On August 13, 2018, the U.S. Court of Appeals for the Ninth Circuit issued its opinion in United States v. King Mountain Tobacco Co., Nos. 14-36055, 16-35607, affirming the trial court’s judgment awarding the government federal tobacco excise tax liabilities totaling $57,914,811.27, plus interest and other statutory additions.
This was a case of first impression, “consider[ing] whether . . . a tribal manufacturer of tobacco products located on land held in trust by the United States, is subject to the federal excise tax on manufactured tobacco products.”
King Tobacco’s Position
Arguing against the imposition of excise taxes on its tobacco products, King Mountain invoked the Act to Provide for the Allotment of Lands in Severalty to Indians on the Various Reservations, ch. 119, 24 Stat. 388 (1887) (hereafter, the “General Allotment Act of 1887”) (codified as amended in scattered sections of Title 25 of the U.S. Code), and the Treaty Between the United States and the Yakama Nation of Indians, June 9, 1855, 12 Stat. 951 (hereafter, the “Treaty with the Yakamas”). As King Mountain manufactured its tobacco products on land covered by the General Allotment Act of 1887 and the Treaty with the Yakamas – and also grew some of the ingredient tobacco on that land – it argued that it was exempt from paying excise tax on those products.
No Exemption Under the
General Allotment Act of 1887
The General Allotment Act of 1887 allowed the allotment of reservation lands to individual Indians. Generally, land would be allotted to an Indian, subject to a twenty-five year period wherein the United States held the property in trust for the sole use and benefit of the Indian or his heirs. After that period expired, the United States would convey the property to the Indian, or his heirs, “discharged of said trust and free of all charge or incumbrance whatsoever.” An expedited transfer provision, later added, provided that, upon the land’s issuance to the Indian, “all restrictions as to sale, incumbrance, or taxation of said land shall be removed.”
In view of the General Allotment Act of 1887, “several circuits—including [the Ninth Circuit]—have recognized federal tax exemptions for allotment land or the ‘income derived directly’ from such land.” (Quoting Kirschling v. United States, 746 F.2d 512, 513 (9th Cir. 1984).)
King Mountain tried to extend this authority to the subject of tobacco excise taxes, but the Ninth Circuit disagreed: “no court has held that the General Allotment Act’s tax exemption extends to a federal excise tax of any kind. Indeed, our decisions explicitly recognize the limited ‘scope of [the] exemption’ as extending only to ‘Indian lands’ and ‘the income derived directly therefrom.’” (Quoting Dillon v. United States, 792 F.2d 849, 854 (9th Cir. 1986).) “The unique characteristics of excise taxes implicate few, if any, of the purposes of a tax on land or on income derived directly from the land,” and so the statutory exemptions did not extend to excise taxes.
The Court further noted that, even if it were to adopt King Mountain’s position, it would raise a serious constitutional question insofar as it might upset the imperative that “all . . . excises shall be uniform throughout the United States.” See U.S. Const. art. I, § 8.
No Exemption Under the
Treaty with the Yakamas
The Treaty with the Yakamas traces to a period when “the United States entered into a series of treaties with Indian tribes to extinguish the last set of conflicting claims to lands lying west of the Cascade Mountains and north of the Columbia River in what is now the State of Washington.” “Courts have recognized that the ‘Treaty embodies spiritual as well as legal meaning for the [Yakama]; it enumerates basic rights secured to the Yakama that encompass their entire way of life.’” ((Alterations in original) (quoting Yakama Indian Nation v. Flores, 955 F. Supp. 1229, 1238 (E.D. Wash. 1997)).)
King Mountain forwarded arguments based on the Treaty with the Yakamas, as follows:
- Article II’s right to “the exclusive use and benefit” of reservation land;
- Article III’s right to travel for economic purposes; and
- Article VI’s exemption of allotted land “from levy, sale, or forfeiture.”
The Ninth Circuit found none of these arguments convincing. “‘The applicability of a federal tax to Indians depends on whether express exemptive language exists within the text of the . . . treaty.’” ((Omission in original) (quoting Ramsey v. United States, 302 F.3d 1074, 1078 (9th Cir. 2002)).) After reviewing each of the provisions invoked, the Ninth Circuit held “that no provision of the Treaty with the Yakamas contains ‘express exemptive language’ sufficient to exempt King Mountain from liability for the federal excise tax on manufactured tobacco products.”