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N.D. tribes consider lawsuit over unlawful taxation
Thursday, September 11, 2003

News from the United Tribes Technical College.

BISMARCK – North Dakota tribal leaders say the State Tax Department is in for a lawsuit unless it quits the illegal collection of state income taxes from tribal members.

Meeting on September 5 at the close of the annual United Tribes Summit Conference, the United Tribes of North Dakota Board of Directors urged an end to the collection of state income taxes from enrolled Indians who live and work on reservations other than their own. Representatives from Standing Rock, Three Affiliated, Spirit Lake, Sisseton-Wahpeton and Turtle Mountain agreed to challenge the tax.

“There’s a tax inequity going on here,” said State Senator Dennis Bercier (D) Belcourt, an enrolled member of the Turtle Mountain Band of Chippewa. “Marriages between members of different tribes can create tremendous inequities with respect to the state applying tax law on reservations.”

Until recently tribes have been largely unsuccessful in their argument that because of their sovereign status, state income taxes do not apply to any Indian on a reservation regardless of where enrolled. Despite a State Supreme Court ruling to the contrary, the present tax commissioner and several of his predecessors going back to 1992, have narrowly interpreted the law to exempt only enrolled members on their home reservations.

But a recent decision by the Montana State Tax Appeals Board was decided in favor of an enrolled Cherokee tribal member from Oklahoma living and working on the Fort Peck reservation. Armed with a news account about the Montana case, North Dakota tribal leaders felt it was time to move a case forward in North Dakota.

Tribes have addressed the issue before without satisfaction, said Tex Hall, Three Affiliated Tribes Chairman and head of the National Congress of American Indians. “We have all kinds of tribal people residing on each other’s reservations,” said Hall. “I believe the state tax department will do nothing more to resolve our concerns and will continue to apply the tax.”

The issue is not strictly about income taxes, according to Tom Disselhorst, an attorney for United Tribes. “It’s an incursion on tribal jurisdiction and sovereignty. As a matter of Federal law, state law does not apply on reservations. They are separate sovereigns.”

Disselhorst says he believes that the tribe’s position is easily misunderstood. There’s very little awareness in the mainstream about the concessions tribes made.

“Tribes gave up millions of acres of land under duress. When the Congress passed the Enabling Act creating North Dakota as a state in 1889, the Federal government recognized that tribes didn’t get full value and said that Indians on the reservation will not be taxed – that they’re not subject to state law. Now, 114 years later, many people don’t think of what tribes gave up. They perceive that there’s some kind of unfair advantage. The tribes simply bought and paid for the right to be free of state taxes years ago.”

North Dakota Tax Commissioner Rick Clayburgh says he would rather talk things over than go to court. In a panel discussion during the tribal summit, Clayburgh allowed that taxation of tribal members “is not an easy issue to deal with.” He said he was not trying to be stubborn about the tax. The only time the department is aggressive is when cases come to the department’s knowledge, he said, making the enforcement “whistle blower” in nature.

Clayburgh said that he had no legal ability to waive the tax but his department can waive penalties and interest. “We have a responsibility to administer the tax code as written,” he said. “Everyone pays state tax, unless there’s an exemption. When it comes to areas that need clarification, I think the best course is to talk things out.”

According to Bercier, a tax amnesty law passed by the legislature, and soon to be implemented by the tax department, will provide some degree of help for those affected. He estimated that those Indians paying the illegal tax are probably few in number. He said he thought the dollar amount would be in the neighborhood of $250,000 and that most of that would be penalties and interest.

Bercier said he would support legislation if necessary to end the illegal taxation of income from tribal members, although he contended that the tax commissioner could administratively interpret the law to make the change.

The tax question occurs with marriages between people of different tribes and their mobility in seeking employment. Bureau of Indian Affairs employees appear to be the most vulnerable because states have been successful in making the federal government deduct payroll taxes. Tribal members do pay Federal income taxes regardless of where they live and also pay state income taxes when working and living off reservations.

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