Warren Trading Post Company v. Arizona Tax Commission

PETITIONER:Warren Trading Post Company
RESPONDENT:Arizona Tax Commission
LOCATION:Criminal District Court, Parish of New Orleans

DOCKET NO.: 115
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 380 US 685 (1965)
ARGUED: Mar 09, 1965
DECIDED: Apr 29, 1965

Facts of the case

Question

Audio Transcription for Oral Argument – March 09, 1965 in Warren Trading Post Company v. Arizona Tax Commission

Earl Warren:

Number 115, Warren Trading Post Company, Appellant, versus Arizona State Tax Commission et al.

Mr. Jacobson you may proceed with your argument.

Edward Jacobson:

Mr. Chief Justice, may it please the Court.

This case comes on appeal from the Arizona Supreme Court.

It presents one question only of law, a question of first impression to this Court.

The question is whether a state may impose a license prohibition and a privilege tax upon a federally licensed Indian trader for the privilege of his engaging and making retail sales from his trading post on the reservation to reservation Indians.

By stipulation, there is excluded from this case any question of off reservation sales to Indians or others.

Equally excluded by stipulation is any question of on reservation sales to non-Indians.

The case comes to you with undisputed facts yet the history surrounding these facts, I shall briefly give, because I think it’s important to put the action of the Arizona State Tax Commission into context.

Since 1876, the Congress of the United States has given to the Commissioner of Indian Affairs the sole power and authority to appoint traders to the Indian tribes and to make such rules and regulations as he may deem just and proper specifying the kind and quantity of goods and the prices at which such goods shall be sold to the Indians.

The appellant in this case, the Warren Trading Post is such a federally licensed Indian trader.

Its trading post is at Kayenta, Arizona that is on the Navajo Reservation.

It is on the south border of Monument Valley.

It is in Navajo County, Arizona and it rents its premises from the Navajo Tribe.

Pursuant to this congressional action, the Commissioner of Indian Affairs has issued a number of rules governing many and we think most phases of Indian commerce.

In the spring of 1935, the Arizona legislature passed a Privilege Tax Act not unlike that of Illinois and several other states levying a gross privilege tax measured by gross proceeds of sales on a variety of occupations including for our purposes the occupation of retailing.

In 1940, the Assistant Solicitor wrote an official opinion for Mr. Oscar Chapman, the then Assistant Secretary of Interior with specific reference to the Arizona Privilege Tax stating that it should not apply to federally licensed Indian traders making sales to Indians on the reservation.

That opinion was honored until the assessment made in this case in 1958.

In 1958, the Arizona State Tax Commission under the privilege tax section which levies a tax on retailing.

And pursuant to a rule which it had adopted two years earlier which said that this section shall apply also to Indian traders levied an assessment of $2800 odd dollars on the Warren Trading Post.

This was the first time in the 23 years since 1935 when the Arizona Privilege Tax went into effect that anybody had tried to tax a licensed Indian trader on these kinds of sales not alone in Arizona but in the other 24 states which happen to have Indian reservations lying in whole or in part within their boundaries.

Since that time, however, both the State of New Mexico and the State of California had taken similar positions.

The State of New Mexico’s case is now pending before their Supreme Court by stipulation to be determined in accordance with the opinion of Your Honors.

The California position is reflected only in a recent opinion in 1958 of the California Attorney General, reversing a previous opinion to the contrary, his action also having been taken after the move made by Arizona.

In October of 19 — in August of 1958, my esteemed and deceased partner Perry Ling brought an action for declaratory judgment in the Superior Court of Arizona.

The Superior Court held against Warren and for the State Tax Commission, basing their opinion on Thomas versus Gay finding no difference between a tax on an Indian trader’s stock in trade and a tax on his right to engage in commerce the one came under Article I, Section 8, Clause 3 of the constitution and the other did not.

The Arizona Supreme Court in December of 1963 sustained the superior court but on a slightly different ground.

It found that so long as a law was neither in consistent with or burdensome to federal purposes, it could operate coexistent with federal law and found as a fact this tax to be neither inconsistent with or burdensome to federal purposes.

There was a long dissent filed by now Chief Justice Warren (Inaudible) one of our court adopting the view of the appellant Warren Trading Post and on October 12 of 1964, this Court noted probable jurisdiction.

Our case rests on three points.

Edward Jacobson:

We believe anyone of which independent of the other should sustain the position that the Arizona Supreme Court should be reversed and that these kinds of sale should go tax free.

Very briefly, the three points of these, first, we believe that the national character of Indian commerce like the National Character of Interstate in Foreign Commerce is such that were there no federal regulations whatever the field should be left clear for federal regulation at such time as it should choose to occupy it.

Second, that as a matter a fact, the field of Indian commerce has been heavily occupied with both congressional action and rules adopted by the Commission of Indian — Commissioner of Indian Affairs pursuant thereto so that there is no room left for state action that would not be contradictory thereto.

Finally, that there resides in the Indian tribes a degree of sovereignty as this Court announced in Williams versus Lee, a degree of internal sovereignty which can be impinged upon by the states only upon specific authorization of the Congress.

We believe any of the three points sufficient to justify our position.

Going back to the first one every briefly, we believe that the National Character of Indian Commerce is equal to the National Character or greater than that involved in interstate and even perhaps foreign.

In the decision of Dick versus The United States written by Mr. Justice Harlan, this Court took much the same position although not related to a privilege tax but related to Indian commerce.

We believe the reason for the National Character of Indian Commerce relates to its purposes and goals highly related to the purposes and goals of the other two fields namely the economic development of the Indians as set forth by this Court in Williams versus Lee, the congressional legislation points to making the tribes both self reliant and economically self-sufficient.

We think this is the sort of thing that can best be done and perhaps only be done by the Federal Government.

We believe the geography of the situation alone is an argument in this favor.

For example, the Navajo Reservation with which we happen to be concerned today stretches across three states, Arizona, New Mexico and the Southern part of Utah.

Not given to the independent regulation we would think of the 25 separate states which contain all or part of an Indian Reservation.

The occupation of the field we believe to be so great that even if the first premise were denied and we present these arguments both alternately but at the same time believing in all three as an independent basis.

We believe the occupation of the field so substantial that there is no room for state regulation.

In this Court’s decision, the Pennsylvania versus Nelson, you’ve set down several rules for determining whether a field had been federally occupied in its totality.

The last of these rules I think is interesting in view of a recent advent on the Papago Reservation.

The last of the rules is with the enforcement of state laws present a serious danger of conflict with the administration of federal justice.

Potter Stewart:

Mr. Jacobson you may have told us but if so, I missed it.

Is there any question in this case that the customers of the — of your plan are Indian tribes, (Voice Overlap)?

Edward Jacobson:

Mr. Justice Stewart, the one point of law upon which both parties are aggrieved is that sales to individuals on the United States versus Holiday, individual Indians constitutes Indian commerce.

The sales from the Warren Trading Post are to individual Indians where they may have made some sales to tribes, the case does not rest on tribal (Voice Overlap) —

Potter Stewart:

But at least into — individual Indians are members of the Indian tribes (Voice Overlap) —

Edward Jacobson:

Yes, Mr. Justice Stewart, they are.

Potter Stewart:

I’m thinking about a story in Omaha or Cheyenne.

Edward Jacobson:

Right.

Potter Stewart:

Or even Detroit or New York.

I suppose an occasional Indian might wonder in there buy a package of cigarettes or a book.

Edward Jacobson:

Very good.

But by stipulation —

Potter Stewart:

How can they have power over that kind?

Edward Jacobson:

No, no.

By stipulation Your Honor there is excluded from this case two kinds of sales.

One, sales made off the reservation whether it’d be to Indians or to non-Indians.

Two, sales made on the reservation of the —

Potter Stewart:

Of the non-Indians.

Edward Jacobson:

— non-Indians so we’re concerned only with Reservation sales to Indians.

Potter Stewart:

And there’s no question that these are not casually into the tribal Indians?

Edward Jacobson:

Correct.

There has been no question raised as to that.

Arthur J. Goldberg:

(Inaudible)

Edward Jacobson:

Yes Mr. Justice Goldberg.

Arthur J. Goldberg:

(Inaudible)

Edward Jacobson:

No.

The corporation is not owned by Indians.

Most of the Indian traders as a matter of fact are White Indian traders and when owned by corporations, the federal regulations require that those who are to run them must run the gambit of federal license assuring themselves to the inspected, told what they may carry, be sure that they are morally suitable for the job and so on.

Since the decision of the Arizona Supreme Court in this case but before the petition for rehearing there came to light the fact that the Papago Tribe also in Arizona levied a sales tax of its own.

We think this is significant as an illustration of the kind of head on collision that can happen.

Arizona sales tax at the time of this case was 2% the rate has since been raised to 3%.

The Papago rate is 3%.

Byron R. White:

Does every Indian trader or did every trader on a reservation need a license from the Federal Government?

Edward Jacobson:

Mr. Justice White, every trader must have a license.

Absent of license, he is subject to a $500 fine plus his stock and trade will be forfeited and the United States Marshall will chase him off the reservation.

Byron R. White:

And under this tax, this Arizona tax, does the trade — the same trader need another license?

Edward Jacobson:

Yes, Your Honor.

Byron R. White:

He just doesn’t — he has to have the license as well as pay the tax.

Edward Jacobson:

That is the claim of the State of Arizona.

We would contend Arizona has not the right to make that claim.

The effect that the Papago tax illustrates we think in one fashion, the danger that can come and the conflict that can come because with a total of 6% tax running, three from the state and three from the Papagos, several things are going to happen, either the Papago traders will be permitted to pass the tax along to their customers, the Indian and both taxes are on the trader both permit passing along the customer.

If the Papago trader is permitted by the Commissioner to pass the tax along to his customers, the Papagos who can ill-afford it are going to be paying a 6% sales tax.

If they’re smart, they’ll get off the reservation to make their major purchases somewhere in Arizona where it’s only 3%.

Byron R. White:

Has this conceded the (Inaudible)?

Edward Jacobson:

Yes Your Honor, it is conceded.

That there is no specific concession in the pleadings or in the briefs but there has been no question with respect to that ever raised.

And so we believe that that isn’t —

Byron R. White:

But do you think the tribe can levy the tax without any authority from any further authority than the present law of — without any further authority from the Department of Interior or anybody else?

Edward Jacobson:

Mr. Justice White, you’re correct.

The tribe can levy the tax but does need authority therefore from the Department of Interior and they give that authority in the form of what they call a no objection letter and included in Appendix B of our opening brief, the appellant’s opening brief.

Byron R. White:

Does this resort to some statute that they may do so?

Edward Jacobson:

Yes, pursuant to the — to two things.

One, a written opinion of the Department of Interior, I believe 1948.

Second, pursuant to a rule of a Commissioner of Indian Affairs which states that beyond the fees charged by him to traders, they shall not be — I’m paraphrasing badly, that that these charge by the Commissioner of Indian Affairs to Indian traders on the reservation shall not be in derogation of the Indian Pueblo’s right to levy their own fees.

And so, pursuant to that rule and the opinion of the —

Byron R. White:

What is that (Voice Overlap) —

Edward Jacobson:

— Department of Interior?

I beg your pardon?

Byron R. White:

Where did that right come from?

Edward Jacobson:

The right for the rule —

Byron R. White:

I mean, the right for the (Inaudible) — of the tribe to levy its own fees that you just referred to, shall not be in derogation of that right.

Where did that right come from?

Edward Jacobson:

The right of the derogation of the tribal right to levy its own fees recognized by the opinion of the Department of Interior, I believe comes and there is no flat answer, we’re now talking about an opinion of law.

I believe comes from the residue of sovereignty residing in the Indian tribes to govern themselves except insofar as that sovereignty maybe impinged by the Federal Government as set forth in the rule of this Court in Williams versus Lee.

And that is the basis upon which the Department of Interior’s opinion stating that the tribes may do this providing they get the Department of Interior assent thereto.

That is the basis upon which that opinion is filed.

Byron R. White:

Well, if that is so, if this were a — if these were a sales tax, I suppose under the Buck Act, it could be levied right on this trader and exact it from the Indians.

Edward Jacobson:

This is a tax levied on the trader in each instance —

Byron R. White:

Yes, but it’s not passed onto the Indians.

I mean, it’s not collected from the Indians.

Edward Jacobson:

To the extent that the trader is permitted to pass it on to the Indians, it is passed on to the Indians to the extent that he is not permitted to, it will not be passed on.

And the man in charge of that decision is the Commissioner of Indian Affairs given it’s — the authority by the Congress to set the prices at which the goods will be sold.

Byron R. White:

But wouldn’t the Buck Act permit a sales tax to be collected on this reservation by an Indian trader?

Edward Jacobson:

That is the fourth point and it’s a negative point and so I didn’t name it as one of my three.

It is our contention that the Buck Act does not apply.

It is the contention of the State of the Arizona that the Buck Act does give that right.

Briefly, let me say why we believe that does not apply.

The Buck Act by its terms refers to a federal area and is operative only in a federal area.

I’m looking at page 84 of Appendix A of my brief at the subparagraph E at the bottom.

The Buck Act defines federal area as to mean any lands or premises held by or acquired for the use of the United States, held by or acquired for the use of the United States.

Now in the one decision on this specific point, a decision of the New Mexico Supreme Court a case entitled Your Food Stores versus Espanola.

They held the Buck Act not to apply to Indian reservations for the reservation was not a federal area as here defined.

For example, in the Espanola case and in Mr. Felix Combs book, they discussed the fact that many reservations are really held by the United States in trust for Indians, others are not.

Oddly enough the Santa Clara Reservation in the Your Food Stores case in New Mexico is held by a patent in fee granted by the Congress of the United States confirming a direct grant from the King of Spain.

Then you get to the other half of the sentence for the use of the United States and there the law is absolutely solid that Indian Reservations including those held by the United States in trust are not held for the use of the United States but rather for the use of the Indians.

The state also raised the question in its brief as to whether or not the legislative history of the Buck Act did not oppositely suggest from that which I have answered you and we did go to the legislative history and set forth the fact that the three amendments submitted first by Mr. Burlew, then acting Secretary of Interior.

The second find Mr. Dixwell Pierce, I believe the Executive Secretary of the California Board of Equalization and the third by Senator La Follette who at the time was one of the three men in the subcommittee.

Each of those amendments was designed and the discussion indicates it and our reply brief sets this out in full, designed to keep the status quo of taxation on the Indian Reservations.

Well, in 1940, the status quo was privilege taxes would not be levied on sales by Indian traders to Indians providing on the reservation and providing they were reservation Indians.

Finally, just after the Buck Act is passed Mr. Justice White, three years later in 1943, the Department of Interior gave another formal ruling.

This time specifically holding that the Buck Act did not apply, did not return to the states the right to levy privilege taxes on the reservation and we believe that a long continued administration (Voice Overlap) at 25 states.

Byron R. White:

They think it applies to sales taxes?

Edward Jacobson:

The opinion of the Department of Interior indicates that the Buck Act applies to what we would consider Federal Military Reservations and Federal Park Reservations but not the Indian Reservations as being outside (Voice Overlap) —

William J. Brennan, Jr.:

Outside (Voice Overlap) —

Byron R. White:

Do you say the Department of Interior took the position that you have stated?

Edward Jacobson:

Yes sir and the states acceded to it.

Byron R. White:

The Buck Act doesn’t apply at all —

Edward Jacobson:

On Indian reservations.

Byron R. White:

Regardless of the kind of tax.

Edward Jacobson:

Correct.

Byron R. White:

Whether it’s a sales tax or privilege tax.

Edward Jacobson:

It has nothing to do with Indian reservations with the position of the Department.

Earl Warren:

Mr. Jacobson — would you tell us again those three amendments that you spoke of.

Earl Warren:

Just what did they propose to do and were they adopted?

Edward Jacobson:

I — yes.

Earl Warren:

I don’t want to take a lot of time from you.

Edward Jacobson:

Very good Mr. Chief Justice.

Earl Warren:

You just say it very briefly.

Edward Jacobson:

In the Senate Finance Subcommittee after the Buck Act had gone from the House top the Senate, the Department of Interior became worried and asked that an amendment be given to make sure that the Buck Act did not apply to Indian Reservations.

That amendment plus the amendment submitted by Senator La Follette plus the Amendment submitted by Dixwell Pierce of California are set forth in the appellant’s reply brief.

When the Buck Act finally came out, it came out with Section 109 which is slightly different from any of the three submitted amendments but for the first time, talks about Indians.

There was nothing in the Buck Act about Indians when it came from the House to the Senate.

109 appears to be the compromised language of those three submitted amendments.

Shortly after the Buck Act was passed with Section 109 in it which reads nothing in Sections 105 and 106 of this title shall be deemed to authorize the levy or collection of any tax on or from an Indian not otherwise taxed.

After the Buck Act came out with that language, slightly different than any of the three amendments, the Department of Interior issued its written opinion.

They were slightly unflattering about this — the language of 109 suggested it was something less than clear but stated that they believe that its intent was the intent of the three submitted amendments to have Indian reservations out of — free from the Buck Act.

William J. Brennan, Jr.:

Mr. Jacobson, getting back to that Papago privilege tax that you say has its source perhaps in the reserve sovereignty of the (Voice Overlap) —

Edward Jacobson:

Yes, Mr. Justice Brennan.

William J. Brennan, Jr.:

Now would a conflict between that reserve — the exercise that reserve power and the state’s taxing power, does that create supremacy towards power?

Edward Jacobson:

I’ve never given that consideration and I couldn’t give you mature consideration on this further moment here.

William J. Brennan, Jr.:

Which you’re not suggesting it anyway.

In your brief, I don’t —

Edward Jacobson:

No.

I believe it’s been brought up in none of the briefs.

Our points then in —

Hugo L. Black:

Why wouldn’t you?

Why wouldn’t it if the federal law (Inaudible) kind of sovereign of their own recognized by — under the comments, why wouldn’t it raise the Supremacy Clause if the state (Inaudible)?

Edward Jacobson:

I think Mr. Justice Black that to the extent the Supremacy Clause is deeply related to the internal sovereignty of the Indians which still remains it would raise the question.

My attempt to avoid the question directly was only because I had not given that kind of consideration I would like to.

In conclusion, let me state that I think that there may come a time when a privilege sales tax by the states should be imposed upon Indian traders on the Indian reservations.

I think the time will come separately for different Indian tribes and separately for the states.

It will probably come more rapidly for wealthy tribes which we do not happen to have in Arizona in which we are told it exists in some other states like Oklahoma.

We think it will come more rapidly for states that have undertaken to do more for the Indians and give a quid pro quo, such as was pointed out in Williams versus Lee when this Court suggested that Arizona had refused to do even those things which would permit its state courts to have civil and criminal jurisdiction perhaps because it could not afford to.

Edward Jacobson:

So we’re not saying that there should never be a privilege tax on Indians.

What we are saying instead is that this is a federal question which should be federally determined.

It is a clock and a time table which should be read by the Federal Government.

We would suggest that if this Court were to decide that 25 separate states which now have Indian reservations could now engage in 25 separate kinds of legislation.

The Court would be faced with the problem that either deciding the states could do the same thing with respect to foreign commerce and interstate commerce or else they would have to find that somehow the Indians and their problems and their destinies and their futures were less national in character.

We submit that is not the fact.

We believe it should not be the law.

Earl Warren:

Mr. Haggerty.

Philip M. Haggerty:

Mr. Chief Justice, may it please the Court.

If we were talking about Indians I think much about Mr. Jacobson has said would be most pertinent.

But I don’t think we’re wrong we’re talking about as Mr. Goldberg pointed out in Arizona Corporation, doing business in the State of Arizona.

I think the briefs point out there are approximately 169 traders involved.

There are 30,000 to 40,000 businesses in the State of Arizona subject to the transaction privilege tax.

If we were talking about he history and the background of the Indian tribes themselves, that would be important because as I say we’re not.

We’re talking about a business selling across the country like any other business in the state.

Mr. Justice White inquired that we issue a license.

Yes, we do.

We issue it on demand there are no qualifications.

It costs $1.

It is a perpetual license.

One is required for each individual physical establishment but that’s all.

We do not regulate by the privilege license tax anymore than other states regulate because everyone in business must have one.

The principal reason for it is administration so that the State Tax Commission knows who is in business to whom the forms are to be sent each month and to collect the taxes if they are not promptly returned in accordance with the law.

But it is not a regulatory statute.

I think this Court in the Richfield Oil case made a very important distinction.

In that case, I believe the State of California attempted to post a tax on what was a export out of the State of California.

An exemption was claimed under the Commerce Clause and under the Export-Import Clause.

And Mr. Justice Douglas carefully pointed out the distinction between the two.

The Export Clause just flatly in the constitution prohibits the state from laying a duty or imposed on exports or imports.

And as the decision points out, one speaks of taxes.

Philip M. Haggerty:

The other speaks of regulation, the other being the Commerce Clause.

One is a prohibition to the states against this taxation.

The other is a grant of power to Congress in the area of regulation.

At various times under the Commerce Clause, state taxes had been held to violate the Commerce Clause because they had interfered with interstate commerce itself but the norms of this Court is laid down have come to basically two things.

Is it an undue burden or is it discriminatory.

Discrimination is obviously not an issue here.

The issue of whether or not this is an undue burden on the Indian traders has not been raised by the traders, certainly it is attacked.

William J. Brennan, Jr.:

But I recognized — maybe you don’t have the possible case before us but what about that situation?

Philip M. Haggerty:

It’s not the position of the State of Arizona to say whether or not an Indian tribe can tax.

We assume that they can.

It’s not our issue.

So they are a little sovereign within the state limited but they have their sovereignty.

We concede so thus a city so thus perhaps the county.

Earl Warren:

Do they —

Philip M. Haggerty:

The fact that there are multiple sovereigns taxing with the —

Earl Warren:

(Voice Overlap)have sovereignty.

Philip M. Haggerty:

This Court has indicated often enough in certain areas concerned with tribal self-government, yes, they do have a residual —

Earl Warren:

No, I said a county.

Does a county have sovereignty?

Philip M. Haggerty:

For the purposes of imposing taxation certainly they do impose many taxes.

Earl Warren:

Oh, they have the powers that the state gives you and isn’t that all of the political subdivision?

Philip M. Haggerty:

Yes it is a grant from the state —

Earl Warren:

(Inaudible)

Philip M. Haggerty:

Well, it is a type of — I think that’s not really particularly material.

In other words, they can tax.

Earl Warren:

I didn’t think so either —

Philip M. Haggerty:

So what —

Earl Warren:

— that’s really my —

Byron R. White:

Let me tell you this, this would certainly be (Inaudible) the derogation of the sovereignty whatever it may be as the Indians sought upon which is predicated with tax as federal law and why is it that there’s serious question whether the Arizona tax —

Philip M. Haggerty:

I think no more serious than a question of whether or not we can impose as a state, an income tax where the United States also imposes an income tax.

Philip M. Haggerty:

In other words, two sovereignties taxing the same event, the same transaction, the same body neither one is in derogation of the other.

They each have their mutual rights.

We respect their rights but we don’t think we’re interfering with their tribal self-government anymore than we’re interfering with Congress by imposing an income tax.

We both — they’re just two governments operating concurrently each entitled to look to their own resources.

(Inaudible)

Philip M. Haggerty:

When they are dealing with their own wards.

As this Court said in Surplus Trading Company versus Cook, reservations are part of the states and state laws have application there, say as limited in their application to the Indian wards.

So when a tribe deals with its own people, they are dealing within their own area.

That’s their law, we have tribe ordinances that Navajo Tribe will call as an extensive volume but those laws have no application directly over non-Indians on that reservation.

(Inaudible)

Philip M. Haggerty:

Yes, yes.

Virtually over — well over 95% of the actual sales I guess are with Indians.

Potter Stewart:

On all the sales we’re talking about here are with Indians —

Philip M. Haggerty:

Yes, all of these —

Potter Stewart:

— with that stipulation.

Philip M. Haggerty:

— but as a practical matter that 95% of the actual traded cost sales.

We think also that the history of the case well outlined is not particularly important the history of the tax in Arizona.

Necessarily, it takes some time before a state gets around to absorbing all that might come within its taxing and the fact that our tax commission was perhaps less than immediately vigorous of 1935 was immaterial.

Potter Stewart:

What kind of a store or operation does the appellant operate on this business?

Philip M. Haggerty:

I have not been there (Voice Overlap) —

Potter Stewart:

A general store or —

Philip M. Haggerty:

— remote area of the state.

It’s a normal retail store.

It was a — it’s a normal retail store, food, clothing, equipment.

Potter Stewart:

Just one unit or are there several, do you know?

Philip M. Haggerty:

I don’t know.

I never seen it and I don’t know the corporate aspects there deals — those are particular facts were not — particularly an issue before courts so we never went into that.

I think another part was mentioned by Mr. Jacobson which deserved some comment.

This Court has twice upheld direct taxes, state taxes on Indians, both of them involving Oklahoma taxes, Oklahoma Indian Income Tax and the Oklahoma Inheritance Tax.

So this Court has said despite the fact that Indians are wards and are to be protected by the Federal Government that they’re also citizens and that they have not only the rights but to the duties of citizenship and that taxes are part of those duties.

Philip M. Haggerty:

And here we’re not even taxing the Indians.

So I think that we are not interfering with their right of growth or development or achieving full status which perhaps they don’t have because of the tribal setup at the present time.

But we’re not taxing them and we’re not interfering with their right to govern themselves.

Potter Stewart:

This isn’t — an inheritance tax or a tax on them would not be — might not be covered by this constitutional provision which is commerce with them.

Philip M. Haggerty:

Yes, it wouldn’t be covered by it but I think it’s important because the aspect of the general governmental policy of promoting the growth of the Indian tribes and raising the Indians to a full citizenship status was mentioned.

And this aspect of the Federal Government’s relationship with the Indian tribes was not thought to be controlling by this Court when it was a direct state tax upon the Indians.

Potter Stewart:

State tax upon them and that’s a — I see that you’re meeting that policy argument but what we’re concerned with here is a constitutional provision which talks about commerce with the Indian tribes.

That’s what truly at issue here, the policy (Voice Overlap) —

Philip M. Haggerty:

The —

Potter Stewart:

— to one side.

Philip M. Haggerty:

— brief of the appellant does mention and try to compare commerce with Indian tribes with the other two parts of the same constitutional clause, commerce among the states and with foreign nations and taxation.

This is a grant of power to the federal — to the Congress and taxation per se which does affect interstate commerce has not necessarily been held by this Court to actually burden it in a constitutionally defective sense.

Potter Stewart:

Would tax, say, their tax imposed upon an individual or a corporation for the privilege of doing — of engaging an interstate commerce would not be valid, would it?

Philip M. Haggerty:

This phrase that a tax upon the privilege of engaging an interstate commerce comes from spectrum — the Specter case and the case has always troubled me and I think that the dissent written by Mr. Justice Clark is perhaps a better analysis of the entire picture that Specter was —

Potter Stewart:

(Voice Overla)

Philip M. Haggerty:

— an interstate carrier solely and had no local basis in the State of Connecticut which was taxable.

This Court in this last term in a short attainment reversed a Utah holding.

Pacific Cast Iron versus the State of Utah where there was a totally interstate commerce.

The purchaser was in one state, came to Utah and made the purchase and drove directly out on his own trucks and by citing only the International Harvester case reversed the Supreme Court of the State of Utah and that was an interstate transaction.

So I think this word privilege is not a valid note.

(Inaudible)

Philip M. Haggerty:

Our Supreme Court has described our tax as a privileged tax but in their analysis they have been very careful to say that this is a differentiation from a sales tax which is imposed on the sale, on the person making a purchase.

They’re merely concerned with proving again and again that this is imposed on the person doing the business and making the sales.

So the denomination of privilege has no real relation to reality.

We don’t grab the privilege of going into business in the state.

Byron R. White:

Well, if this were a sales tax would it be — would it or would not — would it or would it not be permitted by the Buck Act?

Philip M. Haggerty:

The Buck Act speaks of taxes as being including gross income taxes which is what we have.

If the Buck Act is applicable, yes.

Byron R. White:

But I asked you what if this were a sales tax?

Would it or would it not be admitted by the Buck Act?

Philip M. Haggerty:

I don’t know.

I never thought of it.

Byron R. White:

So what did — do you think 109 outlaws the sales tax for example, section 109?

Philip M. Haggerty:

No.

Byron R. White:

It does not.

Philip M. Haggerty:

But as I say, we don’t deal with the sales tax, so frankly I don’t know.

I never tried to look at it in that way.

California I believe so held in the Attorney General’s opinion which California has a sales tax.

Byron R. White:

Why is the — my interest is in — why Cali — why Arizona is so careful to say that this is a privilege tax rather than a sales tax?

Philip M. Haggerty:

There are many —

Byron R. White:

What’s the (Voice Overlap) —

Philip M. Haggerty:

— relationships which followed.

Byron R. White:

What are the ramifications to that?

Philip M. Haggerty:

An easy ramification is although we now have a limitation on it on contracts with the Federal Government, we tax contractors.

We run the same situation that this Court did in (Inaudible).

And where the tax is on the privilege of being in business — of the business of contract and we can collect from the contractor if it were a sales tax.

Of course we can’t collect from the United States Government because we can’t tax them.

But in the privilege tax has always imposed on the person doing business.

It’s a convenient method.

It has administrative advantages.

We tax sales made to the State of Arizona itself.

Byron R. White:

It probably gets you — verbally gets you a little trouble with Indian commerce.

Philip M. Haggerty:

I think the trouble is unnecessary.

I think its verbiage not an essential trouble.

I don’t —

William J. Brennan, Jr.:

Are you saying that (Voice Overlap) —

Philip M. Haggerty:

— really it goes to the —

William J. Brennan, Jr.:

Do you put any label on this tax here?

Philip M. Haggerty:

Yes, transaction privilege tax.

It’s self-described in the statute and has always been described that way.

Philip M. Haggerty:

The tax on the privilege, all right of doing business and of course it covers many things from beyond retail sales, timber, mining, newspapers, etcetera.

So I think that Arizona has not really damaged any Indian sovereignty at all.

We don’t interfere with their right of tribal self-government that was felt to be quite important by this Court in Organized Village of Kake versus Egan.

I never have known how to pronounce the tribe involved.

And this Court held that that is the essential thing where a state is seeking to enforce its laws insofar as the Indians are concerned.

In that case, we had a Department of the Interior Regulation carefully spelled out.

This Court said, “There is no statutory authority for the Secretary of the Interior to say this and therefore his rule and regulation is invalid”.

So if we’re not hurting tribal self-government and we’re not constituting an undue burden on commerce, it is simply a tax which we collect from everybody engaged in business in the state.

It’s nondiscriminatory.

We have a right — much of a right to tax this particular person as we do the tax anybody else engaged in business in the State of Arizona.

We’re not hurting the tribes.

We’re not interfering or burdening commerce.

We’re not regulating the traders themselves in the sense of the Federal Government does closely regulate them.

We’re certainly not interfering with their regulatory functions and we just frankly think that we have breached no constitutional law nor directive.

We have found no case from this Court which would indicate that we are even close to reaching this constitutional directive or any constitutional directive.

Byron R. White:

What cases is here could permit a state to impose a privilege — a tax from the privilege of engaging interstate commerce?

Philip M. Haggerty:

British-American Oil Corporations is a severance tax on a mining and the lease was with the Indian tribe so that was certainly commerce of the tribe.

Byron R. White:

Let’s not get to an interstate commerce case.

Philip M. Haggerty:

Privilege tax exists in the State of Illinois.

Byron R. White:

What’s that on?

What’s that —

Philip M. Haggerty:

And also in the State of Indiana has a gross —

Byron R. White:

I’m just thinking of a state that imposes a tax on the privilege of engaging in interstate commerce.

Now what case approves a tax just like that?

Philip M. Haggerty:

Indirectly, International Harvest.

Byron R. White:

What was that of; what was —

Philip M. Haggerty:

Shipments of materials in interstate commerce.

It is a privilege tax in the State of Indiana.

Byron R. White:

Its (Inaudible)

Philip M. Haggerty:

Norton case —

Byron R. White:

It isn’t a tax from the privilege of engaging in interstate commerce?

Philip M. Haggerty:

It’s a tax from the privilege of engaging in commerce which happened to the interstate.

The case does not specifically say so but it was an interstate contract, an interstate business and it is a privilege tax.

Also, the Norton case of Illinois that is a privilege tax of the State of Illinois.

Byron R. White:

I guess that there were two results in Norton, (Inaudible) is bad, that isn’t what the —

Philip M. Haggerty:

But it’s still the same law and that’s still interstate commerce, the question then was local nexus.

Byron R. White:

Oh, I know but part of the fact that it’s thrown out but (Inaudible)?

Philip M. Haggerty:

It’s because there was a not — it was thrown out, I believe if I read the decision correctly, not enough of an Illinois incident to support the tax so the question is not whether or not it’s privileged, it’s whether or not it’s burden.

Byron R. White:

What incident could entitle to the Arizona tax on any (Inaudible)?

Philip M. Haggerty:

Because it’s totally within the state.

Byron R. White:

What?

Philip M. Haggerty:

It’s totally a state transaction.

This is a state corporation.

We’ve granted them their franchise.

They are citizens of a state if they’re not corporations.

Earl Warren:

Those were Warren corporations.

Philip M. Haggerty:

Doing business in the state?

Earl Warren:

Doing business just as this one.

Philip M. Haggerty:

Certainly, you could tax them too.

I presume we have foreign corporations, Mexican corporations doing business in the State of Arizona.

Earl Warren:

And you emphasize the fact that this was an Arizona corporation and I wonder if that (Voice Overlap) —

Philip M. Haggerty:

No, I don’t think that’s particularly a burden.

Perhaps, some of them are corporations from other states.

Earl Warren:

Yes.

Byron R. White:

Well is this —

Philip M. Haggerty:

They may well be.

Byron R. White:

— reservation in Arizona?

Philip M. Haggerty:

Not totally.

The Navajo Reservation includes Arizona, —

Byron R. White:

(Voice Overlap) even the part —

Philip M. Haggerty:

— Mexico and Utah.

Byron R. White:

— that’s within the boundaries as an enclave or not?

Philip M. Haggerty:

It can’t be an Arizona enclave, no.

Byron R. White:

Now, what —

Philip M. Haggerty:

Because physically, it goes outside the state.

Byron R. White:

Well, I know but is it part of the territory of Arizona?

Philip M. Haggerty:

Yes.

Byron R. White:

Its not — it’s a —

Philip M. Haggerty:

A part of the reservation is part of Arizona.

Byron R. White:

If it were all within — with — were all within Arizona, would it — we’d call it an enclave or federal enclave?

Philip M. Haggerty:

No not an enclave.

Byron R. White:

Why not?

Why not like in military reservations?

Philip M. Haggerty:

Well the language described in — on enclave comes directly from the constitution.

Byron R. White:

(Voice Overlap) is maybe there’s — maybe that’s — maybe this trader isn’t even in Arizona.

These are somebody else’s territory.

Philip M. Haggerty:

Well, —

Byron R. White:

(Voice Overlap)

Philip M. Haggerty:

— who else would have jurisdiction?

Now if he committed a crime against an Indian, this Court has had — has to be tried in either an Indian Court or United States District Court.

But if the trader commits a crime against a non-Indian, I hope we could try him.

If he wants to sue a non-Indian, our Superior Courts would have jurisdiction.

This Court has said so in a number of cases.

Byron R. White:

You’d have to sue an Indian in the (Voice Overlap) —

Philip M. Haggerty:

You have to sue an Indian in the trial court, yes, under Williams versus Lee.

So the laws apply to the wards but not as a matter of territorial jurisdiction.

When we argue the case before our own Supreme Court, the Chief Justice — then Chief Justice asked, what is the jurisdiction of the state?

And it was very difficult to try and explain or even analyze.

It’s mixed.

Our voting laws are applicable.

Philip M. Haggerty:

Our school laws are applicable, our health laws but other laws are not, principally criminal.

They have a separate court system that still a bone of contentions as to whether or not Indian probates are perfectly valid.

They’re recognized by the title companies of Arizona but —

William J. Brennan, Jr.:

But what jurisdiction —

Philip M. Haggerty:

— nobody has been to court.

William J. Brennan, Jr.:

— in Arizona exercised over the reservation?

Otherwise, the — it’s the —

Philip M. Haggerty:

Voting —

William J. Brennan, Jr.:

(Inaudible) generally don’t defy, do they?

Philip M. Haggerty:

Generally they do.

William J. Brennan, Jr.:

Generally they do?

Philip M. Haggerty:

Yes.

William J. Brennan, Jr.:

(Voice Overlap)

Philip M. Haggerty:

This Court had so.

Criminal laws don’t because the United States code —

Byron R. White:

Yes.

Philip M. Haggerty:

— is specifically taken out.

Byron R. White:

Property laws?

No?

Philip M. Haggerty:

They have a probate and a — well, property is — its tribal lands.

There isn’t — no property other than personal property.

Byron R. White:

And that not trespass laws?

Philip M. Haggerty:

Well, trespass of who against whom, that’s a criminal law.

Trespass —

Byron R. White:

Well, a trespass by one Indian on another Indian property if there is such a thing.

Philip M. Haggerty:

It’s a violation of a tribal ordinance.

That’s before the tribal court.

Crimes committed by an Indian or against an Indian are tribal only in the federal jurisdiction.

Byron R. White:

What if the Indian — what if the trader wants to sue the Indian (Inaudible)?

Philip M. Haggerty:

Under Williams versus Lee, he has to attempt to achieve satisfaction from a tribal court.

William J. Brennan, Jr.:

Let’s not begin to look at this the reservation or as little part of Arizona as the State of California.

Philip M. Haggerty:

As far as the Indians are concerned but what about everybody else who maybe there.

Byron R. White:

Well, (Inaudible)

Philip M. Haggerty:

So we’re talking — not talking about Indians.

Byron R. White:

(Inaudible)

Hugo L. Black:

We don’t tax the land.

Philip M. Haggerty:

No, the Enabling Act prohibits it that — in our own constitution but that’s a federal statute, prohibiting as from taxing the land, that could be repealed.

Hugo L. Black:

What would be your —

Philip M. Haggerty:

It’s not a constitutional exemption.

Hugo L. Black:

What would be your view if the Congress has made a law saying that Arizona to pass a new law such in any way in the transaction inside the Indian reservation.

Philip M. Haggerty:

We have admitted in our brief, they have the authority.

Hugo L. Black:

But they have it (Voice Overlap) —

Philip M. Haggerty:

They have the authority.

Hugo L. Black:

But if they have it, why do they have it?

Philip M. Haggerty:

Because of the constitutional provisions to regulate commerce with the tribes.

Hugo L. Black:

They have it do they not because they have the exclusive jurisdiction over it, if they exercise it.

Philip M. Haggerty:

If they exercise it.

Hugo L. Black:

That’s right.

Philip M. Haggerty:

And we have said they have not exercised it.

Hugo L. Black:

So that they —

Philip M. Haggerty:

They have left this to the state.

Hugo L. Black:

(Inaudible) you must sue I assume on the fact that they have not prohibited either by expressly untimely.

Philip M. Haggerty:

Yes.

And we say that the history of the Buck Act implies that Congress just assumed — would have left this taxing business entirely to the states except —

Hugo L. Black:

But I thought (Voice Overlap) —

Philip M. Haggerty:

— so far as the Indians themselves are concerned.

Hugo L. Black:

(Inaudible)

Philip M. Haggerty:

I don’t think it is essential.

Hugo L. Black:

What?

If you’re wrong about that, (Inaudible)?

Philip M. Haggerty:

If — no, it would not.

If I’m wrong in our conclusions of the Buck Act, it would certainly, I — there’ll be no satisfaction to the appellants.

Byron R. White:

(Inaudible)

Philip M. Haggerty:

No, I think in terms on whether or not the Buck Act is applicable — oh, it could turn on whether the Buck Act is applicable to reservations at all to begin with and where the language constitutes —

(Inaudible)

Philip M. Haggerty:

Yes.

(Inaudible)

Philip M. Haggerty:

Because it’s not a prohibition.

In other words, it’s merely a statement that Congress has not regulated and that’s all.

Potter Stewart:

But you’d still have to (Voice Overlap) —

Philip M. Haggerty:

Because the amendment suggest it, yes, we want to prohibit all taxes on the reservations and the amendment was not adopted.

(Inaudible)

Philip M. Haggerty:

Yes, without that.

Hugo L. Black:

You have to find an implied consent don’t you, just as you — just as a state does when it starts to regulate interstate commerce.

Philip M. Haggerty:

No, I think we have to find a definite prohibition.

I think if you’re claiming an exemption —

Hugo L. Black:

On what (Voice Overlap) —

Philip M. Haggerty:

You are the one who has the entire burden of showing that the exemption exists —

Hugo L. Black:

Why?

Philip M. Haggerty:

— if the burden is on the taxpayer, not on us.

Hugo L. Black:

Why is that true if the Government has exclusive jurisdiction over it, merely a question whether it’s exercised.

Philip M. Haggerty:

Well, a jurisdiction on the reservations does not — exclusive over not — over non-Indians.

Hugo L. Black:

You mean the Government couldn’t have provided that it is?

Philip M. Haggerty:

Over a non-Indian on the reservation?

Hugo L. Black:

Yes, on the reservation.

Does your case rest on the idea that the Government couldn’t control all what — to be a crime, what transactions that go on there, if it wants to?

Philip M. Haggerty:

It could, yes.

It does —

Hugo L. Black:

(Voice Overlap)

Philip M. Haggerty:

— have statutory authority over the territorial jurisdiction.

Hugo L. Black:

— exclusive jurisdiction of the criminal laws and the state laws and the other laws, isn’t that right?

Philip M. Haggerty:

Well, I presume as a point which — beyond which you couldn’t go without running into —

Hugo L. Black:

What?

Philip M. Haggerty:

— other constitutional provisions but in borad theory —

Hugo L. Black:

(Voice Overlap)

Philip M. Haggerty:

— yes, they do have the authority.

Hugo L. Black:

Where — what — you mean some different one like violating the First Amendment or something like that, (Inaudible) —

Philip M. Haggerty:

Well, the states have supposedly admitted the union on equal basis with other states and this is what —

Hugo L. Black:

So far as Arizona is concerned, why is a governmental trial not exclusive?

Philip M. Haggerty:

I’d have to as — conceived that it is on the reservations where they have chosen to exercise it.

And their restraints in many areas is just that, a restraint and leaves the state action free and this Court has said so.

Unless it’s a statute or unless as an necessary interference with tribal self-government or a burden on the tribe itself, state laws have general application on the Indian tribes.

Thank you.

Earl Warren:

(Inaudible)

Philip M. Haggerty:

I think that the state has completed its argument unless there are any further questions in the Court, we will rest.

Earl Warren:

Thank you.

Mr. Jacobson.

Edward Jacobson:

Mr. Chief Justice, may it please the Court.

In the few minutes remaining, I would like to attempt to answer some of the questions that have been asked one by Mr. Justice Stewart concerning the nature and character of the trading post itself.

The trading post is at Kayenta, Arizona.

Kayenta, Arizona was a remote area until about a year and a half ago when one of the most beautiful roads in America running from Northern Arizona across to Colorado called Navajo One was opened.

Kayenta is on Navajo One.

It is at the edge of Monument Valley.

The trading post itself by doing a little fast mathematics and looking at the fact that a 2% tax for approximately a year netted a $2886 assessment grosses at about $140,000 a year from a 20×30 room in which they sell the necessities of life to the Indians range all the way from food to harnesses and seed.

Hugo L. Black:

May I ask you if you would consider answer in time.

What do you — you say that his statement is that Congress has not forbidden this, it has to be assumed they have permit it?

Edward Jacobson:

Mr. Justice Black, I think that is the heart of the disagreement between the State of Arizona and myself.

It is the position of the Warren Trading Post that Indian Commerce is closed to state regulation without Congress having forbidden it by the constitution just as interstate commerce is closed to state regulation by privilege taxes.

I must confine my remarks to that because that is our arena.

It is my understanding different from Mr. Haggerty that there has never been permitted by this Court a privilege tax of a state to be laid directly on interstate commerce.

Edward Jacobson:

I do appreciate that this Court has gone beyond the Specter case both in the Norton and in General Motors versus Washington in finding more and more local incidents at either end of the interstate commerce upon which a privilege tax maybe laid but the way I read the cases, never has this Court permitted one directly on interstate commerce.

I believe Mr. Haggerty mentioned the International Harvester case which if I remember the facts correctly was a sale completed entirely in Indiana.

It is true that the purchaser intended and probably did transport the goods elsewhere after he had completed the purchase but that then was a totally local Indiana activity.

And so again, in answer to your question, it is the position of the Warren Trading Post that the arena of interstate commerce — of Indian commerce is an arena that is free and clear from state regulation by privilege taxation whether or not there were conflicting statutes of the United States Congress.

Additionally, we believe this arena has been occupied by the conflicting statutes of the Congress and the rules adopted by the Commissioner of Indian Affairs pursuant therewith to a degree way beyond the occupation of the arena of — for illustration, interstate or foreign commerce.

And finally, we believe that Indians and Indian tribes retain a measure of sovereignty spelled out in Williams versus Lee that can be described about as follows starting before and with Worcester versus Georgia.

They had the sovereignty of an independent nation.

Thereafter by conquest their external sovereignty was eliminated.

Their internal sovereignty to my understanding of the law remains but for those inroads into it which the United States Government may take.

The only action as I read the law that a state may take without the specific permission of the Congress relating to Indian Reservations are actions which do not whatever affect what remains of the Indian sovereignty those need no congressional assent.

William J. Brennan, Jr.:

Well Mr. Jacobson, obviously, this tax couldn’t be imposed on — the trade in California by Arizona.

Edward Jacobson:

No Mr. Justice Brennan.

William J. Brennan, Jr.:

Why would — do you suggest that nevertheless there maybe circumstances under which it might impose this tax on a trader on the Indian reservation?

In that sense, is the reservation different from an attempt to impose such a tax in a trader in California?

Edward Jacobson:

I — Mr. Justice —

Earl Warren:

(Inaudible) answer the question.

Edward Jacobson:

Thank you.

Earl Warren:

Take your time.

Edward Jacobson:

Mr. Justice Brennan, my understanding of sovereignty as I have attempted to explain it to Mr. Justice Black is that Arizona could impose this tax on an Indian trader on the reservation at such time as it was specifically so authorized by the Congress of the United States and that until that time, it could not.

Now then the counterpart is that the Congress of the United States did for illustration authorized all of the states containing Indian Reservation to have civil and criminal jurisdiction provided they would do a variety of things.

Some of the states such as Wisconsin did the variety of things as this Court pointed out in Williams and Lee, Arizona did not.

William J. Brennan, Jr.:

What did the Buck Act do?

Earl Warren:

The Buck Act —

William J. Brennan, Jr.:

It was directed to —

Earl Warren:

— as I understand it and as I read it and as the New Mexico Court interprets it and as I believe the legislative debates carry out was intended to not affect the posture of state taxation on Indian reservations at all.

That posture as I understand it was this, sales by Indian traders to non-Indians taxable, sales by Indian traders to Indians not taxable.

Byron R. White:

Well then, why isn’t that the end of the — why shouldn’t that be the end of the argument without you ever having to get to Indian commerce or preempt or anything like that?

If the Buck Act doesn’t cover this, does it permit this tax?

Why shouldn’t it be as Mr. Justice Brennan says, considered to be a tax on a trader in California?

Edward Jacobson:

Our position on the Buck Act Mr. Justice White is that it was not intended to affect the Indian reservations and so I would have to accede that if the State of Arizona otherwise had the power to tax Indian of sales to Indians on the reservation, the Buck Act wouldn’t prevent it.

Edward Jacobson:

And so I have to then show that it doesn’t otherwise have the power after showing the Buck Act does not give it that power.

I can tell that was an unclear answer.

Let me try one more time.

Byron R. White:

Well, it isn’t — no, I just wondered why it — why is that so — why the question was so difficult.

It would be, the Buck Act doesn’t permit it.

If Congress hasn’t permitted it in the Buck Act —

Edward Jacobson:

Yes.

Byron R. White:

You’ve already — that Congress hasn’t permitted, this may not be done.

Edward Jacobson:

I would agree.

Byron R. White:

And — but do you think you have to give all of those grievance that an Indian commerce to show this or (Inaudible) have to be a federal enclave on which — I mean it, may be that the state could attack (Inaudible) like in the Washington tax case that has something to do with the contract —

Edward Jacobson:

Right.

Byron R. White:

(Inaudible)

Edward Jacobson:

Right.

Byron R. White:

But these transactions takes place not in the State of Arizona but in a — on a federal enclave or on federal property or an Indian property whatever you want to call it.

Edward Jacobson:

Let me back into it very briefly in this fashion.

I would agree with your basic premise that if the Buck Act had been a congressional authorization to the states to go ahead with their privilege taxes on Indian reservations, I would have no case.

Secondly, having shown at least to my own satisfaction and belief that the Buck Act was not intended to affect the posture, I then had three arrows left to the bow and decided each itself was important and not one that Indian Commerce is a reserved area not open to state regulation irrespective of whether the Federal Government had occupied it or not.

Number two, it has been heavily occupied beyond the other two areas of commerce discussed in the constitution.

And three, the inherent sovereignty of the Indians would itself prohibit it.