State Taxation of Income of Native American Armed Forces Members, 00-25

• Decision Date: 22 November 2000
• Docket Number: 00-25
• Citation: 24 Op. O.L.C. 294
• Parties: State Taxation of Income of Native American Armed Forces Members
• Court: Opinions of the Office of Legal Counsel of the Department of Justice

24 Op. O.L.C. 294

State Taxation of Income of Native American Armed Forces Members

No. 00-25

United States Department of Justice

November 22, 2000

RANDOLPH D. MOSS Assistant Attorney General Office of Legal Counsel

State Taxation of Income of Native American Armed Forces Members

The Soldiers' and Sailors' Civil Relief Act prohibits States from taxing the military compensation of Native American armed forces members who are residents or domicihanes of tribal reservations from which they are absent by reason of their military service.

MEMORANDUM OPINION FOR THE GENERAL COUNSEL DEPARTMENT OF DEFENSE

This memorandum responds to your letter to the Acting Associate Attorney General requesting advice as to whether States may tax the military compensation earned by Native American service members who are residents or domiciliaries of federally recognized tribal reservations. As we explain more fully below, we conclude that the Soldiers' and Sailors' Civil Relief Act, construed in light of general principles of federal Indian law, prohibits States from taxing the military compensation of Native American service members who are residents or domiciliaries of tribal reservations, and who are absent from those reservations by virtue of their military service.

BACKGROUND

Pursuant to agreements between the States and the Department of Treasury entered into under 5 U.S.C. §5517 (1994 &amp Supp. IV 1998), ^[1] the Department of Defense generally withholds state income tax from the military compensation of service members, including Native American service members unless the member appropriately claims exemption. Several members of Congress recently wrote to the Secretary of Defense, the Attorney General, and the Secretary of the Interior, asking for their personal intervention to ensure that Native American service members who claim a federally recognized Indian reservation as their legal [ 295] domicile are not subject to such withholding. See Letter for Hon. William S. Cohen, Secretary of Defense, Hon. Janet Reno, Attorney General, and Hon. Bruce Babbitt, Secretary of the Interior, from Hon. George Miller, Senior Democratic Member, House Committee on Resources, et al. (July 18, 2000) ("Miller letter"). The letter stated that under section 514 of the Soldiers' and Sailors' Civil Relief Act ("SSCRA"), ch. 581, 56 Stat. 769, 777 (codified as amended at 50 U.S.C. app. §574 (1994)), a military service member "does not lose his permanent residence or domicile solely because of [his] absence [from the place of residence or domicile] in compliance with military s, " and it maintained that the SSCRA "applies to Native Americans as it does to all other Americans residing in lands under the jurisdiction of the United States." Miller letter at 2. Accordingly, the letter asserted, "[a] Native American's domicile should therefore remain unchanged by military service, and a tribal member who resides on a reservation would enjoy the same tax status (i.e. immunity) he had enjoyed in his home state." Id. The letter concluded by stating that "[t]he Department [of Defense] should change these [Native American] service members' [income tax] withholding forms to reflect an exemption from state withholding as authorized in the Treasury Financial Manual instructing federal agencies on deductions and withholding issues, " and it urged that "no greater burden of proof should be placed on tribal members to establish residency than on any other member of the military." Id. at 3.

After receiving the Miller letter, you wrote to the Acting Associate Attorney General requesting an opinion from the Department of Justice as to the applicability of the SSCRA to Native American service members who claim a federally recognized tribal reservation as their residence or domicile. See Letter for Dan Marcus, Acting Associate Attorney General, from Douglas A. Dworkin, General Counsel, Department of Defense (Aug. 9, 2000) ("Dworkin letter"). Your letter noted that while no federal court has yet addressed this question, three state tribunals have concluded that they lacked the authority to impose an income tax on the military compensation of Native Americans domiciled on tribal reservations within their respective States. Id. at 1.^[2] In order to determine whether to continue withholding state income tax from the military pay of those Native American service members who claim a tribal reservation as their residence or domicile, you asked the Department of Justice to provide its opinion on the matter.^[3] [ 296]

DISCUSSION

Determining whether States may, consistent with the SSCRA, tax the military compensation of Native American service members who claim a federally recognized tribal reservation as their place of domicile or residence requires interpreting relevant provisions of the SSCRA against the backdrop of general principles of federal Indian law. We therefore outline some relevant aspects of those general principles before proceeding to discuss the SSCRA and its application here.

General Principles of Federal Indian Law

Historically the Supreme Court has applied two related principles to States' attempts to exercise jurisdiction over Indian tribes, their reservations, and their members. The first is that of Indian sovereignty. This principle is generally associated with Chief Justice Marshall's explanation that Indian nations are "distinct political communities having territorial boundaries, within which their authority is exclusive, and having a right to all the lands within those boundaries, which is not only acknowledged, but guarantied by the United States." Worcester v. Georgia, 31 U.S. (6 Pet.) 515, 557 (1832). Building on Worcester, subsequent Supreme Court decisions held that "[i]t followed from this concept of Indian reservations as separate, although dependent nations, that state law could have no role to play within the reservation boundaries." McClanahan v. Ariz. State Tax Comm'n, 411 U.S. 164, 168 (1973); see County of Yakima v. Confederated Tribes and Bands of Yakima Indian Nation, 502 U.S. 251, 257 (1992) (describing the Court's decision in Worcester as concluding that "within reservations state jurisdiction would generally not lie").

More recently, however, the Indian sovereignty doctrine has lost some of its "independent sway, " County of Yakima, 502 U.S. at 257, and has given way to a second principle: federal preemption. See McClanahan, 411 U.S. at 172 ("[T]he trend has been away from the idea of inherent Indian sovereignty as a bar to state jurisdiction and toward reliance on federal preemption."). The source of this principle is the Constitution, which assigns to the federal government the responsibility for regulating commerce with Indian tribes and for treaty-making. See U.S. Const, art. I, §8, cl. 3; id. art. II, §2, cl. 2; see also McClanahan, 411 U.S. at 172 n.7; Williams v. Lee, 358 U.S. 217, 219 n.4 (1959). In light of that grant of federal authority, cases raising questions about the boundaries of permissible [ 297] state jurisdiction over Indian tribes, their members, and their lands are now typically resolved by giving "individualized treatment" to the "particular treaties and specific federal statutes, including statehood enabling legislation, as they, taken together, affect the respective rights of States, Indians, and the Federal Government." Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148 (1973). The Indian sovereignty doctrine remains relevant, however, as "a backdrop against which the applicable treaties and federal statutes must be read." McClanahan, 411 U.S. at 172.1n the area of state taxation, the Supreme Court's application of the federal preemption and Indian sovereignty principles has yielded certain specific rules, two of which are relevant to the matter before us. First, "absent cession of jurisdiction or other federal statutes permitting it, " States may not tax "Indian reservation lands or Indian income from activities carried on within the boundaries of the reservation." Mescalero, 411 U.S. at 148 (describing the rule announced in McClanahan, 411 U.S. at 164); County of Yakima, 502 U.S. at 258 ("[O]ur cases reveal a consistent practice of declining to find that Congress has authorized state taxation [in this area] unless it has 'made its intention to do so unmistakably clear.' ") (quoting Montana v. Blackfeet Tribe, 471 U.S. 759, 765 (1985)).^[4] Second, "[a]bsent express federal law to the contrary, Indians going beyond reservation boundaries have generally been held subject to nondiscriminatory state law otherwise applicable to all citizens of the State." Mescalero, 411 U.S. at 148—49. In the state taxation context, this second rule means that if a Native American resident of a tribal reservation earns income outside that reservation but within the State in which the reservation is located, then, absent federal law to the contrary, the State may tax that income. Id.^[5]

In cases not squarely controlled by these two rules, the Court applies the federal preemption principle against the backdrop of the Indian sovereignty principle. Preemption analysis asks whether the state law or action at issue "stands as an obstacle to the accomplishment and execution of the full purposes and objectives [ 298] of Congress." Geier v. Am. Honda Motor Co., 529 U.S. 861, 873 (2000) (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)); see Freightliner Corp. v Myrick, 514 U.S. 280, 287 (1995); Jones v. Rath Packing Co., 430 U.S. 519, 526 (1977). To the extent the analysis involves the interpretation of a federal statute, the Court has emphasized that statutes affecting Indians "are to be construed liberally in favor of the Indians, with ambiguous provisions interpreted to their benefit." Montana v. Blackfeet Tribe, 471 U.S. at 766;...