Income Tax

Signed 1/17/03





: Initial Hearing Decision and Order

Petitioners, :

: Appeal No. 02-1351

v. :

: Acct. No. #####

Auditing Division of the Utah State :

Tax Commission, : Tax Type Income


Respondent. : Tax Period 1999 and 2000





Irene Rees, Administrative Law Judge



For Petitioner: Petitioner, and Representative

For Respondent: Susan Barnum, Assistant Attorney General, with Dan Engh, Audit Manager




At issue in this case is the question of whether Petitionersí income earned on an Indian Reservation in Utah is subject to state income tax. This matter was argued in an Initial Hearing held January 9, 2003.


The facts of this case are not in dispute. MR and MRS. PETITIONER are enrolled members of the Apache Tribe and for the tax years at issue here they lived and worked on the Navajo reservation in Utah. They claimed an exemption from Utah State income tax on the theory that income of Native Americans working on Indian Reservations cannot be taxed by the state. Petitioners acknowledge the Tax Commissionís long held position that income of an American Indian is exempt from taxation only if the wage earner is an enrolled member of a Utah tribe and if income is earned on the reservation of the tribe in which the American Indian is enrolled. Petitioners argue, however, that the Commission mistakenly relies on case law issued in consideration of taxes other than income tax. The income tax exemption, according to Petitioners, is eligible for different treatment than sales tax or cigarette tax or other taxes that have come before the courts.


At the foundation of Petitionerís argument is the United States Supreme Court decision in McClanahan v. Arizona,[1] which outlawed the state income tax on reservation source income of individual member Indians living on the reservation. Petitioner reads that case broadly to mean that the state is precluded from taxing the income of any Indian who lives and works on any reservation.[2] We disagree. Even if the language of the McClanahan case seems broadly drawn with its references to ďreservation Indians,Ē the case itself did not require the court to consider the issue of tribal affiliation. McClanahan and subsequent cases have helped define the rules of taxation with regard to tribes, individual Indians, and their activities on and off the reservation.

For instance, Washington v. Confederated Tribes of Coleville Indian Reservation, 447 U.S. 134 (1980), involved the taxation of cigarette sales on the reservation to non-tribal members. Although not an income tax case, the Confederated Tribes court stated that even the broadest reading of the relevant federal statutes does not preclude from imposing its taxes on Indians who are not members of the reservationís governing tribe.


Utah has long taken the position that tribal affiliation is a determining factor in the stateís right to tax the income of an American Indian working on a reservation in Utah. That position, along with the underlying reasoning and discussion of supporting case law, has been published in decisions and letter rulings dating back to the 1980ís. To date, no one has successfully challenged that position, and Petitioner provides no persuasive support here to lead the Commission to adopt a different point of view. The Tax Commissionís position is clearly stated in the TC-40 instructions as follows:


Enrolled members of a Native American tribe or nation in Utah, who live and work on the reservation on which they are enrolled, are exempt from Utah income tax on income earned on the reservation.



Because Petitioner is not an enrolled member of the Navajo tribe, their income earned on the Navajo reservation in Utah is subject to Utah income tax.





DATED this 17th day of January , 2003.



Administrative Law Judge


The undersigned Commissioners have reviewed this matter and concur in this decision.


Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner






Palmer DePaulis Marc B. Johnson

Commissioner Commissioner


[1] 411 U.S. 164 (1973)

[2] Petitioner stated he did not know of any treaty that specifically applies to the Navajo Nation and to the exclusion of other American Indians. For more information on that subject, we refer him to the Navajo Treaty of 1868.