Opinion
No. 97-1449.
July 23, 1998.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN
BEFORE: MARTIN, Chief Judge; SUHRHEINRICH and SILER, Circuit Judges.
Baraga Products, Inc. appeals the district court's grant of summary judgment to the Michigan Commissioner of Revenue in its action challenging the imposition of state taxes on a corporation owned by an Ojibwa Indian. Baraga requests that this Court reverse the district court's judgment, enter final judgment on Baraga's behalf, award damages in an amount equal to the Michigan Single Business Tax collected by the Commissioner for the period of November 19, 1993, to April 14, 1997, plus interest, grant declaratory judgment that the tax was unlawful as applied to Baraga, grant a permanent injunction restraining the Commissioner from collecting the tax from Baraga, and award Baraga attorney fees and costs. For the reasons stated, we affirm the district court's judgment.
Baraga is a Michigan corporation organized under Michigan's Business Corporation Act, 1972 P.A. 284, M.C.L.A. § 450.1101. It manufactures and sells rough terrain forklifts known as "Square Shooters" and is located at 445 N. Superior Avenue, in Baraga, Michigan. This location is within the exterior boundary of the L'Anse Indian Reservation. Baraga became incorporated on September 28, 1983.
At the time of incorporation, Baraga's 4,000 shares were owned equally by four individuals. One of the four shareholders, Mr. James W. Mayo, is an Ojibwa Indian and member of the Keweenaw Bay Indian Community, which is located on the reservation. On November 19, 1993, Mr. Mayo became the sole owner of Baraga and remained as such until he sold his entire interest on April 14, 1997. During that time, Baraga paid the Single Business Tax.
On July 8, 1996, Baraga filed a complaint in district court invoking federal question jurisdiction and arguing that collection of the Single Business Tax during the period of his sole ownership was unlawful. Baraga requested a declaratory judgment that the tax was unlawful, a permanent injunction against further collection of the tax, damages in the amount of the tax already collected plus interest, and attorney fees, costs and expenses. Baraga filed a motion for judgment on the pleadings. The Commissioner opposed the motion and asked the court to grant judgment in its favor or dismiss the action for lack of jurisdiction. The district court treated the motions as cross-motions for summary judgment.
On March 17, 1997, the district court granted the Commissioner's motion for summary judgment and dismissed Baraga's case in its entirety. On March 27, Baraga filed a motion for reconsideration. On April 11, while that motion was still pending, Baraga filed its notice of appeal which the clerk held in abeyance pending a decision on the motion for reconsideration. That motion was denied on May 27, and the clerk filed the notice of appeal.
The issue before this Court is whether the district court incorrectly concluded that Baraga, although one hundred percent Indian-owned, was required to pay the tax, and thereby erred in granting the Commissioner's motion for summary judgment. This Court reviews a district court's grant of summary judgment de novo. Rowley v. United States, 76 F.3d 796, 799 (6th Cir. 1996). If the pleadings, affidavits and other submissions "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law," we must affirm the district court's grant of summary judgment. Harrow Prods. Inc. v. Liberty Mut. Ins. Co., 64 F.3d 1015, 1019 (6th Cir. 1995).
Baraga argues on appeal that collection of the tax while Baraga was entirely owned, operated, and controlled by Mr. Mayo, an Ojibwa Indian, was unlawful because the Commissioner lacks jurisdiction to tax income generated by Indian-owned property. Baraga contends specifically that the district court erred in concluding that, by reason of being a corporation, Baraga maintains an identity separate from its Indian shareholder, and that Mr. Mayo's enrollment in a tribe does not equate to Baraga's being enrolled as is required for tax-exempt status.
The Supreme Court has held that income is exempt from taxation when it is (1) earned on an Indian reservation, (2) by an enrolled member of an Indian tribe, (3) who lives on the reservation of the tribe in which the member is enrolled. McClanahan v. State Tax Comm'n of Ariz., 411 U.S. 164 (1973). The quandary posed here is whether Baraga can be considered an enrolled member of an Indian tribe even though, as conceded by Baraga, it is not enrolled as a tribe member. This is answered by deciding whether a corporation is the legal equivalent of a tribe member simply because its sole stockholder is an enrolled member of a tribe.
The general rule is that a corporation is an entity distinct from its stockholders. Michigan Carpenters Council Health Welfare Fund v. C.J. Rogers, Inc., 933 F.2d 376, 384 (6th Cir. 1991). This is particularly true when a corporation is examined for tax purposes. See King v. Commissioner of Internal Revenue, 458 F.2d 245 (6th Cir. 1972). And, this general rule is not influenced by the fact that one person owns all of the corporation's stock. See Whipple v. Commissioner of Internal Revenue, 373 U.S. 193 (1963) (citing Dalton v. Bowers, 287 U.S. 404 (1932)); see also Bill Kettlewell Excavating, Inc. v. St. Clair County Health Dept., 468 N.W.2d 326 (Mich.Ct.App. 1991). It follows that Mr. Mayo's status as an enrolled member of the Ojibwa tribe does not mean that Baraga is an enrolled member. Baraga, therefore, does not qualify for tax-exempt status.
In furtherance of its argument, Baraga claims that just as a sole proprietorship, when Indian-owned and located on a reservation, is immune from the tax, a corporation possessing the same characteristics should be similarly immune. This analogy is erroneous. The comparison actually manifests the inherent differences that necessitate the conclusion that a corporation is not exempt. Income of a sole proprietorship is treated as the income of the sole proprietor. See United States v. Doe, 465 U.S. 605, 608 (1984) (holding a sole proprietor acting on behalf of the sole proprietorship is acting on behalf of himself). There is no independence. Therefore, if the sole proprietor is an enrolled member of a tribe, so is the sole proprietorship. This is simply not the case with a corporation and is why a corporation that is not itself enrolled cannot attach itself to the shareholder's enrollment status to claim immunity from the tax.
It is precisely this lack of oneness that makes adopting the form of a corporation an attractive choice. Shareholders, by maintaining a separate and distinct identity from the corporation, are shielded from personal liability for the corporation's debts. See Richardson v. Secretary of Labor, 689 F.2d 632, 633 (6th Cir. 1982). Mr. Mayo chose to maintain Baraga's status as a corporation, and Baraga could therefore avail itself of the normal benefits of doing business in the corporate form. However, Baraga also wants the benefits that come from being a sole proprietorship. When a taxpayer embraces the advantages of doing business as a corporation, he must be held to its burdens as well. Moline Properties, Inc. v. Commissioner of Internal Revenue, 319 U.S. 436 (1943); Bollinger v. Commissioner of Internal Revenue, 807 F.2d 65, 68 (6th Cir. 1986). As stated by the district court, Baraga wants to "have its cake and eat it too." Recognizing that Baraga cannot do this, the district court appropriately granted summary judgment in favor of the Commissioner.
Baraga argues in the alternative that when an Indian-owned business is domiciled on a reservation, the authority to impose taxes rests solely with the tribe. This argument ignores the seminal point that it is the corporation that is being taxed, not Mr. Mayo, and Baraga was not organized under tribal laws. It was instead organized under the laws of the State of Michigan, and is therefore domiciled in Michigan for tax purposes.
Baraga's other alternative arguments also fail due to the same crucial fact that Baraga, as a corporation, is an entity separate from its lone, albeit Indian, shareholder. Baraga argues that collection of the tax violated Art. II of the Treaty with the Chippewa of October 4, 1842, because the Treaty limited jurisdiction over Indians to the federal government and the tribes themselves. As the tax exercises jurisdiction over a non-enrolled corporation, and not any Indians themselves, the Treaty is irrelevant and the argument flawed.
Baraga's final alternative argument is that collection of the tax violates the United States Constitution, namely the Commerce Clause, U.S. Const., art. I, sec. 8, cl. 3, grant of legislative power to Congress over Indian affairs, and the Supremacy Clause, U.S. Const., art. VI, cl. 2, framework for dominion of a federal treaty over state law. Again, these clauses address something that Baraga is not, an enrolled member of an Indian tribe, and the burden of the tax falls on the shoulders of that corporation and not its Ojibwa owner, Mr. Mayo.
The Commissioner raised the defense that the claim for damages is barred under the Eleventh Amendment of the United States Constitution. While the Eleventh Amendment addresses only requests for damages, Baraga also sought a declaratory judgment that the Michigan Single Business Tax was unlawful as applied to Baraga. Because both of these claims for relief can be extinguished by concluding that Baraga is not the equivalent of an enrolled Indian, this Court need not address the Eleventh Amendment defense. The Commissioner also raised the defense that the Federal Tax Injunction Act, 28 U.S.C. § 1341, precluded the district court from granting Baraga's request for an injunction restraining the Commissioner from further collection of the Single Business Tax from Baraga. This defense is now inapplicable as Baraga is no longer Indian-owned.
The judgment of the district court is affirmed.