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Mike v. Franchise Tax Board

March 5, 2010

ANGELINA MIKE, PLAINTIFF AND APPELLANT,
v.
FRANCHISE TAX BOARD, DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of San Diego County, Richard E. L. Strauss, Judge. Affirmed. (Super. Ct. No. 2007-00067324-CU-MC-CTL).

The opinion of the court was delivered by: McDONALD, J.

CERTIFIED FOR PUBLICATION

Plaintiff Angelina Mike is an American Indian and an enrolled member of the Twenty-Nine Palms Band of Mission Indians (the Tribe). She does not live on the Tribe's reservation, but resides on the reservation of a different tribe. In 2000, Mike received a distribution from gaming operations conducted on the Tribe's reservation (the income). The question is simply stated-may the State of California collect income taxes on the income? That question appears to be a matter of first impression in California, and requires us to navigate complex currents of decisional and statutory law.

Defendant Franchise Tax Board (FTB) concedes that, if Mike had lived within the boundaries of the Tribe's reservation, the McClanahan*fn1 exemption would bar California from collecting income taxes on the income derived from sources on the Tribe's reservation. Conversely, Mike does not dispute that, if she resided in California outside the boundaries of any "Indian County" (see fn. 5, post), there would be no bar to California taxing the income. This matter falls in an interstice of decisional law that has produced conflicting decisions by other courts: may a State impose income taxes on income received by an enrolled member of a tribe from his or her tribe's reservation activities when that member resides on the reservation of a different tribe? We conclude the answer is yes, and we therefore affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Mike is an American Indian and is an enrolled member of the Tribe. The Tribe is small, with only 12 members over the age of 18, and its reservation consists of an approximately 240-acre section near the city of Coachella (portion 1) and an approximately 160-acre section near the city of Twenty-Nine Palms (portion 2). Portion 1 has two parcels, one of which is developed with a casino and parking lot that opened in 1995,*fn2 and a second parcel near a sanitation plant. Portion 2 is many miles away from portion 1 and consists of undeveloped desert land. Portion 2 has no connections to electrical, water, or sewer facilities, and has no developed roads or other infrastructure.

During the relevant tax year, Mike did not live on the Tribe's reservation. Instead, Mike resided on the reservation of another federally recognized tribe (the Agua Caliente Band of Cahuilla Indians (Agua Caliente Band)) approximately 18 miles from the Tribe's reservation.*fn3

In tax year 2000, Mike received more than $385,000 as her per capita distribution from the Tribe's gaming operations on its reservation. She filed her California Income Tax Return and sought a refund of the amounts withheld by the Tribe for California income taxes. Although FTB issued her a refund for the taxes attributable to Mike's per capita distribution from the Tribe's gaming operations, FTB subsequently ruled she was not entitled to a refund and issued a Notice of Assessment for principal and interest. After Mike exhausted her administrative remedies, she paid the assessment and filed this action seeking a refund of the income taxes she paid attributable to the income from the Tribe.

The trial court ruled that because Mike did not reside on the Tribe's reservation, the income she received from the Tribe was taxable by California, and entered judgment in favor of FTB. This appeal followed.

II. ANALYTIC FRAMEWORK

FTB contends the McClanahan exemption applies only when the taxpayer resides on tribal lands of his or her own tribe, and is unavailable when the taxpayer resides on lands of a different tribe. Mike contends the McClanahan exemption applies when the taxpayer resides in any "Indian Country," including lands of a tribe in which the taxpayer is not a member. To evaluate the parties' contentions, we examine the genesis of the applicable standards.

A. General Principles

The income of a California resident is ordinarily taxable by California regardless of the source of that income. (Rev. & Tax. Code, ยง 17041.) The United States Supreme Court has held it is permissible for a state (as well as the federal government) to impose an income tax on all of the income of its residents, even if that income is earned outside the borders of the taxing authority's jurisdiction. (Oklahoma Tax Com'n v. Chickasaw Nation (1995) 515 U.S. 450, 462-467 [state may impose income tax ...


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