oregon state taxes and their effects on tribes and … m...income tax, the department collects debts...

Tom S. Stinnette of Oregon Department of Revenue Speaker 6b: 1

Law Seminars International | Tax Management for Tribes | 02/21/08 in Seattle, WA

Oregon State Taxes and their Effects on Tribes and Tribal Members Oregon Department of Revenue February



Tribe Enrollment Reservation & Land in Trust Acreage Total County Acres

Burns Paiute 343 13,736 Harney 13,736

Confederated Tribes of Grand Ronde 4,956 11,040 Yamhill Polk 10,800

240

Confederated Tribes of Siletz 4,242 4,204 Lincoln 4,204

Confederated Tribes of Umatilla 2,530 172,882 Umatilla Union 171.882

1,000

Confederated Tribes of Warm Springs 4,400 644,000 Clackamas JeffersonLinn MarionWasco

12,865 236,082 6 4,170 390,877

Coquille Indian Tribe 840 6,512 Coos 6,512

Cow Creek Band of Umpqua Indians 1,374 3,235.96 Douglas 3,235.96

Confederated Tribes of Coos, Lower Umpqua & Siuslaw

807 127.4 Coos 127.4

Klamath Tribes 3,592 390 Klamath 390

Ft. McDermitt (mostly in Nevada) N/A 18,269 Malheur 18,629



Oregon Department of Revenue Tribal Relations Policy

(Adopted under ORS 182.164) Policy Statement The State of Oregon recognizes the sovereign status of the nine federally recognized Indian tribal governments located in the State of Oregon. The Department of Revenue will work with representatives of the tribal sovereigns to clearly articulate Oregon tax policy, identify other areas of mutual interest, and ensure a “key contact” is identified and accessible to all parties. Tribal Key Contact A member of the department’s Management Team will serve as “tribal key contact” and be responsible for coordination with tribal governments. The key contact will work with department staff and designated tribal representatives to identify state policies and programs that affect tribal interests. The contact will coordinate with department managers to ensure employees recognize the importance of working with tribal representatives and respecting tribal sovereignty and rights. The department will strive to design solutions and develop programs that will achieve mutual goals. Programs Affected The department interacts with the tribal nations in a variety of areas affecting taxation. In personal income tax, the department collects debts owed by individual working for the tribes. This may include taking collection action, such as garnishment of employees’ wages. In the area of cigarette tax, we have negotiated cigarette tax agreements with most Oregon Tribes. While tribal members are exempt, the agreements help ensure that non-tribal members buying cigarettes on tribal land pay the cigarette tax. In two other major areas, the department and the tribes are coordinating on property tax and corporation tax issues. As we interact with the tribes, the department works to meet the mandates of ORS 182.165 (3): “A state agency shall make a reasonable effort to cooperate with tribes in the development and implementation of programs of the state agency that affect tribes, including the use of agreements authorized by ORS 190.110.” We also participate in the Economic Development cluster under the Government to Government umbrella. Communications and Positive Relations The Department of Revenue seeks to promote positive government-to-government relations with Oregon’s federally recognized tribes by: • Interacting with the tribes in a spirit of mutual respect; • Seeking to understand the varying tribal perspectives; • Facilitating communication, understanding, and appropriate dispute resolution with the tribes; • Working towards a shared vision in areas of mutual interest, through the Government to Government process. Notifying Employees of the Policy Upon adoption, the department will distribute this policy and the underlying statutes to employees who work with the tribes. We will also incorporate the policy into the department’s policy manual and post it on the department’s internal website for all employees.



316.777 Income derived from sources within federally recognized Indian country exempt from tax. (1) Any income derived from sources within the boundaries of federally recognized Indian country in Oregon by any enrolled member of a federally recognized American Indian tribe residing in federally recognized Indian country in Oregon at the time the income is earned is exempt from tax under this chapter. (2) An extract from the tribal rolls or other documentary proof of the taxpayer’s enrolled status and other additional proofs as may be required by the Department of Revenue, shall be attached to or accompany any return for any year for which exemption under subsection (1) of this section is claimed. The requirement of proof may be waived partially, conditionally or absolutely, as provided under ORS 315.063. [Formerly 316.049; 1985 c.317 §1; 1995 c.54 §17]

Exempt Income of Native Americans

(1) ORS 150-316.777 exempts from Oregon taxation certain income earned by an enrolled member of a federally recognized Indian tribe. To qualify under these provisions, at the time the income is earned the tribal member must reside in "Indian country" in Oregon, and the income must be derived from sources within Indian country in Oregon. A tribal member who resides outside of Indian country can not exclude income from Oregon tax under the provisions of ORS 316.777. The person is subject to the statutes and rules governing Oregon residents and nonresidents and is taxed accordingly.

(2) Definitions: For purposes of this rule:

(a) "Current reservation boundaries" means the boundaries in existence at the time of the transaction.

(b) "Indian country" means any federally recognized Indian reservation in Oregon or other land in Oregon that has been set aside for the residence of tribal Indians under federal protection, and includes:

(A) Any land within the current reservation boundaries of a federally recognized reservation regardless of ownership.

(B) Tribal- or member-owned land outside current reservation boundaries if held in trust for the benefit of the tribe or its members.



(C) Land that the federal government allotted to a tribal member that since the time of the allotment has been continuously either:

(i) Held in trust by the federal government for the benefit of an individual tribal member(s), i.e. a trust allotment; or

(ii) Owned by a tribal member(s) with continuing federal restrictions against sale of the land, i.e., a restricted allotment.

(3) Income derived from sources within Indian country includes:

(a) Wages earned for work performed in Indian country;

(b) Income from a business or real estate located in Indian country;

(c) Distributions, including earnings, from retirement plans, if the contributions to the plan were derived from or connected with services performed in Indian country;

(d) Unemployment compensation, if the benefits are received as a result of work performed in Indian country;

(e) Interest, dividends, capital gain from the sale of stock, and other income from intangibles regardless of the location of the bank accounts or other intangible assets.

(4) To be exempted from Oregon personal income tax withholding, a tribal member whose wages are exempt from Oregon tax must furnish the member's employer with an extract from the tribal rolls as proof of enrolled status. Any employer of a qualified exempt tribal member who has documentary proof under this rule must keep this proof as part of the employer's payroll records.

(5) The following examples illustrate the provisions of this rule:

Example 1: Margaret, an enrolled member of the Confederated Tribes of Warm Springs, lives and works on the reservation of the Confederated Tribes of the Umatilla Indian Reservation. Under ORS 316.777, her income is exempt from state income tax.

Example 2: Claire, an enrolled member of the Coquille Indian Tribe, resides on reservation land in Oregon and works as an accountant for the city of Coos Bay at City Hall. Claire's income is taxable by Oregon because she resides on, but does not work on, Indian country on Oregon.

Example 3: Charles, an enrolled member of the Confederated Tribes of the Umatilla Indian Reservation, resides on the reservation of the Confederated Tribes of the Umatilla Indians. For six months of each year, he works on a fishing trawler off the Alaska coast. During the remaining six months, he is employed as a forester by the Blue Mountain Timber Company. None of his work is performed in Indian country. Charles owns a Certificate of Deposit, (CD), at a bank in Portland, Oregon. Charles is taxed on the income he earns fishing in Alaska and on his wages from the timber company because none of that income is earned in Indian country. Charles is not taxed on the interest from the CD because that income is considered to be earned on the reservation on which he lives.



Example 4: Using the facts in Example 3, assume that Charles is retired and receives a pension from the lumber company. His pension income is subject to state tax because the contributions made to the plan were not related to services performed in Indian country.

Example 5: William, an enrolled member of the Navajo Nation, is a resident of the Navajo Nation reservation in Arizona. During the summer months, he temporarily lives and works on the reservation of the Burns Paiute Tribe in Oregon. Under ORS 316.777, Oregon will not tax any of William's wages earned on the reservation of the Burns Paiute Tribe because he lives and works in Indian country in Oregon and he is an enrolled member of a federally recognized Indian tribe.

Example 6: John, an enrolled member of the Confederated Tribes of the Grande Ronde, resides on land that he inherited from his father's estate. The land came into John's family through an allotment by the federal government to tribal members. The federal government holds the land in trust for the benefit of John. It is allotment land. As long as John lives on allotment land and works in Indian country, his income is exempt from Oregon tax.

Example 7: Ben, an enrolled member of the Confederated Tribes of the Grande Ronde, lives on land that a prior owner, who was also a tribal member, received from the federal government in an allotment. Ben owns the land, but the federal restrictions prohibit him from selling it. Those restrictions have been in place since the federal government allotted the land, but they will be lifted next month. The land is allotment land now, but it will not be after the restrictions are lifted. Once the federal restrictions are lifted, all of Ben's income is taxed by Oregon. The land is no longer Indian country and Ben may sell the land.

Stat. Auth.: ORS 305.100 Stats. Implemented: ORS 316.777 Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 6-1996, f. 12-23-96, cert. ef. 12-31-96; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04

Information for Native American Taxpayers

How to qualify: Are you an American Indian? If so, you may be able to subtract all or part of your personal income, if all three of the following requirements are met:



1. You are an enrolled member of a federally recognized American Indian

Tribe, and 2. Your income is earned in Indian Country, and 3. You live in federally recognized Indian Country. (See Below).

“Indian Country” is defined as any land within a current Federal Indian reservation boundary in Oregon and other lands in Oregon held in trust by the United States Government for a tribe.

Frequently Asked Questions Question: I am an enrolled member of a federally recognized American Indian tribe and live and work in Indian Country in Oregon. What type of income is exempt from Oregon personal income tax? Answer: 1. Wages earned for work performed in Indian Country in Oregon. 2. Income from a business or real estate located in Indian Country in Oregon. 3. Retirement income if the contributions to the plan were derived from or connected

with services performed in Indian Country. 4. Unemployment Compensation if the benefits are received as a result of work

performed in federally recognized Indian Country. 5. Interest, dividends, capital gains from the sale of stocks, and other intangibles,

regardless of where the bank accounts, brokerage firm, etc. are located. 6. Gambling winnings from Indian gaming centers (casinos). 7. Indian tribal disbursements from casino earnings, if the other requirements are met. Question: I receive a distribution from my tribe for casino revenues. Is this distribution taxable to Oregon? Answer: Under Oregon law, if you lived in Indian Country in Oregon at the time the distribution was received and you are an enrolled member of a federally recognized American Indian tribe, then the distribution is not taxable to Oregon.



Question: Do I need to file an Oregon personal income tax return? Answer: Yes. ORS 316.777 does not relieve you from your requirement to file an Oregon personal income tax return. Oregon law allows a subtraction for income earned or derived from sources within the boundaries of federally recognized Indian country in Oregon, by tribal members living within those boundaries. You must report your total income on both the federal and Oregon tax returns. On the Oregon return use the “Other subtraction” line to subtract all of your income that qualifies. Please write on the other subtraction line, “300.”. Question: What documentation do I need? Answer: You need to provide the following information or documentation with your Oregon tax return: A completed copy of the “Exempt Income Schedule For Enrolled Members of A Federally Recognized American Tribe” Form 150-101-049. Provide the following information on the form:

The physical address of where you worked and The physical address of where you lived and to The name of the tribe you are enrolled with and your membership number.

This form is available through the Department of Revenue’s WebPages, at www.oregon.gov/dor/tribal_info.shtml. Question: Do I need to have withholding taken out of my pay? Answer: No, if all requirements are met for the subtraction, you may claim exempt on the form W-4 for Oregon only.



Question: If one member of household is exempt is the whole household income exempt? Answer: No, only the income earned by the enrolled tribal member, if that person meets the other two requirements. Question: I live on the reservation in a very rural area. I receive all of my mail at a Post Office Box in town. Why can’t I use my mailing address? Answer: You may use your Post Office Box address on the return. However, to qualify for the subtraction you must have a physical address in Indian Country on the exempt income schedule. Question: I am a member of the Siletz Indian tribe, but I live and work on the Warm Springs Indian reservation. Are the wages I earn for my work at the casino taxable to Oregon? Answer: No. To claim the Oregon subtraction, the following three requirements must be met: 1. The income must be derived from sources within the boundaries of any federally

recognized Indian country in Oregon. 2. You must be an enrolled member of a federally recognized American Indian tribe. 3. You must reside in federally recognized Indian country in Oregon at the time the

income is earned.



DECISION TC-MD 040844D 1



IN THE OREGON TAX COURT MAGISTRATE DIVISION

Income Tax ALLEN FOREMAN

and TERESA FOREMAN, Plaintiffs,

v. DEPARTMENT OF REVENUE,

State of Oregon, Defendant.

TC-MD 040844D

DECISION Plaintiffs appeal Defendant’s Notices of Assessment for tax years 2001and 2002. This matter is before the court on the parties’ cross-motions for summary judgment. Oral argument was held on Tuesday, March 8, 2005, in the courtroom of the Oregon Tax Court, Salem, Oregon. I. STATEMENT OF FACTS There is no material dispute of fact and the parties stipulated to the following: Plaintiffs, husband and wife, live in Klamath County. (Stip Facts at 1.) Plaintiff, Allen Foreman (Foreman), is an enrolled member of the Klamath Indian Tribe, a federally recognized American Indian tribe. (Stip Facts at 1 and 2.) Plaintiffs live on property (Property) that prior to December 11, 1958, was federally recognized Indian country in Oregon. (Stip Facts at 13.) The original owner of the Property, an enrolled member of the Klamath Indian Tribe, was granted a trust allotment from the United States on March 15, 1939. (Stip Facts 8 and 9.) In 1958, the United States removed all federal restrictions and trust status from the Property, granting the owner “fee status” title to the Property. (Stip Facts at 11.) On January 21, 1998, the Property was deeded to Plaintiffs, passing the “fee status” title of the Property to Plaintiffs. (Stip Facts at 12.) Foreman “derived all of his income in tax years 2001 and 2002 from sources within the boundaries of federally recognized Indian country in Oregon.” (Stip Facts at 3.) Plaintiffs allege that, “all of the income of plaintiff Allen Foreman is exempt from state income tax under ORS 316.777 for tax years 2001 and 2002.” (Stip Facts at 4.) Defendant disagrees, stating that because Plaintiffs “do not reside in Indian country, plaintiff Allen Foreman’s income is not exempt under state or federal law.” (Def’s Mem of Law in Supp of Def’s Cross-Mot for Summ J and Resp to Ptf’s (sic) Mot for Summ J at 26.) II. ANALYSIS Generally, the state of Oregon can tax the income of its residents. One relevant exception applicable to the facts of this case is ORS 316.777(1)1 which provides that: All references to the Oregon Revised Statutes ( 1 ORS) are to year 1999 with no subsequent change to the statute applicable to tax year 2002. “Any income derived from sources within the boundaries of federally recognized Indian country in Oregon by any enrolled member of a federally recognized American Indian tribe residing in federally recognized Indian country in Oregon at the time the income is earned is exempt from tax under this chapter.” There is no dispute that Foreman, who is an “enrolled member of a federally recognized



American Indian tribe,” the Klamath Indian Tribe, derived income “from sources within the boundaries of federally recognized Indian country in Oregon.” Id. The parties’ sole dispute is whether Foreman resided “in federally recognized Indian country in Oregon at the time” he earned the income. Id. The starting point in the court’s analysis is the definition of “federally recognized Indian country in Oregon.” Id. This court has previously concluded applicable definitions are found in 18 USC section 1151 (1994),2 and Oregon Administrative Rule (OAR) 150-316.777(2).3 Spang v. Dept. of Rev., 16 OTR-MD 166, 168 (1999). In Spang, the court summarized the definition of Indian country found in the federal statute into three categories: (1) reservation land; (2) dependent Indian communities; and (3) Indian allotments. Oregon’s administrative rule, OAR 150-316.777(2), generally defines Indian country as follows: “any federally recognized Indian reservation or other land that has been set aside for the residence of tribal Indians under federal protection.” Plaintiffs allege that they live in federally recognized Indian country in Oregon because they reside on reservation land and their Property is an Indian allotment. The court must determine if Plaintiffs’ Property is located within Indian country as defined in 18 USC section 1151. This court has previously stated that if the statute at issue is a federal statute, the courts “interpretation must be guided by the United States Supreme Court’s principles of statutory construction.” Butler v. Dept. of Rev., 14 OTR 195, 199 (1997) (citations omitted). The court summarized the process, stating that “the court’s function is to enforce the clear language of a statute according to its terms” and, “[i]n determining the meaning of the statute, the court considers the text and context of the statute.” Id. (citation omitted). The court cautioned that in discerning “the plain meaning of the whole statute,” the court should not focus on “isolated sentences.” Id. (citation omitted). Plaintiffs remind the court that “[i]t is a well grounded canon of construction when interpreting matters of Federal Indian Law that ‘statutes passed for the benefit of dependent Indian Tribes ... are to be liberally construed, doubtful expressions being resolved in favor of the Indians.’” (Ptfs (sic) Reply to Def’s Resp to Mot for Summ J and Ptf’s (sic) Resp to Def’s Cross-Mot for Summ J (Reply) at 2, citing Bryan v. Itasca County, 426 US 373, 392, 96 S Ct 2102 (1976)). Offering instruction similar to that of this court and Plaintiffs, the United States Supreme Court directs that when resolving “legal ambiguities” involving the Klamath Indian Tribe, the law is construed “to the benefit of the Indians”; however, the court “cannot ignore plain language” and the statutory language should be viewed “in historical context and given a ‘fair appraisal.’” Oregon Dept. of Fish and Wildlife v. Klamath Indian Tribe, 473 US 753, 774, 105 S Ct 3420, 87 L Ed 2d 542 (1985). The term “Indian country” is defined 2 in 18 USC section 1151 (1994) as: “(a) all land within the limits of any Indian reservation under the jurisdiction of the United States Government, notwithstanding the issuance of any patent, and, including right-of-way running through the reservation, (b) all dependent Indian communities within the borders of the United States whether within the original or subsequently acquired territory thereof, and whether within or without the limits of a state, and (c) all Indian allotments * * *.” 3 All references to the OAR are to year 2001 with no subsequent change to the OAR applicable to tax year 2002. A. History of the Klamath Indian Tribe In evaluating whether Plaintiffs reside in Indian country, the history of the Klamath Indian Tribe is relevant. In brief, “[i]n the early 19th century, the Klamath and Modoc Tribes and the Yahooskin Band of Snake Indians claimed aboriginal title to



approximately 22 million acres of land extending east from the Cascade Mountains in southern Oregon. In 1864 these Tribes (now collectively known as the Klamath Indian Tribe) entered into a Treaty with the United States, ceding ‘all their right, title and claim to all the country claimed by them’ and providing that a described tract of approximately 1.9 million acres ‘within the country ceded’ would be set apart for them, to be ‘held and regarded as an Indian reservation.’ 16 Stat. 707, 708.” Oregon Dept. of Fish and Wildlife, 473 US at 755. “Subsequently a dispute arose as to the reservation’s boundaries, and after lengthy negotiations concerning the value of land that had been erroneously excluded from the reservation, the Tribe and the Government executed a 1901 Cession Agreement (ratified by Congress) under which the Tribe, upon receiving payment [$537,007.20] from the Government, ceded * * * * * 621,824 acres of reservation land to the United States.” Id. at 753 and 755. “The reservation was thereby diminished to approximately two-thirds of its original size as described in the 1864 treaty.” Id. at 760. “Between 1901 and 1906, virtually all of the ceded land was closed to settlement entry and placed in national forests or parks * * * a status much of the land retains to this day.” Id. at 761 (citation omitted). “In 1954, Congress terminated federal supervision over the Klamath Tribe and its property including the Klamath Reservation. Pub.L. 587, 68 Stat. 718-723, as amended, 25 U.S.C. §§ 564-564x. The Termination Act required members of the Tribe to elect either to withdraw from the Tribe and receive the monetary value of their interest in tribal property, or to remain in the Tribe and participate in a non-governmental tribal management plan. § 564d(a)(2).” Id. at 761. The purpose of the Termination Act was “to end federal supervision, remove from Indians their special status as Indians and make state laws applicable to them in the same manner as applicable to other citizens.” Klamath and Modoc Tribes v. Maison, 338 F2d 620 (9th Cir 1964). “The Termination Act also authorized the sale of that portion of the reservation necessary to provide funds for the compensation of withdrawing members, and the transfer of the unsold portion to a private trustee. § 564e(a).” Oregon Dept. of Fish and Wildlife, 473 US at 761-62. Much of the land commonly referred to as the Klamath Indian Tribe Reservation was transferred with a fee simple title. 25 USC § 564g(b) (1954). The Klamath Indian Tribe’s status as a recognized Indian Tribe was federally restored by the Klamath Indian Tribe Restoration Act (Restoration Act) of August 27, 1986. 25 USC § 566 (1986). The Restoration Act provided that “[n]otwithstanding any other provision of law, the tribe and its members shall be eligible, on and after August 27, 1986, for all Federal services and benefits furnished to federally recognized Indian tribes or their members without regard to the existence of a reservation for the tribe.” Id. at § 566(c) (emphasis added). As a consequence of the Termination Act, the Klamath Indian Tribe relinquished 4 over 20 million acres of land. Currently, 390 acres of reservation and land are set aside for the Klamath Indian Tribe. See 2003-05 Oregon Directory of American Indian Resource, compiled and edited by Gladine G. Ritter, Commission Assistant, Legislative Commission on Indian Services. Further, the Restoration Act stated that “[a]ny member residing in Klamath County shall continue to be eligible to receive any such Federal service notwithstanding the establishment of a reservation for the tribe in the future.” Id. (emphasis added). B. Is Plaintiffs’ Property within the limits of the Klamath Indian Tribe Reservation? Plaintiffs allege their Property held in fee simple title “is Indian country because it is located within the existing Klamath reservation boundary” as it existed prior to the enactment of the Termination Act. (Ptfs’ Reply at 4.) Plaintiffs acquired the fee simple title to their Property as a consequence of the Termination Act. In order to agree with



Plaintiffs that their Property is Indian country, the court would need to conclude that the clear language of the statute “Indian reservation” has the same plain meaning as “reservation boundary.” As Plaintiffs allege, the Klamath Indian Tribe reservation boundary set out in the late 1800s exists today. However, the Klamath Indian Tribe Reservation is substantially reduced in size.4 The Termination Act “terminated federal supervision over trust and restricted property of the Klamath Indians, disposed of federally owned property, and terminated * * * the continuing existence of the Klamath Tribe.” Kimball v. Callahan, 590 F2d 768, 775-76 (1979). See also The Klamath Tribes v. United States of America, 1996 WL 924509 at 2 and 3 (D.Or., Oct 2, 1996) (stating that the “Tribes lost ownership of the reservation land” and that the “former Klamath Reservation is now predominately part of the Winema and Fremont National Forests.”). The Restoration Act restored federal recognition of the tribal status of the Klamath Indian Tribe. However, it did not restore the majority of reservation lands of the Klamath Indian Tribe that were previously terminated. To the contrary, the Restoration Act specifically stated that “[n]othing in this subchapter shall alter any property right or obligation * * *.” 25 USC § 566(d). The Restoration Act specifically states that the restoration of federal recognition is not contingent on “the existence of a reservation for the tribe.” 25 USC § 566(c). Further, the Restoration Act states that should a reservation be established for the Klamath Indian Tribe in the future, the members of the Klamath Indian Tribe residing in Klamath County shall “continue to be eligible to receive” federal services. Id. For the Klamath Indian Tribe, Congress chose to restore the federal services and benefits without restoring or adding to the reservation lands. In contrast, when the Confederated Tribes’ status as a recognized Indian tribe was federally restored by the Confederated Tribes of Coos, Lower Umpqua & Siuslaw Indians Restoration Act of October 17, 1984, the Secretary of the United States Department of the Interior was directed “to accept specifically identified parcels of land into trust for the benefit of the tribe.” Confederated Tribes of Coos, Lower Umpqua & Suislaw Indians v. Babbitt, 116 F Supp 2d 155, 159 (2000). In passing that Restoration Act, Congress added “new lands which were not previously considered part of the Confederated Tribes’ reservation.” Id. at 160. Congress set forth a procedure in 25 USC § 465 to follow when acquiring lands for tribal communities which takes into account the interest of others with “stakes in the area’s governance and well being.” Sherrill v. Oneida Indian Nation of New York, 125 S Ct 1478, 1493 (2005). The regulations implementing § 465 “authorize the Secretary of the Interior to acquire land in trust for Indians and provides that the land ‘shall be exempt from State and local taxation.’” Id. at 1494. Plaintiffs allege that “some parcels of land” have been placed “into trust on behalf of the Klamath Tribes.” (Ptfs’Aff of Jana DeGarmo at 2.) However, there is no evidence Plaintiffs’ Property was one of the parcels placed in trust for the Klamath Indian Tribe. In support of Plaintiffs’ position that their land is under the jurisdiction of the United States, Plaintiffs allege that the court holding in Klamath Tribes v. United States “shows that the land within the reservation boundaries is still set aside for the continued use of the Klamath Indians and that the Federal Government continues to exercise superintendence over it.” (Ptfs’ Reply at 6.) In defining federal superintendence, the parties disagree as to whether the federal supervision is required to the exclusion of the



state. That question was answered by the Ninth Circuit Court of Appeals in Kimball v Callahan, 493 F2d 564, 568 (C.A. Or 1974), concluding that federal and state supervision can co-exist with each designated jurisdiction. Specifically, Public Law 280 (18 USC § 1162), passed at the same time as the Termination Act and which became effective seven years before the Termination Act, “granted certain states jurisdiction ‘over offenses committed by or against Indians in the areas of Indian country’ named in the Act.” Id. In Oregon, the “area” was described as “[a]ll Indian country within the State except the Warm Springs Reservation.” Id. In a different case involving the Termination Act, the United States Supreme Court held that “Public Law 280 preserved treaty hunting and fishing rights even after termination.” Id. (citing Menominee Tribe of Indians v. United States, 391 US 404, 88 S Ct 1705 (1968)). The Ninth Circuit Court concluded that “Public Law 280 must therefore be considered in pari materia with the Termination Act. The two Acts read together mean to us that although federal supervision of the tribe was to cease and all tribal property was to be transferred to new hands, the hunting and fishing rights granted or preserved by the Wolf River Treaty of 1854 survived the Termination Act of 1954.” Id. (emphasis added). Plaintiffs would like this court to conclude that, because the hunting and fishing rights enjoyed by the Klamath Indian Tribe continue within the Klamath Indian Tribe reservation boundary, it follows that federal superintendence of those lands is evidence of an Indian reservation. Unfortunately, the court is unable to reach that conclusion. The United States Supreme Court and the Ninth Circuit Court held that, “Indians may enjoy special hunting and fishing rights that are independent of any ownership of land * * * and that, as demonstrated in 25 U.S.C. § 564m(b), the 1954 Termination Act for the Klamath Tribe, such rights may survive the termination of an Indian reservation.” Oregon Dept. of Fish and Wildlife, 473 US at 765-76. In sum, the court concludes that the existing Klamath reservation boundary is not Indian country within the meaning of 18 USC section 1151(a). Plaintiffs’ Property is not under the jurisdiction of the United States. Further, Plaintiffs’ Property is not located within the limits of the existing Klamath Indian Tribe reservation. C. Does Plaintiffs’ Property qualify as an Indian Allotment? Plaintiffs allege that “[b]ecause the Foreman Property has not passed out of Indian ownership, it maintains its character as an Indian allotment, hence Indian country, under 18 USC § 1151(c).” (Ptfs’ Reply at 11.) In Spang, this court recited the United States Supreme Court definition of allotment: “An allotment is a ‘parcel[ ] of land created out of a diminished Indian reservation and held in trust * * * for the benefit of individual Indians * * *.’ Alaska v. Native Village of Venetie Tribal Government et al., 522 US 520, 529, 118 S Ct 948, 140 L Ed 2d 30 (1998).” Spang at 169 n 3. Further, the court stated that an allotment is “a specific parcel held in trust for the benefit of a particular Indian or group of Indians.” Id. at 169 n 3. “An Indian allotment may be either a parcel held in trust by the federal government for the benefit of an Indian (a trust allotment) or a parcel owned by an Indian subject to a restriction on alienation in favor of the United States (a restricted allotment).” Yankton Sioux Tribe v. Gaffey, 188 F3d 1010, 1022 (1999) (citing United States v. Stands, 105 F3d 1565, 1571-72 (8 Cir 1997). “Under § 1151(c) both types o the f allotments are Indian country regardless of whether they are on or off an Indian reservation.” Id., citing Alaska v. Native Village of Venetie. The court acknowledges that Plaintiffs’ Property was held in trust until December 11,



1958. At that time, the Property owner was granted fee title. Plaintiffs allege that because the Property “has always been in Klamath tribal or Klamath Indian ownership, the Indian title to the property has never been extinguished and it remains Indian country * * *.” (Ptfs’ Mem of Law in Support of Mot for Summ J at 8.) The court does not dispute the Property’s chain of title. However, an allotment does not merely hinge on a chain of title. It is based on how the land is held, specifically “in trust for the benefit of a particular Indian or group of Indians.” Spang at 169 n 3. In this case, Plaintiffs own their land in fee title. Plaintiffs’ Property is not being “held in trust for the benefit” of anyone. Id. (emphasis added). Further, Plaintiffs’ Property is owned in fee simple, with no “restrictions on alienation in favor of the United States.” Yankton Sioux Tribe at 1022, holding that “lands that are owned in fee without such restrictions on alienation do not qualify as Indian country under § 1151(c); but they may be classified as Indian country under § 1151(a) if they are within the boundaries of an Indian reservation.” Plaintiffs’ Property is not an allotment under the statutory requirements of 25 USC section 1151(c). III. CONCLUSION After carefully reviewing the stipulated facts and analyzing the statutes in historical context with case law, the court finds that Plaintiffs do not live in Indian country because their Property is not within the Klamath Indian Tribe Reservation and is not a trust or restricted allotment. Now, therefore, IT IS THE DECISION OF THIS COURT that the income earned by Plaintiff, Allen Foreman, is not exempt from state taxation for tax years 2001 and 2002. Dated this _____ day of May 2005. ____________________________________ JILL A. TANNER O.R.S. 316.785 Income derived from exercise of Indian fishing rights. Income derived from the exercise of rights of any Indian tribe to fish secured by treaty, Executive order or Act of Congress is exempt from the tax imposed by this chapter if section 7873 of the Internal Revenue Code does not permit a like federal tax to be imposed on such income. [1989 c.625 §5]



Tax-exempt Income from Tribal Fishing-rights Activities (ORS 316.785) Income from a fishing-rights related activity is exempt from federal and state taxation if the income is derived by:

1. An enrolled member of a federally-recognized American Indian tribe (either directly or through a qualified Indian entity). or

2. A qualified Indian entity.

Wages are taxable if paid by an employer who is not:

• An enrolled member of the same tribe; or

• A qualified Indian entity.

Wages are also taxable if paid to an employee who is not an enrolled member of the tribe whose fishing rights are exercised. Tribal members must fish in their own waters to be exempt. Definitions: Fishing rights-related activity means an activity (including aquaculture), that is directly related to:

• Harvesting, processing, or transporting fish that were harvested in the exercise of recognized fishing rights of that tribe; or

• Selling fish, but only if substantially all of the harvesting was performed by members of that tribe.

To qualify as “fishing rights-related activity” the tribe’s recognized fishing right must have been secured as of March 17, 1988, by a treaty between the tribe and the United States; by an Executive Order; or by an Act of Congress. A “qualified Indian entity” must be 100 percent owned by a federally recognized Indian tribe or tribal members, and substantially all of its management functions must be performed by tribal members. It may be jointly owned by more than one tribe or members of more than one tribe. Processors and transporters – 90 percent rule. If the entity engages to any extent in any substantial processing or transporting of fish, then at least 90 percent of the annual gross receipts of the entity must be derived from the exercise of protected fishing rights of tribes whose members own at least 10 percent of the equity interests in the entity.



Employer’s duty. If you are an employer engaged in fishing rights-related activities, you may be required to:

• Verify your status as a qualified Indian entity.

• Verify your employee’s proof of tribal membership.

• Verify time allocated to fishing versus non-fishing activity.

• Maintain records to support each employee’s time allocation.

• Maintain records to support the 90 percent gross receipts rule. Employment tax form preparation

• Do not include exempt wages on Form 940, Form 941, Form W-2, or Oregon Form OQ.

• Wages paid for non-fishing activities are subject to all applicable employment taxes, including withholding, and employment tax reporting.

• If only exempt fishing-rights related income is paid to a tribal member, no Form W-2 is required.

Examples of categories of tribal employees whose wages may be exempt or partially exempt:

• Fishers, processors (including smoking), transporters

• Hatchery workers

• Environmental and conservation workers

• Enforcement staff and tribal court personnel

• Support staff, i.e. secretary, accounting, payroll

• Program director, executive director

• Fisheries biologist

• Fisheries aide

• Fishery and habitat policy analysts

• Water quality biologist

• Habitat inventory and assessment technician

• Legislative analyst

• Information and education services



References

Oliphant v. Suquamish Indian Tribe, 435 US 191 (1978) Warren Trading Post Co. v. Arizona State Tax Commission, 380 US 685 (1965) Williams v. Lee, 358 US 217 (1959) McClanahan v. Arizona Tax Commission, 411 US 164 (1973) Oklahoma Tax Commission v. Sac and Fox Nation, 508 US 114 (1993) Washington v. Confederated Tribes of Colville Indian Reservation, 447 US 134 (1980) Oklahoma Tax Commission v. Citizen Band of Potawatonic Indian Tribe, 498 US 505 (1991) Foreman v. Department of Revenue (TC-MD 0140844D) Spang v. Department of Revenue. Oregon Tax Court, Magistrate Division No. 982156 C, Nov. 4, 1999. Alaska v. Village of Venetie Tribal Government et al., 118 S Ct 948, 522 US 520 (1998) WWW.oregon.gov/dor/tribal_info.shtml

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