tax. Id. at 181. The Commission rejected LaRock's argument and ruled that because she is not an enrolled member of the Oneida Tribe, she is not exempt from Wisconsin's income tax. The Circuit Court for Brown County, Donald R. Zuidmulder, Judge, subsequently affirmed the Commission's order. The court of appeals then affirmed the holding of the circuit court.

I

¶ 3. The facts are undisputed for the purposes of this review. LaRock is an enrolled member of the Menominee Tribe. She married an enrolled member of the Oneida Tribe, with whom she had four children, all enrolled members of the Oneida Tribe. She subsequently divorced in 1993. For the taxable years 1994 and 1995, LaRock resided on the Oneida Reservation and worked for Oneida Bingo and Casino, which is also on the Oneida Reservation. The Oneida Bingo and Casino is wholly owned and operated by the Oneida Tribe. In 1994 and 1995, LaRock deducted her federal adjusted gross income from the state income tax based on her American Indian status. The DOR disallowed her deduction because she was not living and working on Menominee tribal lands. LaRock appealed the DOR's finding to the Commission.

¶ 4. Granting the DOR's motion for summary judgment, the Commission found "no Act of Congress, no treaty, no state statute or state agreement with any tribe that impairs Wisconsin's right to impose an income tax on enrolled members of a federally-recognized Indian tribe who live and work on the reservation of another tribe in Wisconsin." LaRock v. Wisconsin Dep't of Revenue, Wisconsin Tax Appeals Commission, No. 96-I-539, 15 (May 11, 1998). LaRock appealed and the circuit court affirmed the Commission's ruling, explaining that "since [LaRock] is not a member of the Oneida Nations, she enjoys no protected status that would allow her to claim immunity from the duty she owes as a citizen of the State of Wisconsin to pay income taxes." LaRock then appealed the circuit court's ruling.

¶ 5. The court of appeals reviewed the treaties and federal statutes and asserted that those laws did not preempt state income tax jurisdiction in this instance. LaRock v. Wisconsin Dep't of Revenue, 2000 WI App 24, ¶ 9, 232 Wis. 2d 474, 606 N.W.2d 580 (Ct. App. 1999). The court then addressed McClanahan and the Supreme Court's use of the term "reservation Indian" therein. Id. at 484. The court reasoned that although the Supreme Court never defined that term, its ensuing opinions in Washington v. Confederated Tribes of Colville, 447 U.S. 134 (1980), and Duro v. Reina, 495 U.S. 676 (1990), distinguished between tribal members and nonmembers. Id. at 484-88. Thus, echoing the Commission, the court of appeals concluded that "no act of Congress, treaty, state statute or agreement with any tribe impairs Wisconsin's right to impose an income tax on enrolled members of a federally recognized Indian tribe that live and work on a reservation of another tribe." Id. at 494.

¶ 6. LaRock then petitioned this court for review. On April 28, 2000, we granted LaRock's petition.

II

[1, 2]

¶ 7. The present case entails applying the law to undisputed facts. See Anderson v. Wisconsin Dep't of Revenue, 169 Wis. 2d 255, 262, 484 N.W.2d 914 (1992). Because this case presents a question of law, we are not bound by the Commission's conclusions. Id. Although the DOR asserts that the Commission has prior experience and has acquired general expertise in the area of Indian taxation, de novo review is appropriate because there is no evidence that the agency used any special knowledge or expertise. Id.

¶ 8. Before applying the law to the facts of this case, it is necessary to consider the Indian sovereignty doctrine, which, as the United States Supreme Court has noted, "provides a backdrop against which the applicable treaties and federal statutes must be read." McClanahan, 411 U.S. at 172. First set forth by Chief Justice Marshall, the underlying principle of American Indian law is that Indian tribes are sovereign political entities. See Worcester v. Georgia, 31 U.S. 515 (6 Pet.) (1832). The United States Supreme Court has long recognized tribal rights and powers that are the accoutrements of sovereignty. See, e.g., United States v. Winans, 198 U.S. 371 (1905) (acknowledging fishing rights of Yakima Indians secured in 1859 treaty); Winters v. United States, 207 U.S. 564 (1908) (affirming rights of Gros Ventre and Assiniboing tribes to water from the Milk River); Menominee Tribe v. United States, 391 U.S. 404 (1968) (observing that tribal hunting and fishing rights from 1854 treaty survived Termination Act of 1954); United States v. Wheeler, 435 U.S. 313 (1978) (holding that Navajo Tribe has sovereign power to punish tribal member for committing a crime on the Navajo Indian Reservation in Arizona); Red Bird v. United States, 203 U.S. 76 (1906) (recognizing that the Cherokee Nation has the power to determine who is a member). We recently emphasized the enduring vitality of tribal sovereignty in Teague v. Bad River Band of the Lake Superior Tribe of Chippewa Indians, 2000 WI 79, ¶ 23, 236 Wis. 2d 384, 612 N.W.2d 709. Over the years, however, Indian tribes have seen their sovereignty tempered because "Congress has to a substantial degree opened the doors of reservations to state laws, in marked contrast to what prevailed in the time of Chief Justice Marshall." Organized Village of Kake v. Egan, 369 U.S. 60, 74 (1962). The source of congressional power to do so "derives from federal responsibility for regulating commerce with Indian tribes and for treaty making." McClanahan, 411 U.S. at 172 n.7 (citations omitted). Consequently, the notion of the "tribe," grounded in our federal constitution, is the essential political unit in American Indian law. See U.S. Const. art. I, § 8, cl. 3; art. II, § 2, cl. 2. Moreover, federal legislation over the past century has sought in some instances to encourage tribal coherence.¹ Congress can pass legislation based on tribal status without running afoul of the equal protection clause because a "tribe" is a political rather than racial classification. See Morton v. Mancari, 417 U.S. 535, 554 (1974) (holding that a BIA hiring preference is not a "racial preference" because it is "granted to Indians not as a discrete racial group, but, rather, as member of quasi-sovereign tribal entities . . ."). Thus, it is against this backdrop of tribal sovereignty that we examine the power of Wisconsin to tax the income of LaRock.²

¶ 9. Wisconsin requires that "[f]or the purpose of raising revenue for the state and the counties, cities, villages and towns, there shall be assessed, levied, collected and paid a tax on all net incomes of individuals . . . by every natural person residing within the state." Wis. Stat. § 71.02 (1993-94).³ The United States Supreme Court has observed that "[e]njoyment 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." Lawrence v. State Tax Comm'n, 286 U.S. 276, 279 (1932). Relying on the Supreme Court's McClanahan decision, however, LaRock contends that she is exempted from the statutory obligation to pay state income tax. Accordingly, we begin our analysis of her argument by reviewing the Supreme Court's McClanahan decision.

¶ 10. McClanahan is widely regarded as the seminal case in the area of American Indian income taxation.⁴ There, the Court was required "to...