American Indians are subject to US income taxes on gravel mined on the reservation, the US Tax Court said in March.
The decision put the Tax Court potentially at odds with a federal district court that heard the case last year.
Alice Perkins, a Seneca Indian, got permission from the tribe to mine gravel on a Seneca reservation in upstate New York. She owned a trucking company. The company had income from gravel sales in 2008, 2009 and 2010.
She argued that two treaties that the US government signed with the Seneca Indians in 1794 and 1842 bar the US from taxing income that a member of the tribe earns from gravel sales.
The Tax Court concluded that neither treaty spares her from having to pay income taxes on the gravel sales. The 1794 treaty promises that the government will not disturb “the free use and enjoyment” by the Senecas of their land. The 1842 treaty bars the government from taxing “real property” belonging to the tribe. The court said gravel is no longer “real property” after it has been removed from the ground.
American Indians have been considered US citizens since 1924. The tribes are still considered sovereign nations.
The US tax code says that “every individual” is taxed on “all income from whatever source derived” unless the income is specially excluded. Indians are subject to US income taxes like everyone else, the court said.
Treaties with Indian tribes are interpreted liberally by the US courts. Courts try to guess at what the tribe understood was the agreement when it signed the treaty.
Ms. Perkins had paid taxes on her gravel sales in 2010 and sued earlier in the federal district court in New York for a refund. The government moved to dismiss that case in 2017. The district court declined to do so, finding that she may be exempted from US income taxes under both treaties.
The district court said taxing gravel arguably interferes with “the free use and enjoyment” of the Seneca land as the phrase is used in the 1794 treaty, and the 1842 treaty protects Seneca Indian land from all taxes. It said there is no reason to believe the Senecas understood, when signing the treaty, that one rule applies to the dirt, gravel and foliage and another to the land itself.
The Tax Court said the district court’s holding was limited to 2010 and not to 2008 and 2009, the two years at issue in the case before the Tax Court.
The Tax Court case is Alice and Frederick Perkins v. Commissioner. The case was called Perkins v. US in the district court. The district court issued its decision in August 2017.