The state of Minnesota can tax pensions earned by members of the Fond du Lac Band of Lake Superior Chippewa Indians who live on the reservation, a divided 8th Circuit Court of Appeals ruled today.

The tribe's reservation predates the state. But the Fourteenth Amendment to the U.S. Constitution, along with the 1924 Indian Citizenship Act, means tribal members who live on the reservation are also Minnesota citizens, the court said in a 2-1 decision.

"In becoming United States and Minnesota citizens, Band members kept their pre-existing right to tribal and other property," Judge William Duane Benton wrote for the majority. "The proviso does not create a tax exemption."

The court also noted that the pension at issue in the case was earned in another state and not on the reservation. "In this case, Minnesota is taxing income from outside Indian country," Benton wrote.

Judge Diana E. Murphy dissented. She said Charles Diver, whose pension spurred the tribe's lawsuit, was born on the reservation and moved to Ohio under a federal relocation program.

"When due process and tribal sovereignty principles are considered together, the weakness in Minnesota's position becomes clear," Murphy wrote. "Diver has never earned income while working off the reservation as a citizen of Minnesota. His pension was earned entirely in the state of Ohio, where he lived and worked for thirty years."

"Now that Diver has retired and returned to the Fond du Lac reservation, tribal sovereignty precludes Minnesota from imposing a tax on a pension earned during thirty years of work in Ohio," Murphy added.

The split ruling means the case might be a good candidate for reconsideration by an en banc panel of the 8th Circuit.

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Fond du Lac v. Frans (August 12, 2011)