State lacks authority to tax Indians' out-of-state income, judge rules
By Kevin Murphy
Milwaukee Journal Sentinel
Sept. 13, 2000
Madison - Wisconsin cannot tax American Indian tribal members who live on reservations but earn income outside the state, a federal judge has ruled.
U.S. District Judge Barbara Crabb said Wisconsin had no authority to tax Harold Jackson, 50, a tribal member who lives on the Lac du Flambeau Chippewa reservation but worked for trucking firms in Minnesota.
"Congress has never authorized the states to tax tribal members living on reservations solely because of their residence within the taxing state; without such authorization, Wisconsin has no legal right to tax Jackson or any other tribal member similarly situated," Crabb wrote in the 17-page decision issued Wednesday.
Jackson earned no income in Wisconsin from 1993 to 1997, when he drove from Lac du Flambeau to truck terminals in either St. Cloud, Minn., or St. Louis Park, Minn., and then drove a truck cross country.
The Minnesota income taxes that were deducted from his paychecks were returned with interest after he filed Minnesota tax returns that said he was a Wisconsin resident. However, Wisconsin revenue officials then said Jackson should have paid Wisconsin income taxes.
Earlier this year, Jackson filed a lawsuit against the state and said that since he lived on the reservation, federal law prohibited the state from taxing him. The state argued that Indian sovereignty did not cover tax laws when tribal members left the reservation for income.
However, Crabb ruled that the state showed no such authority to tax Jackson.
Jackson's attorney, Brian Peterson, said the ruling was important to American Indians in Wisconsin because the state cannot use residency alone as a reason to tax them.
"These are tribal members, and their right to live at Lac du Flambeau wasn't granted by the state but confirmed by treaty with the federal government," Peterson said Wednesday.
Assistant Attorney General Thomas Creeron III said the ruling probably would not apply to too many other Wisconsin Indians, but if it stands, it clarifies an area where state tax law and federal law conflicted. Creeron said no decision to appeal the ruling had been made.
The Lac du Flambeau Chippewa could tax Jackson but do not, Peterson said. The income of Jackson and other American Indians is subject to federal taxes.
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