Mahoney v. State Tax Commission

• Decision Date: 05 September 1973
• Docket Number: No. 11016,11016
• Citation: 96 Idaho 59,524 P.2d 187
• Parties: John George MAHONEY, Plaintiff, and Margaret Rose Mahoney, Plaintiff and Respondent, v. STATE of Idaho, State TAX COMMISSION, Defendant and Appellant.
• Court: Idaho Supreme Court

Page 187

524 P.2d 187

96 Idaho 59

John George MAHONEY, Plaintiff, and Margaret Rose Mahoney, Plaintiff and Respondent, v. STATE of Idaho, State TAX COMMISSION, Defendant and Appellant.

No. 11016.

Supreme Court of Idaho.

Sept. 5, 1973.

On Rehearing July 8, 1974.

W. Anthony Park, Atty. Gen., Robert L. Miller, Deputy Atty. Gen., Boise, for defendant and appellant

McFadden & Park, St. Maries, Hamilton & Hamilton, Coeur d'Alene, for plaintiff and appellee.

Robert D. Dellwo, Spokane, Wash., amicus curiae.

DONALDSON, Chief Justice.

The original plaintiff in this action was John George Mahoney, who sought to recover 784 cartons of cigarettes seized by the defendant-appellant Idaho State Tax Commission and to restrain the Commission from interfering with the plaintiff's cigarette-vending business. Subsequent to the filing of this action, the respondent Margaret Rose Mahoney acquired all interests in the confiscated property and was, therefore, substituted as plaintiff for John George Mahoney, as to whom the action was dismissed.

The respondent and her predecessor in interest are both members of the Coeur d'Alene Indian Tribe. On June 21, 1968, an agent of the Tax Commission seized the respondent's cigarettes because they did not bear Idaho cigarette tax stamps. At the time of the seizure, the cigarettes were located at the respondent's on-reservation tobacco shop and were being held for sale to both Indian and non-Indian purchasers. A substantial portion of the respondent's sales were made to non-Indian members of the general public. The cigarettes seized by the State were purchased by the respondent in Spokane, Washington, and transported The respondent's concession is located one mile north of Plummer, Idaho, just off U.S. Highway 95, a major north-south route through this state, carrying a large volume of daily traffic. The respondent's business is a private enterprise in no way connected with tribal business, and its owner is not engaged in performing a tribal function.

to the reservation in the respondent's personal automobile.

Since the cigarettes seized by the Commission were perishable, the parties agreed that they should be sold and that the proceeds of sale ($1,484.15) should be held pending the outcome of the action.

Section 63-2503 of the Idaho Code provides that '(t)here is hereby levied, and there shall be collected as hereinafter provided, a tax upon the retail sale of cigarettes.' Emphasis added. As amended in 1972, this section currently imposes this sales tax at the rate of 9/20 of 1cents per cigarette, or 90cents per standard carton of 200 cigarettes. If the respondent's sales are exempt from this tax, whe would obviously have a 90per-carton competitive advantage over vendors not located on Indian land.

The district court held that Idaho lacks jurisdiction to tax the on-reservation sale of cigarettes by Indians. Judgment was entered in favor of the respondent Indian for $1,484.15, plus interest and costs; in addition, the court permanently enjoined the Tax Commission from interfering with the operation of the respondent's business. On appeal, the Tax Commission asserts that the cigarettes were seized only because they were being held for sale to non-Indians. The appellant disclaims any right to tax on-reservation sales by Indians to Indians. Nor does the appellant challenge the district court's finding that the Coeur d'Alene Indian Tribe has never entered into any agreement consenting to the taxation of its members by the State of Idaho.

I.

During the pendency of this appeal, the Supreme Court of the United States vacated the judgment of the Washington Supreme Court in Tonasket v. State, 79 Wash.2d 607, 488 P.2d 281 (1971), relied upon by the appellant herein. Tonasket v. Washington, 411 U.S. 951, 93 S.Ct. 1941, 36 L.Ed.2d 385 (1973) (per curiam). In its decision in the case, the Washington Supreme Court held that the Washington cigarette tax could be applied to the onreservation sale of cigarettes by an Indian, most of whose customers were non-Indians. ¹ In vacating the Washington judgment, the Supreme Court of the United States ordered the Supreme Court of Washington to reconsider its decision in light of the former's recent unanimous decision in McClanahan v. State Tax Commission of Arizona, 411 U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973). The Supreme Court of the United States thereby indicated that the principles enunciated in McClanahan are applicable in cases such as this involving a state's attempt to tax The holding of the Court in McClanahan is perhaps best described by the Supreme Court itself in Mescalero Apache Tribe v. Jones, 411 U.S. 145, 93 S.Ct. 1267, 1270, 36 L.Ed.2d 115 (1973), released the same day as McClanahan:

on-reservation sales consummated by Indian sellers, even though McClanahan itself involved a state's attempt to tax personal income earned by an Indian solely from reservation sources.

'(I)n the special area of state taxation, absent cession of jurisdiction or other federal statutes permitting it, there has been no satisfactory authority for taxing Indian reservation lands or Indian income from activities carried on within the boundaries of the reservation, and McClanahan v. State Tax Commission of Arizona, 411 U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129, lays to rest any doubt in this respect by holding that such taxation is not permissible absent congressional consent.'

II.

The federal government's authority over Indian matters derives from the Federal Constitution's delegation to it of responsibility for regulating commerce with Indian tribes and for making treaties. McClanahan v. State Tax Comm'n of Arizona, supra, 411 U.S. 164, 93 S.Ct. at 1262 n. 7, 36 L.Ed.2d 129; U.S.Const. Art. I, § 8, cl. 3; Art. II, § 2, cl. 2. Under Article I, section 8, clause 3 of the United States Constitution, the Congress has the power '(t)o regulate commerce with foreign Nations, and among the several States, and with the Indian Tribes.' Emphasis added.

It is beyond dispute that the Commerce Clause would preclude the imposition of Idaho sales tax upon sales which are consummated in a sister state. Evco v. Jones, 409 U.S. 91, 93 S.Ct. 349, 34 L.Ed.2d 325 (1972) (per curiam); McLeod v. J. E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304 (1944). For Idaho to impose a tax on such transactions 'would be to project its powers beyond its boundaries and to tax an interstate transaction.' McLeod v. J. E. Dilworth Co., supra, 322 U.S. at 330, 64 S.Ct. at 1025. As the United States Supreme Court went on to say in McLeod:

'(A) tax on an interstate sale like the one before us (unlike a use tax) involves an assumption of power by a State which the Commerce Clause was meant to end. The very purpose of the Commerce Clause was to create an area of free trade among the several States. That clause vested the power of taxing a transaction forming an unbroken process of interstate commerce in the Congress, not in the States.' 322 U.S. at 330-331, 64 S.Ct. at 1026.

Of course, the McLeod case dealt with commerce 'among the several states'; but by its own terms, the Commerce Clause applies with equal force to commerce 'with the Indian tribes.' It follows, therefore, that the Commerce Clause precludes the imposition of Idaho sales tax upon the onreservation sale of cigarettes by members of an Indian tribe to non-Indian purchasers. See McClanahan v. State Tax Comm'n of Arizona, supra.

The tax levied upon the respondent by Idaho is characterized by the operative statute itself as 'a tax upon the retail sale of cigarettes.' I.C. § 63-2503. In this case, the state is attempting to tax sales occurring within the boundaries of an Indian reservation, not sales occurring within Idaho's domain. Idaho Organic Act, § 1; Idaho Const. Art. 21, § 19 ('Indian lands shall remain under the absolute jurisdiction and control of the congress of the United States.') Compare Worcester v. Georgia, 31 U.S. 515, 560-561, 6 Pet. 515, 8 L.Ed. 483 (1832) and Boyer v. Shoshone-Bannock Indian Tribes, 92 Idaho 257, 441 P.2d 167 (1968) with McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 60 S.Ct. 388, 84 L.Ed. 565 (1940). To paraphrase McLeod, a tax on sales made by Indians on Indian reservations involves an assumption of power by a state which the Commerce Clause was meant to end. That The appellant tax commission argues, somewhat weakly, that it can collect cigarette tax from the respondent because her cigarettes became subject to the state's taxing jurisdiction when they passed through non-reservation Idaho territory while in transit to the respondent's place of business on the reservation. This argument is based upon I.C. § 63-2501, which in pertinent part provides:

clause vested in Congress, not in the states, the power of taxing a transaction forming an unbroken process of commerce with the Indian tribes. McLeod v. J. E. Dilworth Co., supra. Here, as in McClanahan, the tax imposed may be successfully resisted because 'the State is totally lacking in jurisdiction.' 411 U.S. at 181, 93 S.Ct. at 1267.

'It is the intent and purpose of this act to levy a tax on all cigarettes sold, used, consumed, handled or distributed within this state, and to collect the tax from the person who first sells, uses, consumes, handles, or distributes the cigarettes.' Emphasis added.

We may assume arguendo, without deciding, that I.C. § 63-2501 is effective to make the handling of cigarettes an incidence of taxation, despite the more specific language of I.C. § 63-2503-i. e., 'there is hereby levied, and there shall be collected as hereinafter provided, a tax upon the retail sale of cigarettes' (emphasis added). The appellant's contention still must fail, for two reasons: First, as the respondent correctly points out, nothing in the record affirmatively indicates that the respondent's cigarettes ever passed through nonreservation Idaho territory. We may take judicial notice of the geographical facts that the...