Perkins, et al v. United States of America

Filing 14

REPORT AND RECOMMENDATIONS RE: 9 / 5 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by United States of America.Objections due per 28 U.S.C. § 636(b) and Fed. R. Civ. P. 72.Signed by Hon. Hugh B. Scott on 1/27/2017. (Attachments: # 1 Appendix A: Canandaigua Treaty, # 2 Appendix B: 1842 Treaty)(GAI)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
Fredrick Perkins and Alice J. Perkins,
Plaintiffs,

Report and Recommendation
16-CV-495V

v.
United States of America,
Defendant.

I.

INTRODUCTION
Plaintiffs Fredrick Perkins (“Fredrick”) and Alice Perkins (“Alice”) live on the Allegany
Territory of the Seneca Nation of Indians (“Seneca Nation”), a member of the Haudenosaunee (or
Iroquois) Confederacy. Alice has a possessory interest in some land on the Allegany Territory; part
of her interest comes by deed and part of it comes by lease. Alice had obtained permission from
the Seneca Nation to mine gravel from her deeded or leased land in 2008 and 2009; she sold the
resulting gravel in those years and in 2010. When plaintiffs filed their income-tax return for 2010,
they included $6,113 of income from gravel sales but listed it as tax-exempt. The Internal Revenue
Service (“IRS”) issued a tax deficiency in the amount of the gravel income plus interest and
penalties.
Plaintiffs paid off the deficiency to eliminate it but now have filed suit to obtain a refund
of what they paid. Plaintiffs believe that their income from gravel sales in 2010 was exempt from
income tax under certain Indian treaties that protect Seneca Nation land and activities connected
directly to it. Defendant the United States of America has filed a motion to dismiss plaintiffs’
amended complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure (“FRCP”). (Dkt.

No. 9.) In short, defendant maintains that the Indian treaties in question either lack the language
needed to create an exemption from income tax or contain language that applies only to real
property taxes.
The Hon. Lawrence J. Vilardo has referred this case to this Court under 28 U.S.C.
§ 636(b). (Dkt. No. 10.) The Court has deemed the pending motion submitted on papers under
FRCP 78(b). For the reasons below, the Court respectfully recommends granting the motion in
part with respect to one of the treaties but denying the motion with respect to the other treaty.
II.

BACKGROUND1
This case concerns allegations that defendant improperly assessed income tax for gravel
that Alice mined from Seneca land in 2008 and 2009. Alice is an enrolled member of the Seneca
Nation and lives with Fredrick on the Seneca Nation Allegany Territory. At an unspecified time,
Alice obtained permission from the Seneca Nation to extract or to mine gravel from certain land
on the Allegany Territory during the years 2008 and 2009. Alice holds a restricted deed for some
of the land in question and a lease for the remainder. Alice mined gravel until about June 22,
2009 but had built up a stockpile that she continued to sell after that date. Alice sold gravel until
2010. The record does not state how much gravel Alice mined, to whom she sold it, or whether
she sold it personally or through some kind of commercial entity. The record also is not quite
clear exactly what gross income or net income plaintiffs obtained through Alice’s mining
operations. The parties do agree, though, that plaintiffs reported $6,113 of exempt income when

1

For the sake of brevity, and consistent with the FRCP 12(b)(6) standard, the Court will refrain from
repeated use of the words “alleged” or “allegedly” when describing the events that plaintiffs put in the
amended complaint. Nothing in this Background section constitutes a finding of fact unless otherwise
noted.

2

they filed their 2010 tax return. The exempt income came from Alice’s mining operations.
Plaintiffs consider the income exempt because it derived directly from Seneca land protected by
certain treaties that the Court will discuss below.
The exempt income reported on plaintiffs’ 2010 tax return is the heart of plaintiffs’ case
and defendant’s pending motion. The IRS issued plaintiffs a tax deficiency for 2010 in the
amount of $9,863.68. (Dkt. No. 7 at 14.) The deficiency comprised the income that plaintiffs
claimed as exempt plus interest and penalties. Plaintiffs paid the tax to eliminate the deficiency
but then filed a claim for a refund. (Dkt. No. 7 at 10–12.) The IRS has not responded to
plaintiffs’ claim for a refund.
Plaintiffs began this case by filing their original complaint on June 16, 2016 (Dkt. No. 1)
and their amended complaint on September 9, 2016 (Dkt. No. 7). Simply put, plaintiffs seek a
refund in the amount of $9,863.68, plus interest and costs. Plaintiffs assert that two treaties
between the United States and the Seneca Nation make the income in question exempt. Plaintiffs
have not numbered or labeled any distinct claims within the amended complaint, but the Court
will treat the alleged violation of each treaty as a separate claim or cause of action for a refund.
Plaintiffs claim exemption from income tax under the Treaty with the Six Nations of 1794 (the
“Canandaigua Treaty”)2 and the Treaty with the Seneca of 1842 (the “1842 Treaty”).3 Plaintiffs

2

Treaty Between the United States of America, and the Tribes of Indians called the Six Nations,
Haudenosaunee-U.S., Nov. 11, 1794, 7 Stat. 44. For the reader’s convenience, a copy of the full text of the
Canandaigua Treaty is attached to this Report and Recommendation as Appendix A.
3
Treaty Made and concluded at Buffalo Creek, in the State of New York, on the twentieth day of May in
the year one thousand eight hundred and forty-two, between the United States of America, acting herein by
Ambrose Spencer their Commissioner, thereto duly authorized, on the one part, and the chiefs, headmen
and warriors of the Seneca nation of Indians, duly assembled in council, on the other part, Seneca-U.S.,
May 20, 1842, 7 Stat. 586. Again for the reader’s convenience, a copy of the full text of the 1842 Treaty is

3

cite the following passage from the Canandaigua Treaty as support for their claim to a refund:
Now, the United States acknowledge all the land within the aforementioned
boundaries, to be the property of the Seneka Nation; and the United States will
never claim the same, nor disturb the Seneka Nation, nor any of the Six Nations,
or of their Indian friends residing thereon and united with them, in the free use
and enjoyment thereof: but it shall remain theirs, until they choose to sell the same,
to the people of the United States, who have the right to purchase.
7 Stat. 44, 45, Art. III. According to plaintiffs, “[t]axation of land or income derived from the land
on the Seneca Nation territories would have been viewed as a burden placed on the Seneca people
disturbing their free use and enjoyment of such lands.” (Dkt. No. 7 at 3.) Plaintiffs additionally
cite the following passage from the 1842 Treaty:
The parties to this compact mutually agree to solicit the influence of the
Government of the United States to protect such of the lands of the Senecas within
the State of New York, as may from time to time remain in their possession from
all taxes, and assessments for roads, highways, or any other purpose until such
lands shall be sold and conveyed by the said Indians, and the possession thereof
shall be relinquished by them.
7 Stat. 586, 590, Art. 9. “This 1842 treaty is further evidence the United States never
contemplated the taxation of land for any purpose.” (Dkt. No. 7 at 3.)
Defendant filed the pending motion on September 14, 2016. (Dkt. No. 9.)4 Defendant
argues that the Canandaigua Treaty contains no language specific enough to taxation to be
construed as a prohibition on income tax assessments. The closest that the Canandaigua Treaty
comes to addressing taxation, according to defendant, is the phrase “free use and enjoyment.”

attached to this Report and Recommendation as Appendix B.
4
Defendant had filed an earlier version of its motion to address the original complaint. (Dkt. No. 5.) The
Court considers the current version of the motion to have superseded the earlier version, but it has not
terminated the earlier version in an abundance of caution about the limits of its referral from Judge
Vilardo. As a housekeeping matter, the Court recommends denying the earlier version as moot or
otherwise terminating it.

4

Defendant argues that this phrase is too vague to be considered an exemption from income tax
and would create a policy where none currently exists. Defendant acknowledges that the 1842
Treaty makes an explicit reference to taxes but cites to case law interpreting the reference to refer
only to property taxes. Defendant also makes an argument that plaintiffs cannot find relief under
criteria for exemptions that the IRS has established for Indian lands managed under an unrelated
statute, the General Allotment Act, 24 Stat. 388 (1887) (codified as amended at 25 U.S.C. §§ 334,
339, 341, 342, 348, 349, 354).
Plaintiffs oppose the pending motion in all respects. Plaintiffs assert that the “free use and
enjoyment” phrase in the Canandaigua Treaty suffices to create an exemption from income tax for
income derived directly from the land preserved by the treaty for the Seneca Nation. Plaintiffs
argue that the 1842 Treaty and its protection “from all taxes” provide a second and much more
explicit legal basis for an exemption from income tax. Even if some ambiguity exists about how to
apply the two treaties to the scenario of a modern income tax, plaintiffs argue that the treaties are
explicit enough about the principal of exemption from taxation to prompt rules of treaty
construction that would resolve any ambiguities in their favor. To the extent that defendant
makes any arguments under the General Allotment Act, plaintiffs note that the statute does not
apply to the Seneca Nation.
III.

DISCUSSION

A. Motions to Dismiss Generally
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face. A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable inference
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that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a
probability requirement, but it asks for more than a sheer possibility that a defendant has acted
unlawfully. Where a complaint pleads facts that are merely consistent with a defendant’s liability,
it stops short of the line between possibility and plausibility of entitlement to relief.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citations omitted). Courts assess
Rule 12(b)(6) motions “accepting all factual allegations in the complaint as true, and drawing all
reasonable inferences in the plaintiff’s favor.” Peter F. Gaito Architecture, LLC v. Simone Dev. Corp.,
602 F.3d 57, 61 (2d Cir. 2010) (internal quotation marks and citation omitted). “On a motion to
dismiss, the court may consider any written instrument attached to the complaint as an exhibit or
any statements or documents incorporated in it by reference.” Yak v. Bank Brussels Lambert, 252
F.3d 127, 130 (2d Cir. 2001) (editorial and internal quotation marks and citation omitted).
“Simply stated, the question under Rule 12(b)(6) is whether the facts supporting the claims, if
established, create legally cognizable theories of recovery.” Cole-Hoover v. Shinseki, No. 10-CV-669,
2011 WL 1793256, at *3 (W.D.N.Y. May 9, 2011) (internal quotation marks and citation
omitted).

B. Taxation and Indian Treaties Generally
Next, the Court needs to review some general principles that govern taxation and the
interpretation of Indian treaties. Both the Sixteenth Amendment and the Internal Revenue Code
start with the premise that all individuals, including Indians, are subject to the income tax unless
an exemption applies. See 26 U.S.C. §§ 1, 61; Squire v. Capoeman, 351 U.S. 1, 6 (1956) (“We agree
with the Government that Indians are citizens and that in ordinary affairs of life, not governed by
6

treaties or remedial legislation, they are subject to the payment of income taxes as are other
citizens. We also agree that, to be valid, exemptions to tax laws should be clearly expressed.”).
Indian law provides two general methods to obtain an income-tax exemption. One method
applies to lands governed by the General Allotment Act and requires satisfying certain IRS criteria
pertaining to the ownership status of the land, the connection between the income in question
and the land itself, and congressional intent about taxation. See generally Rev. Rul. 67-284, 1967-2
C.B. 55 (1967). Per statutory provision, however, the General Allotment Act does not apply to the
Seneca Nation. 25 U.S.C. § 339. The Court consequently will not further address the first
method of income-tax exemption or any cases decided under the General Allotment Act, unless
those cases contain principles that apply more broadly.
To avoid dismissal, then, plaintiffs need to have a cognizable claim that plausibly could
avail them of the second method of income-tax exemption. The second method requires language
in a treaty that evinces some intent to exempt Indians from taxes like the income tax. See, e.g.,
Choteau v. Burnet, 283 U.S. 691, 697 (1931) (“The intent to exclude must be definitely expressed,
where, as here, the general language of the act laying the tax is broad enough to include the
subject-matter.”) (citation omitted). The Court is not aware of any Indian treaty that would ever
provide a clear exemption explicitly for the income tax; the Sixteenth Amendment was ratified in
1913, and all Indian treaties in force today predate it. See 25 U.S.C. § 71 (“No Indian nation or
tribe within the territory of the United States shall be acknowledged or recognized as an
independent nation, tribe, or power with whom the United States may contract by treaty; but no
obligation of any treaty lawfully made and ratified with any such Indian nation or tribe prior to
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March 3, 1871, shall be hereby invalidated or impaired.”). Explicit references to the income tax
are not necessary, however. See Capoeman, 351 U.S. 1, 7 (1956) (“The fact that [an amendment to
the General Allotment Act] antedated the federal income tax by 10 years also seems irrelevant.”).
A treaty need only contain language that sufficiently demonstrates an intent by the United States
government to exempt an Indian tribe from any sort of tax, fee, or other encumbrance that is
similar or analogous to whatever tax new litigants seek to avoid. The Ninth Circuit has provided a
concise summary of the standard that plaintiffs have to satisfy:
The applicability of a federal tax to Indians depends on whether express exemptive
language exists within the text of the statute or treaty. The language need not
explicitly state that Indians are exempt from the specific tax at issue; it must only
provide evidence of the federal government’s intent to exempt Indians from
taxation. Treaty language such as “free from incumbrance,” “free from taxation,”
and “free from fees,” are but some examples of express exemptive language required
to find Indians exempt from federal tax. Only if express exemptive language is
found in the text of the statute or treaty should the court determine if the
exemption applies to the tax at issue.
Ramsey v. United States, 302 F.3d 1074, 1078–79 (9th Cir. 2002); see also Holt v. C.I.R., 364 F.2d 38,
40 (8th Cir. 1966) (“Courts have recognized that treaties and statute[s] relating to the right of
noncompetent Indians should be liberally construed in favor of Indians. However, such principle
comes into play only if such statute or treaty contains language which can reasonably be construed
to confer income exemptions.”) (citations omitted).
As long as any treaty in question contains the minimum necessary language, any
ambiguities in the details are resolved in favor of the Indian individual or tribe. See, e.g., Minnesota
v. Mille Lacs Band of Chippewa Indians, 526 U.S. 172, 200 (1999) (“We have held that Indian
treaties are to be interpreted liberally in favor of the Indians, and that any ambiguities are to be
8

resolved in their favor.”) (citations omitted); Oneida County, N.Y. v. Oneida Indian Nation of N.Y.
State, 470 U.S. 226, 247 (1985) (“The canons of construction applicable in Indian law are rooted
in the unique trust relationship between the United States and the Indians. Thus, it is well
established that treaties should be construed liberally in favor of the Indians, with ambiguous
provisions interpreted to their benefit. Absent explicit statutory language, this Court accordingly
has refused to find that Congress has abrogated Indian treaty rights.”) (internal quotation marks
and citations omitted). That said, though, “even Indian treaties cannot be re-written or expanded
beyond their clear terms to remedy a claimed injustice or to achieve the asserted understanding of
the parties.” Choctaw Nation of Indians v. United States, 318 U.S. 423, 432 (1943) (citations
omitted).

C. Application to Plaintiffs
With the above taxation and construction principles in mind, the Court now turns to each
of the treaties that plaintiffs have cited as a basis for the income-tax exemption that they claimed.
i.

Canandaigua Treaty

The Canandaigua Treaty, as noted previously, states that the United States government
would not disturb the Seneca Nation or any individual Senecas in the “free use and enjoyment” of
the land defined by that treaty. The treaty contains no other language that refers to taxes, fees, or
similar burdens more directly. Any income-tax exemption thus would have to come from the
phrase “free use and enjoyment” by itself. In support of their arguments, plaintiffs offer legal
authorities that suggest similar conclusions indirectly. For example, plaintiffs have cited to
Hoptowit v. Commissioner, 709 F.2d 564, 566 (9th Cir. 1983). The holding of Hoptowit was that the
phrase “exclusive use and benefit,” as set forth in the Treaty with the Yakimas of 1855, did not
9

create an income-tax exemption for per-diem payments that the plaintiff received for his work as a
Tribal Council Member. Strictly speaking, the holding of Hoptowit is of no use here, but the
Ninth Circuit did note parenthetically that “[i]f the Treaty gives rise to a tax exemption, the
Commissioner argues, it is limited to income produced directly by reservation land.” Hoptowit,
709 F.2d at 566. The farthest in plaintiffs’ direction that the Ninth Circuit went was to note that
“[t]he Treaty language on which Hoptowit bases his claim gives to the Tribe the exclusive use and
benefit of the land on which the reservation is located. Thus, as in [Commissioner v. Walker, 326
F.2d 261 (9th Cir. 1964)], any tax exemption created by this language is limited to the income
derived directly from the land. It does not extend to the use of that income to compensate
Hoptowit for his service as a Tribal Council Member.” Id.; see also King Mountain Tobacco Co. v.
Alcohol & Tobacco Tax & Trade Bureau, 923 F. Supp. 2d 1280, 1287 (E.D. Wash. 2013) (“King
Mountain is not exempt from federal excise tax on tobacco products under the General Allotment
Act and [Squire v. Capoeman, 351 U.S. 1 (1956)] because the excise tax does not tax products
directly derived from the land. Any exception to taxation that could be inferred in Article II of the
Treaty [with the Yakimas of 1855] is similarly limited to products derived directly from the land.”)
(citing Hoptowit). The language is useful, from plaintiffs’ perspective, although it is not a holding.
Similar useful language comes from another case that plaintiffs cited, a case that cited Hoptowit:
Lazore v. Commissioner, 11 F.3d 1180 (3d Cir. 1993). The holding of Lazore was that plaintiffs,
married residents of the St. Regis Mohawk Indian Reservation, could not use the Canandaigua
Treaty categorically to exempt income earned from jobs with the Reynolds Metals Company and
the Mohawk Indian Housing Corporation. As with Hoptowit, the holding of Lazore does not help
10

the Court with its case at all. Nonetheless, Lazore contains the speculation that “[t]he language
relied on by the Lazores [i.e., the “free use and enjoyment” phrase from the Canandaigua Treaty]
might be sufficient to support an exemption from a tax on income derived directly from the land.”
Lazore, 11 F.3d at 1187 (citing Hoptowit). The Tax Court also has made parenthetical speculations
in different scenarios that could be seen as helpful to plaintiffs’ scenario. In Sylvester v.
Commissioner, 77 T.C.M. (CCH) 1346, 1999 WL 4977377 (T.C. 1999), the holding was that an
employee of Schindler Elevator Corporation and, later, Dover Elevator Company—two
corporations that apparently had nothing whatsoever to do with the Seneca Nation—was not
entitled to an income-tax exemption under the Canandaigua Treaty simply because he was a
Seneca. Yet just before the formal holding, the Tax Court chose to make a finding “that none of
petitioner’s income was derived directly or indirectly from the use of Indian land, or from services
performed on Indian land, or related in any way to petitioner’s status as a member of the Seneca
Nation.” Sylvester, 1999 WL 4977377, at *2. The Tax Court’s finding implies that the inverse of
any of the parts of that finding would have given the petitioner an exemption. The Court has had
trouble finding cases that addressed a situation like plaintiffs’ more directly; for example, cases that
cited Hoptowit concerned fairly obvious commercial activities not connected directly to any land.
See, e.g., Dillon v. United States, 792 F.2d 849, 853 (9th Cir. 1986) (“The [Medicine Creek] Treaty is
not violated here by the imposition of a federal tax on smokeshop income.”); Cook v. United States,
32 Fed. Cl. 170, 175 (1994) (“We hold that the Fort Stanwix Treaty, the Fort Harmar Treaty, and
the Treaty of Canandaigua cannot reasonably be construed to provide plaintiffs an exemption
from their obligation to pay federal excise taxes on the import, storage, and sale of diesel fuel.”);
11

but see id. at 174 (“The treaty provision applies to the use of land. The excise statute in question
taxes a particular activity, not the land itself or the plaintiffs’ use of the land.”).
Where do these authorities leave plaintiffs? The above authorities couple strong holdings
against inapplicable scenarios with consistent suggestions that plaintiffs’ scenario would have
required an income-tax exemption. The Court is not aware of any authority that denies an
exemption for activity, like the plaintiffs’ activity, that had at least a colorable connection directly
to land protected by the phrase “free use and enjoyment” or similar treaty language. Given that
plaintiffs right now need only plead a cognizable claim, and given the benefit of the doubt
accorded to Indian tribes when interpreting treaties, the best course of action at this time is to
recognize plaintiffs’ claim under the Canandaigua Treaty as the potential scenario that eluded all
of the above authorities, subject to confirmation during discovery. The Court currently knows
nothing about why Alice wanted to extract gravel, why the Seneca Nation gave her permission to
do so, how Alice sold the gravel, or how much she sold. Did Alice sell the gravel in front of her
house the way some people cut their own timber from their backyards and sell firewood on the
shoulder of the road in front of their houses? Did Alice sell gravel through a commercial entity
that did other things much less connected to Seneca land? Some of these details might matter;
some might not. Potentially, though, plaintiffs will be able to present a scenario in which a fairly
modest amount of income came so directly from Seneca land that, in a sense, they were selling a
part of the physical land itself. Cf. Capoeman, 351 U.S. at 10 (Case under the General Allotment
Act in which “Respondent’s timber constitutes the major value of his allotted land. The
Government determines the conditions under which the cutting is made. Once logged off, the
12

land is of little value.”). The authorities that the Court cited above consistently have suggested
that, presented with plaintiffs’ scenario, they would have found that treaty language such as “free
use and enjoyment” exempted plaintiffs’ scenario from income tax.5 These consistent suggestions
mesh with the Court’s own sense that plaintiffs’ scenario potentially fills in the case law with a rare
demonstration of how a direct connection to Indian land actually would look. For purposes of
Rule 12(b)(6), plaintiffs have shown enough to let their claim under the Canandaigua Treaty
survive into discovery.
For the above reasons, the Court concludes that plaintiffs plausibly have stated a
cognizable claim for a refund under the Canandaigua Treaty. The Court thus recommends
denying defendant’s motion with respect to the Canandaigua Treaty.
ii.

1842 Treaty

Ironically, though the 1842 Treaty contains much more explicit language about taxes,
plaintiffs run into trouble on this argument for a different reason. In United States v. Kaid, 241 F.
App’x 747 (2d Cir. 2007), five defendants appealed from their convictions and sentences for
conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h), and trafficking in
contraband cigarettes, in violation of 18 U.S.C. § 2342. The defendants apparently did not claim
to be enrolled members of the Seneca Nation but sold “massive quantities of cigarettes” on Seneca
land. 241 F. App’x at 750. Among nine issues raised on appeal, the defendants argued that taxing

5

Incidentally, one case that defendant cited in its motion papers does not contradict these other
authorities. In Seneca Nation of Indians v. New York, 206 F. Supp. 2d 448, 487 (W.D.N.Y. 2002), the court
did describe the purposes of the Canandaigua Treaty in terms that omitted any mention of taxes or tax
exemptions. That case, however, addressed a geographical dispute so different from the dispute here that
its description of the Canandaigua Treaty’s overall purposes did not necessarily preclude the application of
the treaty’s language to tax disputes.

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cigarettes sold on Seneca land to non-Indians violated the 1842 Treaty. The Second Circuit
dispatched the argument in two sentences. “Appellants’ claims that taxing cigarette sales made on
reservations to non-Native Americans violates the Treaty with the Seneca, May 20, 1842, 7 Stat.
586, 590 (1842), or New York Indian Law § 6 (McKinney 2000), are equally unavailing. Both the
treaty and the New York statute clearly prohibit only the taxation of real property, not chattels like
cigarettes.” Id. (citing Snyder v. Wetzler, 603 N.Y.S.2d 910, 912–13 (App. Div. 1993). Snyder, in
turn, contains the holding that “States may validly impose a nondiscriminatory tax on the nonIndian customers of Indian retailers doing business on reservations, however, even if the tax
seriously disadvantages or eliminates the Indian retailer’s business with non-Indians.” 603
N.Y.S.2d at 915 (internal quotation marks and citations omitted). To reach that holding and to
apply it to a business selling cigarettes and motor fuel, the Appellate Division in Snyder made the
finding that the 1842 Treaty “clearly refers only to taxes levied upon real property or land.” Id. at
912. Nonetheless, just before the holding, the Appellate Division chose to emphasize that “this is
not a case about land taxes, personal property taxes, or income taxes, nor has any Indian been
subjected to taxation.” Id. at 915. A subsequent Appellate Division case that cited Snyder added
the limited clarification that the 1842 Treaty “prohibits the State from taxing reservation land
[but] does not bar the imposition of excise and sales taxes on cigarettes and motor fuel sold to nonIndians on the Seneca Nation’s reservations.” N.Y. State Dep’t of Taxation & Fin. v. Bramhall, 667
N.Y.S.2d 141, 147–48 (App. Div. 1997) (citing Snyder). Left unaddressed is what the Appellate
Division might have done in a case that was about income taxes, or more specifically taxes on
income that possibly could be considered equivalent to taxing reservation land.
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While plaintiffs did not address Kaid in their motion papers, some of their other
arguments could be construed as arguments to distinguish or even to modify the part of Kaid that
addressed the 1842 Treaty. And there are arguments that could be made about Kaid. Kaid does
not appear to have featured enrolled members of the Seneca Nation. Kaid had nothing to do with
income earned from direct use of land protected by the 1842 Treaty or any other treaty. In briefly
addressing one argument out of nine presented, the Second Circuit might not have intended to
reach beyond cigarette sales to address plaintiffs’ scenario or similar scenarios. Whatever the
merits of these arguments or others, however, they are arguments to be made to the Second
Circuit. For this Court’s purposes, Kaid says what it says. The Second Circuit could have stopped
at saying that the 1842 Treaty does affect “chattels like cigarettes,” leaving for future cases whether
it prohibited taxes on various sources of income. Even a different grammatical layout in Kaid
might have helped plaintiffs. The word “only” is a modifier that usually limits the word or phrase
closest to it. See United States v. Lockhart, 749 F.3d 148, 152 (2d Cir. 2014) (“Under the last
antecedent rule, a limiting clause or phrase should ordinarily be read as modifying only the noun
or phrase that it immediately follows.”) (internal quotation marks and citations omitted). If the
Second Circuit had written that the 1842 Treaty prohibited “the taxation of only real property”
then there would be a better argument that the Second Circuit distinguished real property from
chattels without addressing income taxes. The Second Circuit instead made the whole phrase
“taxation of real property” the target of the modifier “only,” thereby limiting the 1842 Treaty to
one specific category of taxation. Plaintiffs’ claims and arguments here cannot survive against such
a sharp limitation.
15

For the above reasons, the Court recommends granting defendant’s motion with respect to
the 1842 Treaty.
IV.

CONCLUSION
For all of the foregoing reasons, the Court respectfully recommends granting defendant’s
motion (Dkt. No. 9) in part to dismiss plaintiffs’ claim for a refund under the 1842 Treaty. The
Court recommends denying the motion with respect to plaintiffs’ claim for refund under the
Canandaigua Treaty.

V.

OBJECTIONS
A copy of this Report and Recommendation will be sent to counsel for the parties by

electronic filing on the date below. Any objections to this Report and Recommendation must be
electronically filed with the Clerk of the Court within 14 days. See 28 U.S.C. § 636(b)(1); FRCP
72. “As a rule, a party’s failure to object to any purported error or omission in a magistrate judge’s
report waives further judicial review of the point.” Cephas v. Nash, 328 F.3d 98, 107 (2d Cir. 2003)
(citations omitted).
SO ORDERED.
__/s Hugh B. Scott________
Honorable Hugh B. Scott
United States Magistrate Judge
DATED: January 27, 2017

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