SCOTUS Reports

Tag: Treaty Rights

  • Estate of Peterson v. Commissioner, 90 T.C. 249 (1988): Taxation of Income from Treaty-Protected Commercial Fishing

    Estate of Lucille A. Peterson, Deceased, Wilfred M. Peterson, Administrator, and Wilfred M. Peterson, Petitioners v. Commissioner of Internal Revenue, Respondent, 90 T. C. 249 (1988); 1988 U. S. Tax Ct. LEXIS 16; 90 T. C. No. 18

    Income from commercial fishing by Native Americans under treaty rights is not exempt from federal income taxation unless the treaty specifically exempts such income.

    Summary

    Wilfred Peterson, a member of the Chippewa tribe, sought to exclude his commercial fishing income from federal taxation, claiming protection under treaties between the Chippewa and the United States. The U. S. Tax Court ruled that the treaties did not contain explicit language exempting such income from taxation. The court emphasized that for income to be tax-exempt, there must be express language in a treaty or statute. The court also distinguished between individual and tribal rights, noting that Peterson’s fishing rights were tribal, not individually allocated, thus not qualifying for an exemption based on prior case law.

    Facts

    Wilfred Peterson, a Chippewa Indian, earned income from commercial fishing under permits issued by the Red Cliff Band of Lake Superior Chippewa Indians. Peterson sold the fish he caught to entities outside the treaty-protected territory. The treaties in question, executed between the Chippewa and the U. S. in the 19th century, guaranteed the right to fish commercially. Peterson contended that this income should be exempt from federal income taxation due to the treaty rights.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in Peterson’s federal income tax for the years 1980, 1981, and 1982. Peterson and the Estate of Lucille A. Peterson filed a petition with the U. S. Tax Court challenging these deficiencies. The sole issue before the court was whether Peterson’s fishing income was exempt from federal income tax under the treaties. The court ruled in favor of the Commissioner, holding that the income was taxable.

    Issue(s)

    1. Whether income derived from commercial fishing by a Chippewa Indian, under the rights reserved by treaties with the United States, is exempt from federal income taxation?

    Holding

    1. No, because the treaties do not contain specific language exempting such income from federal income taxation, and the fishing rights are held tribally rather than individually.

    Court’s Reasoning

    The court applied two rules of treaty interpretation: treaties should be understood as the Indians would have naturally understood them, and ambiguities should be resolved in favor of the Indians. However, the court found no express language in the treaties exempting fishing income from taxation. The court referenced Squire v. Capoeman, which stated that Indians are subject to income taxes unless exempted by treaty or statute. The court also distinguished between individual and tribal rights, noting that Peterson’s fishing rights were tribal, not individually allocated, thus not qualifying for an exemption under Earl v. Commissioner. The court concluded that the treaties guaranteed a means of livelihood but not an exemption from taxation on the income derived from that livelihood.

    Practical Implications

    This decision clarifies that income from treaty-protected activities is taxable unless the treaty explicitly states otherwise. Legal practitioners must carefully review treaty language for any express tax exemptions. For Native American tribes and individuals, this ruling may influence how they structure their commercial activities to minimize tax liabilities. It also underscores the importance of distinguishing between individual and tribal rights in tax law. Subsequent cases have cited this ruling when addressing similar issues of tax exemptions based on treaty rights.

  • Strom v. Commissioner, 6 T.C. 621 (1946): Taxability of Income from Treaty-Guaranteed Fishing Rights

    6 T.C. 621 (1946)

    Income derived by Native American Indians from exercising treaty-guaranteed fishing rights on their reservation is subject to federal income tax, absent an explicit exemption in the treaty or a related statute.

    Summary

    The Strom case addresses whether income derived from commercial fishing by members of the Quinaielt Tribe, exercising rights guaranteed by an 1855 treaty, is subject to federal income tax. The Tax Court held that absent a specific exemption in the treaty, the income is taxable because the Indians are citizens of the United States and the income is under their unrestricted control. The court distinguished between taxing the right to fish (impermissible) and taxing the income derived from exercising that right (permissible). This decision established that treaty rights do not automatically confer tax immunity on income derived from those rights.

    Facts

    Charles and Flora Strom, restricted members of the Quinaielt Tribe residing on the Quinaielt Reservation in Washington, operated a commercial fishing business on the Quinaielt River. Their right to fish there was guaranteed by an 1855 treaty between the United States and the Quinaielt Tribe. The tribe allocated specific fishing locations to its members, and the Stroms were allocated location No. 7 in 1941. They sold their catch to the Mohawk Packing Co., an approved Indian trader, realizing a net income of $3,316.70. The Stroms had never received certificates of competency and were considered wards of the federal government by the Office of Indian Affairs.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in the Stroms’ 1941 income tax. The Stroms petitioned the Tax Court, arguing that taxing their fishing income violated their treaty rights. The Tax Court ruled in favor of the Commissioner, holding the income was taxable. The decision was not appealed further.

    Issue(s)

    Whether income derived by restricted members of the Quinaielt Tribe from the sale of fish caught within their reservation, a right guaranteed by treaty, is subject to federal income tax.

    Holding

    No, because the treaty does not explicitly exempt such income from taxation, and the income is in the petitioners’ unrestricted possession, allowing them to use it as they see fit.

    Court’s Reasoning

    The Tax Court reasoned that the general language of the Internal Revenue Code, which taxes the income of “every individual” from “any source whatever,” applies to Native Americans unless an explicit exemption exists. Quoting Choteau v. Burnet, 283 U.S. 691 (1931), the Court emphasized that the intent of Congress was to levy the tax broadly, and no statute expressly exempted the Stroms’ income. The court acknowledged the principle that treaties should be liberally construed in favor of Native Americans but found no basis for implying a tax exemption where none was explicitly provided. The court distinguished between the right to fish, which the treaty protected, and the income derived from exercising that right, which was subject to tax. The court stated, “The disputed income tax is not a burden upon the right to fish, but upon the income earned through the exercise of that right.” They also referenced Superintendent of Five Civilized Tribes v. Commissioner, 295 U.S. 418 (1935), noting that wardship alone does not automatically grant immunity from taxation.

    Practical Implications

    The Strom decision clarifies that treaty rights guaranteeing Native American tribes the right to fish or engage in other economic activities do not automatically exempt income derived from those activities from federal income tax. Subsequent cases involving Native American taxation often refer to Strom. This decision reinforces the principle that tax exemptions must be explicitly stated in treaties or statutes, rather than implied. For attorneys advising Native American clients, it’s crucial to examine the specific language of treaties and related statutes to determine whether a valid basis for a tax exemption exists. This case also highlights the distinction between taxing the right to engage in an activity and taxing the income derived from that activity.