Warbelow's Air Ventures v. Commissioner , 118 T.C. No. 37 ( 2002 )

118 T.C. No. 37UNITED STATES TAX COURT
WARBELOW’S AIR VENTURES, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10351-00. Filed June 27, 2002.
P leased land from the State of Alaska to operate
an airport. The leased land is surrounded by lands
owned by a Native corporation and a federally
recognized Native entity. P claimed the Indian
employment credit (IEC) on its corporate tax return
with respect to wages paid to employees who perform
substantially all of their services for P at the
airport. R disallowed the IEC.
Held: The term “within an Indian reservation” in
I.R.C. sec. 45A(c)(1)(B) means located “on” an Indian
reservation.
Held, further, P does not qualify for the IEC
because the airport is not located “within an Indian
reservation” within the meaning of I.R.C. sec. 45A.
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Michael J. Walleri, for petitioner.1
Stephen P. Baker, for respondent.
OPINION
VASQUEZ, Judge: Respondent determined the following
deficiencies in petitioner’s Federal income taxes:
TYE Apr. 30 Deficiency
1996 $12,482
1997 8,369
1998 355
The issue for decision is whether petitioner qualified for the
Indian employment credit (IEC) pursuant to section 45A for its
fiscal years ended April 30, 1996 (TY 1996), April 30, 1997 (TY
1997), and April 30, 1998 (TY 1998).2
Background
The parties submitted this case fully stipulated pursuant to
Rule 122. The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time the petition
was filed, petitioner had its mailing address and principal
office in Fairbanks, Alaska.
The city of Galena (Galena) is located approximately 270
miles west of Fairbanks on the north bank of the Yukon River.
1
Mr. Walleri began representing petitioner on Oct. 12,
2001.
2
All section references are to the Internal Revenue Code
in effect for the years in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
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Galena was traditionally inhabited by the Athabascan Indians.
Galena Village3 (Galena Village) refers to an undefined tribal
territory within which Galena is located and also refers to a
federally recognized Native entity within Alaska that has the
same status as tribes in the contiguous 48 States.
The Alaska Native Claims Settlement Act (ANCSA), Pub. L. 92-
203, 85 Stat. 688 (1971), current version at 43 U.S.C. secs.
1601-1629e (1994), created 12 Native regional corporations.
Native residents of Galena are shareholders in the Doyon Native
Regional Corporation (Doyon). Under ANCSA, the area on which
Galena is located was made available for land selections by
Doyon.
Native residents in Galena are also shareholders of the
Gana-A’ Yoo Native Village Corporation (Gana-A’ Yoo), which was
also created under State law in accordance with ANCSA.4
Petitioner operates an air charter service, which maintains
a ground facility in Galena (Galena airport). The facility
comprises a hangar and an office building. The Galena airport
serves the villages in the Middle Yukon and Koyukuk River areas.
The Galena airport is located on land that petitioner leases
from the State of Alaska, Department of Transportation and Public
3
Galena Village is also known as Louden Village.
4
Gana-A’ Yoo is the successor to the village corporation
of Notaaghleedin, Ltd.
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Facilities. During the taxable years at issue, the State of
Alaska and the Galena Air Station, a U.S. Air Force installation,
owned and administered the land on which the Galena airport is
located.5 On this land, substantially all of petitioner’s
services are performed by Alaska Native employees. The Galena
airport’s land is bordered on the south by the Galena Village
Townsite.6 Gana-A’ Yoo, pursuant to ANCSA, owns the lands that
border the Galena airport on the north, east, and west.
On its amended corporate tax returns for TY 1996, TY 1997,
and TY 1998, petitioner claimed the IEC. In the notice of
deficiency, respondent disallowed the IEC because petitioner had
not demonstrated that it met the requirements to claim the credit
and allowed an additional deduction for wages or salary expense
because of the disallowed credit.7
Discussion
Section 38 allows a taxpayer to claim against his tax a
general business credit, which includes the amount of the current
year business credit. Sec. 38(a)(2). The amount of the current
5
The U.S. Air Force transferred this land to the State of
Alaska in 1966, subject to certain reservations respecting
continuing use as a military base.
6
A small portion of the southern border adjoins the Yukon
River and a Federal air navigation site.
7
In its petition, petitioner also claimed an overpayment
of $6,078 for TY 1997.
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year business credit includes the IEC determined under section
45A(a). Sec. 38(b)(10). Section 45A(a) provides:
SEC. 45A(a). Amount of Credit.--For purposes of
section 38, the amount of the Indian employment credit
determined under this section with respect to any
employer for any taxable year is an amount equal to 20
percent of the excess (if any) of--
(1) the sum of--
(A) the qualified wages paid or
incurred during such taxable year, plus
(B) qualified employee health insurance
costs paid or incurred during such taxable
year, over
(2) the sum of the qualified wages and
qualified employee health insurance costs
(determined as if this section were in effect)
which were paid or incurred by the employer (or
any predecessor) during calendar year 1993.
[Emphasis added.]
“Qualified wages” are defined as “any wages paid or incurred by
an employer for services performed by an employee while such
employee is a qualified employee.” Sec. 45A(b) (emphasis added).
A “qualified employee” is defined in section 45A(c)(1) as:
(1) In general.--Except as otherwise provided in
this subsection, the term “qualified employee” means,
with respect to any period, any employee of an employer
if--
(A) the employee is an enrolled
member of an Indian tribe or the spouse
of an enrolled member of an Indian
tribe,
(B) substantially all of the
services performed during such period by
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such employee for such employer are
performed within an Indian
reservation, and
(C) the principal place of abode
of such employee while performing such
services is on or near the reservation
in which the services are performed.
[Emphasis added.]
The parties dispute the meaning of the phrase “within an Indian
reservation” contained in section 45A(c)(1)(B).8
I. “Within” an Indian Reservation
Petitioner argues that section 45A does not require a
qualified employee to work “on” an Indian reservation but
“within” an Indian reservation. Petitioner contends that the
Galena airport is within the exterior boundaries of a reservation
and is therefore “within” an Indian reservation as defined by
section 45A because the Galena airport is totally surrounded by
land that qualifies as an Indian reservation.
Respondent argues that Congress intended the phrase “within
an Indian reservation” in section 45A to refer to the interior of
the Indian reservation itself, not to non-Indian land adjacent to
an Indian reservation. Respondent contends that Congress
provided the IEC to encourage private businesses to locate on
Indian reservations in order to employ Native Americans who live
8
Sec. 7491 is effective for court proceedings arising in
connection with examinations commencing after July 22, 1998.
Petitioner does not contend that sec. 7491 is applicable to its
case. Further, we do not find that the resolution of this case
depends on which party has the burden of proof.
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there; therefore, respondent argues that the Galena airport must
be physically located on an Indian reservation “per se” in order
to qualify for the IEC.
We begin our analysis with the well-established rule that
statutory construction begins with the language of the relevant
statute. Consumer Prod. Safety Commn. v. GTE Sylvania, Inc., 447
U.S. 102, 108 (1980). Statutes are to be read so as to give
effect to their plain and ordinary meaning unless to do so would
produce absurd or futile results. United States v. Am. Trucking
Associations, Inc., 310 U.S. 534, 543 (1940); see Tamarisk
Country Club v. Commissioner, 84 T.C. 756, 761 (1985). We may
use legislative history to clarify an ambiguous statute.
Burlington N. R.R. v. Okla. Tax Commn., 481 U.S. 454, 461 (1987);
City of New York v. Commissioner, 103 T.C. 481, 489 (1994), affd.
70 F.3d 142 (D.C. Cir. 1995). From the face of the statute, it
is not clear what is meant by “within”. We therefore examine the
legislative history to clarify the language.
The House conference report accompanying the enactment of
the section providing for the IEC referred to the IEC and to a
related provision as “Tax incentives for businesses on Indian
reservations.” H. Conf. Rept. 103-213, at 718 (1993) (emphasis
added). Further, the conference report described the Senate
amendment as follows: “Under the Senate amendment, businesses
located on Indian reservations generally are allowed a credit
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against income tax liability for certain investments (‘the Indian
reservation credit’) and a credit against income tax liability
for certain wages and health insurance costs (‘the Indian
employment credit’).” Id. (fn. ref. omitted; emphasis added).
Further, the conference agreement set forth in the conference
report stated: “As under the Senate amendment, a tribal member
or spouse is a qualified employee only if he or she works on a
reservation (and lives on or near that reservation) and is paid
wages that do not exceed $30,000 annually.” Id. at 723 (fn. ref.
omitted; emphasis added). Thus, we conclude that the phrase
“within an Indian reservation” in section 45A(c)(1)(B) means
located on an Indian reservation.
II. Defining “Indian Reservation”
Petitioner further argues that the land on which the Galena
airport is located falls within the definition of an Indian
reservation and therefore qualifies for the IEC pursuant to
section 45A because the definition of Indian reservation is
broader in this section than its conventional definition.
Petitioner contends that section 45A, by incorporating the
definitions from the Indian Financing Act of 1974 (IFA), Pub. L.
93-262, 88 Stat. 77, current version at 25 U.S.C. secs. 1451-1544
(2000), and the Indian Child Welfare Act of 1978 (ICWA), Pub. L.
95-608, 92 Stat. 3069, current version at 25 U.S.C. secs. 1901-
1963 (2000), includes ANCSA lands.
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Respondent argues that the Galena airport is not located
within an Indian reservation as defined by the IFA, the ICWA, or
by 18 U.S.C. sec. 1151 (2000). Additionally, respondent argues
that Congress specifically carved out land on which airports were
located from the Federal public lands that were made available
for Native selection under ANCSA and, therefore, deliberately
excluded these lands from Native ownership.
Section 45A defines “Indian reservation” as a reservation as
defined in section 3(d) of the IFA, 25 U.S.C. sec. 1452(d), or
section 4(10) of the ICWA, 25 U.S.C. sec. 1903(10). Secs.
45A(c)(7), 168(j)(6).
Further, Congress passed ANCSA to provide a grant of land
and money to Native Alaskans in exchange for the extinguishment
of their land claims within Alaska. See Doyon, Ltd. v. United
States, 214 F.3d 1309, 1311 (Fed. Cir. 2000) (citing ANCSA).
Pursuant to ANCSA, regional and village Alaska Native
corporations were organized under State law, including Doyon and
Gana-A’ Yoo, to assist Native Alaskans in managing the 44 million
acres of land and the $962.5 million transferred to them. 43
U.S.C. sec. 1607(a); Doyon, Ltd. v. United States, supra at 1311.
Essentially, ANCSA ended Federal supervision over Indian affairs
and revoked the Indian reservation system in Alaska.9 43 U.S.C.
9
Only one Indian reservation, the Annette Island Reserve,
remains in Alaska after the enactment of ANCSA. 43 U.S.C. sec.
(continued...)
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sec. 1618(a); see Alaska v. Native Vill., 522 U.S. 520, 523
(1998). The ANCSA corporations received title to the land in fee
simple without any Federal restrictions applied to subsequent
land transfers. See Alaska v. Native Vill., supra at 524.
Certain land was required to be conveyed to the Federal
Government under ANCSA. See 43 U.S.C. sec. 1613. Specifically,
title to the land on which an airport is located, including
additional land that was necessary to provide Government-related
services and to ensure safe airplane approaches, was required to
be conveyed to the Federal or State Government or appropriate
municipal corporation. 43 U.S.C. sec. 1613(c)(4). Of
importance, the land on which the Galena airport is located had
been conveyed to the State of Alaska and the Federal Government.
A. Definition Under the IFA
The IFA defines “reservation” as: “Indian reservations,
public domain Indian allotments, former Indian reservations in
Oklahoma, and land held by incorporated Native groups, regional
corporations, and village corporations under the provisions of
the Alaska Native Claims Settlement Act.” 25 U.S.C. sec.
1452(d). The land on which petitioner’s Galena airport is
located does not qualify as a “reservation” under the IFA. The
land is not an Indian reservation because the enactment of ANCSA
9
(...continued)
1618(a).
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revoked the Indian reservation system in Alaska. Additionally,
the land is not held by any incorporated Native groups, regional
corporations, or village corporations as provided by ANCSA. The
land was specifically excluded from ownership by any of the ANCSA
corporations because the land was used for airport purposes. 43
U.S.C. sec. 1613(c)(4).
B. Definition Under the ICWA
The ICWA defines “reservation” as: “Indian country as
defined in section 1151 of Title 18 and any lands, not covered
under such section, title to which is either held by the United
States in trust for the benefit of any Indian tribe or individual
or held by any Indian tribe or individual subject to a
restriction by the United States against alienation.” 25 U.S.C.
sec. 1903(10). We note that the land on which the Galena airport
is located is not held by the United States in trust for the
benefit of any Indian tribe or individual and is not held by any
Indian tribe or individual subject to a restriction by the United
States against alienation. “Indian country” is:
(a) all land within the limits of any Indian
reservation under the jurisdiction of the United States
Government, notwithstanding the issuance of any patent,
and, including rights-of-way running through the
reservation, (b) all dependent Indian communities
within the borders of the United States whether within
the original or subsequently acquired territory
thereof, and whether within or without the limits of a
state, and (c) all Indian allotments, the Indian titles
to which have not been extinguished, including rights-
of-way running through the same.
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18 U.S.C. sec. 1151. The land on which the Galena airport is
located does not fit the definition as provided in (a) or (c)
because the land is not within the limits of an Indian
reservation, and is not an Indian allotment to which the Indian
titles have not been extinguished.
The land is also not a “dependent Indian community” as
provided for in (b) of the above section. The U.S. Supreme Court
held that a “dependent Indian community” exists when Indian lands
have been set aside by the Federal Government for the use of the
Indians as Indian land, and the lands must be under Federal
superintendence. Alaska v. Native Vill., supra at 527. The land
has not been set aside by the Federal Government for the use as
Indian land because the land was conveyed to the Federal
Government for airport purposes. Additionally, the land is not
under the Federal superintendence that existed previously; i.e.,
the Federal Government does not act as a guardian over it. Id.
at 533.
We conclude that the land on which the Galena airport is
located is not an “Indian reservation” within the meaning of
section 45A. Additionally, we conclude that the Galena airport
is not located “within an Indian reservation” within the meaning
of section 45A because the Galena airport is not located on an
Indian reservation. Thus, we hold that petitioner is not
entitled to the IEC with respect to wages paid to employees who
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perform substantially all their services in petitioner’s employ
at the airport.
In reaching all of our holdings herein, we have considered
all arguments made by the parties, and, to the extent not
mentioned above, we find them to be irrelevant or without merit.
To reflect the foregoing,
Decision will be
entered for respondent.