Maryboy v. Utah State Tax Com'n

• Decision Date: 14 September 1995
• Docket Number: No. 930173,930173
• Citation: 904 P.2d 662
• Parties: Mark and Roselyn MARYBOY, Petitioners, v. UTAH STATE TAX COMMISSION, Auditing Division of the State Tax Commission, and the State of Utah, Respondents.
• Court: Utah Supreme Court

Page 662

904 P.2d 662

Mark and Roselyn MARYBOY, Petitioners, v. UTAH STATE TAX COMMISSION, Auditing Division of the State Tax Commission, and the State of Utah, Respondents.

No. 930173.

Supreme Court of Utah.

Sept. 14, 1995.

Bill Thomas Peters, David W. Scofield, Salt Lake City, for petitioners.

Jan Graham, Atty. Gen., Brian L. Tarbet, Asst. Atty. Gen., Salt Lake City, for respondents.

Herb Yazzie, Joe Lennihan, Window Rock, for amicus Navajo Nation.

STEWART, Associate Chief Justice:

Petitioners Mark and Roselyn Maryboy appeal a decision of the Utah State Tax Commission assessing Utah income tax on their earnings as a county commissioner and a state employee, respectively, during the years 1988 through 1990. The Maryboys also appeal the Commission's decision requiring them to pay $10,855.38 in taxes, penalties, and interest prior to pursuing this appeal.

The Maryboys are enrolled members of the Navajo Tribe and at all relevant times lived in Montezuma Creek, Utah, on the Navajo Reservation ("the Reservation"). Mr. Maryboy is employed as a San Juan County Commissioner and was elected by voters in district three of San Juan County, a political subdivision of the State of Utah. Nearly ninety-nine percent of district three lies within the Reservation. Approximately ninety percent of the voters in district three are Navajo, but not all of these Navajos live on the Reservation. Mr. Maryboy is paid by San Juan County.

During the years in question, Mr. Maryboy spent much of his time as a county commissioner working on the Reservation. Mr. Maryboy's responsibilities included coordinating with the Navajo Nation county programs dealing with such matters as public safety and natural resources; meeting with the six Navajo governmental units, known as chapters, located within district three; consulting with constituents; and performing other county commission duties. Because he speaks Navajo, Mr. Maryboy also assisted the county commissioner in district two and met with the two Navajo chapters located on the Reservation within district two boundaries.

Mr. Maryboy was also employed as the Division Director of the Utah Navajo Development Counsel (UNDC) during the years in question. As a division director, Mr. Maryboy supervised education and teen pregnancy programs on the Reservation. Although UNDC headquarters was located off the Reservation in Bluff, Utah, Mr. Maryboy spent a large percentage of his time as a division director working on the Reservation. Mr. Maryboy was paid from UNDC funds which were derived from the Utah Navajo Trust Fund.

Mrs. Maryboy is employed by San Juan Mental Health of the Utah Department of Human Services to provide mental health services and outpatient counseling to Utah Navajos living on the Reservation. She works out of the state office located at Montezuma Creek, Utah, and also sees clients in her home. During the years in question, Mrs. Maryboy performed approximately eighty percent of her duties on the Reservation.

Mrs. Maryboy's duties off the Reservation included attending staff meetings one day a week at the main office in Blanding, Utah. She also received clinical training and updated her records there. In addition, Mrs. Maryboy worked off the Reservation at Bluff School once a month and at San Juan High School once a year.

The Commission's Auditing Division determined that all income earned by the Maryboys during the years 1988 through 1990, except Mr. Maryboy's income as a director of the UNDC, was fully taxable in Utah. The Maryboys appealed the determination, and a hearing was held before the Commission. The Commission ruled that Mrs. Maryboy's income as a state employee and Mr. Maryboy's income as a county commissioner were fully taxable to Utah. The Maryboys appealed.

On a motion for summary disposition, this Court remanded for the Commission to determine whether the Maryboys were required to pay the assessed taxes, penalties, and interest as provided by Utah Code Ann. § 59-1-505 prior to pursuing their appeal. The Commission held a formal hearing and ruled that the Maryboys were required to deposit the deficiency to pursue their appeal. The Maryboys now challenge both the Commission's determination of their Utah income tax liability and the Commission's decision that they were required to pay $10,855.38 in taxes, penalties, and interest as a condition of pursuing this appeal.

I. STATE INCOME TAX

We first address the Maryboys' contention that the Commission erred in ruling that Mr. Maryboy's income from employment as a county commissioner and Mrs. Maryboy's income from her state employment is taxable. This issue presents a question of law. Accordingly, we grant the Commission no deference but apply a correction-of-error standard. Utah Code Ann. § 59-1-610(1)(b) (Supp.1994); Fatt v. Utah State Tax Comm'n, 884 P.2d 1233, 1234 (Utah 1994).

The Maryboys assert that McClanahan v. Arizona State Tax Commission, 411 U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973), controls the issue of the taxability of their incomes. In McClanahan, the Court held that Arizona could not impose its personal income tax on "reservation Indians with income derived wholly from reservation sources." 411 U.S. at 165. The Maryboys argue that under McClanahan, Utah has no authority to tax income they earned from on-Reservation activities. The Maryboys also rely on Mescalero Apache Tribe v. Jones, 411 U.S. 145, 93 S.Ct. 1267, 36 L.Ed.2d 114 (1973), which held that the gross receipts of a tribally operated ski resort located outside the boundaries of a reservation were subject to state taxation. The Court explained that when tribal members go beyond the boundaries of the reservation, they have "generally been subject to nondiscriminatory state law otherwise applicable to all citizens of the state." Id. at 148-49, 93 S.Ct. at 1270-71. The Maryboys assert that McClanahan and Mescalero require that their income tax liability be tailored to include only that portion of their income received for activities that occurred outside the Reservation boundaries.

The Commission contends that McClanahan does not preclude taxation of the Maryboys' income because McClanahan did not deal with " 'Indians who have left ... reservations ... [but] involve[d] the narrow question whether the State may tax a reservation Indian for income earned exclusively on the reservation' " (quoting McClanahan, 411 U.S. at 167-68, 93 S.Ct. at 1259-60 (citations omitted)). Citing White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 142, 100 S.Ct. 2578, 2583, 65 L.Ed.2d 665 (1980), the Commission argues that the validity of the tax turns on whether the imposition of the tax infringes tribal sovereignty and whether the right of the state to tax the governmentally paid salaries of the Maryboys is preempted by federal law. The Commission asserts that the tax does not interfere with tribal sovereignty, i.e., the right of the Navajo Nation to make its own laws, because the State of Utah merely seeks to tax its own elected officials and employees. The Commission also argues that the tax is not preempted by federal law because no federal law expressly precludes states from taxing their own elected officials and employees and because Native Americans who go " 'beyond reservation boundaries have generally been held subject to nondiscriminatory state law otherwise applicable to all citizens of the state' " (quoting Mescalero, 411 U.S. at 148-49, 93 S.Ct. at 1270-71).

The United States Supreme Court has stated that "there is no rigid rule by which to resolve the question whether a particular state law may be applied to an Indian reservation or to tribal members." White Mountain, 448 U.S. at 142, 100 S.Ct. at 2583. The semi-independent status of tribes and Congress' broad power to regulate tribal affairs create "two independent but related barriers to the assertion of state regulatory authority over tribal reservations and members." Id.

First, federal law may preempt the exercise of state authority. In this context, standards of preemption that have emerged in other areas of the law are not appropriate. White Mountain, 448 U.S. at 143, 100 S.Ct. at 2583; Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 184, 109 S.Ct. 1698, 1711-12, 104 L.Ed.2d 209 (1989). "Tribal reservations are not States, and the differences in the form and nature of their sovereignty make it treacherous to import to one notions of pre-emption that are properly applied to the other." White Mountain, 448 U.S. at 143, 100 S.Ct. at 2583. The concept of Indian sovereignty, which traditionally barred the extension of state law to reservations, must guide a preemption determination. It "provides a backdrop against which the applicable treaties and statutes must be read." McClanahan, 411 U.S. at 168, 172, 93 S.Ct. at 1260, 1262; White Mountain, 448 U.S. at 143, 100 S.Ct. at 2583. Ambiguities in treaties and federal statutes are to be construed generously in light of the firm federal policy of promoting tribal self-sufficiency and economic development. White Mountain, 448 U.S. at 143-44, 100 S.Ct. at 2583-84; Montana v. Blackfeet Tribe of Indians, 471 U.S. 759, 766, 105 S.Ct. 2399, 2403, 85 L.Ed.2d 753 (1985); McClanahan, 411 U.S. at 174, 93 S.Ct. at 1263. Thus, an express congressional statement preempting a state's assertion of authority is not required; state action may be preempted solely by reason of federal policies and interests. White Mountain, 448 U.S. at 144, 100 S.Ct. at 2584.

Nevertheless, state regulatory interests must also be given weight. Id.; McClanahan, 411 U.S. at 171, 93 S.Ct. at 1261-62. Even on reservations, state law may be applied unless its application would interfere with tribal self-government or impair a right granted or reserved by federal law. Mescalero, 411 U.S. at 148, 93 S.Ct. at 1270; see California v. Cabazon Band, 480 U.S. 202, 214-15, 107 S.Ct. 1083, 1091-92, 94 L.Ed.2d 244 (1987). " 'Under certain circumstances a State may validly assert...