BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX
:
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW AND
v. : FINAL DECISION
:
AUDITING
DIVISION OF THE : Appeal No. 92-1838
UTAH STATE TAX COMMISSION, :
: Tax Type:
Ind. Income
Respondent. : Account No. XXXXX
_____________________________________
STATEMENT OF CASE
This
matter was heard before the Utah State Tax Commission in a formal hearing on XXXXX. Lisa L. Olpin, administrative law judge,
heard the matter for and on behalf of the Tax Commission. XXXXX, an attorney, represented Petitioner
by telephone. XXXXX, Assistant Utah
Attorney General, was present and represented Respondent.
Based
upon the testimony and evidence presented at the hearing, the Commission makes
its:
FINDINGS OF FACT
1.
The tax type in question is individual income tax.
2.
The year in question is XXXXX.
3.
Petitioner is requesting a refund of the state taxes withheld from his U. S.
XXXXX salary for the year in question.
4.
The Auditing Division, on the other hand, has assessed Petitioner taxes based
upon the amount the state withheld from Petitioner's XXXXX pay, plus a penalty
and interest amount for the same year.
5.
At the hearing, both Petitioner and Respondent stipulated to the relevant facts
in this case found in Petitioner's affidavit, Exhibit P7, which is restated
below:
a)
I, XXXXX, state: I am the Petitioner in the present action;
b)
I am a member of the XXXXX, my census number is XXXXX, and I live in XXXXX,
Utah, within the exterior boundaries of the XXXXX;
c)
I was born on XXXXX, in XXXXX, Utah within the exterior boundaries of the
XXXXX;
d)
I have lived my entire life (except of a four year absence while serving in the
United States XXXXX) in XXXXX, Utah, within the exterior boundaries of
theXXXXX;
e)
I served in the United States XXXXX for four years (XXXXX through XXXXX) and
was stationed in XXXXX, for that period of time;
f)
I always considered XXXXX my home and place of domicile while I was serving in
the United StatesXXXXX;
g)
I did not abandon myXXXXX domicile nor did I establish a domicile elsewhere
while I was serving in the XXXXX;
h)
While in the XXXXX, I intended to return to my home in XXXXX, Utah, when my
tour of duty was ended;
i)
I have never lived in, or established a domicile in, the State of Utah, outside
of the exterior boundaries of the XXXXX;
j)
The sole source of my income for the period I was on active duty with the
United States XXXXX was the wages paid to me by the XXXXX; and
k)
I did not earn income from any source within the State of Utah for the period
XXXXX through XXXXX.
6.
The Auditing Division contends that Petitioner's military income is taxable to
Utah since this income was earned off of the Utah portion of the XXXXX while
Petitioner was serving in the U.S. military.
7.
Petitioner, however, asserts that when he left the reservation to serve in the
military he never abandoned his XXXXX domicile. He claims that Utah cannot now claim to be Petitioner's domicile
just because he left the reservation to serve in the U.S.XXXXX. Further, since his XXXXX income was derived
from a non-Utah affiliated source, in this case, the U.S.XXXXX, Utah has no
basis for taxation.
CONCLUSIONS OF LAW
Native
Americans are nationals and citizens of the United States by virtue of 8 U.S.C.
1401 which declares such to persons born to a member of an Indian tribe.
It
so follows that "all persons born or naturalized in the United States and
subject to the jurisdiction thereof, are citizens of the United States and of
the State wherein they reside.
"(Emphasis added). U.S. Constitution, 14th Amendment, Sec. 1. See
also, Ex Parte Savage, 158 F. 205, 207 (D. Kansas 1908); Deere v. State of New
York, 22 F.2d 851, 852 (2nd Cir. 1927); Goodluck v. Apache County, 417 F. Supp.
13, 15 (D. Ariz. 1975), aff'd 429 U.S. 876 (1976).
At
the same time, Indian reservations are recognized as "separate, although
dependent nations, that state law could have no role to play within the
reservation boundaries.
"McClanahan v. State Tax Commission of Arizona, 411 U.S. 164, 168.
(1973).
Relating
to the case at hand, the United States Supreme Court in McClanahan stated that
a state may not tax a reservation Indian for income earned exclusively on the
reservation. Id. at 181.
Another
point of law worthy of note in this present case and of concern to the Tax
Commission is the Soldiers and Sailors Relief Act found at 50 App. U.S.C. Ann.
§574(1) which provides the following:
For the purposes of
taxation in respect of any person, or of his personal property, income, or
gross income, by any State, Territory, possession, or political subdivision of
any of the foregoing, or by the District of Columbia, such person shall not be
deemed to have lost a residence or domicile in any State, Territory possession,
or political subdivision of any of the foregoing, or in the District of
Columbia, solely by reason of being absent therefrom in compliance with
military or naval orders, or to have acquired a residence or domicile in, or to
have become resident in or a resident of, any State, Territory, possession, or
political subdivision of any of the foregoing, or the District of Columbia,
while, and solely by reason of being, so absent...(emphasis added)
DECISION
In
the present case, the Tax Commission determines that Petitioner was both a
resident of the State of Utah and the XXXXX while he was serving in the U.S.
Navy. Further, Petitioner's income earned
outside the reservation, here in the military, is fully taxable to Utah as
prescribed by the Soldiers and Sailors Relief Act.
The
Relief Act explicitly states that persons in the military do not lose domicile
in their state, territory, possession or political subdivision thereof by
virtue of complying with naval orders.
Here, Petitioner maintained his Utah domicile while serving in the U.S.
XXXXX out of state. The Act, in
essence, gives Utah the right to tax Petitioner's military pay.
Petitioner
cannot claim that the Act exempts his pay from Utah state taxation because a
reservation does not qualify as a state, territory, or possession or
subdivision thereof. (See Chapoose v. Hodel, 831 F.2d 931, 934 (10th Cir.
1987), holding that reservations are not territories).
Applying
then, the holding in McClanahan, supra, 411 U.S. 164, the state may tax
Petitioner's earnings as income earned by an enrolled member of a recognized
tribe off of the reservation.
A
recent decision rendered by the Tax Commission held, in part, that income
earned by an enrolled member of the XXXXX living on the reservation whose
employment was headquartered off of the reservation was not taxable to
Utah. Maryboy v. Auditing Division of
the Utah State Tax Commission (now on appeal to the Utah Supreme Court). This ruling, however, stemmed from the fact
that the Petitioner in XXXXX was employed by an Indian organization funded by
the federal government. As such, the
Commission determined that federal pre-emption existed in this area.
The
Commission points out that the XXXXX decision also concluded that other income
earned by the Petitioners off the reservation is taxable to Utah as federal
pre-emption was not present.
Based
upon the foregoing, the Tax Commission determines that Petitioner was a Utah
resident in XXXXX and that his XXXXX U.S. military income earned off
reservation is fully taxable to Utah.
Any penalty assessments in this case are abated. Interest, however, is not waived. Petitioner's refund request is accordingly
denied. It is so ordered.
DATED
this 30th day of June, 1993.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner