Samuel Johnson wrote “In sovereignty there are no gradations“. He probably would not have liked the way things are in the United States. Of course he did not have much use for the people who created the United States of America – How is it that we hear the loudest yelps for liberty among the drivers of negroes? and Sir, they are a race of convicts, and ought to be thankful for anything we allow them short of hanging. No wonder we have such confusion when it comes to sovereignty. The United States of America is sovereign as are the fifty states, but that is not nearly enough sovereigns. There are 565 recognized tribes. Some are quite small like the Alturas Indian Rancheria on 20 acres with estimated enrollment of 15 members. Not so small is the Navajo Nation with over 27,000 square miles. If Navajo nation were a state it would be ahead of Rhode Island and nine others on the area list. It has over 300,000 members.
Like most things I write about this all has something to do with taxes. The tribal lands are in states, four in the case of Navajo Nation, but not of them. So a tribal member who works and lives on tribal land cannot be taxed by a state. It was the second part – “lives” – that created problems for Edward Clah at a hearing with the Taxation and Revenue Department of the State of New Mexico. The hearing officer conceded that Mr. Clah was a member of Navajo Nation and worked on Navajo land. Two out of three is not bad, but it was not enough. Mr. Clah was being challenged on seven years making for more than $30,000 at stake.
Mr. Clah and his spouse, Melvina Murphy, own homes in Iyanbito. which is in Navajo Nation, and Gallup, which is not. Mr. Clah worked at the McKinley Mine, which is also in Navajo Nation. Ms. Murphy lived in the Gallup home with their two daughters. Her job as an all-call nurse required her to live near the hospital. Mr. Clah claimed that he lived in the Iyanbito home with their son. Since he was claiming a tax exemption, the burden of proof was on him. The hearing officer did not think that he carried it. The thing that seemed to most impress the officer was that Mr. Clah would have to drive past his Gallup home to get from Iyanbito to the McKinley Mine. When I checked Mapquest, I lost a lot of sympathy for the hearing officer’s reasoning. The extra stretch was not much over thirty miles and we are talking about New Mexico, here. Wouldn’t you like to start your day with a brief interlude of getting your kicks on Route 66 ?
If you have been following what is turning into something of a series on residence cases in my blog you will be familiar with the notion that “residence” sometimes turns on an almost mystical concept known as “domicile”. It is conceivable that you could not go near a place for decades and have it remain your domicile allowing that state to tax you on your world-wide income. On the other hand there is the insidious “New York” rule, which concedes that you have domicile elsewhere, but taxes you as a resident regardless, if you have enough New York days and a New York”place of abode”.
An interesting thought experiment is to analyze this case if we were to assume that Mr. Clah was telling the truth about his daily commute and something like the New York rule was being applied. He has the place in Gallup where his wife lives. That gives you the place of abode. What about the days ? A day means any part of a day unless you are purely in transit from one place to another outside the state that is trying to claim you. If that had been the case, the hearing officer would have had to consider how often Mr. Clah might have stopped for a cup of coffee or whatever.
As it turns out in cases about a state’s ability to tax tribal members a more mechanical view of “residence” is used rather than the almost mystical concept of domicile. Putting aside the issues that the hearing officer had with his credibility, Mr. Clah had quite a few of the very basic items wrong.
Almost all of the documentary evidence in the record suggests that Taxpayer resided at that Gallup home address during the relevant period. Taxpayer maintained his voter’s registration at the Gallup home. Although Taxpayer affirmatively testified that he did not vote, the evidence showed that Taxpayer in fact voted using his Gallup home registration in the 2004 and 2008 general elections. Taxpayer maintained his driver’s license listing his Gallup home address as both a mailing and physical address. Taxpayer registered and maintained vehicle registrations on two separate vehicles during the period at issue using his Gallup home address.
Taxpayer explained that he used the Gallup home address consistently as a mailing address on forms because Iyanbito did not have mail delivery. However, when given an opportunity to list a separate physical address on his Ford vehicle registration address, Department Exhibit BB, Taxpayer nevertheless listed his Gallup home address as both his mailing address and his physical address. On Department Exhibit CC, Taxpayer declined to list any separate physical address different from his Gallup home mailing address on the Chevrolet vehicle registration.
The practical lesson in this case is to be meticulous as possible if you have exposure to being treated as a resident of a state that wants to tax you. The tribal sovereignty aspects create some subtle legal distinctions that you do not see in other cases, but many of the basic fundamentals remain the same.
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Originally published on Forbes.com Oct 4th, 2012