INDIANS ‑- LIABILITY FOR PERSONAL PROPERTY TAX ON PROPERTY MORTGAGED TO TRIBE.
Personal property purchased by an Indian with his own funds and mortgaged to the tribe is taxable, but personal property purchased with funds loaned by the tribe, the property being mortgaged to the tribe as security, is not taxable if the loan was from trust funds.
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February 18, 1955
Honorable John Hancock
Okanogan, Washington Cite as: AGO 55-57 No. 27
You have requested our opinion concerning the taxability of personal property belonging to Indians. Your questions may be stated as follows:
1. Is personal property purchased by an Indian, with his own funds, over which the federal government has no control, subject to property taxation after the Indian has mortgaged that property to the tribe?
2. Is personal property subject to property taxation when it has been purchased by an Indian with funds borrowed from the Tribe and upon which he has given a mortgage to the tribe as security for the loan?
It is our conclusion that question No. 1 should be answered in the affirmative, and question No. 2 in the affirmative unless the loan was from trust funds.
In an opinion of this office dated July 24, 1953, it was stated that personal property of an Indian residing on an allotment is taxable whether the Indian holds a fee patent to the land or a trust patent. In the latter case, however, [[Orig. Op. Page 2]] it was pointed out that issue property, and that which is directly traceable to issue property, is not taxable when used on the reservation. We feel that opinion to be a correct statement of the law and applicable to the present problem. We herein amplify that opinion with respect to the questions under consideration.
Where the Indian purchased the property with his own funds it would be subject to taxation. Particularly, when the United States had no control over these funds. The fact that the property was afterwards mortgaged to the tribe would not affect its taxability. The Indian still retains the title and the tribe has merely a lien upon the property. A chattel mortgage is a security device only and does not transfer title to the mortgagee. Carey v. Interstate Bond and Mortgage Co., 4 Wn. (2d) 632.
It is stated in the opinion of the area director, Bureau of Indian Affairs, dated November 29, 1954, a copy of which you enclosed in your letter, that
"Property purchased by the Indians pursuant to a specific plan for economic rehabilitation approved by the government and carried out under government supervision:"
is not subject to taxation. The cases on which that opinion seems to be based involved property in which the government had an ownership interest as title was found to be in the United States. Such is not the case here. This property was not purchased with tribal funds, nor did any title pass under the mortgage. Congress has power to reimpose restrictions on property already freed, but not with the result of defeating local taxation, the right to which has attached. McCurdy v. United States, 246 U.S. 263; United States v. Brown 8 Fed. (2d) 564.
The area director cites Public Law 281, 83rd Congress, first session, 67 Stat. 590, which reads in part as follows:
"Where restricted Indians are in possession or control of livestock purchased for or issued to them by the Government, or the increase therefrom, such stock shall not be sold, transferred, [[Orig. Op. Page 3]] mortgaged, or otherwise disposed of, except with consent in writing by the superintendent or other officer in charge of the tribe * * * Provided, That this section shall apply only to livestock purchased by or for Indians with funds provided from the revolving loan fund established pursuant to the Acts of June 18, 1934 (48 Stat. 984), and June 26, 1936 (49 Stat. 1967), * * * or from tribal loan funds used under regulations of the Secretary of the Interior, and to livestock issued to Indians as loans repayable 'in kind', and to the increase of all such livestock, and only until such time as such loans are repaid: * * *"
That statute, for our purposes, applies only to livestock purchased with funds provided from the revolving loan fund or from tribal funds used under regulations of the secretary of the interior and the restrictions are released when the loans are repaid. Thus, the statute cannot apply here. There is a rule against tax exemption by implication and that rule has been applied to taxing acts affecting Indians. Oklahoma Tax Commission v. United States, 319 U.S. 598.
However, in regard to livestock purchased with funds borrowed from the tribe and then mortgaged as security for the loan, such livestock under the regulations contained in Public Law 281,supra would not be subject to property taxation. Nor would other types of personal property acquired under the same circumstances as the source of the acquisition would be restricted or trust funds. Furthermore, section 21.9 of Title 25, Code of Federal Regulations provides:
"* * * Unless otherwise provided in the loan agreement, title to all property purchased with loans shall be taken in the name of United States in trust for the borrower."
There are circumstances under which property purchased with borrowed tribal funds might be taxable. This necessitates an examination in each case of the loan agreement and a determination of whether or not the funds involved are in a trust or restricted status. If the loan agreement does not [[Orig. Op. Page 4]] place the title to the property in the United States in trust, and if the tribal funds are not trust funds, then the property purchased is taxable.
Very truly yours,
HENRY W. WAGER
Assistant Attorney General