Matter of Cabazon Indian Casino
| Decision Date | 05 February 1986 |
| Docket Number | BAP No. CC-85-1006-MVAb. |
| Citation | 57 BR 398 |
| Parties | In the Matter of CABAZON INDIAN CASINO. CABAZON INDIAN CASINO, Plaintiff-Appellant, v. INTERNAL REVENUE SERVICE, Defendant-Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Virginia S. Criste, Mack, Kahn & Criste, Palm Springs, Cal., Glenn M. Feldman, Ziontz, Pirtle, Morisset, Ernstoff & Chestnut, Washington, D.C., for plaintiff-appellant.
Mason C. Lewis, U.S. Atty's Office, Los Angeles, Cal., for defendant-appellee.
Before MEYERS, VOLINN and ABRAHAMS, Bankruptcy Judges.
The Appellant, Cabazon Indian Casino ("Casino"), which is a Chapter 11 Debtor-in-Possession, claimed an exemption from federal unemployment tax and the employer's portion of the social security tax by virtue of the Casino's status as an Indian tribe. The Casino also objected to the imposition of penalties for failure to pay these taxes. The trial court held that the Casino was not exempt from these taxes or from the penalties for failure to pay them. We AFFIRM.
The Cabazon Band of Mission Indians is a federally recognized Indian tribe. The Cabazon Band exercises governmental functions pursuant to Articles of Association approved by the Department of the Interior. These Articles authorized the Band to manage its economic affairs, including the establishment and operation of commercial enterprises.
Pursuant to these powers, in October of 1980, the Cabazon Band established on the reservation the Cabazon Indian Casino, an unincorporated company.1 The Casino consists of a card parlor, restaurant and bar. Tribal ordinance regulates the playing of card games. This tribal enterprise employs approximately 75 employees whose wages are paid from Casino revenues.
The Casino is located on tribal trust land on the Cabazon Indian reservation which was established pursuant to the Mission Indian Relief Act, 26 Stat. 712, ch. 65 (1891). Consisting of arid desert land, the reservation contains no known mineral deposits or other natural resources and is unsuited for agricultural purposes. The Band uses the Casino revenues to provide government services to its members. Prior to operation of the Casino, the Band's land produced no income.
No tax returns had been prepared by the Casino until after the bankruptcy petition was filed. On February 4, 1983, the Internal Revenue Service filed its Proof of Claim for federal withholding taxes (FICA), 26 U.S.C. §§ 3101-3126, and unemployment taxes (FUTA), 26 U.S.C. §§ 3301-3311. FICA taxes were claimed for the first, second, third and fourth quarters of 1981 for a total of $181,530.24 consisting of taxes in the amount of $144,190.61, interest of $5,787.10 and penalties of $31,552.53. The Internal Revenue Service also claimed FUTA taxes for the period ending December 31, 1981, of $5,614.11. This consisted of tax in the amount of $3,048.42, interest of $1,285.35 and penalties of $1,280.34.
On May 16, 1984, the Casino filed an objection to the claim. There were two grounds for this objection: (1) the Band was exempt from these taxes as a state or political subdivision of a state under 26 U.S.C. §§ 3121(b)(7) and 3306(c)(7); and (2) the Band was exempt under the Mission Indian Relief Act. Additionally, the Casino claims that penalties should not be imposed under 26 U.S.C. § 6651, since the taxpayer claimed reasonable cause justifying its failure to file. The trial court rejected these arguments and allowed the claim.
The language of both FICA (Federal Insurance Contribution Act) and FUTA (Federal Unemployment Tax Act) that imposes taxation on an employer is very broad. A FICA excise tax is imposed on "every employer" under 26 U.S.C. § 3111, based on wages paid to individuals in one's employment. Similarly, a FUTA excise tax is imposed on "every employer" under 26 U.S.C. § 3301.
Both FICA and FUTA contain an identically worded definition of employment. "The term `employment' means any service, of whatever nature, performed . . . by an employee for the person employing him." 26 U.S.C. §§ 3121(b) and 3306(c). Further, both FICA and FUTA contain an identically worded exception to these excise taxes for a state or any political subdivision thereof. 26 U.S.C. §§ 3121(b)(7) and 3306(c)(7). There is no specific mention of Indian tribes in any of the FICA or FUTA provisions.
The Ninth Circuit Court of Appeals has held that Indians and Indian tribes are not entitled to exemptions from federal taxation unless they fall within an express exemption or their income is directly derived from tribal lands. Confederated Tribes of Warm Springs Reservation v. Kurtz, 691 F.2d 878, 881 (9th Cir.1982). See also Critzer v. United States, 597 F.2d 708, 711-12, 220 Ct.Cl. 43 (1979) (en banc).
We turn first to the argument that the Cabazon Band is exempt from these excise taxes because they fall within the express exemptions accorded to states and their instrumentalities. The Cabazon Band admits that neither the Internal Revenue Code nor its legislative history mentions either Indians or tribes. Nevertheless, it is argued that Indian tribes should be construed to be states because they are governmental entities with sovereign powers over both their members and their territory.
Indian tribes retain some attributes of sovereignty which the tribes exercise over both their members and territory. However, the Supreme Court has consistently found that Indian tribes are not states. The status of the tribes has been described as:
an anomalous one and of complex character, for despite their partial assimilation into American culture, the tribes have retained a semi-independent position . . . not as states, not as nations, not as possessed of the full attributes of sovereignty, but as a separate people with the power of regulating their internal and social relations, and thus far not brought under the laws of the Union or of the state within whose limits they resided.
Further, the Supreme Court in Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 148, 102 S.Ct. 894, 907, 71 L.Ed.2d 21 (1982), stated that Indian sovereignty is different from that of federal, state or local governments. While an Indian tribe has attributes of sovereignty, it is not a state. Thus, it cannot claim the exemption from excise taxes that is accorded to a state.
Further, Indian tribes were not mentioned in either FICA or FUTA. The Ninth Circuit, in holding that Indian tribes were not exempt from federal excise taxes on fuel and motor vehicles, refused to find that Indian tribes qualified under a similar exemption for states. Confederated Tribes, supra, 691 F.2d at 880.2
We must also reject the argument that an Indian tribe can qualify for an exemption as a local government, claiming the status of an instrumentality of a state. The Ninth Circuit Court of Appeals in Confederated Tribes, held that a tribe is not a political subdivision of a state. 691 F.2d at 880.3
Lacking an express exemption under the Internal Revenue Code, the Cabazon Indian Band would have us construe FICA and FUTA to exempt the Band from taxation because of an expressed policy of Congress and the Administration to foster tribal self-determination and economic development. Ambiguous statutes and treaties are to be construed in favor of Indians. Confederated Tribes, supra, 691 F.2d at 881; United States v. Anderson, 625 F.2d 910, 913 (9th Cir.1980). However, the Supreme Court has repeatedly held that tax exemptions are not granted by implication. See Mescalero Apache Tribe v. Jones, 411 U.S. 145, 156, 93 S.Ct. 1267, 1274, 36 L.Ed.2d 114 (1973). A court is not free to create ambiguities in order to construe them in favor of the interests of Indians. Confederated Tribes, supra, 691 F.2d at 881. See also Fry v. United States, 557 F.2d 646, 649 (9th Cir.1977). Further, the Ninth Circuit has held that silence alone cannot create an implied immunity from federal excise taxes. Confederated Tribes, supra, 691 F.2d at 880-882. Thus, no matter how persuasive the policy argument, we are not free to create an exemption in FICA or FUTA without express language.
Our inquiry is not limited simply to an examination of the Internal Revenue Code. Federal statutes and treaties dealing with particular Indian tribes can grant an exemption from federal taxation. Squire v. Capoeman, 351 U.S. 1, 6, 76 S.Ct. 611, 614, 100 L.Ed. 883 (1956). Courts will imply a tax exemption from a statute or treaty that contains express exemptive language. 351 U.S. 1 at 6-9. We, therefore, examine the Mission Indian Relief Act of 1891, 26 Stat. 712, ch. 65, under which the Cabazon Band's reservation was created. This Act, unlike the Act analyzed in Confederated Tribes, does contain a tax exemption for income derived directly from the land, but it does not contain an exemption from excise taxes.
The Mission Indian Relief Act reads in pertinent part: "The United States will convey the same land by patent to the said Indian, or his heirs as aforesaid, in fee, discharged of said trust and free of all charge or incumbrance whatsoever." 26 Stat. at 713, Sec. 5. While this statutory provision is not expressly couched in terms of nontaxability, the Supreme Court has interpreted almost identical language to confer immunity from income tax and capital gains taxes. Squire v. Capoeman, supra, 351 U.S. at 6-7, 76 S.Ct. at 614-615. The Supreme Court held that the exemption accorded tribal and restricted Indian lands extends to the income derived directly therefrom. The purpose...
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