Warren Trading Post Co. v. Moore

Decision Date04 December 1963
Docket NumberNo. 7026,7026
Citation95 Ariz. 110,387 P.2d 809
PartiesWARREN TRADING POST COMPANY, a Corporation, appellant, v. Thad M. MOORE, Warren Peterson adn W. E. Stanford, as members of the Arizona State Tex Commission, and the Arizona State Tax Commission, Appellees.
CourtArizona Supreme Court

Snell & Wilmer, Perry M. Ling, Phoenix, for appellant.

Wade Church, former Atty. Gen., Robert W. Pickrell, Atty. Gen., and Leslie C. Hardy, former Chief Asst. Atty. Gen., Phoenix, for appellees.

Norman M. Littell, Washington, D. C., Joseph F. McPherson and Spencer K. Johnston, Window Rock, for Navajo Tribe of Indians, as amicus curiae.


Appellant, Warren Trading Post Company, appeals from a judgment determining that certain taxes are due to the State of Arizona by reason of retail sales of personal property to reservation Indians residing on the Navajo Indian Reservation. 1

The Arizona exaction arises out of the provisions of the Arizona Privilege Transaction Act, A.R.S. § 42-1308, requiring every person within Arizona 2 who receives gross proceeds of sale or gross income from sales to acquire a license for a fee of $1.00. A.R.S. § 42-1312 imposes a tax measured by an amount equal to 2% of the gross proceeds of sales or gross income on the privilege of selling any tangible personal property at retail. 3

In considering collectively the arguments presented, we observe certain conclusions which weigh heavily in the decision.

Tax immunity is never enjoyed as a matter of right but only as an incidental windfall when, and only as long as, imposition of the state tax impairs or interferes with the exercise of a federal function. Petition of S. R. A., Inc. v. State of Minnesota, 219 Minn. 493, 18 N.W.2d 442, affirmed 327 U.S. 558, 66 S.Ct. 749, 90 L.Ed. 851. The immunity here claimed represents a severe impairment of the taxing power of Arizona. It is one we would not be disposed to sustain unless we entertained grave doubts but that a federal function was impaired.

We have repeatedly held that this tax is on the privilege or right to engage in business and is not a sales tax although generally referred to as such, that it neither imposes a tax on the purchaser nor upon sales but rather taxes the seller for the privilege of engaging in business, that the tax is the direct obligation of the retailer and not that of the consumer, and further that there is no statutory authority for the retailer to attempt to consitute himself an agent of the state for the purpose of receiving the tax and transmitting it to the state. The legal incidence of the tax falls upon the seller and not upon the buyer. 4 Arizona State Tax Commission v. Garrett Corp., 79 Ariz. 389, 291 P.2d 208; State Tax Commission v. Quebedeaux Chevrolet, 71 Ariz. 280, 226 P.2d 549.

Were appellant an instrumentality of the United States Government by reason of its being licensed to do business with the Indians under the appropriate acts of Congress, 5 no exemption is to be implied. 6 Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R. 615. Exemption of the person upon whom the legal incidence of the tax falls is not to be implied regardless of the fact that the furden is passed on so long as Congress has not expressly exempted such person, Esso Standard Oil Co. v. Evans, 345 U.S. 495, 73 S.Ct. 800, 97 L.Ed. 1174. We conclude that the Navajo Indian Tribe, Amicus Curiae, is not entitled to assert a greater immunity from non-discriminatory taxation for traders with whom its members deal than the United States for its employees, contractees or other chosen agenst, even were we certain that the economic burden must inevitably be shifted to the Indians. 7

The Arizona exaction is non-discriminatory. It is not levied against Indians or Indian tribes as such but against all who engages in the business of selling within the geographical boundaries of the State of Arizona. The fact of legal title in the United States to the Indian lands is not sufficient to effect an exclusion of the state from excise taxes unless it appears that the state by consent or cession has transferred to the United States that residuum of jurisdiction which otherwise it would be free to exercise. 8 Silas Mason Co. v. Tax Commission of Washington, 302 U.S. 186, 58 S.Ct. 233, 82 L.Ed. 187. The authority of the state may rightfully extend to all matters not interfering with the Indian's protection by the government. Utah & Northern R. Co. v. Fisher, 116 U.S. 28, 6 S.Ct. 246, 29 L.Ed. 542. The applicability of state law depends upon 'whether the state action infringed on the right of reservation Indians to make their own laws and be ruled by them.' Williams v. Lee, 358 U.S. 217, 220, 79 S.Ct. 269, 3 L.Ed.2d 251, reversing Williams v. Lee, 83 Ariz. 241, 319 P.2d 998.

Historically three powers of the federal government have been used to support congressional action in legislating on Indian affairs. The War Making Power was invoked by the First Congress on August 7th, 1789, by entrusting Indian affairs to the War Department. 1 Stat. 49, 50. It was the practice and policy of the federal government during the many years of tension between Indian and non-Indian to negotiate with the tribes and to settle differences by treaty if possible. See Worcester v. Georgia, 6 Pet. 515, 8 L.Ed. 483. After the Civil War, it was recognized that assimilation not segregation of the Indians was necessary 9 and the use of the Treaty Making Power to deal with Indians as dependent alien nationalities was terminated by Congress in 1871. One of the last treaties was entered into with the Navajo Indians in 1868. Cohen, Federal Indian Law, 24, 210. For a more detailed background of the Navajo Tribe see Williams v. Lee, 358 U.S. 217, 79 S.Ct. 269, 3 L.Ed.2d 251, supra. 10 Neither appellant nor Amicus Curiae, the Navajo Indian Tribe, assert a tax immunity arising out of or supported by the terms of the Navajo Treaty with the United States.

In 1886 the Supreme Court of the United States examined a congressional enactment prescribing criminal laws for Indians living on reservations. In sustaining the plenary power of Congress to act in behalf of the Indians, the court said:

'From their very weakness and helplessness, so largely due to the course of dealing of the federal government with them, and the treaties in which it has been promised, there arises the duty of protection, and with it the power.' United States v. Kagama, 118 U.S. 375, 384, 6 S.Ct. 1109, 30 L.Ed. 228.

Since then, the recognized relation of tribal Indians together with the commerce clause of the U.S.Const., art. 1, § 8(3), granting to Congress the power 'to regulate commerce with * * * the Indian tribes' have been treated as the sources of congressional power, see Williams v. Lee, 358 U.S. 217, 79 S.Ct. 269, 3 L.Ed.2d 251, supra, Perrin v. United States, 232 U.S. 478, 34 S.Ct. 387, 58 L.Ed. 691, Johnson v. Gearlds, 234 U.S. 422, 34 S.Ct. 794, 58 L.Ed. 1383, without always pointing specifically to either.

We do not doubt the plenary power of Congress to legislate in behalf of its wards by providing for them such federal services as education, health and reclamation, or that Congress may permit tribal self-government. The exercise of state jurisdiction may not impede the federal government in the treatment of its wards nor may it undermine the authority of the tribe in the exercise of self-government, Williams v. Lee, supra. Neither may it impair a right granted or reserved by federal law. Organized Village of Kake v. Egan, supra. Otherwise state laws may be applied to Indians.

Congress has customarily carved out reservations from the unreserved public domain lying within the geographical boundaries of the state either to be owned or held by the Indian tribes. Utah & Northern R. Co. v. Fisher, 116 U.S. 28, 6 S.Ct. 246, 29 L.Ed. 542, supra. State law consistent with congressional legislation in behalf of its wards and with the tribal self-government is not excluded on these reservations.

'It is not unusual for the United States to own within a state lands which are set apart and used for public purposes. Such ownership and use without more do not withdrawn the lands from the jurisdiction of the state. On the contrary, the lands remain part of her territory and within the operation of her laws, save that the latter cannot affect the title of the United States or embarrass it in using the lands or interfere with its right of disposal.

'A typical illustration is found in the usual Indian reservation set apart within a state as a place where the United States may care for its Indian wards and lead them into habits and ways of civilized life. Such reservations are part of the state within which they lie, and her laws, civil and criminal, have the same force therein as elsewhere within her limits, save that they can have only restricted application to the Indian wards. * * *' Surplus Trading Co. v. Cook, 281 U.S. 647, 650, 651, 50 S.Ct. 455, 74 L.Ed. 1091.

Generally, it may be said that state laws apply to the extent they do not conflict with federal Indian laws.

'Enactments of the federal government passed to protect and guard its Indian wards only affect the operation, within the colony [or reservation], of such state laws as conflict with the federal enactments.' United States v. McGowan, 302 U.S. 535, 539, 58 S.Ct. 286, 82 L.Ed. 410. (Emphasis supplied). 11

We do not find that Arizona by taxing appellant interferes with the United States in the use of reservation lands for the purposes for which the were established or that its tax tends to thwart the purpose of the federal government in caring for its Indian wards and leading them into the habits and ways of civilized life.

This brings us to the ultimate proposition advanced by the Navajo Indian Tribe that the commerce clause of the federal constitution by its own force creates an area of trade free from interference...

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