Strom v. Comm'r of Internal Revenue, Docket No. 1798.
| Decision Date | 29 March 1946 |
| Docket Number | Docket No. 1798. |
| Parties | CHARLES STROM AND FLORA STROM, HUSBAND AND WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioners, restricted Indians residing on the Quinaielt Reservation in Washington and operating a commercial fishing business on the Quinaielt River on that reservation, where the unrestricted right of fishing by such Indians is guaranteed by treaty with the United States, are liable for tax upon income they received for their free and untrammeled use from the exercise of such right. L. L. Thompson, Esq., and L. B. Donley, Esq., for the petitioners.
W. H. Payne, Esq., for the respondent.
Respondent determined a deficiency of $169.67 in income tax for the calendar year 1941. The issue is whether restricted members of the Quinaielt Tribe of Indians living on the Quinaielt Reservation are subject to Federal income tax on income derived from the selling of fish caught by them in the Quinaielt River on that reservation. A 25 percent penalty originally asserted by respondent for failure to file a return is now waived. Substantially all the facts are stipulated and are so found. The facts hereinafter found in addition to those stipulated were established by oral testimony at the hearing.
Petitioners, husband and wife, are restricted members of the Quinaielt Tribe of Indians and reside at the Indian village of Taholah, Grays Harbor County, Washington, which is on the Quinaielt Indian Reservation. By Act of Congress of June 2, 1924 (43 Stat. at Large, 1923-1924, part I, p. 253), they are citizens of the United States. They filed no income tax returns for the year 1941.
The date of the treaty between the United States and the Quinaielt and certain other Indian tribes was July 1, 1855. By this treaty the lands of these tribes running from the Cascade Mountains to the Pacific Ocean were ceded to the United States. Article 2 of such treaty provides:
ARTICLE 2. There shall, however, be reserved, for the use and occupation of the tribes and bands aforesaid, a tract or tracts of land sufficient for their wants within the Territory of Washington, to be selected by the President of the United States, and hereafter surveyed or located and set apart for their exclusive use, and no white man shall be permitted to reside thereon without permission of the tribe and of the superintendent of Indian affairs or Indian agent. And the said tribe bands agree to remove to and settle upon the same are furnished them. In the meantime it shall be lawful for them to reside upon lands not in the actual claim and occupation of citizens of the United States, and upon any lands claimed or occupied if with the permission of the owner or claimant. If necessary for the public convenience, roads may be run through said reservation, on compensation being made for any damage sustained thereby.
On November 4, 1873, the President of the United States, in carrying out the provision of this treaty to set apart a permanent reservation, issued an executive order setting aside a permanent Indian reservation. The western boundary of the tract of land so set aside is the Pacific Ocean. At its eastern extremity and within the reservation is Quinaielt Lake. From this lake the Quinaielt River flows through the reservation, emptying into the Pacific in the Indian village of Taholah. Twice each year there is a run of salmon from the sea up the river to spawn in the lake. These runs of fish vary with the years. In only an occasional year is there a run which justifies commercial fishing.
The Indians fish with gill nets set in the river. These are quite expensive and their deterioration is very rapid. The fishing is done at certain fixed and charted locations on the river. Each location is 255 feet long. These are allotted periodically to certain members of the tribe by the tribal council and the income from the use of such locations is that of the allottee and not the communal income of the tribe. In the year 1941 the petitioners were allotted and used location No. 7. Since the creation of the reservation, this location has at all times remained as common tribal property. The allocation of these locations to members of the tribe is solely by action of the tribal council and their assignment by the holder, or their passing to a member of his family upon his death, is controlled by the tribal rules, regulations, and customs and the orders of the tribal council.
Under rules and regulations adopted by the tribal council, the periods, manner, and method of the fishing, together with the type of fishing gear to be used, are regulated. These rules and regulations further provide that any fish caught may be sold only to an approved Indian trader. These traders are issued licenses by the Indian Agency subject to the approval of the tribal council.
Certain of the fishing locations on the river are much better than others. On the best location, in a year of the largest run of fish, it is possible for the holder of the location to make a year's catch which will sell for as much as $10,000 gross. The expense, however, in connection with the fishing is a substantial amount.
Prior to 1922 no attempt was made by the Federal Government to tax the income derived by the Quinaielt Indians from the fishing operations on the reservation. In that year these Indians were notified to file income tax returns and several of them did so. Later, presumably as a result of an opinion by the Attorney General, 34 Ops.Atty.Gen. 275, holding income of the Five Civilized Tribes exempt from Federal income tax, no further effort was made to collect such taxes until the year 1941 and the determination of the deficiency here involved.
During the year 1941 the Mohawk Packing Co. of Moclips, Washington, held an Indian trader's license authorizing it to buy fish caught on the Quinaielt Reservation and made purchases through their agent, Cleveland Jackson, who was a member of the Quinaielt Tribe residing on such reservation. During the year 1941 the petitioners, by oral agreement with Cleveland Jackson, sold to the Mohawk Packing Co. fish caught by them at fishing location No. 7. During that year petitioners realized income from their fishing operations at location No. 7, as follows:
+----------------------------------------------------------------------------+
¦Gross income from sales of fish to the Mohawk Packing Co¦ ¦$5,917.29¦
+--------------------------------------------------------+---------+---------¦
¦Less: ¦ ¦ ¦
+--------------------------------------------------------+---------+---------¦
¦Wages paid other for assistance in connection with ¦ ¦ ¦
+--------------------------------------------------------+---------+---------¦
¦the spring run of salmon ¦$1,754.52¦ ¦
+--------------------------------------------------------+---------+---------¦
¦Wages to other for assistance in handling the fall ¦ ¦ ¦
+--------------------------------------------------------+---------+---------¦
¦run of salmon ¦326.87 ¦ ¦
+--------------------------------------------------------+---------+---------¦
¦Miscellaneous expenses ¦369.20 ¦ ¦
+--------------------------------------------------------+---------+---------¦
¦Truck expenses ¦150.00 ¦ ¦
+--------------------------------------------------------+---------+---------¦
¦ ¦ ¦2,600.59 ¦
+--------------------------------------------------------+---------+---------¦
¦ ¦ ¦ ¦
+--------------------------------------------------------+---------+---------¦
¦Net income realized during the taxable year ¦ ¦3,316.70 ¦
+----------------------------------------------------------------------------+
Neither petitioner Charles Strom nor petitioner Flora Strom has ever received a certificate of competency, and at all times herein mentioned they were, and now are, considered by the Office of Indian Affairs of the United States of America as incompetent wards of the Federal Government. Petitioner Charles Strom has been allotted 86.20 acres of the reservation, this being allotment No 427. Flora Strom is the holder of allotment No. 322 on the reservation, consisting of 80 acres. The Quinaielt Indian Reservation is heavily timbered and is not adaptable to agricultural development. The Quinaielt and other tribes occupying the reservation are what are known as fisheating Indians, who, for many generations, have existed from their hunting and fishing operations. The income derived by the petitioners from their fishing operations in 1941, as hereinabove described, was not received by the Indian Office, but was received by the petitioners as their property, free to use in any way they saw fit.
This case presents a novel question not heretofore decided by the courts. May the Federal Government tax income realized by an Indian who has not received a certificate of competency and is, accordingly, an incompetent ward of the Government, when such income is derived by him from the exercise, on common unallotted tribal property, of a tribal right guaranteed by treaty?
Petitioners contend that the imposition of a tax on income derived from fishing operations on the reservation constitutes a denial of the free and unrestricted right to fish guaranteed to them by treaty. It is urged that, although the treaty makes no mention of taxation and there is no expressed exemption, the accepted rule is that such treaties are to be liberally construed for the protection of the Indian and the maintenance of his rights...
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