May 31, 1940 1. Persons trading with the Indians on Indian reservations are not subject to the Arizona sales tax laws. However, where such traders are non-Indians, they are subject to the sales tax laws on so much of their business as is carried on with other non-Indians. Traders off an Indian reservation are subject to the State sales tax laws whether or not they are Indians or dealing with Indians. 2. Purchases made by Indians on Indian reservations are not subject to the Arizona sales taxes nor are purchases made by Indians or Government agents off the reservation where they are made with restricted funds or in carrying out a specific program for the economic rehabilitation of the Indians approved and supervised by the Federal Government. Approved: OSCAR L. CHAPMAN, Assistant Secretary. APPLICATION OF FEDERAL AND STATE SALES TAXES TO Opinion, May 31, 1940 FEDERAL ANd State GasOLINE SALES TAXES-MENOMINEE INDIAN MILLS-PURCHASE AND SALE OF GASOLINE FOR AND BY MILLS-STATE TOBACCO SALES TAXTOBACCO SALES BY MENOMINEE INDIAN MILLS COMMISSARY. Federal and State gasoline sales taxes (a) do not apply to sales of gasoline to the Menominee Indian Mills for use in the operations of the mills, but (b) do apply to sales of gasoline to the mills for resale through the commissary of the mills to employees and the general public. The State tax on the selling of tobacco products does not apply to the selling of such products by the commissary of the Menominee Indian Mills to employees and the general public. MARGOLD, Solicitor: There have been referred to me for an opinion several questions raised by the Indian Office concerning the imposition of certain Federal and State taxes on sales made to and by the Menominee Indian Mills on the Menominee Indian Reservation in Wisconsin. The taxes in question are (1) the Federal excise tax on sales of gasoline, levied pursuant to section 617 of Title IV of the Revenue Act of 1932 establishing manufacturers' excise taxes, which appears in Title 26 of the United States Code following section 1481, and as chapter 29 of the Internal Revenue Code approved February 10, 1939 (53 Stat. 409); (2) the State excise tax on the sale of gasoline, levied under chapter 78 of the Wisconsin Statutes of 1937; and (3) the State occupational tax on the sale of tobacco products, levied under chapters 443 and 518 of the Laws of Wisconsin, 1939. The questions concerning these taxes may be formulated as follows: 1. Are the Menominee Indian Mills exempt from the Federal excise tax on sales to them of gasoline (a) for use in operation of the mills, and (b) for resale to employees and the public through the commissary maintained by the mills? 2. Are the Menominee Indian Mills exempt from the State excise tax on sales to them of gasoline (a) for use in operation of the mills, and (b) for resale to employees and the public through the commissary? 3. Are the mills exempt from the State occupation tax on the selling of tobacco products in the case of sales to employees and the public through the commissary? These three questions raise distinct problems and will be treated in order. I. APPLICATION OF THE FEDERAL GASOLINE SALES TAX Section 617 of Title IV of the Revenue Act of 1932 places a tax on gasoline sold by any producer or importer, but section 620 (as amended, August 30, 1935, 49 Stat. 1025) exempts sales "for the exclusive use of the United States." The mechanics for such an exemption are set forth in section 621 which provides for a credit or refund to the producer for taxes paid by him where the gasoline was "resold for the exclusive use of the United States." Section 624 contains the only reference to Indians. It provides that no tax shall be imposed under Title IV "on any article of native Indian handicraft manufactured or produced by Indians on Indian reservations, or in Indian schools, or by Indians under the jurisdiction of the United States Government in Alaska." However, the only subjects taxed by Title IV which could have relevance to section 624 are articles made of fur and articles of jewelry. The regulations established by the Bureau of Internal Revenue under Title IV provide for an exemption from the tax of gasoline sold “for the exclusive use of the United States * * *" (sec. 314.24 of Regulations 44, under ch. 29, subch. A of the Internal Revenue Code). The exemption certificate required to be used consists of a certification by an officer of the United States that the articles are purchased for the exclusive use of the designated governmental unit. The certificate contains the express agreement that if the articles purchased tax free under the certificate are used otherwise than for the exclusive use of the United States or are sold to employees or others, the fact will be reported by the officer to the manufacturer of the article covered by the certificate. (a) Purchases of gasoline for the operation of the mills. Under these statutory provisions and the regulations, the first question is whether sales of gasoline for use in the operations of the Menominee Indian Mills are sales of gasoline "for the exclusive use of the United States." The answer to this question requires an analysis May 31, 1940 of the status of the Menominee Mills and their relationship to the Federal Government. The Menominee Indian Mills were established under the act of March 28, 1908 (35 Stat. 51), which authorized the Secretary of the Interior to cause to be cut and sold the lumber of the Menominee Reservation and to cause to be established sawmills for that purpose. All proceeds of the operations were to be deposited in the United States Treasury for the benefit of the Menominee Tribe and all expenses of the establishment and the operations were to be borne from the Menominee tribal funds and the proceeds of the operations. The amendment to that act of January 27, 1925 (43 Stat. 793), provided that the mills should be exempt from the requirements of sections 3709 and 3744 of the Revised Statutes, regulating the making of Government purchases and contracts. A further significant amendment was carried in the act of June 15, 1934 (48 Stat. 964), which required all expenditures in the operations of the mills to receive the advance review and approval of the tribal council or its authorized committee. In the exercise of his administrative authority under the 1908 act the Secretary of the Interior appoints the manager and all the office personnel of the mills and has delegated to the manager the employment of all the mill workers, who are hired on a day-to-day or monthto-month basis. Some of the office personnel are civil service employees and most of them are classified under the Classification Act. All employees are paid from tribal funds. The manager is responsible to the Secretary of the Interior for the operations of the mills but is required to keep within the budget approved by the advisory board, in accordance with the 1934 amendment. Government forms are used in the disbursement and accounting of the funds of the mills, Government regulations followed, and the accounts audited by the General Accounting Office, in the same manner as in the case of Indian Service operations generally. Since the Menominee mills have represented a peculiar combination of tribal and Federal activities, they have been the subject of a number of rulings by various administrative agencies. In the first year of their operation, the Attorney General held that the Federal law providing an 8-hour day for Federal employees did not apply to employees of the Menominee mills. He described the mills as "an essentially private enterprise" in which the United States had invested the trust property of its wards for the benefit of those wards; also as a cooperative enterprise in which the tribe supplied the capital, the raw material and the labor, and the United States supplied the management (27 Atty. Gen. 139 (1909)). In a letter dated November 16, 1933, to the Secretary of the Interior, the Comptroller General held that the Federal Economy Act did not apply to the employees of the mills. An analysis of the Interior Department's letter referring the question to the Comptroller General, upon which his reply was based, indicates that the ruling related only to the "irregular employees," meaning the employees hired by the manager and not the supervisory personnel employed by the Secretary of the Interior. After this ruling, the supervisory personnel continued subject to the Federal Economy Act. A related ruling was made by the Employees Compensation Commission on September 18, 1936, to the effect that the Federal Employees Compensation Act did not apply to the "employees of the mill." This reversed an administrative practice of the Commission of 20 years' standing. It does not appear whether a distinction has been observed in this connection between the supervisory employees and the laborers in the mill. Congress has, however, restored the original situation and confirmed the Federal aspect of the mills by the act of April 11, 1940 (54 Stat. 105), which specifically defines "employees" of the United States as including the employees in timber operations on the Menominee Reservation. The most recent ruling involves the application of the Wages and Hours Act. This office, in the Solicitor's Opinion of November 28, 1938 (M. 29999), held that, until otherwise advised by the appropriate administrative agency, the Wages and Hours Act should be considered as applying to the Menominee mills since they could not be said to be exempted under the exemption of the "United States" as an employer. This ruling was confirmed by the Administrator of the Wages and Hours Administration in a letter to this Department of July 10, 1939, holding that the Wages and Hours Act was deemed to apply to all employees of the mills except those employees hired by the Secretary of the Interior and performing supervisory functions. The foregoing administrative decisions lead to the conclusion that the employees of the Menominee mills, at least the nonsupervisory employees, are covered by Federal laws regulating employment in private industry and are not covered by Federal laws regulating employment in the Government itself unless clearly intended. This conclusion may be the logical one and correct in law and policy but still not determine the question whether gasoline purchased for the operations of the mills is exempt as for the use of the Federal Government. The mills must be recognized as having a dual capacity. On the one hand they are a profit-making enterprise for the particular benefit of an individual tribe and on the other hand they are an agency of the Federal Government through which the United States seeks to fulfill its obligation of advancing its Indian wards. One aspect of the enterprise should not be observed to the exclusion of May 31, 1940 the other. Neither law nor logic requires adherence to one view of the character of the mills. In any case involving the application of a Federal law to these mills, the question is one of finding the intent of Congress in the particular circumstance. The determination of this question is the function primarily of this Department and such other administrative agencies as may be concerned with the enforcement of the particular law in question. In this instance, it is my opinion that the aspect of the mills as a Government agency predominates over their aspect as a private industry and that the mills are exempt from the Federal tax on purchases for their operations for the following reasons: (1) The exemption from the Federal sales tax of gasoline purchased for the operations of the mills has been accepted thus far without question by all the administrative agencies concerned. The purchase of gasoline for this purpose has been constantly referred to as the purchase of gasoline for "governmental operations." The practice of using exemption certificates for such purchases follows the customary Indian Service practice in Indian Service operations, whether or not the particular operations are being paid for from tribal funds. The purchasing is carried on according to governmental regulations and with the use of Government forms for disbursement and accounting. The exemption of the mills from compliance with certain statutes governing the execution of Government contracts indicates that Congress recognized that the mills were operated as a Government operation. (2) The management and supervision of the mills is clearly an Indian Service operation. From a practical viewpoint it would not be possible to separate the gasoline consumed in supervisory functions from the gasoline consumed for strictly productive purposes. (3) A tax on the sale of gasoline for the operations of the mills is a tax on the operations of an agency of the Government and is not a tax on the income to any Indians resulting from such operations. The case of Superintendent of the Five Civilized Tribes v. Commissioner of Internal Revenue, 295 U. S. 418, holding that the Federal income tax applied to the income of Indians received from investment by the Government of the Indians' property, in no way indorses taxation of the processes of the investment of such property by the Government. The recent Supreme Court cases upholding Federal and State income taxes on the employees of each other (Helvering v. Gerhardt, 304 U. S. 405; Graves v. New York, 306 U. S. 466), distinguish a tax upon the income of employees from a tax on the operations of the Government itself. While these cases involve the relation between dual sovereignties, they illustrate a distinction useful in a case such |