Squire v. Capoeman

PETITIONER:Squire
RESPONDENT:Capoeman
LOCATION:Pittsburgh Party Headquarters

DOCKET NO.: 134
DECIDED BY: Warren Court (1955-1956)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 351 US 1 (1956)
ARGUED: Jan 19, 1956
DECIDED: Apr 23, 1956

Facts of the case

Question

  • Oral Argument – January 19, 1956 (Part 2)
  • Audio Transcription for Oral Argument – January 19, 1956 (Part 2) in Squire v. Capoeman

    Audio Transcription for Oral Argument – January 19, 1956 (Part 1) in Squire v. Capoeman

    Earl Warren:

    Number 134, Clark Squire, Collector of Internal Revenue for the District of Washington versus Horton Capoeman and Emma Capoeman, his wife.

    Mr. Barber.

    Charles F. Barber:

    May it please the Court.

    This case is here on certiorari from the Court of Appeals for the Ninth Circuit.

    It is an income tax case.

    The question is whether certain Indians are liable for income taxes on certain income.

    Taxpayers here are full-blooded Quinaielt Indians, husband and wife.

    They belong to a group of Indians who have become respected members of the West Coast communities in which they live.

    The relations between these Indians in the United States stem from a treaty entered into, between the United States and these Indians, in 1955 and 1956.

    Pursuant to that treaty, some 200,000 acres of the Olympic Peninsula, along the Pacific Coast in the far northwest, were set aside for their exclusive use.

    This area contains a stand of virgin timber, largely citrus spruce but with the important quantities of Douglas Fir, Hemlock, and other commercial timbers.

    The income of these Indians, considered as a group, is derived principally from the sale of timber and from salmon fishing.

    They derive about an equal amount from each source.

    In 1907, a plot of land on this reservation was allotted to the taxpayer husband.

    Pursuant to the provisions of the General Allotment Act of 1887, as required by the General Allotment Act, the patent issue to taxpayer husband, provided that the land, the fee to the land, would be held in trust by the United States for his exclusive use and benefit for a period of 25 years at the end of which the fee would be conveyed and this language is important in this suit, discharged of said trust and free from all charge and encumbrance, whatsoever.

    The 25-year trust period has, since been extended by a statute and the title to the land continues in the United States.

    Taxpayers’ allotment contained a typical stand of timber that is typical for this reservation.

    A 1910 Amendment to the General Allotment Act provided for the sale of such timber at the request of the Indian allottee, with the consent of the Secretary of Interior.

    In 1943, the timber from taxpayers’ allotment was sold pursuant to the statutory authorization.

    And some $8500 was paid into his account subject to withdrawal by taxpayer with the consent of the Secretary of Interior.

    During that year, some $1500 was paid over to the Indian taxpayer for his use.

    The question in this case is whether the proceeds of this sale of timber, from taxpayers’ allotment are subject to the requirements of the federal income tax laws.

    After a test case, brought in the Tax Court, by another Quinaielt Indian, similarly situated, had resulted in a determination that the proceeds from the sale of timber was taxable.

    Respondents filed a return and paid the tax about $300, calculating their liability as provided, or as was their option, I should say, under the income tax laws on the basis of long-term capital gain.

    After a timely claim for refund was filed and denied, this suit was brought in the — in the District Court for the return of taxes allegedly, unlawfully collected.

    We come then to the question of law involved in this case.

    The case arises under the income tax laws which comprehensively tax every individual on gains and profits and income from every source, whatever.

    As recently as last term, in the Glenshaw Glass case, this Court had occasion to note that in these provisions, Congress had exerted the full measure of its taxing power.

    Indians are within the scope of these provisions as respondent recognizes.

    They are not exempted from tax as Indians or as wards of the Government by any provision in the income tax laws.

    Charles F. Barber:

    Taxpayers based their argument here for exemption wholly on the undertaking by the United States.

    In their trust patent, given to them pursuant to the General Allotment Act to deliver the fee to this land to them at the end of the trust period free of all charge and encumbrance, whatever.

    They argue that these provisions confer on income derived from the land an exemption from tax and give their contentions a constitutional twist by arguing that they have a vested right in tax exemption given to them under a 1907 patent which could not be taken away by a 1913 income tax.

    They further argue that the collection of the tax in this case constitutes an invasion of this specific trust assumed by the United States.

    I’ll approach this question in two steps.

    First, I’ll review the sweep of this Court’s decisions declaring subject to tax income of Indians in various situations.

    Second, I will address myself more specifically to the arguments which are made upon this provision in the trust patent, the argument that is wherein respondents get out of this obligation to deliver the fee an exemption from tax.

    Addressing myself to the first question, the — the broad question of the applicability of the income tax laws to Indians, I perhaps control most light on this question if I review the history of this problem in capsular form.

    Indians being subject to tax as an — as citizens of the United States, there are being no exemption from tax in the income tax laws, the question would be simplicity itself.

    But for the pervasive ramifications of a series of Attorney Generals’ opinions in the mid 20s which found their way into some Court of Appeals decisions in the early 30s.

    Now, I would like to put those into perspective.

    I’ll start in 1913 with the imposition of the income tax or the enactment of the income tax.

    The early rulings of the Commissioner of Internal Revenue showed that from the outset, the Commissioner asserted that the income of Indians, without distinction as to whether from allotted lands or other sources, was subject to tax.

    I believe I am correct in saying that without significant departure at any time since the enactment of the income tax, the Commissioner’s position has been the same.

    And that is this, that the income of Indians, whether restricted or not, whether or not from restricted lands, is subject to the provisions of the income tax laws.

    The — I say without significant departure because such departures have — have occurred, have been in specific cases, where in accordance with lower court decisions, the Commissioner, of course, was required as to the tax hears in question to abide by the results of those decisions.

    I mentioned in stating the consistency of the Commissioner’s position that the difficulties that have come into this question arose from certain Attorney General’s decisions.

    These were decisions of Attorney General Sargent in 1924 and 1925.

    The basis of the decisions was that Indians as wards of the Government should be considered to be exempt from tax.

    It was consist — it was inconsistent, inconceivable, the Attorney General thought that Congress, who, through history, had taken a position of protecting these Indians as wards of the Government would, at the same time, intend to exact a part of such income as they received in income taxes.

    The Treasury at the time rejected this basis of the Attorney General’s opinion.

    The Treasury acquiesced only insofar as certain Indians, under certain treaty, not involved in the case of the Quinaielt, had written into the treaties specific tax exemptions in so many words.

    A land was given and it shall be tax exempt for 25 years, or in a case with another group of Indians for three years, and thereafter, shall be taxable.

    In 1931, a case came before this Court called Choteau versus Burnet in 283, United States.

    There, this Court, in clear terms, rejected what had been the basis of this Attorney General’s opinions.

    It referred to the pervasive application of the income tax laws.

    That case concerned oil royalties from restricted lands paid to a competent Indian.Competent Indian is something that has meaning in the Oklahoma setting in which it arose, whereas to those Indians, certificates of competence were issued which carried with them certain rights over the disposal of their property.

    The Court noted that this Indian had full use of this money, it refused to — or read into the restrictions on the land from which it’s from any exemption from tax and held these payments taxable.

    Felix Frankfurter:

    How the Indians, in our case, can be assimilated in — in significance with the Indians in Choteau.

    Charles F. Barber:

    I think not.

    Felix Frankfurter:

    Then what’s the difference?

    Charles F. Barber:

    The differences are several.

    The type of — let me talk about the significant differences first.

    Felix Frankfurter:

    Yes, well, of course.

    Charles F. Barber:

    In the Choteau case —

    Felix Frankfurter:

    That — that — my question implies that it is —

    Charles F. Barber:

    Yes.

    Felix Frankfurter:

    — equal in terms of —

    Charles F. Barber:

    Yes.

    Felix Frankfurter:

    The officer is significant.

    Charles F. Barber:

    In the Choteau case, the royalties, I believe, were from tribal lands.

    They were collected and paid into the trust upon setup over those funds.

    They were then paid out.

    Some of them were paid those Indians who had certificates of competency received their — their royalties outright without restriction as to their use.

    Other Indians who have not such certificates, or who were minors, or who were incompetent in the usual sense of mentally incompetence and under guardianship did not receive their royalties.

    The arguments advanced in the case were that the Indians were exempt — this Indian was exempt qua Indian or he was exempt because the royalties were derived from restricted lands, and a tax exemption should be implied from the — from the restriction.

    Both of those arguments were rejected.

    In our case —

    Felix Frankfurter:

    Before you move on —

    Charles F. Barber:

    Yes.

    Felix Frankfurter:

    — was the decision — decision affected both case to tried — as they tried or was the decision concerned with this particular within Choteau.

    Charles F. Barber:

    This, I think, you could not generalize further than to say it was applicable to — or say it’s Indians who had their certificates of competency and receive the royalties outright.

    Felix Frankfurter:

    People in Choteau position?

    Charles F. Barber:

    That’s correct.

    Felix Frankfurter:

    So that one is then deployed through the Indians properly, one must remind the district of it, a different state.

    And — and a different to state to decide (Inaudible)

    Charles F. Barber:

    Yes, I have been astounded in getting into this problem that every group of Indians seems to have a somewhat specific set of treaties and statutes which have some bearing on the problem in the light of the precedence.

    My earlier statement of the generality of the Commissioner’s position cuts through all of those distinctions and focuses only on those treaties, and there are a number of them under which, the Indians have a homestead or so many acres which is “exempt from tax for the period stated in the treaty”.

    Earl Warren:

    Was that ordinary income and not just the case that you speak of?

    Charles F. Barber:

    Yes by — to know what ordinary income is, it was income from the land, part of it, of course, included a wasting of the asset, the tax laws will recognize that waste by allowing depletion so that only the gain is taxed that is — the return of capital is taken out of the income.

    Charles F. Barber:

    And the — the tax is placed on the balance.

    I should think the answer to your question is yes, that is ordinary method.

    Earl Warren:

    Was there any difference between that case and this in that respect?

    Charles F. Barber:

    I think not.

    In this case, the (Inaudible) timber.

    Timber like oil or virgin timber as we have here, once you take it away, the return is way off in the future.

    Oil, when you take it out of the land, is gone for good.

    But in either case, for same — the same reasons, Congress has allowed a — a depletion allowance to recognize the element of return of capital in the proceeds of the product of the land.

    Stanley Reed:

    Is that, is that correct as to timber, I — I thought that was with a capital gain or loss.

    Charles F. Barber:

    Well, in the case of timber, under the laws as they were applicable in 1943 and today, the owner of the land has an option.

    He may either treat his sale of the timber as a long-term capital gain as these taxpayers did.

    In that case, he deducts from the proceeds, such portion of the cost or value in 1913 of the property as it represents the timber.

    Stanley Reed:

    In other words, he treats the timber as a — as the land itself.

    Charles F. Barber:

    That’s right.

    He may also treat the return as depletable income.

    That is an option which as respondents have pointed out is more particularly applicable where you’ll have a large lumber companies which are operating a large track taking out income over a long period of years.

    Stanley Reed:

    Well, you mean the standing decision from a forest like it is for —

    Charles F. Barber:

    Yes, yes, Your Honor.

    It is a very — it is a more complicated provision, it is not straight percentage depletion, but it is founded on the same principles.

    Harold Burton:

    As I understand it, this Indian is — it is not a competent Indian.

    Charles F. Barber:

    I would rather not use competence in his sense.

    He has not obtained the fee to his land.

    In the case of the Quinaielts, the determination of whether they’re competent or they’re not, turns upon whether they have applied for and received the fee.

    If they have received the fee, they’re termed competent, if they have not received, they’re termed incompetent.

    Harold Burton:

    Will you at least admit that his — his assist could trust.

    Charles F. Barber:

    Very definitely, yes sir.

    Harold Burton:

    That the Government here is — is the trustee.

    Charles F. Barber:

    This Court has usually characterized the relationship as out of guardian and ward.

    It has minor technical differences (Voice Overlap)

    Harold Burton:

    It’s a good relationship.

    Charles F. Barber:

    Yes, sir.

    Harold Burton:

    And you say that the Government can — the Government can tax here because the Indian can’t show that he’s exempt from the general sweep of this income tax law.

    Charles F. Barber:

    That’s correct.

    Yes, sir.

    We have to find somewhere an exemption from tax.

    Harold Burton:

    What do you say to the — the proposition that assisted with trust and doesn’t have to show any exemption through the revelation — of his state but that the trustee would have to show express authority to diminish his state for his own interest.

    In other words, the —

    Charles F. Barber:

    I’m not sure I get the question — (Voice Overlap) —

    Harold Burton:

    In other words the — the taxpayer don’t have to show that the — doesn’t have to show an exemption but rather the — the trustee has to show that he has to express authority of tax.

    Charles F. Barber:

    Well, I’m not sure that I’m — I’m kind of focusing.

    I just watch what — what is in your mind.

    Harold Burton:

    The ordinary relationship —

    Charles F. Barber:

    In the case of a guardian and ward you do not —

    Harold Burton:

    Yes.

    Charles F. Barber:

    — distinguish the taxable estate of the ward from the —

    Harold Burton:

    But —

    Charles F. Barber:

    — the — the title and supervision which is held by the guardian.

    Harold Burton:

    What I’m talking about is that could the ward diminished the — could the — the guardian diminished the words he state for his own benefit without to express authority?

    Felix Frankfurter:

    What is a guardian —

    Charles F. Barber:

    I — I —

    Felix Frankfurter:

    — a guardian here —

    Charles F. Barber:

    — of the United States.

    Felix Frankfurter:

    — of the United States.

    That’s — that’s —

    Charles F. Barber:

    Well, the guardian is also (Voice Overlap) —

    Harold Burton:

    The United States out of the ordinary rules of — of trust relationship.

    Charles F. Barber:

    Well, I think it might be more helpful to regard it as Congress in either case.

    Congress is the guardian of the Indians.

    Congress is also the body who says who shall pay taxes.

    Now, we — our ultimate question is did Congress intend to tax these people.

    Charles F. Barber:

    We have two sources to look to.

    One, we look to the General Allotment Act and the implications which are build upon that.

    On the other hand, we looked at the broader terms of the income tax.

    I suggest that it doesn’t really help the question to look on it — upon it as though the trustee were some third person entirely independent of the taxing power.

    Felix Frankfurter:

    Must ceded together.

    Stanley Reed:

    In other words, the —

    Charles F. Barber:

    Well, that’s — that’s to — to — yes.

    Stanley Reed:

    The guardian can diminish in the state if he’s authorized to prevent it.

    Charles F. Barber:

    Yes and of course the authorization in this case —

    Stanley Reed:

    (Voice Overlap) the plaintiffs and so forth.

    Charles F. Barber:

    Yes, the authorization in this case comes from Congress and the action of the Department of Interior qua guardian is governed by act of Congress.

    Felix Frankfurter:

    These were — as you’ll — as you’ve indicated very early in your argument of the department, I was not at all surprised in having to say you found how tricky because of the business of this, with legal treasury, legal policy, with legal conclusiveness —

    Charles F. Barber:

    Yes.

    Felix Frankfurter:

    In the case of Indians because of the very special position.

    Charles F. Barber:

    Yes.

    Felix Frankfurter:

    Therefore, you can’t just abstractly say, contemplate (Inaudible) the Congress to determine where — wherever there’s comes from.

    And if it was moderately relieved its responsibility on the one hand to what it said — what it did with the other contextual, that’s the burden with your argument, is it (Inaudible)

    Charles F. Barber:

    Yes.

    Felix Frankfurter:

    And exactly, you can take — I’m supposing your opening remark is (Inaudible) out of the context of what you derive from this sentences, complicated variety protected, call it what you will, the position, in thousand one ways in which it doesn’t manifest of being limited to this.

    I mean —

    Charles F. Barber:

    Yes.

    Felix Frankfurter:

    — a none — (Inaudible)

    Charles F. Barber:

    There is — there is one general statement that I make with some caution knowing how complex it is, but we have made a careful study of the rulings of the Commissioner and that is the one fact which has been regarded as conferring tax exemption is the land shall be “nontaxable” or “shall be exempt from tax”.

    Those words are found in certain treaties and arrangements with the Indians both before and after the imposition of the income tax.

    Felix Frankfurter:

    You —

    Charles F. Barber:

    The — the problem is —

    Felix Frankfurter:

    — what you’re saying is — what you’re saying is — is the power to — that the power to indicate —

    Charles F. Barber:

    The administrative record.

    Felix Frankfurter:

    As you indicate, probably (Inaudible) had been expressed by appropriate language.

    Charles F. Barber:

    In a certain —

    Felix Frankfurter:

    Specifically thought it, if it was sought.

    (Inaudible)

    Charles F. Barber:

    I’d rather say that that effect has been given to this language as an administrative matter.

    It has never been considered by this Court whether it should be read as a tax exemption as against the federal income tax.

    Felix Frankfurter:

    But you find in the body of treaty, he was to transfer (Inaudible) in the exemption clause but — and it all comes to that.

    Charles F. Barber:

    I find in — I didn’t hear you, sir.

    Felix Frankfurter:

    In the treaties, in various treaties of opinions you find exemption, specific exemption in different ways.

    Charles F. Barber:

    Yes, yes.

    There are quite a number of them.

    They’re collected in this Court’s opinion in the Oklahoma Tax Commission case.

    Sherman Minton:

    Isn’t it the other way around, they’re authorize to tax.

    Charles F. Barber:

    It is both ways, Your Honor.

    Some of the provisions in the case of Oklahoma Indians say that the allotted land shall be exempt from tax for a period of 25 years, and thereafter, so shall be subject to all state and federal taxes.

    Felix Frankfurter:

    When there were taxes —

    Charles F. Barber:

    Some say three years, some say until 1931.

    Felix Frankfurter:

    The references with the State would be almost consequently, it belongs to the customs, is then asked (Inaudible)

    Charles F. Barber:

    We say references to the State, references to the specific authorizations.

    Felix Frankfurter:

    Would have to be made.

    Charles F. Barber:

    Would have to be made, yes sir.

    Stanley Reed:

    Well, there must be many — many treaties that credit lands of the Indians.

    Charles F. Barber:

    Yes.

    Stanley Reed:

    Are they covered by some general federal law that are in the state for the taxing?

    Charles F. Barber:

    The one of the earliest cases under the General Allotment Act is the United States versus Rickert in 188 United States.

    Stanley Reed:

    I — I wasn’t thinking of the General Allotment —

    Charles F. Barber:

    Well that — that — before taxation of an individual Indian comes — of course, you have the taxation of reservation land as well.

    Stanley Reed:

    Well, for many years of — I was thinking that for many years, there was a — a ruling of opinion of practical basis on that at all because — and regarding with the (Inaudible) and I think it was rewarded in the United States and the States are going to tax him.

    Charles F. Barber:

    Oh, well that has —

    Stanley Reed:

    That was changed.

    Charles F. Barber:

    That has been the rule that has been changed by statute in the Oklahoma case where such a large amount of the wealth of the State was in the hand of the Indians.

    By statute, I should say, with the consent of the Indians, they worked out a trail with the state which was acceptable all around.

    Charles F. Barber:

    To get back to what underlies the doctrine to which you refer, we go back to a 1902 decision in this Rickert case where the State asserted the power to tax certain Indians who tail lands much like those in issue here.

    And the Court held that they were not subject to state taxation.

    It was an ad valorem real estate tax.

    They referred to or relied to some extent on the doctrine that instrumentalities of the Federal Government are not subject to taxes.

    They relied further on general considerations that if this tax could be enforced against the land and the Indian had no other income, the land could be destroyed defeating the long range policy of the Congress in maintaining the Indian aspect.

    Stanley Reed:

    Your — I’m taking your position.

    Is the relation of taxation (Inaudible) doesn’t enter into this problem at all.

    Charles F. Barber:

    That’s correct, sir.

    That has been observed by this Court in — in number of decisions including these recent Oklahoma Tax Commission cases.

    There are different — different problems are involved where there are different sovereignties.

    This goes back to Mr. Justice Minton’s question, because here, you have Congress looking after both policies and striking a balance between them.

    I might say just a word about this problem which has been adverted to in our exchange, that is the fact that these Indians do not own the fee of the land, or in Oklahoma terminology, these Indians are incompetent.

    The — that question was litigated in this Court in 1935, in superintendent on five civilized tribes versus the Commissioner.

    That case concerned income on income.

    That is income from investment of oil royalties.

    The income as here was paid into the account of the Indian, subject to withdrawal by the Indian with the consent of the secretary.

    It was argued that because those lands were — because those monies were restricted and were not available for the free disposition of the Indian that they should not be taxed.

    But the Court rejected that suggestion and held these restricted monies and taxes.

    For our purposes, a dictum in that case may be even more important.

    The petitioner there relied on a holding in an earlier Tenth Circuit case involving one Mary Blackbird.

    In that case, the Tenth Circuit had held that income from restricted lands is not taxable, in the hands of a restricted Indian.

    That is our case.

    This Court reviewed the reasoning of that case and said that the Court correctly failed to follow its earlier pronouncement because it was inconsistent with this Court’s opinion in the Choteau case five years earlier.

    Following this decision, we find an Attorney General’s ruling withdrawing from his earlier wardship equals tax exemption concept and declaring that income of restricted Indians generally is subject to tax.

    In 1938, we find the Department of Interior informing in a — official miscellaneous circular addressed to all superintendents informing them that Indians, just like other citizens, should file returns and pay taxes.

    The income tax laws had several times been reenacted since this — this time and we find no expressions of dissatisfaction with this policy.

    I think I can fairly say that the general principle that Indians must play taxes like other citizens is very firmly established.

    Now, I come to the second part of my argument, what I call the second part, and examine the arguments which are made by respondent in an attempt to build a tax exemption out of this language in the General Allotment Act.

    It may be helpful to look at the language.

    The statute is at page 41 of our brief.

    Charles F. Barber:

    In Section 5, down about — just before the provided in italics, you find the words that at the expiration of the trust period, the United States will convey the same to the Indian, discharge the said profits and free of all charge or encumbrance, whatsoever.

    This statute was amended in 1906.

    You will find the amending act on the next page.

    The language I will look at is on page 43.

    The original act had provided for a trust to be held for 25 years.

    The amending act provided for the conveyance of the land in fee to an Indian found to be able to manage his affairs.

    And the language which respondents focus on is found toward the end of Section 6.

    And it says when the land is conveyed, a patent shall be issued in fee simple and thereafter, all restrictions, as to sale incumbent or taxation, shall be removed and said lands shall not be liable to the satisfaction of any debt.

    This reference to removal of restrictions of taxation, we submit is an obvious reference to the exemption which had been found by this Court as to state taxes and that no more should be read into it than that.

    Of course, this was some years before the 1913 income tax had been enacted.

    So we are left with the provision on the General Allotment Act.

    Felix Frankfurter:

    There must — must have — must that phrase be readily — restrictedly as to this kind of practice in existence at the time.

    Charles F. Barber:

    Well we’re —

    Felix Frankfurter:

    Suppose that that Act or the laws are continued —

    Charles F. Barber:

    We’re searching for the intent of Congress.

    Felix Frankfurter:

    Well.

    Charles F. Barber:

    And so the answer to your question is no.

    No, we are — we look at that language in the light of the context in which it was enacted and considered against other manifestations of the congressional intent.

    Felix Frankfurter:

    After all, when the generic term taxation has viewed, I’m not sure if that was to be restricted but the only statute that instantly falls against this man is the state taxes because after all, long before the 1915 Amendment that the 1915 Amendment can constitute tax evasion of the income tax that the prohibition tax amendment is right in ruling for it (Inaudible)

    Charles F. Barber:

    Yes, yes.

    Felix Frankfurter:

    I don’t think the justifications of cutting it down into the tax as in then against it and I don’t think at all, but why shouldn’t the act applies?

    Charles F. Barber:

    Well, you have the problem of resolving a — a — two competing general policies.

    One, to set the Indians apart and protect them, on the other hand, to have a general income tax applicable to all citizens alike.

    You must consider this in the context of those two policies.

    Felix Frankfurter:

    Well, the Indians (Inaudible) we don’t —

    Charles F. Barber:

    Well —

    Felix Frankfurter:

    — consciously reflect with the interest (Inaudible)

    Charles F. Barber:

    Yes.

    Felix Frankfurter:

    (Inaudible)

    Charles F. Barber:

    Yes, of course Your Honor, those two policies were — were not the first time.

    Charles F. Barber:

    We’re arguing the effect of those two competing policies.

    In the Choteau case, In the Superintendent case, In the Oklahoma Tax Commission case, which you’ll recall and the first one was a — a rather strenuously contested decision within the Court.

    You find a — a groping for — for the dominant policy in the light of the whole picture.

    Now —

    Harold Burton:

    The State certainly could not tax an Indian without expressed authority from Congress.

    Charles F. Barber:

    Yes, sir, I think that is right.

    Harold Burton:

    Why should — why should —

    Charles F. Barber:

    Well the States could not tax the property of an Indian held by the Federal Government without specific authority.

    The States most surely could tax an Indian living in Portland and operating a real state business (Voice Overlap) —

    Harold Burton:

    I’m talking about the (Inaudible)

    Felix Frankfurter:

    That’s not what we’re talking about — we’re talking about private Indians.

    Charles F. Barber:

    Well, the Quinaielts are — are not tribal Indians in the usual sense.

    My friends at the Department of Interior tell me they live in villages, some on the reservations, some off the reservation that there —

    Felix Frankfurter:

    But they’re very different from the white folks, aren’t they, in their general —

    Charles F. Barber:

    Some of them are, there are about 500, I believe, who are still full-blood.

    They — these group of Indians, I don’t think this has any bearing on the decision in the case.

    We understand that this group of Indians have been remarkably integrated into the community out there into the extent just as a footnote that the current plans look to the complete liquidation of the federal interest in this area in the next three to four years.

    Those are plans which are now under discussion with the tribal councils.

    Felix Frankfurter:

    I’m — I’m talking to a very specifically named whether the term taxation (Inaudible) restrictions here as to be used (Inaudible)

    If you look for the intent in any sense that I can’t accept —

    Charles F. Barber:

    Yes.

    Felix Frankfurter:

    — that doesn’t mean anything to me.

    I — all I say is whether you had that special interest in relation to the problem.

    The Indians have (Inaudible) and to relatively reach this as — as usual a thought now to be treated and specifically in the United States, the people living in the United States are generally included.

    As a — as a general —

    Charles F. Barber:

    Well, as a general principle, I can’t say the contrary.

    That’s absolutely —

    Harold Burton:

    Why should there be in (Voice Overlap) —

    Charles F. Barber:

    — that the whole history was involved.

    Harold Burton:

    — why should — why should they be treated differently then in taxation?

    Charles F. Barber:

    That is the burden — burden of my argument, Your Honor.

    We have two general policies that come in conflict and we’re searching for the correct interpretation of the intent of Congress in the — of the purpose of Congress and the rather confused premises.

    Felix Frankfurter:

    I think it derived more competence that should met with intervention than we were entitled.But eventually, why should not this differentiation ought to apply the taxation.

    Charles F. Barber:

    You mean, why — well, perhaps, I should say why should federal judges pay income tax?As you know there is a — a waiting history on that part.

    Harold Burton:

    We’re in the class of Indians.

    Charles F. Barber:

    That [Laughs] wouldn’t be my contention, Your Honor, but they have a special status with constitutional warrant.(Voice Overlap)

    Harold Burton:

    It’s a contemplated warrant.

    It is a self-inflicted wound. [Laughter]

    Charles F. Barber:

    Yes sir, I think that may be characterized as a self-inflicted wound.

    Perhaps, I’d better get on to focus on some of the particular arguments which respondents make.

    The respondents have not chosen to argue the question whether the annual product of the land should be subject to tax.

    Suppose instead of this being timber land, it was farm land and there were an annual return from the crops.

    That question is elaborately briefed in one of the amicus briefs because it is addressed to a lower court decision which is tied up with the outcome of this case.

    This — this question of whether the annual return should be taxed or not, we think, within the context of the — of the discussion we have just had is a relatively easy one.

    On the sale of the produce, the owner realizes income or gain and the income tax laws with their generality require that he pay over a portion of that gain or income to the Federal Government as his share of the common burden.

    Payment of that annual obligation isn’t inconsistent in any way with the obligation of the Federal Government at the end of the trust period to deliver the fee to him, free of all charge and encumbrance.

    Stanley Reed:

    Suppose — suppose — would that be here is frequently timber as to the capital.

    Charles F. Barber:

    Well, then I come to the — to the timber question, that is respondent’s argument.

    He says timber is capital.

    Timber is not the annual gain.

    But I submit that for income tax purposes, it makes no difference whether the gain is realized each year as with an annual crop over once in a period of years, as in a livestock operation perhaps or a timber operation or whether it’s derived from the sale of the land itself.

    In all of those cases the income tax provides for the removal from the proceeds, the exclusion from the proceeds of such part thereof as represents the cost of production in the case of manufacturing operation or a return of capital in the case of a long term timber operation or a sale of the land.

    Now, in the case of the sale of the land or the timber operation, the capital gains provisions provide for the exclusion from the proceeds of the cost of the property.

    If it’s just the timber and not to be of such portion of the cost is attributable to the timber, or in the case the property was acquired as this was prior to 1913 of the fair market value of the property as of 1913.

    Certainly, it’s late in the day to suggest that a tax on gain on capital — on capital gain is a capital levy and not an income tax.

    Your Honor will recall that that question was often one of the first cases under this 1913 income tax and this Court held that gain from the sale or exchange of a capital asset was taxable, it was within the — the scope of the income tax laws as enacted by Congress, it was not an unconstitutional tax as an unapportioned direct tax.

    So, we think that whether the gain be derived from the sale of crops, from the sale of timber or from the sale of land, the question is the same.

    Their gain is realized.

    The — return on capital is excluded from the gain and a tax is assessed on the remainder.

    Respondents argue but we didn’t get anything.

    Charles F. Barber:

    They say we acquired nothing prior to the sale of the timber.

    I suggest simply that that is not the fact.

    They had a vested beneficial interest in their allotment frm the date of the patents which — which could not be taken away from it.

    It was a proper divide of the sort which is recognized everyday for purposes of imposition of the income tax.

    In another facet of their argument, taxpayers focus on this obligation to deliver the land at the end of the trust period free of all charge and encumbrance.

    They read this as requiring that the proceeds of the land be maintained intact throughout the trust period.

    This gets close to the core of their contentions, so maybe I better read it from their brief.At page 14 on the top, they say —

    Stanley Reed:

    Ran on which Judge Phillips is saying, wasn’t it?

    Charles F. Barber:

    Yes — yes, it is, it is.

    They say, to the extent, the United States fails to setup respondent husband with all his capital intact.

    And in this case, the most important part of his capital from which point he can go forward with a chance of economic survival and competition with others, to that extent, the United States has violated its trust.

    They seem to say there —

    Stanley Reed:

    What page?

    Charles F. Barber:

    At the top of page 14 of the blue brief.

    There are several amicus briefs as well.

    Stanley Reed:

    Is that the brief amicus?

    Charles F. Barber:

    No.

    That is the brief of the respondents’ taxpayers here.

    To paraphrase it slightly, he says to the extent — to the extent that the United States permits the invasion of the proceeds of these assets, to that extent they violate their trust.

    I — I submit they can’t mean that.

    If the Department of Interior insisted on maintaining intact, the proceeds from the sale of this timber, they would be the first to complain.

    Respondents sold the timber.

    Under the statutes, he has the use of the proceeds subject to supervision.

    Our record shows that he’s made use of those proceeds.

    His record shows he’s withdrawn $1000 on two occasions for war bonds, $2000 for a truck, $1500 to complete in addition to his house, responsible expenditures consistent with the broad purpose of bringing these Indians to a position of responsibility.

    Can he mean them that the Government, under this General Allotment Act, has an obligation to keep him away from those funds and not to let them — him use them for economic, productive expenditures, to keep the funds intact perhaps for his heirs, I — I’m sure — I’m sure not.

    I advanced the argument that way because I think it throws some light on the nature of the trust.

    The United States has not undertaken it to prevent this Indian from enjoying the proceeds of his land or the timber for any length of time, or it is not undertaken to keep him from the proceeds of the timber until he enjoys the land.

    The applicable statutes, consistent with the broad congressional policy of helping these Indians, take an economic role in our society provide for the sale of his land or for the sale of his timber and provide that the proceeds shall be subject to his use on application, thereafter.

    Upon such sale, the trust and the obligations of the United States which go with the trust terminate pro tanto.

    Charles F. Barber:

    The United States on the sale of the timber discharges its obligation to deliver the proceeds — well, the obligation which you would read from the General Allotment Act to preserve the property in trust for him.

    And if the Indian, on the circumstances of this sale, realizes the gain — realizes the gain, he’s not taxed on any increment in value which is not realized, realizes the gain and has that money income available for his purposes or be it under supervision.

    We think, the Indians, like others, must pay a tax on that gain as their share of the common burden.

    Stanley Reed:

    If all this land had been condemned by the Government for —

    Charles F. Barber:

    Oh, there are, of course, many cases of condemnation for road purposes, for irrigation purposes.

    Stanley Reed:

    (Inaudible)

    Charles F. Barber:

    The procedure would have been the same.

    The funds derived from the sale of the land to the Government determined by their — by agreement or by judicial proceeding would be paid into these Indians account for his use on approved expenditures.

    Stanley Reed:

    And turned over to him at the end of the time.

    Charles F. Barber:

    Well, if these Indians experience is typical — turned over to him as he requires to —

    Stanley Reed:

    You mean to say, if you’re —

    Charles F. Barber:

    Well, I — as — as I say the —

    Stanley Reed:

    The General Allotment — the Government comes in — some Government comes in and condemns the land for the gain and then sell it —

    Charles F. Barber:

    Yes.

    Stanley Reed:

    (Inaudible) their question of rules, whatever it is.

    Charles F. Barber:

    Yes.(Inaudible)

    Stanley Reed:

    But it comes to that one.

    Charles F. Barber:

    It goes into the Indian’s account for his use.

    Now —

    Stanley Reed:

    You mean he can spend?

    Charles F. Barber:

    He can spend that money, yes, sir.

    Subject to supervision, if —

    Stanley Reed:

    Spend the capital or use this capital that much?

    Charles F. Barber:

    Yes, sir.

    As this Indian, perhaps, he wants to buy a truck and go into trucking business, perhaps, he wants to buy other land and reestablish himself in agricultural pursuits elsewhere.

    Perhaps —

    Tom C. Clark:

    (Inaudible)

    Charles F. Barber:

    The Secretary has to approve any substantial expenditure.

    Stanley Reed:

    Oh, yes.

    Tom C. Clark:

    (Inaudible)

    Charles F. Barber:

    That is correct.

    Stanley Reed:

    Well, I — I understand that but under the —

    Charles F. Barber:

    I think it’s over $500.

    Stanley Reed:

    Under the General Allotment Act, the — the Government agrees to return that back to him, doesn’t it, at the end of the time?

    Charles F. Barber:

    The — under the General Allotment Act, the Government agrees to convey the fee to him.

    Now, I would rather say, instead of at the end of such time, at — as — at such time as the Indian request the fee or the timber and the transfer thereof to him is approved by the secretary.

    Felix Frankfurter:

    Is that merely an immaterial proceeding?

    I mean, did he request that for the Secretary of Interior mandamusable (Inaudible)

    Charles F. Barber:

    The Secretary of Interior mandamus —

    Felix Frankfurter:

    Could he?

    Charles F. Barber:

    Could he mandamus the Secretary of —

    (Inaudible)

    Charles F. Barber:

    — that has been tried, there are some cases —

    Felix Frankfurter:

    In other words —

    Charles F. Barber:

    If I could generalize, they give the Secretary very broad discretion.

    Felix Frankfurter:

    Yes.

    So that he couldn’t — by merely asking for him to get it.

    Charles F. Barber:

    At the — under the current regulations, he could.

    Up until 1952, they were more restrictive.

    That — that policy again is specific — to the specific Indians and the specific expenditures.

    Felix Frankfurter:

    (Inaudible) do you happen to have suggestion concerning the importance, the number of Indians to have a holding similar to the respondent’s brief?

    Charles F. Barber:

    Well, we —

    Felix Frankfurter:

    (Inaudible)

    Charles F. Barber:

    We — we —

    Felix Frankfurter:

    The number of the individuals (Inaudible)

    Charles F. Barber:

    Well, I can do some arithmetic.

    I understand there are about 300,000 — 350,000 Indians.

    I understand that above —

    Felix Frankfurter:

    (Voice Overlap) —

    Charles F. Barber:

    — three-quarters of the land held by Indians was allotted under the General Allotment Act.

    Charles F. Barber:

    And I understand that was allotted to about two-thirds of the Indians so that would be 150 — 200,000 probably —

    Felix Frankfurter:

    Your brief has a little difference in —

    Charles F. Barber:

    Your figures may be more current than mine, a third of a million.

    It’s a figure which I have seen.

    Earl Warren:

    Mr. Cragun.

    John W. Cragun:

    May it please the Court.

    There have been questions raised by counsel and by the Court.

    They seem rather reasonable to me but unfortunately, our record doesn’t cover them very well.

    I would like to say a few words about them.

    First place, I hadn’t heard before that these Indians get about half of their income from fishing and half from timber.

    It couldn’t be true as to the individual, any — given the individual of — they’re fishing Indians.

    They’re wonderful fisherman who have log canoes and they can take them out in the ocean and they are experts with salmon and the other fish that ran there.

    But timber isn’t something that a man can go out and take a log off of his allotment and carry them to the mill and sell it.

    It isn’t a crop of that kind.

    It’s only a crop in the sense of hundreds of thousands of acres.

    And when on the Olympic Peninsula, they tried to get enough land together to do that, there are formal agreements.

    There is one embodied in the statute, I understand it, whereby the national forest and a large private timber company or logging company can throw their acreage in the hotchpotch so that they can cut off enough per year to keep it forever productive.

    This is not tribal timber that we’re talking about at all.

    There’s almost no tribal timber on the Quinaielt reservation.

    The reservation is almost 100% allotted.

    These are reservation Indians.

    This — this respondent and his wife lived at the very small fishing village of Taholah at the mouth of the Quinault River on the western slope of the Olympic Mountains.

    The discussion as to whether what is involved here was income derived from the land, those were almost magic words to the Court and I did want to say just a word about that too.

    It was a phrase that was used a few times by counsel for petitioner.

    Income from whatever source derive, says the Constitution and the Court as counsel has said, has held from a long time back that income can be derived in many respects.

    It can be derived from the sale of timber.

    There was not renew that the argument of statement repeated in several times in petitioner’s brief that this Indian was engaged in the cutting and sale of timber, that is to say the logging business wherein one buys some logs and — and they cut them and take them to the mill and sell them for profit.

    This Indian had his allotment cut along with the allotments, I believe, of 18 others according to what we’re informed by Indian office.

    He gave a power of attorney permitting the superintendent to enter into a contract on his behalf.

    There was one contract covering a thousand 74 acres entered into with a logger, one who — whose business is cutting and sale of timber.

    John W. Cragun:

    That logger was the Aloha Lumber Company.

    The Indian didn’t get the logs.

    This wasn’t just a contract to cut trees.

    This company bought the standing timber, cut the logs and hold them off to the mill itself, made what — made its profit in that way.

    I am bound to admit, of course, that it is perfectly possible to make income from the sale of the land.

    You can sell a land and you can make the profit on it.

    And I’m bound to say further that this Court has held all in such cases as with state bonds.

    The Federal Government can’t tax the income derived from them, but this Court long ago in Willcuts against Bunn way down the (Inaudible) that the Federal Government can tax the profit which is made upon the sale of state bonds even though the income directly derived from the bonds itself was exempt.

    Accordingly, more in the brief than in the oral argument in this particular respect, it has been urged by petitioner that while we’re merely taxing, not the land itself but the profit which arises upon the sale of that land.

    And I — I would like to cover it since it is touched in this — this is income derived from the land which we’re taxing.

    It’s not at all the usual case where a man goes out and sells his land and makes a profit.You have another problem here entirely.

    You have reservation Indians who have never got that land.

    It’s true, they can get the land if they apply for a patent.

    And if upon review of their situation, the Secretary of the Interior says, yes.

    I think that you’re entitled to a patent.

    You have now got along to the point where you’ve got a — a truck and you’ve got a couple of war bonds and I think it might make sense.

    I’ll give you a patent to it.

    You are henceforth competent and he could go ahead.

    That point, so far, in this case, has been reached only to the extent that on some little applications, some money for beneficial purposes has been risked on this Indian, to that extent only has he got his capital to start out with.

    He goes out and makes profit on it.

    So far as I’m concerned in this case, he’s taxable on it.

    It’s like the reinvestment income which was concerned in the case of Superintendent of Five Civilized Tribes which is relied upon so closely by counsel for petitioner.

    The fact is that you do have, as counsel says, two policies here.

    You have the policy.

    He adverted to the decision of the Chief Justice in the Glenshaw Glass case that, of course, the income tax means to — the income tax statutes mean to bring within their sweep of all profits.

    And in that case, this Court held that it would not exempt from taxation the treble damages that a plaintiff gets on a — an antitrust action.

    That policy means to bring within it, but there is a policy of Congress which antedates that which is good right down the date.

    It’s been unchanged by Congress that the — this land of the Indian shall be withheld from the dissipation which he might, otherwise, make from it until he’s considered a good enough risk by the Secretary of the Interior and he is accorded his certificate of competency and his free patent.

    Now, it is — it’s been said in very plain language.

    I believe that this language of the statute is scarcely open to question as to what the congressional policy is when it said that at the end of that time, when he gets this certificate of competency, he is to receive his land in free discharge of sub-trust and free of all charge or encumbrance, whatsoever.

    John W. Cragun:

    Encumbrance is an ordinary way you can dilute or diminish the value of the land before the man gets it.

    Now, in this case, he used to get that land before he becomes subject to taxation.

    Statute says, only thereafter, shall his land be subject to encumbrance, sale, or taxation.

    Now that being established, question is what happens to the proceeds of timber?

    Over a — an Indian office in a letter to this individual which I’ve received on inquiry since I was very much concerned with some of the interpretations of this record, which could have been more specific, had the counsel foreseen what was coming, says that up from this allotment, this little 93 and a quarter acres of land, there was cut over three-and-a-quarter million feet of timber, marginal timber for which proceeds were paid under the Government account.

    Now, that is the trust raised.

    It’s the overwhelming value of that land.

    Stamp ranchers can’t farm it.

    They have finally found out, it’s a matter of common notice — it’s only partially supported by the record here.

    I have covered some of the common knowledge of the Olympic Peninsula country in the brief and —

    Harold Burton:

    Mr. Cragun, do you treat on a different basis the annual crops from timber to make a distinction between them?

    John W. Cragun:

    Mr. Justice, so far as this case is concerned, I’ve taken no position on it.

    I can assume for the sake of my argument that they’re fully taxable.

    If the Indian goes out and exploits his allotment, if he’s got an allotment on which he can raise grain, as in Julia Nicodemus’ case or that he can lease out for grain growing, as in Mr. Gary’s case, both recent decisions of lower courts, the latter one in the tax court and the first one I mentioned of the U.S. District Court for the Eastern District of Washington.

    I assume that they can be taxed, although, one court holds one light and the other holds the other in those opinions.

    It’s ably briefed in this case by counsel for Julia Nicodemus, Mr. Delwel who has filed the brief and by counsel in the Taunah case in which this Court denied certiorari some years ago, Mr. Hill and those associated with him.

    I — I would rather permit those briefs to stand for themselves.

    I assume for the sake of this argument that annual product of the land is taxable.

    The matter here of the proceeds of the land, the capital, the essential value of this land, go into the trust account.

    They stand in place of it.

    Congress has said in support of what I urge upon this Court to be a perfectly valid policy for Congress to adopt that those proceeds are to be unimpaired, that the Indian is to receive them at the end of the time without diminution, which is what encumbrance means.

    It — it follows as a result that until he’s got that, he hasn’t got the basic requirement for making a capital gain on this land.

    He hasn’t yet received the trust raise and the circumstances and under the conditions which Congress has provided as a means of solution for the Indian problem.

    As gratified, they hear a counsel for petitioner say that he had become amazed that the complexity of these Indian problems when he gets into the peculiar statutes and arrangements that have been made which distinguished one tribe from another.

    Most of us, and I suppose the way we’re raised seem to think that Indians mean plains Indians with feathers and tomahawks and things of that kind.

    The Indian cultures are as varied as can be supposed that’s adequately covered by anthropologist who have written rather popularly on it like Ms. Benedict’s “Patterns of Culture” comes to mind off hand, showing the extremes of difference in the Indian tribes in this country, where they originally have no name for another tribe which would distinguish him as an Indian like themselves, where they regarded another tribe almost usually as being as different from them as would be a white man from them.

    They each present separate problems.

    Congress did try a horizontal across the Board’s solution of this in the General Allotment Act.

    It has confirmed its view in that Act from time to time that it shall be untaxable until the money is received.