93-0839

Income

Signed 1/6/95

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

:

Petitioners, ) FINDINGS OF FACT,

: CONCLUSIONS OF LAW,

v. ) AND FINAL DECISION

:

AUDITING DIVISION OF THE ) Appeal No. 93-0839

UTAH STATE TAX COMMISSION, :

) Account No.XXXXX

Respondent. :

_____________________________________

STATEMENT OF CASE

This matter came before the Utah Tax Commission for a formal hearing on XXXXX. Gail Reich, Presiding Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioners was XXXXX. Present and representing the Respondent was XXXXX.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. The tax in question is $$$$$ in individual income tax with a negligence penalty of $$$$$ and interest of $$$$$.

2. The period in question is the XXXXX tax year.

3. Petitioners filed a joint income tax return for the XXXXX tax year on XXXXX. Petitioners claimed $$$$$ as Indian income on their XXXXX joint tax return. See Exhibit R-5. (All Exhibits refer to the exhibits entered into the record during the formal hearing.)

4. The Auditing Division mailed a notice of assessment dated XXXXX to Petitioners assessing additional tax, interest and penalties on the $$$$$ of income claimed by Petitioners as state tax-exempt Indian income for the XXXXX tax year.

5. Petitioners filed a Petition for Redetermination of the Auditing Division's disallowance of Petitioners' Indian income exemption on XXXXX.

6. The Auditing Division filed an Answer to the Petition for Redetermination on XXXXX requesting the Tax Commission sustain the Statutory Notice of Deficiency against the Petitioners and dismiss the Petitioners' Petition for Redetermination.

7. Notice was given for a settlement conference scheduled on XXXXX at which Petitioners did not appear but prior to which Petitioners responded, on XXXXX, by letter.

8. On XXXXX, the Auditing Division filed a Motion to Dismiss this mater based on Petitioners' failure to appear at the settlement conference. This motion was denied on XXXXX.

9. The Tax Commission held a hearing on XXXXX before Gail S. Reich, Administrative Law Judge, who issued an order on XXXXX for the parties to submit further briefing.

10. In compliance with the order Petitioners submitted a Memorandum on Tax Issues on XXXXX, Respondent submitted a Posthearing Brief on XXXXX and Petitioner submitted a Rebuttal Brief of Petitioners' to Respondent's Posthearing Brief on XXXXX.

11. The matter proceeded to this formal hearing on XXXXX.

12. Petitioners alleged and Respondent did not dispute that the $$$$$ of income at issue was derived from trapping which occurred on the XXXXX and XXXXX Reservation.

13. The Auditing Division disallowed Petitioners' Indian income exemption because Petitioners were not enrolled tribal members.

14. As of XXXXX, Petitioner XXXXX was listed as number XXXXX on the Final Mixed-Blood Roll issued pursuant to Public Law 671 after the enactment of the XXXXX Partition Act.

15. The XXXXX reported by letter on XXXXX that Petitioner XXXXX was not a member of the XXXXX.

16. Petitioners alleged and Respondent did not dispute that Petitioners lived on the XXXXX and XXXXX Reservation in Utah during the XXXXX tax year.

Analysis

The State of Utah allows for an exemption from individual income taxes for Indian income, if it meets the following criteria as listed on the Form TC-40 Resident Long Form Individual Income Tax Return(1989), as follows:

An enrolled member of an Indian tribe in Utah who lives and works on the reservation on which he is an enrolled member is exempt from Utah income tax on the reservation income. Enter the exempt income that is included in your federal adjusted gross income, and attach a statement giving the name of the nation or tribe and the enrolled or census number.

Petitioner XXXXX produced the Final Mixed-Blood Roll which listed him as a member as of XXXXX and he does not dispute or attempt to deny that he is officially classified as a mixed-blood. He asserts that, as a mixed-blood, he is still an official or "enrolled" member of the XXXXX as defined in the XXXXX Partition Act, 25 U.S.C. '677. XXXXX further asserts that he is a member of the XXXXX and has rights acquired through the XXXXX under the Act of XXXXX. He was listed on the XXXXX Indian Census Roll as of XXXXX.

The Ute Partition Act, 25 U.S.C. 677 et seq., provided for the division of all members of the Ute Indian Tribe living on XXXXX into full-blood and mixed blood members. The XXXXX was formed from three bands, including the XXXXX, which were combined into the one tribe. The Act required the establishment of official rolls of the mixed and full-blood groups of the XXXXX, composed of the three bands, which were to be published in the Federal Register. 25 U.S.C. ' 677g.

Section 677d of the Ute Partition Act further provided that "[e]ffective on the date of the publication of the final rolls as provided in Section 677g of this title the tribe shall thereafter consist of exclusively of full-blood members." 25 U.S.C. '677d (1988).

According to these sections of the United States Code, official members of the tribe consist only of individuals whose names appear on the official census roll for full-blood members after XXXXX.

Further, the courts, in looking at this issue, have come to the same conclusion. The court in Ute Distribution Corp. v. United States, 938 F.2d 1157, 1160 (10th Cir. 1991) observed that only individuals who were listed on the final full-blood rolls were official members of the XXXXX. From this the court reasoned that Congress intended that mixed-bloods be treated as non-Indians upon termination of their membership in the XXXXX since the tribe lacked jurisdiction over non-members of the tribe. Id. at 1160. The court concluded that the termination of the mixed-bloods from the tribe meant the mixed-bloods should be subject to the same laws and obligations as other non-Indians, including paying taxes on tribal income. Id. at 1163.

The determination of the criteria, including the blood quantum requirement, for an Indian to be considered a full-blood after XXXXX is allowed in the manner provided in the constitution and the bylaws of the tribe. See 25 U.S.C. ' 677g (1988)and Chapoose v. Clark, 607 F.2d 1027, 1033-1037.

Petitioners are not recognized by the XXXXX as members nor are they listed on the official full-blood rolls of the tribe.

As a mixed-blood Indian or member of the XXXXX, Petitioners do not have rights which would preclude the State of Utah from taxing Petitioners' income derived from the reservation. Petitioners have asserted that as mixed-blood members, they have certain rights which take precedence over Utah law and the language of the Utah Indian income exemption.

Clearly as mixed-blood Indians, Petitioners may retain certain rights, as are discussed in the cases offered by Petitioners, Hackford v. Babbitt, D.C. No. 89-C-914-J (D. Utah Jan. 21, 1994) (Plaintiff had standing to sue for water rights attached to property owned by Plaintiff on the reservation) and United States v. Felter, 752 F.2d 1505 (10th Cir. 1985) (rights to hunt and fish on the reservation). However, these cases do not pertain to the issue of state income tax.

The provisions of the Constitutional Rights of Indians, 25 U.S.C. '' 1301-1326, during the tax year in question did not expressly prohibit taxation of Indian's individual income.

Case law supports the rights of the states to tax the income of mixed-blood Indians residing in that state. In Duro v. Reina, 495 U.S. 676 (1990), the Supreme Court found that exemption from state taxation is determined by tribal membership, Id. at 704-05, and "does not apply to taxation of nonmembers, even where they are Indians." Id. at 686-687.

Other cases support the member/nonmember distinction set out in Duro. In Ute Distribution Corp. v. United States, 938 F.2d 1157 (10th Cir. 1991), the Tenth Circuit affirmed a federal income tax assessment against a mixed-blood on tribal distributions of oil and gas royalties. Petitioners' attempt to distinguish Ute Distribution because it involved distributions from a public corporation, when in this case Petitioners earned the income individually. This argument is unpersuasive. Utah's Indian income exemption does not distinguish between an enrolled Indian's income earned from a business or corporation on the reservation or income earned from a personal business on the reservation.

CONCLUSION OF LAW

Petitioners have not shown that they are enrolled members in an Indian tribe in the State of Utah for the purposes of state taxation. Although Petitioner XXXXX, may be classified as a mixed-blood Indian, neither he nor his wife, Petitioner XXXXX, are "enrolled Indians" for purposes of the State of Utah's Indian income exemption on the $$$$$ of income earned on the reservation during the XXXXX tax year.

DECISION AND ORDER

Based upon the foregoing, it is the order of the Utah State Tax Commission that Petitioners are not entitled to the relief sought and the Auditing Division correctly imposed state income tax in the amount of $$$$$ on the $$$$$ of income earned by Petitioners on the reservation for the tax year ending XXXXX, along with a negligence penalty of $$$$$ and interest of $$$$$. It is so ordered.

DATED this 6th day of January, 1995.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner

NOTICE: You have twenty (20) days after the date of the final order to file a request for reconsideration or thirty (30) days after the date of final order to file in Supreme Court a petition for judicial review. Utah Code Ann. ''63-46b-13(1), 63-46b-14(3)(a).

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