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Keweenaw Bay victory could help landowners

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KEWEENAW BAY, Mich. – Homeowners throughout Indian country could benefit if the recent U.S. Circuit Court of Appeals decision in favor of the Keweenaw Bay Indian Community remains unchallenged.

A three-judge circuit court panel held on June 26 that neighboring governments could not automatically levy a property tax on reservation land owned by Indians, even though the land historically had been allotted to individuals and was no longer held in trust. It upheld a lower court order prohibiting the towns from putting the reservation parcels on their tax rolls, as the Michigan State Tax Commission had ordered them to.

The state attorney general missed the deadline for appealing to the full Sixth Circuit court. (The full array of the circuit court’s judges sitting en banc has the power to overturn decisions of a three-judge panel.) Nate Bailey, spokesman for the attorney general’s office, said it was still consulting with the Michigan State Tax Commission, its client in the case, over whether to appeal to the U.S. Supreme Court.

If the ruling stands, it would contradict holdings in other circuits that when Indian land loses its trust status, the real estate by that fact becomes subject to state and local property tax. Many localities historically have used unpaid tax bills as a means of seizing Indian lands. Although statistics are lacking, this danger is possibly one of several features of the tortured history of Indian land tenure that has discouraged Native families from owning their own homes.

According to the National American Indian Housing Council, the Native homeownership rate has been estimated at 33 percent, “lowest among all ethnic groups and less than half the rate for the general U.S. population.”

The direct consequence of the Keweenaw Bay decision is in some dispute. Lawyers for the tribe say it applies uniquely to the 1854 treaty which established their reservation. “I believe this would have a very limited impact,” said tribal attorney John Baker.

But at the least, the appellate ruling, styled Keweenaw Bay Indian Community v. Robert Naftaly et al., puts limits on an earlier U.S. Supreme Court decision which has been invoked against tribal tax sovereignty. In the 1998 ruling in Cass County, Minnesota v. Leech Lake Band of Chippewa Indians, a unanimous court appeared to say that land that had been allotted to Indians “in fee simple,” giving them the right to sell it without restriction, also became taxable by state and local governments even though it was located within reservation boundaries. The Michigan State Tax Commission cited this decision in February 1999, when it sent out a bulletin ordering the neighbors of the Keweenaw Bay Community to put the privately owned reservation parcels on their tax roles. (Naftaly, the lead defendant in the case, is the current chair of the tax commission.) The tribe began a protracted legal fight.

In June 2005, Federal District Judge David McKeague sided with the tribe. The Cass County case, he ruled, only applied where Congress expressed its clear intent to allow taxation. That intent came in the General Allotment Act of 1887, the infamous Dawes Act designed to break up reservations and turn most of their land over to white settlers. Although most Native allotments were authorized by the Dawes Act or its successors, the Keweenaw Bay Reservation was different. The allotments came through the 1854 treaty which established the reservation, and the treaty made no mention of property taxes.

The Court of Appeals upheld McKeague’s decision, adding a long argument that treaties did not show “Congressional intent.” Although, after so many reversals of federal policy, the Dawes Act continued to work its harm through the Cass County decision, it did not automatically extend to all cases in which Indians owned land out of federal trust. The three-judge panel went out of its way to criticize opinions in other circuits based “on the notion that alienability equals taxability.”

In fact, there are a number of reasons why Congress could want Indian families to hold land “in fee simple” within a reservation, without the encumbrance of a federal trust, but remain free of state and local taxation. We recently reported the findings of the economist Terry Anderson that Native owners managed “fee simple” land more productively than land held in federal trust, either for the tribe or the individual. But keeping this land off of neighboring tax rolls preserves the economic integrity of the reservation and removes the all-too-frequent threat of further dispossession through foreclosure actions. After all, it was a 1992 foreclosure action by the Michigan state treasurer that started the Keweenaw Bay suit in the first place.

The Keweenaw Bay tribe’s victory has produced a final irony. As a result of earlier rulings in the ’90s, the tribe put the properties in question on a special “tribal assessment roll” and sent contributions to the neighboring governments as a sort of “payment in lieu of taxes” program. But after McKeague’s decision last year, the tribe suspended these payments, costing neighboring governments a pretty penny. This is a main reason why the local towns actually went to court supporting the tribe and opposing the misguided directive of the State Tax Commission.