Is a Pueblo member's business exempt from New Mexico gross receipts tax when it operates from tribal trust land that a federal law says is NOT 'Indian country'?

Plain-English summary

Val Tech & Associates is a sole proprietorship owned by Bernard Velasquez, an enrolled member of the Pueblo of Laguna. The business does private investigation — mainly personnel background checks that the gaming casinos of the Pueblos of Acoma, Sandia, and San Felipe use to screen job applicants. Its office sits at the Indian Pueblo Cultural Center in Albuquerque, on land the United States holds in trust for the 19 New Mexico Pueblos. Val Tech asked the Department to refund $2,189.27 of gross receipts tax it had paid for July 1995 through March 1996, arguing that federal Indian law preempts the state from taxing a Pueblo member's on-trust-land services performed for other Pueblos. The Department denied the refund, and Val Tech protested.

The Hearing Officer denied the protest and upheld the tax:

• The Indian tax-preemption doctrine turns on "Indian country." When a state tax falls on a tribe or tribal member for activities on a reservation or in "Indian country" (defined in 18 U.S.C. § 1151), courts presume the tax is preempted unless Congress expressly allowed it. But that protection has a territorial limit — it applies to activities in Indian country, not merely on any tribal-connected land.
• This particular trust land is expressly NOT "Indian country." When Congress returned the Cultural Center land to federal trust status in 1978 (Public Law 95-232), it wrote in an unusual clause: the land "shall enjoy the tax-exempt status of other trust lands, including exemption from State taxation and regulation. However, such property shall not be 'Indian country' as defined in section 1151 of title 18." So the land itself can't be taxed, but it is not Indian country.
• Trust status alone does not oust the state's power to tax the business's receipts. The taxpayer argued that trust status by itself invokes preemption. The Hearing Officer read the Supreme Court's Potawatomi, Sac and Fox, and Chickasaw Nation decisions to hold that the operative question is always whether the activity occurs in Indian country — and Congress deliberately answered "no" here. So New Mexico's gross receipts tax on Val Tech's investigation receipts is not preempted.
• The refund claim fails. Because the tax was validly imposed, the Department properly denied the $2,189.27 refund.

What this means for you

Tribal members and businesses operating off the reservation

Being an enrolled tribal member, and even working on land held in federal trust, does not by itself exempt your business receipts from New Mexico gross receipts tax. The federal Indian tax-preemption doctrine generally shields a tribe or its members only for activities in "Indian country" (formal or informal reservations, dependent Indian communities, and certain Indian allotments — 18 U.S.C. § 1151). Land that falls outside that definition — even tribal trust land — leaves the state free to tax the business activity conducted there.

Read the specific federal law for the land you're on

This case rose or fell on a single sentence Congress wrote for one property. The Indian Pueblo Cultural Center land was made tax-exempt as land, yet expressly declared not Indian country, so activities on it stayed within New Mexico's taxing reach. If a business's tax position depends on a parcel's federal status, the controlling document is the specific statute, treaty, or trust instrument for that exact land — not a general assumption about "trust land" or "tribal land."

"The land is tax-exempt" is not the same as "my receipts are tax-exempt"

The decision draws a sharp line: the land enjoyed exemption from state property taxation, but that says nothing about gross receipts tax on the services performed there. Gross receipts tax is a tax on the privilege of doing business, measured by receipts — a different tax from a tax on the real estate. An exemption for one does not carry over to the other.

Common questions

Q: The business is owned by a tribal member and sits on tribal trust land. Why isn't it exempt?
A: Because federal Indian tax preemption generally protects activities in "Indian country," and the specific 1978 law that placed this land in trust expressly said the property is not "Indian country." Without that status, New Mexico can tax the business's receipts.

Q: Isn't trust land automatically exempt from state taxes?
A: The land itself was made exempt from state property taxation. But the Hearing Officer held that trust status alone does not stop the state from taxing the business receipts generated there — that depends on whether the land is Indian country, which Congress said it is not.

Q: The services were performed for other Pueblos' casinos on Pueblo business. Doesn't that matter?
A: Not here. The receipts were reported based on the taxpayer's place of business (§ 7-1-14), which was the Cultural Center in Albuquerque — land Congress declared not Indian country. Because that is where the taxable activity was situated for tax purposes, the preemption doctrine did not apply.

Q: Does this decision apply to my situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. This one hinges on a federal statute written for a single Albuquerque property; a different parcel with a different federal status could produce a different result.

Citations and references

Statutes:

• § 7-1-14 NMSA 1978 — gross receipts are reported based on the taxpayer's place of business
• 18 U.S.C. § 1151 — federal definition of "Indian country" (formal and informal reservations, dependent Indian communities, and Indian allotments)
• Public Law 95-232, 92 Stat. 30 (1978) — returned the Indian Pueblo Cultural Center land to United States trust status, made it exempt from state taxation, but declared it is not "Indian country"

Cases cited:

• Oklahoma Tax Comm'n v. Citizen Band Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505 (1991) — the question is whether land is "Indian country," not merely whether it is trust land versus reservation
• Oklahoma Tax Comm'n v. Sac and Fox Nation, 508 U.S. 114, 113 S.Ct. 1985 (1993) — a tribal member need not live on a formal reservation to be outside the state's taxing jurisdiction; it is enough to be in "Indian country"
• Oklahoma Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 115 S.Ct. 2214 (1995) — a state excise tax is unenforceable if its legal incidence falls on a tribe or its members for sales made within Indian country
• McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164 (1973) — tribal immunity from state tax does not operate outside Indian country
• Warren Trading Post Co. v. Arizona State Tax Comm'n, 380 U.S. 685 (1965) — state sales tax on a federally licensed Indian trader on the reservation was preempted
• Mescalero Apache Tribe v. Jones, 411 U.S. 145 (1973) — a state may tax a tribe's business activities occurring off the reservation
• White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980) — balancing test where a tax's legal incidence falls on a non-Indian in Indian country
• DeCoteau v. District County Court, 420 U.S. 425 (1975) — 18 U.S.C. § 1151, though framed for criminal jurisdiction, generally applies to civil jurisdiction as well
• New Mexico Taxation & Revenue Dep't v. Laguna Industries, Inc., 115 N.M. 553, 855 P.2d 127 (1993) — federal Indian trader statutes preempt state tax on services sold to tribal entities on their reservations

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Val Tech & Associates
• Decision PDF: D&O 97-26

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
VAL TECH & ASSOCIATES, NO. 97-26
ID. NO. 02-285408-00 8, PROTEST
TO DENIAL OF CLAIM FOR REFUND

DECISION AND ORDER

This matter came on for hearing before Gerald B. Richardson, Hearing Officer, on

February 7, 1997. Val Tech & Associates, hereinafter, "Taxpayer", was represented by Wayne

H. Bladh, Esq. and Cynthia A. Kiersnowski, Esq. of Nordhaus, Haltom, Taylor, Taradash &

Frye, LLP. The Taxation and Revenue Department, hereinafter, "Department", was represented

by Frank D. Katz, Chief Counsel. Following the hearing, the parties submitted excellent briefs

in support of their respective positions. The final brief, the Taxpayer's Reply Brief, was filed

on May 15, 1997 and the matter was considered submitted for decision at that time. The parties
have agreed to extend the deadline for issuing the decision in this matter until July 7, 1997.

Based upon the evidence and the arguments submitted, IT IS DECIDED AND

ORDERED as follows:
FINDINGS OF FACT

1. The Taxpayer is a sole proprietorship owned by Mr. Bernard Velasquez, who is

an enrolled member of the Pueblo of Laguna.

2. The Taxpayer's business is to do private investigation. Primarily, it does

personnel background investigations for the gambling casinos owned and operated by the

Pueblos of Acoma, Sandia and San Felipe so that they may use the information developed to

determine the fitness for employment of various job applicants.

3. Since July of 1995, the Taxpayer's office or place of business has been in a

building located at the Indian Pueblo Cultural Center in Albuquerque, New Mexico. The

Taxpayer leases its office space from Indian Pueblo Marketing, Inc., which is a corporation

which was formed to oversee the operations of the Indian Pueblo Cultural Center property.

4. The land on which the Indian Pueblo Cultural Center is located consists

of 11.2857 acres at 2401 12th Street, N.W., in Albuquerque, New Mexico. The land was

owned by the United States and was originally the site of the Albuquerque Indian School which

was administered by the Bureau of Indian Affairs (BIA). In the 1960s the federal government

determined that the lands and improvements of the Indian school property were no longer

needed for federal Indian school purposes. In 1969 the BIA conveyed the land by quitclaim

deed to the 19 New Mexico Pueblos as tenants in common. The purpose of the conveyance

was to enable the Pueblos to develop an Indian Pueblo Cultural Center on the property.

5. The All Indian Pueblo Council, (AIPC) is an umbrella organization for the New

Mexico Pueblos consisting of the governors of the 19 New Mexico Pueblos which, among

other things, oversees the Indian Pueblo Cultural Center property. It meets monthly at the

Indian Pueblo Cultural Center.

6. In 1972 the Federal Economic Development Administration (EDA) approved a

grant to the AIPC to construct and equip the Indian Pueblo Cultural Center on the Indian school

property. In 1973 the nineteen Pueblos leased the land to AIPC, but that lease was never

formally approved by the Interior Department. The AIPC also created a non-profit corporation,

Indian Pueblo Cultural Center, Inc. for the purpose of developing and maintaining the Indian

Pueblo Cultural Center in order to provide cultural and educational programs and economic

opportunities for marketing the products of Pueblo crafts people. AIPC assigned its lease of the

land to Indian Pueblo Cultural Center, Inc. and designated the corporation as its agent in

implementing the EDA grant and for construction of the Cultural Center, which was completed

in 1976.

7. In 1974 the Santo Domingo Pueblo attempted to divest itself of ownership of the

Indian school property by quitclaiming its interest in the property to the other 18 Pueblos. The

BIA never approved of this action to divest of title but this action muddied the title to the land

and raised further questions about the validity of the lease held by the AIPC which was

assigned to Indian Pueblo Cultural Center, Inc.

8. In order to clarify the legal status of the Cultural Center land, the lease by the

Pueblos to AIPC and the assignment of that lease, in 1976 the AIPC requested, by formal

resolution, that the Indian Pueblo Cultural Center site be taken in trust by the United States for

the 19 Pueblos.

9. By Act of February 17, 1978, Congress passed Public Law 95-232, 92 Stat. 30,

which authorized the Secretary of the Interior to accept the reconveyance of the Cultural Center

land on behalf of the United States, to be held in trust jointly for the Indian Pueblos.

10. As originally proposed in the Senate, S. 1509, which would become P.L. 95-232,

had provided that "Upon approval by the Secretary of the Interior, the Secretary shall accept
such conveyances on behalf of the United States and such land shall be held in trust jointly for

such Indian Pueblos." The Senate Select Committee on Indian Affairs amended this language

to read, "Upon approval by the Secretary of the Interior, the Secretary shall accept such

conveyances on behalf of the United States. Such land shall be held in trust jointly for such

Indian pueblos and shall enjoy the tax-exempt status of other trust lands, including exemption

from State taxation and regulation. However, such property shall not be "Indian country" as

defined in section 1151 of title 18, United States Code." This amended language became part

of subsection (b) of P.L. 95-232 as it was passed by Congress.

11. On July 10, 1996 the Taxpayer submitted a claim for refund to the Department,

requesting a refund of gross receipts tax in the amount of $2,189.27 for the period of July, 1995

through March, 1996. The basis for the claim for refund is the Taxpayer's claim that the

imposition of tax is barred by operation of federal law because the services are performed by a

member of Laguna Pueblo on land held in trust for the Laguna Pueblo and the other Indian

Pueblos of New Mexico and the services are performed for the Pueblos of Acoma, San Felipe

and Sandia on land held in trust for those Pueblos.

12. On July 22, 1996 the Department denied the Taxpayer's claim for refund.

13. On August 1, 1996, the Taxpayer filed a written protest to the Department's

denial of its claim for refund.

DISCUSSION

The issue presented for determination herein is whether the imposition of New Mexico's

gross receipts tax upon the receipts of the Taxpayer is preempted by operation of federal law.

There is no dispute about the relevant facts in this case. The Taxpayer is a sole proprietorship
owned by Mr. Bernard Velasquez, a member of the Pueblo of Laguna. The Taxpayer's receipts

were derived from performing investigatory services at the Taxpayer's offices which are located

at the Indian Pueblo Cultural Center1 which is on land held by the United States in trust for the

19 New Mexico Indian Pueblos. The Taxpayer performs the investigatory services for the

Pueblos of Acoma, San Felipe and Sandia.

Over the years, the Supreme Court has been called upon on numerous occasions to

address the limits of state authority to tax matters involving Indian tribes and their members.

The Court has termed this area of the law "vexing " and the legal problems encountered

"intricate".2 Anyone who has worked in this area of law would be hard pressed to disagree.

The Court has developed the Indian preemption doctrine to determine these disputes, and the

reach and application of that doctrine has been developed on a case by case basis over the years.

The first cases to apply the doctrine, Warren Trading Post Co. v. Arizona State Tax

Commission, 380 U.S. 685 (1965), and McClanahan v. Arizona Tax Commission, 411 U.S.

165 (1973) involved state taxes imposed on transactions or income derived on formally

designated reservation land, the Navajo Indian Reservation. In Warren Trading Post, the

Court ruled that state sales taxes imposed on a federally licensed Indian trader trading with

tribal members on the reservation were preempted. In McClanahan, the state tax on the

income of Indians derived from on reservation activities was held to be preempted.

1
The testimony established that the vast majority of the
Taxpayer's investigatory services are performed from its offices
at the Indian Pueblo Cultural Center, although a small amount of
services are performed off-site. Because, however, a taxpayer's
receipts are reported based upon its place of business, see, NMSA
1978, § 7-1-14, it is irrelevant that some services are performed
off-site.
2
See, opening comments by Justice White in, Washington v.
Confederated Tribes of Colville, 447 U.S. 134, 138 (1980).
Historically, however, the Indian preemption doctrine has had a distinct territorial aspect to it

and has been held inapplicable with respect to the taxation of activities involving Indians off-

reservation. See, Mescalero Apache Tribe v. Jones, 411 U.S. 141 (1973) in which the Court

held that the state could impose its tax on an Indian tribe with respect to its business activities

occurring off the reservation. More recent cases have applied the Indian preemption doctrine to

state taxation of activities occurring on land which is not reservation land, but is "Indian

country", Oklahoma Tax Commission v. Sac and Fox Nation, 113 S.Ct. 1985 (1993), or land

held in trust which was also "Indian country", Oklahoma Tax Commission v. Citizen Band

Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505 (1991). This case presents a question

concerning the scope of the Indian preemption doctrine which has not been heretofore

addressed, whether the state tax is preempted with respect to transactions occurring between a

Pueblo Indian and the governments of other Pueblos on lands held in trust for the 19 New

Mexico Pueblos but which lands are not "Indian country".

The Indian preemption doctrine also has two distinct branches which have developed

with respect to state jurisdiction to impose taxes. Where the legal incidence of a state tax falls

upon a non-Indian for transactions occurring on Indian reservations or in "Indian Country" with

tribes or tribal members, the courts have attempted to balance the relative federal, state and

tribal interests in determining whether the exercise of state authority to tax is preempted by

federal law. White Mountain Apache Tribe. v. Bracker 448 U.S. 136 (1980). However, where

the legal incidence of a tax falls upon an Indian tribe or tribal members for activities occurring

on a reservation or in "Indian country", the court has employed a more categorical approach,

presuming preemption of the state tax in the absence of an express federal authorization for the

tax. Oklahoma Tax Commission v. Chickasaw Nation, 515 U.S. ___, 115 S.Ct. 2214 (1995).
In this case, both the Taxpayer and the Department agree that since the legal incidence

of New Mexico's tax falls upon a tribal member for activities performed on Indian lands, the

categorical preemption test would apply if preemption applies to this case at all. Where the

parties differ, however, is with whether the legal status of the Indian Pueblo Cultural Center

land operates to remove this case from the application of the Indian preemption doctrine. The

Taxpayer's position is that for purposes of the Indian preemption doctrine, the trust status alone

of the Indian Pueblo Cultural Center land, which is held in trust for the Pueblos by the United

States, is sufficient to invoke the strict federal preemption test for activities occurring on Indian

lands which precludes state regulation in the absence of explicit federal permission. Under this

scenario, the tax would be preempted under either of two theories. First, the Taxpayer's status

as a sole proprietorship owned by a member of the Laguna Pueblo would invoke federal

preemption under McClanahan,supra., because the state would be preempted from taxing the

activities of a member of the Laguna Pueblo for activities on Laguna Pueblo land.

Alternatively, the federal Indian Trader statutes have been ruled to preempt state taxation of

goods sold to tribal entities or members on their reservations, Warren Trading Post, supra., or

of services sold to tribal entities or members on their reservations. New Mexico Taxation and

Revenue Department v. Laguna Industries, Inc., 115 N.M. 553, 855 P.2d 127 (1993). Thus,

the state tax on services performed for the Pueblos of Acoma, San Felipe and Sandia on their

lands would be exempt from tax.

In contrast to the Taxpayer, the Department argues that the trust status of the Cultural

Center land, by itself, it not sufficient to invoke the Indian preemption doctrine, and that unless

such land can also be characterized as "Indian country", the Indian preemption doctrine would

not apply and the state's tax would apply to the Taxpayer's activities.
This case presents a unique situation which no other case in this difficult area of

competing state, tribal and federal authority has addressed. This is because of the apparently

singular language contained in P.L. 95-232 concerning the status of the Indian Pueblo Cultural

Center land.

P.L. 95-232 was enacted in early 1978. Prior to its enactment, the 19 Pueblos held title,

as tenants in common, to the Indian Pueblo Cultural Center property under a quitclaim deed

executed in 1969 by the BIA. Various questions had arisen about the legal status of the land

and the validity of the lease of the property by the 19 Pueblos to the AIPC. The BIA had never

approved the lease and Santo Domingo Pueblo had attempted to quitclaim its interest in the

property to the other Pueblos. In order to clarify the legal status of the land, the AIPC had

passed a resolution in 1976 requesting that the United States take back the title to the property

to be held in trust for the 19 Pueblos. The stated purpose of P.L. 95-232 was:

To provide for the return to the United States of title to certain lands
conveyed to certain Indian pueblos of New Mexico and for such land to
be held in trust by the United States for such tribes.

During the process of Congressional hearings of the bill (S.1509) which became P.L. 95-232,

the Senate Select Committee on Indian Affairs amended the bill. As originally proposed the
bill had provided that:

Upon approval by the Secretary of the Interior, the Secretary shall accept
such conveyances on behalf of the United States and such land shall be
held in trust jointly for such Indian Pueblos.

The committee amended this language to read:

Upon approval by the Secretary of the Interior, the Secretary shall accept

such conveyances on behalf of the United States. Such land shall be held

in trust jointly for such Indian pueblos and shall enjoy the tax-exempt
status of other trust lands, including exemption from state taxation and

regulation. However, such property shall not be "Indian country" as

defined in section 1151 of title 18, United States Code. (emphasis added).

This amended language became part of subsection (b) of P.L. 95-232 as it was passed by

Congress.

The unique status of the Indian Pueblo Cultural Center property, as trust property, but

which is expressly not "Indian country" provides the factual predicate upon which the

determination of state jurisdiction to tax is focused in this case.

As noted above, the Taxpayer's argument rests on the premise that the trust status of the

Cultural Center property, which sets the land apart for the use of the Pueblos under the Federal

government's superintendence is sufficient to invoke the application of the Indian preemption

doctrine, regardless of the fact that the land is not "Indian country". The Taxpayer relies upon

language drawn from Oklahoma Tax Commission v. Citizen Band Potawatomi Indian Tribe

of Oklahoma, supra., for its position. At issue in that case was whether Oklahoma could tax

the sale of goods (cigarettes) sold by a convenience store owned and operated by the

Potawatomi Tribe which store was located on land held in trust for the Potawatomi Tribe. The

Oklahoma Tax Commission had argued, in reliance on Mescalero Apache Tribe v. Jones,

supra., that tribal immunity from tax should not apply in the case because the sales did not

occur on a reservation. The Taxpayer points to the language in the Potawatomi decision in

which the Court rejected Oklahoma's attempt to limit the application of the tribe's sovereign

immunity from tax to transactions occurring on reservation land and to deny its applicability to

transactions occurring on land which is simply trust land. In rejecting Oklahoma's argument the

Court stated, "Rather, we ask whether the area has been 'validly set apart for the use of the

Indians as such, under the superintendence of the Government.'" Id., 498 U.S. at 511.
At first blush, this language would appear to determine the Taxpayer's protest herein,

since there is no dispute that the Cultural Center property is trust land which has been set apart

for the use of the Pueblo Indians under the government's superintendence. However, a more

careful reading of the Potawatomi case, including the precedents from which the quoted

language was drawn, as well as succeeding decisions of the Supreme Court belies the broad

reading given to the Potawatomi decision by the Taxpayer.

First, we begin with a full reading of the portion of the Court's decision in Potawatomi

from which the above-quoted language was drawn:

Relying upon our decision in Mescalero Apache Tribe v. Jones, 411
U.S. 145 (1973), Oklahoma argues that the tribal convenience store
should be held subject to State tax laws because it does not operate on a
formally designated "reservation," but on land held in trust for the
Potawatomis. Neither Mescalero nor any other precedent of this Court
has ever drawn the distinction between tribal trust land and reservations
that Oklahoma urges. In United States v. John, 437 U.S. 634 (1978), we
stated that the test for determining whether land is Indian country does
not turn upon whether that land is denominated "trust land" or
"reservation." Rather, we ask whether the area has been "validly set
apart for the use of the Indians as such, under the superintendence of the
Government." Id., at 648-649, see also, United States v. McGowan, 302
U.S. 535, 539 (1938). (emphasis added).

Id., 498 U.S. at 511. As the full text of this quotation reveals, the Court was, in fact, applying

the rule which has been long established in determining whether land is or is not "Indian
country" as defined in 18 U.S.C. §1151. This is confirmed by a review of the cases cited,

United States v. John, United States v. McGowan, and of United States v. Pelican, 232 U.S.
442, 449 (1914) the first case in which this rule for determining if land was "Indian country"

was adopted by the Court. Each of those cases dealt specifically with determinations of
whether crimes or acts invoking federal forfeiture provisions had been committed in "Indian

country".

Should there remain any doubt that in Potawatomi the Court was relying upon the

"Indian country" status of the land at issue in determining that the state tax was preempted, one

need only consult the opinion of the 10th Circuit Court of Appeals in that same matter. In

Citizen Band Potawatomi Indian Tribe of Oklahoma v. Oklahoma Tax Commission, 888

F.2d 1303 (10th Cir. 1989), the court specifically determined that the convenience store whose

sales Oklahoma was attempting to tax was located in Indian country. Id. at 1306. It was this

determination which the Supreme Court was affirming in the language upon which the

Taxpayer relies.

To read Potawatomi more broadly, as the Taxpayer suggests would also contravene

numerous precedents and the commonly understood principle in the area of Indian law that the

term "Indian country" is the crucial jurisdictional term which generally determines the

allocation of tribal, federal and state authority. As noted by the 10th Circuit in Indian Country

U.S.A. v. Oklahoma Tax Commission, 829 F. 2d 967 (10th Cir. 1987):

Although section 1151 by its terms defines Indian country for purposes
of determining federal criminal jurisdiction, the classification generally
applies to questions of both civil and criminal jurisdiction. See Cabazon
[California v. Cabazon Band of Mission Indians] 107 S.Ct at 1087 n. 5.
Numerous cases confirm the principle that the Indian country
classification is the benchmark for approaching the allocation of federal,
tribal and state authority with respect to Indians and Indian lands. See,
e.g., id.; Solem v. Bartlett, 465 U.S. 463, 465 n.2, 104 S.Ct. 1161, 1163
n. 2, 79 L.Ed.2d 442 (1984); DeCoteau v. District County Court, 420
U.S. 425, 427-428 & n.2, 95 S.Ct. 1082, 1084 & n.2, 43 L.Ed.2d 300
(1975); Kennerly v. District Court, 400 U.S. 423 (1971); Cheyenne-
Arapaho Tribes of Oklahoma v. Oklahoma, 618 F. 2d 665 (10th Cir.
1980); see also Cohen's Handbook of Federal Indian Law 27-46 (R.
Strickland ed. 1982) [hereinafter Cohen's Handbook]("Indian country"
usually the governing legal term for jurisdictional purposes); F. Cohen,
Handbook of Federal Indian Law 5-8 (1942)("Indian country generally
determines allocation of tribal, federal and state authority").

Id. at 973.

It is also clear from Supreme Court cases determined subsequent to Potawatomi that

the Court has not abandoned the concept that one must look to whether the activity sought to be

taxed occurs in Indian country in determining whether state authority to tax is preempted. In

Oklahoma Tax Commission v. Sac and Fox Nation, 508 U.S. ___, 113 S.Ct. 1985 (1993) the

Court struck Oklahoma's attempt to impose its income tax and motor vehicle taxes on members

of the Sac and Fox Tribe. Oklahoma had argued that since the Sac and Fox reservation had

been disestablished in favor of allotments of trust land for individual tribal members, that it

could impose its taxes because the tribal members resided off-reservation. In rejecting

Oklahoma's arguments the Court reiterated that Indian country is the concept which applies to

determine those lands over which tribes maintain sovereignty and the Indian preemption

doctrine applies.

But our cases make clear that a tribal member need not live on a formal
reservation to be outside the state's taxing jurisdiction; it is enough that
the member live in "Indian country." Congress has defined Indian
country broadly to include formal and informal reservations, dependent
Indian communities and Indian allotments, whether restricted or held in
trust by the United states. See 18 U.S.C. § 1151.

Id. 113 S.Ct. at 1191. The Court went on to note that it had rejected the identical argument

made by the same litigant, the Oklahoma Tax Commission, only two years prior in the

Potawatomi case. In discussing its decision in Potawatomi, the Court stated:

We noted that we have never drawn the distinction Oklahoma urged.
Instead, we ask only whether the land is Indian country. (emphasis
added).
Id.
Even more recently, the Court reaffirmed the significance of the determination of

whether the taxable event occurs inside of or outside of Indian country in Oklahoma Tax

Commission v. Chickasaw Nation, 515 U.S. ___, 115 S.Ct. 2214 (1995). In that case the

Court struck down Oklahoma's tax on motor vehicle fuel sold by the Tribe in Indian country,

stating:

We hold that Oklahoma may not apply its motor fuels tax, as currently

designed, to fuel sold by the Tribe in Indian country. In so holding, we

adhere to settled law. When Congress does not instruct otherwise, a

state's excise tax is unenforceable if its legal incidence falls on a Tribe or

its members for sales made within Indian country. (emphasis added).

Id., 115 S.Ct. at 2217.

Oklahoma had also sought to tax the income of Chicasaw tribal members who reside in-

state but outside of Indian country. Some of those tribal members also derived their income

from tribal employment. The Chicasaw Tribe had argued that especially with respect to those

tribal members whose income was also derived from work for the Tribe on tribal lands, that the

state was barred from imposing its income tax. The Court, however, rejected the Tribe's

argument, stating:

For the exception the tribe would carve out of the State's taxing
authority, the tribe gains no support from the rule that Indians and Indian
tribe are generally immune from state taxation, McClanahan v. Arizona
State Tax Comm'n, 411 U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129
(1973), as this principle does not operate outside Indian country.
Oklahoma Tax Comm'n v. Sac and Fox Nation, 508 U.S. ___, 113
S.Ct. 1985, 1990-1992, 124 L.Ed. 2d 30 (1993). (emphasis added).
It is thus clear that there remains a distinct territorial limitation on the applicability of the Indian

preemption doctrine. The operative concept for whether a state's ability to tax is preempted is

whether the legal incidence of the tax falls on a tribe or a tribal member for activities occurring

within "Indian country". Given the fact that the Indian Pueblo Cultural Center property at issue

herein was expressly declared by Congress to not be Indian country, there is no preemption of

New Mexico's gross receipts tax.

The Taxpayer argues against the application of this established law, arguing that by

making the Cultural Center property trust land, but not Indian country, that Congress has

created an ambiguity as to the state's jurisdiction over the activities at the property. It then

invokes the well established canon of construction applicable to treaties and congressional

enactments dealing with Indians that ambiguities must be construed in favor of protecting the

interests of the Indians. In support of this argument, the Taxpayer posits that the concept of

Indian country as the crucial jurisdictional term defining the jurisdiction of states with regard to

Indians was an evolving concept which had not been clearly established to apply beyond

criminal jurisdiction into areas of civil jurisdiction at the time that P.L. 95-232 was enacted in

1978.

In 1975, however, the Supreme Court spoke to this precise issue in DeCoteau v. District

County Court for the Tenth Judicial District, 420 U.S. 423 (1975). The issue in that case was

whether the South Dakota state courts had civil and criminal jurisdiction over the conduct of

members of the Sisseton-Wahpeton Indian Tribe for activities occurring on unallotted lands

which were within the original boundaries of the Lake Traverse Indian Reservation. The

specific issue the Court examined was whether the lands in question were part of a continuing

reservation, bringing the lands within one of the definitions of "Indian country" in 18 U.S.C.

§1151(a). Because the Court concluded that the reservation had been terminated by an 1891
Act of Congress, it ruled that the state courts had both criminal and civil jurisdiction. As

framed by the Court, the issue was stated as follows:

The parties agree that the state courts did not have jurisdiction if these
lands are "Indian country," as defined in 18 U.S.C. § 1151, and that this
question depends upon whether the lands retained reservation status after
1891.

Id. at 427. The Court expanded upon this statement in footnote 2, explaining:

If the lands in question are within a continuing "reservation," jurisdiction
is in the tribe and the Federal Government "notwithstanding the issuance
of any patent, [such jurisdiction] including rights-of-way running through
the reservation." 18 U.S.C. § 1151(a). On the other hand, if the lands
are not within a continuing reservation, jurisdiction is in the State, except
for those land parcels which are "Indian allotments, the Indian titles to
which have not been extinguished, including rights-of-way running
through the same." 18 U.S.C. § 1151(c). Even within "Indian country,"
a State may have jurisdiction over some persons or types of conduct, but
this jurisdiction is quite limited. See, e.g., McClanahan v. Arizona State
Tax Comm'n, 411 U.S. 164; Williams v. Lee, 358 U.S. 217; Worcester
v. Georgia, 31 U.S. 515. While § 1151 is concerned, on its face, only
with criminal jurisdiction, the Court has recognized that it generally
applies as well to questions of civil jurisdiction. McClanahan v.
Arizona State Tax Comm'm, supra, 411 U.S., at 177-178, n. 17;
Kennerly v. District Court of Montana, 400 U.S. 423, 424, n. 1;
Williams v. Lee, supra. 358 U.S., at 220-222, nn. 7,6, and 10. (emphasis
added).

Lest there be any doubt that Congress was quite aware, in enacting P.L. 95-232, that by

declaring the land to not be Indian country it was clarifying state jurisdiction over the property,

one need only consult the sketchy, but still revealing legislative history in the form of the

Congressional reports on the legislation.

As originally introduced, S. 1509, which, as amended became P.L. 95-232, had simply

provided that:
Upon approval by the Secretary of the Interior, the Secretary shall accept
such conveyances on behalf of the United States and such land shall be
held in trust jointly for such Indian Pueblos.

Senator Domenici, co-sponsor of the bill, was aware, even upon the introduction of the bill,
that transferring the property to trust status raised questions of state, tribal and federal

jurisdiction, however, for he stated that:

I do not contend that my bill has solved all the problems that will be

associated with the conversion of this land to a Federal trust status. For

example, the issue of law enforcement jurisdiction over this land must be

addressed. I am confident that the hearings on my bill will focus on this

and similar problems and find the best solutions thereto. (emphasis

added).

123 Cong. Rec. 14,698 (May 13, 1977).

Indeed, the committee hearings apparently did focus on these problems. Senate Report

No. 95-445 reflects that hearings on S. 1509 were held before the Senate Select Committee on

Indian Affairs on August 4, 1977. Page 2 of that report indicates that:

The administration testified before the committee in support of the
legislation and stated that in their opinion the conveyances would not
raise questions of Federal, tribal, and state jurisdiction. As trust lands
they are exempt from state taxation, but otherwise subject to state police
and judicial authority.

Apparently, the Committee was not confident in this statement that the placing the lands

in trust status would only affect the state's ability to tax and regulate the land itself and
otherwise leave intact state authority, for it felt the need to amend the bill. It was in this

committee that the language specifically declaring that the lands, as trust lands, "shall enjoy the
tax exempt status of other trust lands, including exemption from state taxation and regulation",

but that the property "shall not be `Indian country'" was added to the bill. The bill went on to
pass the Senate in its amended form and on January 23, 1978 it was considered and passed by

the Committee of the Whole House (of Representatives) and passed. House Report No. 95-846
which accompanied the bill when considered by the House of Representatives provided this

explanation with respect to the issues of state, tribal and federal jurisdiction:

Since the lands are to be held in trust jointly for the Indian pueblos, it
will be tax exempt as other Indian trust lands are tax exempt. However,
for criminal and civil jurisdiction purposes, the lands are not to be
considered as "Indian country" as defined in section 1151 of title 18,
United States Code. (emphasis added).

Thus, it is clear that enacting P.L. 95-232, Congress was well aware that the concept of

"Indian country" had implications for civil jurisdiction as well as for criminal jurisdiction. We

need not consult legal presumptions and canons of construction when it is clear from the record

that Congress was well aware of the fact that in enacting P.L. 95-232 it was exempting the land

in question from state taxation but it was not otherwise ousting state jurisdiction.

As the Congressional hearing reports concerning P.L. 95-232 reveal, Congress was

aware in passing this law that the land in question was located on eleven-plus acres within the

city of Albuquerque, New Mexico. It was also aware that the land had been the former site of

the federally owned Albuquerque Indian School which had been administered by the Bureau of

Indian Affairs. It was also aware that the land had, less than nine years before, been deeded in

fee to the 19 Pueblos. It was thus aware that this land was not former reservation land or land

over which Indians had traditionally exercised jurisdiction. Congress understood, as evidenced

by the explicit language in the bill, that it was exempting the land itself from state taxation. It

was also aware, however, that by declaring it to not be "Indian country", it was not ousting state

jurisdiction over this property. What is apparent from all of this is that we have a very unique
situation. We have land located within the heart of a large, metropolitan city which was not

traditional tribal property and which Congress, in taking the title in trust, wished to remain
subject to the same state jurisdiction as the remaining city around it. It chose not to create an
island of uncertain jurisdiction which would only create uncertainties in the future. Instead, it

granted tax exempt status to the land itself and left state civil and criminal jurisdiction intact.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to the Department's denial of its

claim for refund, and jurisdiction lies over both the parties and the subject matter of this protest.

2. The land on which the Indian Pueblo Cultural Center is located is owned in trust

for the 19 New Mexico Indian Pueblos by the Federal government.

3. As trust land, the Indian Pueblo Cultural Center property itself is exempt from

state taxation.

4. The trust status of the Indian Pueblo Cultural Center property, by itself, is not

sufficient to oust state civil jurisdiction over activities that occur on the property. It must be

determined whether the property qualifies as Indian country.

5. The operative concept for whether a state's ability to tax is preempted when the

legal incidence of a state tax falls on an Indian tribe or a tribal member for activities occurring

on Indian land is whether or not the land status qualifies as "Indian country" as defined in 18

U.S.C. § 1151.

6. The Indian Pueblo Cultural Center property is not "Indian country" as defined in

18 U.S.C. § 1151.

7. New Mexico is not preempted from imposing its gross receipts tax upon Val

Tech, Inc. for its activities performed at the Indian Pueblo Cultural Center for the Pueblos of

Acoma, San Felipe or Sandia.

For the foregoing reasons, the Taxpayer's protest IS HEREBY DENIED.
DONE, this 7th day of July, 1997.