State-Tribal Relations

Case in Brief: McClanahan v. Arizona State Tax Commission (1973)

The state of Arizona attempted to impose its personal income tax on a Navajo Reservation Indian whose entire income was derived from reservation sources. Appellant  alleged that all her income earned during 1967 was derived from within the Navajo Reservation. Arizona withheld $16.20 from her wages for that year to cover her state income tax liability. The U.S. Supreme Court held that the state of Arizona has no jurisdiction to impose a tax on the income of Navajo Indians residing on the Navajo Reservation and whose income is wholly derived from reservation sources.

Q.        What was the case about?

A.        This case involves the narrow question of whether or not a State may tax a reservation Indian for income earned exclusively on the reservation. Arizona had neither amended its constitution to permit taxation of the Navajos nor secured the consent of the Indians affected. However, Arizona claimed that since it had attempted to tax individual Indians and not the tribe or reservation itself, it had not infringed on Indian rights of self-government.

Appellant filed a protest against the collection of any taxes on her income and a claim for a refund of the entire amount withheld from her wages. When no action was taken on her claim, she filed an action in the Arizona Superior Court on behalf of herself and those similarly situated, demanding a return of the money withheld and a declaration that the state tax was unlawful as applied to reservation Indians.

Q.        What did the trial court, Arizona Court of Appeals and the Arizona Supreme Court say?

A.        The trial court dismissed the action for failure to state a claim and the Arizona Court of Appeals affirmed. The Court of Appeals held that the test “is not whether the Arizona state income tax infringes on plaintiff’s rights as an individual Navajo Indian, but whether such a tax infringes on the rights of the Navajo tribe of Indians to be self-governing.” The court reasoned that Arizona’s income tax on individual Navajo Indians did not “cause an impairment of the right of the Navajo tribe to be self-governing,” and concluded that since an individual income tax did not interfere with tribal self-government, the appellant had failed to state a claim.

The Arizona Supreme Court denied a petition for review of the Court of Appeals decision.

Q.        What did the U.S. Supreme Court say?

A.        The Supreme Court held that Arizona’s imposition of tax on the appellant was an interference with matters that relevant treaties and statutes leave to the exclusive province of the federal government and Indians themselves. The tax is therefore unlawful as applied to reservation Indians with income derived wholly from reservation sources. State laws generally are inapplicable to Indians on reservations except where Congress has expressly provided that state laws shall apply. As such, Indians and Indian property on an Indian reservation are not subject to state taxation except by virtue of express authority conferred upon the state by an act of Congress.

In this case, appellant’s rights as a reservation Indian were violated when the state collected a tax from her without jurisdiction to impose such tax. The Court found the state of Arizona to be totally lacking in jurisdiction over both the people and the lands it sought to tax.

Q.        What does this ruling mean for other states and tribes?

A.        This case establishes that state law will be permitted to intrude into Indian country only if both of two conditions are met: 1) there is no interference with tribal self-government; and 2) non-Indians are involved. It is only when the state asserts power over non-Indians in Indian country that it is appropriate to balance the state and tribal interests by determining whether or not state jurisdiction would infringe upon tribal self-government. When the state attempts to reach Indians in Indian country, the legality of the state’s action is to be determined by reference to applicable federal statutes and treaties, interpreted in light of a history of Indian tribal sovereignty and independence from state law.

States are without power to tax the reservation income of tribal members domiciled on the tribe’s reservation.

Case Citation:
McClanahan v. Arizona State Tax Commission, 411 U.S. 164 (1973)

For More Information:
Contact Andrea Wilkins of NCSL's State-Tribal Relations Project at 303-856-1558 or State-Tribal Relations Program.

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