Mescalero Apache Tribe v. O'Cheskey

• Decision Date: 19 October 1977
• Docket Number: Civ. No. 76-171-B.
• Parties: MESCALERO APACHE TRIBE, Plaintiff, v. Fred L. O'CHESKEY, as Commissioner of Revenue of and for the State of New Mexico and his successors in office, the Bureau of Revenue of the State of New Mexico, and the State of New Mexico, Defendants.
• Court: U.S. District Court — District of New Mexico

439 F. Supp. 1063

MESCALERO APACHE TRIBE, Plaintiff, v. Fred L. O'CHESKEY, as Commissioner of Revenue of and for the State of New Mexico and his successors in office, the Bureau of Revenue of the State of New Mexico, and the State of New Mexico, Defendants.

Civ. No. 76-171-B.

United States District Court, D. New Mexico.

September 30, 1977.

As Amended October 19, 1977.

COPYRIGHT MATERIAL OMITTED

Fettinger & Bloom, George E. Fettinger, Kim J. Gottschalk, Alamogordo, N. M., for plaintiff.

Toney Anaya, Atty. Gen., Jan E. Unna, Daniel H. Friedman, Sp. Asst. Attys. Gen., Bureau of Revenue, Legal Div., Santa Fe, N. M., Victor R. Ortega, U. S. Atty., Ruth Streeter, Asst. U. S. Atty., Albuquerque, N. M., for defendants.

MEMORANDUM OPINION

BRATTON, District Judge.

This action is another in a series of disputes between the Mescalero Apache Tribe hereinafter the Tribe and the State of New Mexico hereinafter the state, and it, as did its predecessors, involves efforts by the state to assert a right that the Tribe denies exists. In this action, the right at issue is whether the state can levy its gross receipts and compensating tax on monies received by certain contractors for their work upon the Tribe's Inn of the Mountain Gods resort complex, a tribal housing project, and a recreation area and campground. All projects were constructed on the Mescalero Reservation, and all the contractors involved are non-Indian. Most of the contractors involved were issued Indian traders' licenses when they undertook to perform the construction services for which the state is attempting to tax them. Some of the contractors are New Mexico companies, and some are from out-of-state. All of the work performed was for the Tribe or an agency of the Tribe, and the Tribe entered into an indemnity agreement with the contractors providing that it would reimburse them for any gross receipts tax they were required to pay to the state. The contractors have had assessed against them New Mexico gross receipts and compensating taxes, and the Tribe has been denied the opportunity to participate in the administrative hearings before the state's Bureau of Revenue relating to the tax assessments levied against one contractor.

It should first be noted that the New Mexico Enabling Act¹ and the state's constitution² contain a disclaimer of state jurisdiction and control over Indian lands, and that no state jurisdiction of any kind has been assumed pursuant to 25 U.S.C.A. § 1322.³ Indeed, the state concedes that it cannot tax reservation lands or impose an income or gross receipts tax upon Indian income derived from work performed on a reservation. The state's contention is that it can tax non-Indians who perform construction services on a reservation for their receipts derived from such work.⁴ The state also contends that the issuance of trader's licenses, as discussed infra, was beyond the authority of the defendant officials in the Department of Interior.

It should also be noted that the Mescalero Apache Tribe has had a treaty⁵ with the United States since 1852 and a reservation since 1873. Its present reservation boundary lines were finalized in 1917 by Executive Order.

The Tribe has a constitutional form of government,⁶ approved by the Secretary of the Interior, and consisting of a president who is chief executive, a legislature, which is the tribal council, and a judiciary, which is the tribal court. Under its constitution, the Tribe may regulate and control all business conducted on the reservation. It may enact ordinances for this purpose, including licensing provisions and tax assessments. The Tribe has, in fact, passed licensing and taxing ordinances, but they have not yet been applied to anyone doing any sort of business on the reservation, including the contractors involved in the subject matter of this action.

It is the Tribe's position that there are several reasons why there can be no state taxation under the circumstances of this case. First, it is asserted that such taxation interferes with tribal self-government, since the legal and economic burden of the taxes is upon the Tribe, and since the Tribe itself has the power to and has enacted taxing ordinances covering those persons doing business on the reservation. It asserts that the state's tax does not extend to a situation where the state is unable to grant the privilege for which the tax is imposed, i.e., the privilege of doing business on the reservation can be granted only by the Tribe. It further claims that federal preemption has precluded the state from levying these taxes. Federal preemption is alleged to arise from the Tribe's own ordinances on the subject, as approved by the Secretary of the Interior; from the New Mexico Enabling Act, which exempts Indian land from state taxation and thus tangible property attached to that land; from the federal statutes and regulations relating to Indian trading licenses; from its 1852 treaty, as discussed note 5, supra; and the authority given Congress by the United States Constitution, art. 1, § 8, cl. 3, to regulate commerce with the Indian tribes. It is also contended that the state is violating its own statute which provides for a deduction for the sale of tangible personal property to the governing body of an Indian tribe,⁷ and that the state may not impose its taxes within a reservation when it provides little or no services within that reservation. Finally, the Tribe asserts with regard to the contractor on the housing project that an agency relationship between it and the contractor precludes state taxation, inasmuch as such purchases as were there involved were made by the Tribe.

I.

The first issue to be decided is whether the Indian traders' licenses were properly issued to the contractors engaged in the work on the resort complex and the housing project. If the licenses were proper under the circumstances, the matter is at an end, for the relevant federal statutes and regulations leave no room for a state to impose additional burdens upon such traders. Warren Trading Post Co. v. Arizona Tax Comm'n, 380 U.S. 685, 85 S.Ct. 1242, 14 L.Ed.2d 165 (1965).

There are marked differences between the nature of the activities undertaken by the contractors in this case and the kind of activities the federal licensing statutes and regulations cover.

25 U.S.C.A. §§ 261-64 provide for the appointment of traders by the Commissioner of Indian Affairs, give the Commissioner the power to make rules and regulations governing such trade, and specify what goods may be sold to the Indians and what price may be charged for such goods. The regulations promulgated pursuant to Section 261 cover in detail the conditions of such trade, specifying, for example, that no white person shall be employed as a clerk by any Indian trader, unless authorized by the Commissioner;⁸ that the store of an unlicensed trader or a trader whose license has expired may be closed;⁹ that the business of a licensed trader must be managed by the bonded principal, who must habitually reside upon the reservation;¹⁰ and that traders must submit, among other things, the retail price of articles sold by them to the superintendent when requested to do so, so that he may determine if the prices are fair and reasonable.¹¹

The evidence shows that contractors in the present case entered into contracts with the Tribe to do or build specific things. One contractor did, for example, substantial earth moving. Another built a hotel. Yet another built a golf course. None of the contractors had a permanent business location on the reservation, and they and their employees departed the reservation at the close of each working day. The contractors' regular employees carried out performance of the contracts. At least one contractor asked his suppliers to obtain Indian traders' licenses, which they did. However, they did not come on the reservation, except in some instances where a supplier made deliveries to the contractor on the reservation.

Further, all the negotiations involving the projects and the ultimate contracting for their performance were participated in by the tribal officials, their counsel, Bureau of Indian Affairs officials, the contractors, and at least some of their counsel. The whole matter, the evidence shows, was conducted by experienced, knowledgeable people on a highly sophisticated level. It was hardly a situation such as the federal laws and regulations were designed to cover, i. e., one where the Indian could be at the mercy of the white man in the absence of federal protection.¹²

The Superintendent of the Mescalero Agency testified that the licenses were a means to ascertain who had permission to come onto the reservation and to keep track of what firms would actually be coming on the reservation to work. At a pre-construction meeting the contractors were told by persons representing tribal interests that the principal reason for requiring the traders' licenses was to avoid state tax liability. The former does not bring the licensing here done within the scope of the federal law and regulations, and the latter does not remove it therefrom. What is determinative of the issue is the nature of the work done, the circumstances surrounding its performance, and the persons by whom it was done. Other than to issue traders' licenses to the contracting firms, there was no effort to impose the other requirements of the federal laws and regulations. Nor is there any evidence that it was ever intended that there be, no doubt because they simply did not cover the situation.

The action of the Secretary, performed by his delegate the Superintendent of the Mescalero Agency, while entitled to great weight, is subject to judicial review.¹³ It is concluded that the provisions of 25 U.S.C.A. §§ 261-64 and 25 C.F.R. §§ 251.1-26 were not intended to cover the commercial transactions here involved, and the Superintendent's decision to issue the licenses to the projects' contractors...