Mescalero Apache Tribe v. O'Cheskey, s. 77-2102

• Decision Date: 25 August 1980
• Docket Number: 77-2103,Nos. 77-2102,s. 77-2102
• Citation: 625 F.2d 967
• Parties: 27 Cont.Cas.Fed. (CCH) 80,470 MESCALERO APACHE TRIBE, Plaintiff-Appellant and Cross-Appellee, 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-Appellees and Cross-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 967

625 F.2d 967

27 Cont.Cas.Fed. (CCH) 80,470

MESCALERO APACHE TRIBE, Plaintiff-Appellant and Cross-Appellee, 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-Appellees and Cross-Appellants.

Nos. 77-2102, 77-2103.

United States Court of Appeals Tenth Circuit.

Argued Sept. 12, 1979.

Decided June 5, 1980.

Rehearing Denied Aug. 25, 1980.

Kim Jerome Gottschalk and Norman D. Bloom, Jr. of Fettinger & Bloom, Alamogordo, N. M. (George E. Fettinger of Fettinger & Bloom, Alamogordo, N. M., on the brief), for plaintiff-appellant and cross-appellee.

Jan Unna, Sp. Asst. Atty. Gen., Santa Fe, N. M. (Toney Anaya, Atty. Gen. of New Mexico, and Daniel H. Friedman, Sp. Asst. Atty. Gen., Santa Fe, N. M., on the brief), for defendant-appellee and cross-appellant State of New Mexico.

Severson, Werson, Berke & Melchior, San Francisco, Cal., and George J. Ahlmann of Ahlmann & Sigler, Navajo, N. M., filed brief, for amicus curiae Navajo Forest Products Industries.

James W. Moorman, Asst. Atty. Gen., Washington, D. C., Victor R. Ortega, U. S. Atty., Ruth C. Streeter, Asst. U. S. Atty., Albuquerque, N. M., and Carl Strass and Robert W. Frantz, Dept. of Justice, Washington, D. C., filed brief, for amicus curiae United States.

Before SETH, Chief Judge, and HOLLOWAY, McWILLIAMS, BARRETT, DOYLE, McKAY and LOGAN, Circuit Judges.

SETH, Chief Judge.

The State of New Mexico sought to impose its gross receipts tax on the several contractors who had done construction work for the Mescalero Apache Tribe on a resort complex and other projects within the boundaries of the State of New Mexico. The work was performed for the Mescaleros and on reservation lands. The trial court held that the tax was imposed on the contractors and they were liable for it to the State of New Mexico. The trial court held that the Tribe had purchased materials on the housing job constructed by Quiller Construction Company, Inc. and these purchases were not within the gross receipts tax by reason of a specific exemption.

The basic issue on this appeal is the application of the New Mexico gross receipts tax. The state act makes the materials used and work of a building contractor taxable as services. It is levied on the contractor. N.M.Stat.Ann. §§ 7-9-3 F, K et seq. (1978). The contractors here concerned were individuals or entities engaged in the general construction business.

The state tax is on the privilege of engaging in the business of a building contractor in the state. The contractors were engaged in such a business, and built and supervised the building of the resort and housing. There is nothing in the record to show that "all their activities" were on reservation lands and the indications are otherwise. The construction was, of course, done on Indian land and this is all the record shows. The New Mexico tax has been considered by the New Mexico courts to be a privilege tax. Mescalero Apache Tribe v. Bureau of Revenue, 88 N.M. 525, 543 P.2d 493; First Nat. Bank of Santa Fe v. Commissioner of Revenue, 80 N.M. 699, 460 P.2d 64; Bell Telephone Laboratories v. Bureau of Revenue, 78 N.M. 78, 428 P.2d 617. The incidence of the tax has been so held to be on the seller the contractor as the one providing the services.

The holding of a state court as to the incidence of a tax of its state is generally determinative on the consideration of the issue by the federal courts. See Kern-Limerick This court considered the same tax in United States v. State of N. M., 581 F.2d 803 (10th Cir.), and decided that the sovereignty of the United States did not prevent the imposition of this tax on a contractor providing services to the federal government on federal lands. We there also necessarily considered the incidence of this tax.

Inc. v. Scurlock, 347 U.S. 110, 74 S.Ct. 403, 98 L.Ed. 546, and Federal Land Bank v. Bismarck Lumber Co., 314 U.S. 95, 62 S.Ct. 1, 86 L.Ed. 65.

"Thus, the decisive issue in this case is whether the legal incidence of the challenged New Mexico taxes falls on the United States, regardless of where the economic burden ultimately rests. . . .

"The Act specifically makes the gross receipts tax applicable to the doing of business in New Mexico without reference to whether that business is with the United States and, with uniformly applied exceptions, assesses the tax upon anyone receiving compensation. There is no evidence that the tax interferes with the performance of federal functions. The tax is not directly imposed on the United States and, although the contractors pass the tax on to the United States they are not required by the Act to do so."

The incidence of this tax cannot be different here just because Indians are involved. The tax is the same, the incidence remains the same, and it is clearly on the contractor. The Indians here are in no different a position than was the federal government in United States v. State of N. M., 581 F.2d 803 (10th Cir.).

At the outset it might be well to state what this case is not about. It is not about the power to tax Indian lands, nor about taxation of income from Indian lands, nor the income of Indians on such lands. These issues have long been settled, and the state has disclaimed that it has any such rights. The case is also not about Indian lands generally. Instead, we are only concerned with a state privilege tax on a contractor engaged in business in New Mexico with the measure of such tax to include construction of the lands set apart for the Mescaleros. The case is also not about an indemnity agreement whereby the Mescaleros undertook to indemnify the contractors for the tax.

The tax here concerned could have been included in the funding from the E.D.A. No reason appears why this was not done. The trial court of this stated:

"The Tribe had not budgeted such taxes as a cost in its proposal to the E.D.A. for funds to build the complex, although E.D.A. does permit inclusion of the cost of passed-on state taxes in a grant for a project. After the initial bids for various aspects of the complex were received, the Tribe told the contractors that the four percent gross receipts tax would not be due to the state and instructed them to submit alternative bids omitting such costs. The Tribe found it necessary to enter into an indemnification agreement with each contractor, agreeing to reimburse each for any such tax that might be determined to be due the state. If the taxes in question are found to be due, the amount of money owed the state is substantial, and the cost is imposed upon the Tribe by virtue of its indemnification agreements with the contractors." Mescalero Apache Tribe v. O'Cheskey, 439 F.Supp. 1063, at 1071-72 (D.N.M.).

The only reason this point is mentioned is because the way it was handled by the Tribe makes it appear that the incidence of the tax was on the Tribe when it was not. The point does not appear to be otherwise significant. The asserted direct "burden" on the Tribe was thus by its own election to indemnify the contractors. The result in this case should not be determined or influenced in any way by such a contractual arrangement.

It is apparent that in doing business in New Mexico the contractors here benefitted from the state laws and the state governmental activities. The trial court so found and also found the Mescaleros also so benefitted. As the trial court stated, the Indian The state has extensive powers over Indians like any other persons and on reservations which may be exercised if it chooses to do so. Thus the Supreme Court in Kake Village v. Egan, 369 U.S. 60, 82 S.Ct. 562, 7 L.Ed.2d 573 (a non-reservation group), said after referring to the cases involving the authority of the states:

lands concerned were obviously within New Mexico. The gross receipts tax on contractors, and all others, obviously is a cost of doing business as are the employment security taxes, social security taxes, income taxes, and all the overhead that goes into the jobs, and must be recovered from the work charges. The tax nevertheless is on the seller. An indirect burden obviously is initially on the one for whom the services are performed thus on the Tribe or the Government. However, it is equally apparent that this indirect burden is again passed on to the users of the resort and again by them. The tax becomes dispersed. There is no way of telling where the ultimate economic burden falls. This is the reason why the initial incidence of the tax must be the determinative factor. It is the only significant matter for our consideration.

"These decisions indicate that even on reservations state laws may be applied to Indians unless such application would interfere with reservation self-government or impair a right granted or reserved by federal law."

See generally, Craig, 9 N.M.L.Rev. 221. Worcester v. Georgia, 6 Pet. 515, 8 L.Ed. 483, is discussed, and it is pointed out that other decisions have reduced its scope. In the Kake opinion the Court points out as to Worcester :

"By 1880 the Court no longer viewed reservations as distinct nations. On the contrary, it was said that a reservation was in many cases a part of the surrounding State or Territory, and subject to its jurisdiction except as forbidden by federal law." (Citations omitted.)

The Court then states how "the influence of state law increased rather than decreased." This referred to the policy after 1934. The Court in the Kake opinion again mentions how Justice Marshall's decision in Worcester, that the state cannot penetrate the reservation boundaries, "has yielded to closer analysis when confronted, in the course of subsequent developments, with diverse concrete situations." There was no reservation involved in Kake, but it included activities provided by Treaty.

Again, the Supreme Court said in Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148, 93 S.Ct....