Oregon State Taxes and their Effects on Tribes and Tribal Members

Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 1
<strong>Oregon</strong> <strong>State</strong> <strong>Taxes</strong> <strong>and</strong> <strong>their</strong>
<strong>Effects</strong> on Tribes <strong>and</strong> Tribal
Members
<strong>Oregon</strong> Department of Revenue
February
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 2
Tribe Enrollment Reservation & L<strong>and</strong> in Trust Acreage
Total County
Burns Paiute 343 13,736 Harney 13,736
Confederated Tribes of Gr<strong>and</strong> Ronde 4,956 11,040
Yamhill Polk
Confederated Tribes of Siletz 4,242 4,204 Lincoln 4,204
Confederated Tribes of Umatilla 2,530 172,882
Umatilla Union
Confederated Tribes of Warm Springs 4,400 644,000 Clackamas
JeffersonLinn
MarionWasco
Acres
10,800
240
171.882
1,000
12,865
236,082
6 4,170
390,877
Coquille Indian Tribe 840 6,512 Coos 6,512
Cow Creek B<strong>and</strong> 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
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 3
<strong>Oregon</strong> Department of Revenue
Tribal Relations Policy
(Adopted under ORS 182.164)
Policy <strong>State</strong>ment
The <strong>State</strong> of <strong>Oregon</strong> recognizes the sovereign status of the nine federally recognized Indian tribal
governments located in the <strong>State</strong> of <strong>Oregon</strong>. The Department of Revenue will work with
representatives of the tribal sovereigns to clearly articulate <strong>Oregon</strong> tax policy, identify other areas of
mutual interest, <strong>and</strong> ensure a “key contact” is identified <strong>and</strong> accessible to all parties.
Tribal Key Contact
A member of the department’s Management Team will serve as “tribal key contact” <strong>and</strong> be
responsible for coordination with tribal governments. The key contact will work with department
staff <strong>and</strong> designated tribal representatives to identify state policies <strong>and</strong> programs that affect tribal
interests. The contact will coordinate with department managers to ensure employees recognize the
importance of working with tribal representatives <strong>and</strong> respecting tribal sovereignty <strong>and</strong> rights. The
department will strive to design solutions <strong>and</strong> 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 <strong>Oregon</strong> Tribes. While tribal members are
exempt, the agreements help ensure that non-tribal members buying cigarettes on tribal l<strong>and</strong> pay the
cigarette tax. In two other major areas, the department <strong>and</strong> the tribes are coordinating on property
tax <strong>and</strong> corporation tax issues.
As we interact with the tribes, the department works to meet the m<strong>and</strong>ates of ORS 182.165 (3): “A
state agency shall make a reasonable effort to cooperate with tribes in the development <strong>and</strong>
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 <strong>and</strong> Positive Relations
The Department of Revenue seeks to promote positive government-to-government relations with
<strong>Oregon</strong>’s federally recognized tribes by:
• Interacting with the tribes in a spirit of mutual respect;
• Seeking to underst<strong>and</strong> the varying tribal perspectives;
• Facilitating communication, underst<strong>and</strong>ing, <strong>and</strong> 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 <strong>and</strong> the underlying statutes to
employees who work with the tribes. We will also incorporate the policy into the
department’s policy manual <strong>and</strong> post it on the department’s internal website for all
employees.
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 4
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 <strong>Oregon</strong> by any enrolled member of a federally
recognized American Indian tribe residing in federally recognized Indian country in
<strong>Oregon</strong> 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 <strong>and</strong> 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 <strong>Oregon</strong> 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 <strong>Oregon</strong>, <strong>and</strong> the income must be derived from sources within Indian country
in <strong>Oregon</strong>. A tribal member who resides outside of Indian country can not exclude
income from <strong>Oregon</strong> tax under the provisions of ORS 316.777. The person is subject to
the statutes <strong>and</strong> rules governing <strong>Oregon</strong> residents <strong>and</strong> nonresidents <strong>and</strong> 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 <strong>Oregon</strong> or
other l<strong>and</strong> in <strong>Oregon</strong> that has been set aside for the residence of tribal Indians under
federal protection, <strong>and</strong> includes:
(A) Any l<strong>and</strong> within the current reservation boundaries of a federally recognized
reservation regardless of ownership.
(B) Tribal- or member-owned l<strong>and</strong> outside current reservation boundaries if held in trust
for the benefit of the tribe or its members.
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 5
(C) L<strong>and</strong> 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
l<strong>and</strong>, 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, <strong>and</strong> other income from
intangibles regardless of the location of the bank accounts or other intangible assets.
(4) To be exempted from <strong>Oregon</strong> personal income tax withholding, a tribal member
whose wages are exempt from <strong>Oregon</strong> 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 <strong>and</strong> 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 l<strong>and</strong> in <strong>Oregon</strong> <strong>and</strong> works as an accountant for the city of Coos Bay at City
Hall. Claire's income is taxable by <strong>Oregon</strong> because she resides on, but does not work on,
Indian country on <strong>Oregon</strong>.
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 Portl<strong>and</strong>, <strong>Oregon</strong>. Charles is taxed on the
income he earns fishing in Alaska <strong>and</strong> 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.
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 6
Example 4: Using the facts in Example 3, assume that Charles is retired <strong>and</strong> 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
<strong>and</strong> works on the reservation of the Burns Paiute Tribe in <strong>Oregon</strong>. Under ORS 316.777,
<strong>Oregon</strong> will not tax any of William's wages earned on the reservation of the Burns Paiute
Tribe because he lives <strong>and</strong> works in Indian country in <strong>Oregon</strong> <strong>and</strong> he is an enrolled
member of a federally recognized Indian tribe.
Example 6: John, an enrolled member of the Confederated Tribes of the Gr<strong>and</strong>e Ronde,
resides on l<strong>and</strong> that he inherited from his father's estate. The l<strong>and</strong> came into John's family
through an allotment by the federal government to tribal members. The federal
government holds the l<strong>and</strong> in trust for the benefit of John. It is allotment l<strong>and</strong>. As long as
John lives on allotment l<strong>and</strong> <strong>and</strong> works in Indian country, his income is exempt from
<strong>Oregon</strong> tax.
Example 7: Ben, an enrolled member of the Confederated Tribes of the Gr<strong>and</strong>e Ronde,
lives on l<strong>and</strong> that a prior owner, who was also a tribal member, received from the federal
government in an allotment. Ben owns the l<strong>and</strong>, but the federal restrictions prohibit him
from selling it. Those restrictions have been in place since the federal government
allotted the l<strong>and</strong>, but they will be lifted next month. The l<strong>and</strong> is allotment l<strong>and</strong> 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 <strong>Oregon</strong>. The l<strong>and</strong> is no longer Indian country <strong>and</strong> Ben may sell
the l<strong>and</strong>.
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:
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 7
1. You are an enrolled member of a federally recognized American Indian
Tribe, <strong>and</strong>
2. Your income is earned in Indian Country, <strong>and</strong>
3. You live in federally recognized Indian Country. (See Below).
“Indian Country” is defined as any l<strong>and</strong> within a current Federal Indian reservation
boundary in <strong>Oregon</strong> <strong>and</strong> other l<strong>and</strong>s in <strong>Oregon</strong> held in trust by the United <strong>State</strong>s
Government for a tribe.
Frequently Asked Questions
Question:
I am an enrolled member of a federally recognized American Indian tribe <strong>and</strong> live <strong>and</strong>
work in Indian Country in <strong>Oregon</strong>. What type of income is exempt from <strong>Oregon</strong> personal
income tax?
Answer:
1. Wages earned for work performed in Indian Country in <strong>Oregon</strong>.
2. Income from a business or real estate located in Indian Country in <strong>Oregon</strong>.
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, <strong>and</strong> 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
<strong>Oregon</strong>?
Answer:
Under <strong>Oregon</strong> law, if you lived in Indian Country in <strong>Oregon</strong> at the time the distribution
was received <strong>and</strong> you are an enrolled member of a federally recognized American Indian
tribe, then the distribution is not taxable to <strong>Oregon</strong>.
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 8
Question:
Do I need to file an <strong>Oregon</strong> personal income tax return?
Answer:
Yes. ORS 316.777 does not relieve you from your requirement to file an <strong>Oregon</strong> personal
income tax return. <strong>Oregon</strong> law allows a subtraction for income earned or derived from
sources within the boundaries of federally recognized Indian country in <strong>Oregon</strong>, by tribal
members living within those boundaries.
You must report your total income on both the federal <strong>and</strong> <strong>Oregon</strong> tax returns. On the
<strong>Oregon</strong> 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 <strong>Oregon</strong>
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 <strong>and</strong>
‣ The physical address of where you lived <strong>and</strong>
‣ to The name of the tribe you are enrolled with <strong>and</strong> 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 <strong>Oregon</strong> only.
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 9
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 <strong>and</strong> work on the Warm Springs Indian
reservation. Are the wages I earn for my work at the casino taxable to <strong>Oregon</strong>?
Answer:
No. To claim the <strong>Oregon</strong> 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 <strong>Oregon</strong>.
2. You must be an enrolled member of a federally recognized American Indian tribe.
3. You must reside in federally recognized Indian country in <strong>Oregon</strong> at the time the
income is earned.
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 10
DECISION TC-MD 040844D 1
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 11
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
ALLEN FOREMAN
<strong>and</strong> TERESA FOREMAN,
Plaintiffs,
v.
DEPARTMENT OF REVENUE,
<strong>State</strong> of <strong>Oregon</strong>,
Defendant.
TC-MD 040844D
DECISION
Plaintiffs appeal Defendant’s Notices of Assessment for tax years 2001<strong>and</strong> 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 <strong>Oregon</strong> Tax
Court, Salem, <strong>Oregon</strong>.
I. STATEMENT OF FACTS
There is no material dispute of fact <strong>and</strong> the parties stipulated to the following:
Plaintiffs, husb<strong>and</strong> <strong>and</strong> 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 <strong>and</strong> 2.)
Plaintiffs live on property (Property) that prior to December 11, 1958, was federally
recognized Indian country in <strong>Oregon</strong>. (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 <strong>State</strong>s on March 15, 1939. (Stip Facts 8 <strong>and</strong> 9.) In 1958, the United
<strong>State</strong>s removed all federal restrictions <strong>and</strong> 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 <strong>and</strong> 2002 from sources within the
boundaries of federally recognized Indian country in <strong>Oregon</strong>.” (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 <strong>and</strong> 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 <strong>and</strong> Resp to Ptf’s (sic) Mot for Summ J at 26.)
II. ANALYSIS
Generally, the state of <strong>Oregon</strong> 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 <strong>Oregon</strong> 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 <strong>Oregon</strong> by any enrolled member of a federally
recognized American Indian tribe residing in federally recognized Indian country in
<strong>Oregon</strong> 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
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 12
American Indian tribe,” the Klamath Indian Tribe, derived income “from sources within
the boundaries of federally recognized Indian country in <strong>Oregon</strong>.” Id. The parties’ sole
dispute is whether Foreman resided “in federally recognized Indian country in <strong>Oregon</strong> 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 <strong>Oregon</strong>.” Id. This court has previously concluded applicable definitions are
found in 18 USC section 1151 (1994),2 <strong>and</strong> <strong>Oregon</strong> 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 l<strong>and</strong>; (2) dependent Indian communities; <strong>and</strong> (3) Indian
allotments. <strong>Oregon</strong>’s administrative rule, OAR 150-316.777(2), generally defines Indian
country as follows: “any federally recognized Indian reservation or other l<strong>and</strong> 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 <strong>Oregon</strong> because
they reside on reservation l<strong>and</strong> <strong>and</strong> <strong>their</strong> 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 <strong>State</strong>s
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” <strong>and</strong>,
“[i]n determining the meaning of the statute, the court considers the text <strong>and</strong> 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 <strong>and</strong> 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 <strong>and</strong> Plaintiffs, the United <strong>State</strong>s 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” <strong>and</strong> the statutory language should be viewed “in historical context <strong>and</strong> given a
‘fair appraisal.’” <strong>Oregon</strong> Dept. of Fish <strong>and</strong> 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 l<strong>and</strong> within the limits of any Indian
reservation under the jurisdiction of the United <strong>State</strong>s Government, notwithst<strong>and</strong>ing the issuance of any patent, <strong>and</strong>,
including right-of-way running through the reservation, (b) all dependent Indian communities within the borders of the
United <strong>State</strong>s whether within the original or subsequently acquired territory thereof, <strong>and</strong> whether within or without the
limits of a state, <strong>and</strong> (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 <strong>and</strong> Modoc
Tribes <strong>and</strong> the Yahooskin B<strong>and</strong> of Snake Indians claimed aboriginal title to
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 13
approximately 22 million acres of l<strong>and</strong> extending east from the Cascade Mountains in
southern <strong>Oregon</strong>. In 1864 these Tribes (now collectively known as the Klamath Indian
Tribe) entered into a Treaty with the United <strong>State</strong>s, ceding ‘all <strong>their</strong> right, title <strong>and</strong> claim
to all the country claimed by them’ <strong>and</strong> providing that a described tract of approximately
1.9 million acres ‘within the country ceded’ would be set apart for them, to be ‘held <strong>and</strong>
regarded as an Indian reservation.’ 16 Stat. 707, 708.” <strong>Oregon</strong> Dept. of Fish <strong>and</strong> Wildlife,
473 US at 755. “Subsequently a dispute arose as to the reservation’s boundaries, <strong>and</strong> after
lengthy negotiations concerning the value of l<strong>and</strong> that had been erroneously excluded
from the reservation, the Tribe <strong>and</strong> 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 l<strong>and</strong> to the
United <strong>State</strong>s.” Id. at 753 <strong>and</strong> 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 <strong>and</strong> 1906, virtually all of the ceded l<strong>and</strong> was closed to settlement entry
<strong>and</strong> placed in national forests or parks * * * a status much of the l<strong>and</strong> retains to this day.”
Id. at 761 (citation omitted). “In 1954, Congress terminated federal supervision over the
Klamath Tribe <strong>and</strong> 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 <strong>and</strong> receive the monetary value of
<strong>their</strong> interest in tribal property, or to remain in the Tribe <strong>and</strong> participate in a nongovernmental
tribal management plan. § 564d(a)(2).” Id. at 761. The purpose of the
Termination Act was “to end federal supervision, remove from Indians <strong>their</strong> special
status as Indians <strong>and</strong> make state laws applicable to them in the same manner as applicable
to other citizens.” Klamath <strong>and</strong> 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, <strong>and</strong> the transfer of the
unsold portion to a private trustee. § 564e(a).” <strong>Oregon</strong> Dept. of Fish <strong>and</strong> Wildlife,
473 US at 761-62. Much of the l<strong>and</strong> 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]otwithst<strong>and</strong>ing any other provision
of law, the tribe <strong>and</strong> its members shall be eligible, on <strong>and</strong> after August 27, 1986, for all
Federal services <strong>and</strong> benefits furnished to federally recognized Indian tribes or <strong>their</strong>
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 l<strong>and</strong>. Currently, 390 acres of reservation <strong>and</strong> l<strong>and</strong> are set aside for the Klamath Indian Tribe. See 2003-
05 <strong>Oregon</strong> Directory of American Indian Resource, compiled <strong>and</strong> 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 notwithst<strong>and</strong>ing 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 <strong>their</strong> 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 <strong>their</strong> Property as a consequence of the Termination Act. In order to agree with
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 14
Plaintiffs that <strong>their</strong> 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 <strong>and</strong>
restricted property of the Klamath Indians, disposed of federally owned property, <strong>and</strong>
terminated * * * the continuing existence of the Klamath Tribe.” Kimball v. Callahan,
590 F2d 768, 775-76 (1979). See also The Klamath Tribes v. United <strong>State</strong>s of America,
1996 WL 924509 at 2 <strong>and</strong> 3 (D.Or., Oct 2, 1996) (stating that the “Tribes lost ownership
of the reservation l<strong>and</strong>” <strong>and</strong> that the “former Klamath Reservation is now predominately
part of the Winema <strong>and</strong> 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 l<strong>and</strong>s 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 <strong>and</strong> benefits
without restoring or adding to the reservation l<strong>and</strong>s. 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 <strong>State</strong>s Department of the Interior was directed “to accept
specifically identified parcels of l<strong>and</strong> 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 l<strong>and</strong>s 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 l<strong>and</strong>s for tribal
communities which takes into account the interest of others with “stakes in the area’s
governance <strong>and</strong> 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
l<strong>and</strong> in trust for Indians <strong>and</strong> provides that the l<strong>and</strong> ‘shall be exempt from <strong>State</strong> <strong>and</strong> local
taxation.’” Id. at 1494. Plaintiffs allege that “some parcels of l<strong>and</strong>” 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 <strong>their</strong> l<strong>and</strong> is under the jurisdiction of the United
<strong>State</strong>s, Plaintiffs allege that the court holding in Klamath Tribes v. United <strong>State</strong>s “shows
that the l<strong>and</strong> within the reservation boundaries is still set aside for the continued use of
the Klamath Indians <strong>and</strong> 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
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 15
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 <strong>and</strong> 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 <strong>and</strong> 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 <strong>Oregon</strong>, the “area” was described as
“[a]ll Indian country within the <strong>State</strong> except the Warm Springs Reservation.” Id. In a
different case involving the Termination Act, the United <strong>State</strong>s Supreme Court held that
“Public Law 280 preserved treaty hunting <strong>and</strong> fishing rights even after termination.” Id.
(citing Menominee Tribe of Indians v. United <strong>State</strong>s, 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 <strong>and</strong> all tribal property was
to be transferred to new h<strong>and</strong>s, the hunting <strong>and</strong> 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 <strong>and</strong> fishing rights
enjoyed by the Klamath Indian Tribe continue within the Klamath Indian Tribe
reservation boundary, it follows that federal superintendence of those l<strong>and</strong>s is evidence of
an Indian reservation. Unfortunately, the court is unable to reach that conclusion. The
United <strong>State</strong>s Supreme Court <strong>and</strong> the Ninth Circuit Court held that, “Indians may enjoy
special hunting <strong>and</strong> fishing rights that are independent of any ownership of l<strong>and</strong> * * * <strong>and</strong>
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.” <strong>Oregon</strong> Dept. of
Fish <strong>and</strong> 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 <strong>State</strong>s.
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 <strong>State</strong>s
Supreme Court definition of allotment: “An allotment is a ‘parcel[ ] of l<strong>and</strong> created out of
a diminished Indian reservation <strong>and</strong> 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 <strong>State</strong>s (a
restricted allotment).” Yankton Sioux Tribe v. Gaffey, 188 F3d 1010, 1022 (1999) (citing
United <strong>State</strong>s v. St<strong>and</strong>s, 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,
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 16
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 <strong>and</strong> 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 l<strong>and</strong> 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 <strong>their</strong> l<strong>and</strong> 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 <strong>State</strong>s.” Yankton Sioux
Tribe at 1022, holding that “l<strong>and</strong>s 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 <strong>and</strong> analyzing the statutes in historical
context with case law, the court finds that Plaintiffs do not live in Indian country because
<strong>their</strong> Property is not within the Klamath Indian Tribe Reservation <strong>and</strong> 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 <strong>and</strong> 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]
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 17
Tax-exempt Income from Tribal Fishing-rights Activities (ORS 316.785)
Income from a fishing-rights related activity is exempt from federal <strong>and</strong> 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 <strong>their</strong> 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 <strong>and</strong> the United
<strong>State</strong>s; 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, <strong>and</strong> 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 <strong>and</strong> 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.
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 18
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 <strong>Oregon</strong>
Form OQ.
• Wages paid for non-fishing activities are subject to all applicable employment
taxes, including withholding, <strong>and</strong> 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 <strong>and</strong> conservation workers
• Enforcement staff <strong>and</strong> tribal court personnel
• Support staff, i.e. secretary, accounting, payroll
• Program director, executive director
• Fisheries biologist
• Fisheries aide
• Fishery <strong>and</strong> habitat policy analysts
• Water quality biologist
• Habitat inventory <strong>and</strong> assessment technician
• Legislative analyst
• Information <strong>and</strong> education services
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Tom S. Stinnette of <strong>Oregon</strong> Department of Revenue Speaker 6b: 19
References
Oliphant v. Suquamish Indian Tribe, 435 US 191 (1978)
Warren Trading Post Co. v. Arizona <strong>State</strong> 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 <strong>and</strong> Fox Nation, 508 US 114 (1993)
Washington v. Confederated Tribes of Colville Indian Reservation, 447 US
134 (1980)
Oklahoma Tax Commission v. Citizen B<strong>and</strong> of Potawatonic Indian Tribe,
498 US 505 (1991)
Foreman v. Department of Revenue (TC-MD 0140844D)
Spang v. Department of Revenue. <strong>Oregon</strong> 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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