(dissenting).
The majority opinion has adopted a principle of law unknown in American jurisprudence on Indian Law — that a domestic business corporation which services an Indian tribe is exempt from the provisions of the Gross Receipts Tax Act because the imposition of the tax is a severe burden on the self-government of an Indian tribe. I dissent.
A. Facts Most Favorable to Decision
Taxpayer is a New Mexico business corporation with offices and a plant at Church Rock, New Mexico. The plant is located on “trust” land owned by the United States and administered by the Navajo Indian Tribe.
Taxpayer is a private manufacturer of modular and prefabricated homes; it was not an agent, an agency, or any instrumentality of the governing body of the Navajo Tribe or the United States. Fifty-one percent of the corporate taxpayer is owned by individual Navajo Indians, and forty-nine percent is owned by Taylor and McKinney, officers of the corporation. Taxpayer qualified under 25 C.F.R. § 80.12 to obtain a federal grant, the money to be used in performing services for the Navajo Housing Authority.
Taxpayer entered into contracts with the Navajo Housing Authority. One was an Agreement of Sale, which provided that taxpayer would sell structures to Navajo Housing Authority “to be built on real property . . . situated at several locations on NAVAJO TRIBAL LANDS . ” The other was a Contract of Sale, which provided for the sale of a completed “Property” which consisted principally of eighty dwelling units “. . . upon lands situated in Navajo, New Mexico and Church Rock, New Mexico
Taxpayer purchased the raw materials, constructed the component parts, and assembled them into modular and prefabricated units. The modular home was a unit completed in sections at the plant, and hauled out on a trailer, with the sections assembled on the reservation. The prefabricated home was built in component parts, which were taken to the reservation and assembled.
Thereafter, taxpayer did its excavation and dirt work and completed the building of the homes on the Indian reservation.
B. The imposition of a tax on a domestic corporation, if a severe economic burden upon the Navajo Tribe, the tax does not affect the self-government of the Tribe.
The majority opinion reverses the Commissioner because the imposition of the gross receipts tax is a severe burden upon and a hindrance to the self-government of the Navajo Tribe. The opinion is based upon the ethnicity of the Indian stockholders of taxpayer who qualify taxpayer under 25 C.F.R. § 80.12 to borrow money from the federal government. The argument is syllogistic. For purposes of obtaining a federal grant to engage in rendering services to the Navajo Housing Authority, taxpayer is an “Indian corporation”. The Navajo Housing Authority shall improve low rent dwellings. Therefore, the gross receipts tax imposed on taxpayer is a severe burden upon the self-government of the Navajo Tribe.
The tax is not imposed on Indians or Indian lands. It is imposed on taxpayer. It has no effect upon the self-government of the Tribe. If the Navajo Tribe desires to pay the tax, the tax may become an economic burden.
The concept proposed by the majority opinion appears to be a matter of first impression in the United States. No authority was cited and none has been found that an “Indian corporation”, organized under the corporate laws of New Mexico, and engaged in private enterprise, is exempt from the payment of a gross receipts tax, because this payment by the corporation is a severe economic burden on an Indian tribe.
To approve this concept as a rule of law means that the government and people of this State must forego the economic benefit.
I return to the philosophical rule stated in my concurring opinion in G. M. Shupe, Inc. v. Bureau of Revenue, No. 2183, 89 N.M. 265, 550 P.2d 277 (Ct.App.), decided April 13, 1976; cert. denied, 89 N.M. 321, 551 P.2d 1368 (1976). Even if the imposition of the tax affected Indian self-government, when the existence of an Indian tribe within this State obstructs the operation of state laws and the welfare of its citizens, the inherent sovereignty of the tribe must give way. Taxpayer must pay the tax for the welfare of the government and the people in New Mexico because this economic benefit takes precedence over the burdens of the Indians on the reservation. The federal government is burdened with, and should assist in, the economic development of the Indians on the reservation. It does this by loaning taxpayer large sums of money to engage in services on and off the Indian reservation for the benefit of the Indians. If taxpayer was a unit created under the Navajo Tribal Code, taxpayer would not be subject to the tax.
It has been held that New Mexico, in terms of its general power, has the right to tax all Indian land and Indian activity located or occurring outside of an Indian reservation, unless Congress forbade it. This tax was imposed on the Mescalero Apache Tribe ski resort built on federal land. Mescalero Apache Tribe v. Jones, 411 U.S. 145, 93 S.Ct. 1267, 36 L.Ed.2d 114 (1973). Surely this tax was a severe economic burden on the tribe and interfered with its self-government. If an Indian tribe can be taxed for business conducted on federal land with non-Indians, then a non-Indian domestic corporation engaged in business on trust lands, which renders services to an Indian tribe on the reservation, is also subject to the tax. Indian and non-Indian business relationships are subject to state taxes, except where the non-Indian engages in business on the Indian reservation, or the non-Indian engages in business as an agency of the tribe.
Congress did not forbid New Mexico to impose a tax on a state “Indian corporation” referred to by this name in 25 C.F.R. § 80.12.
In Palm Springs Spa, Inc. v. County of Riverside, 18 Cal.App.3d 372, 95 Cal.Rptr. 879 (1971), the Court said:
It cannot be said that the taxation of the possessory interest of non-Indians on federal land held in trust for Indians is an area inherently requiring uniform national regulation. Indeed, the United States Supreme Court has recognized the; ability of local authorities to impose taxes of certain types on the activities of private persons conducted on Indian trust or other federal land. [Citations omitted].
Neither can we find evidence of a congressional intent to preempt the field of regulating commercial activities between Indians and non-Indians. [Emphasis added]. [95 Cal.Rptr. at 883].
C. New Mexico has jurisdiction to. impose a gross receipts tax.
Taxpayer contends that the State of New Mexico does not have jurisdiction to impose a gross receipts tax on a corporation operating within the lands of the Navajo Tribe.
First, it is now firmly established that New Mexico has jurisdiction to tax a foreign corporation, authorized to do business in New Mexico, whose work is performed on Indian lands. G. M. Shupe, Inc. v. Bureau of Revenue, supra.
Taxpayer agreed to sell houses to Navajo Housing Authority “to be built on real property . . . situated at several locations on NAVAJO TRIBAL LANDS . ” Taxpayer built the houses on “trust” land and on the reservation. “It is common ground here that Indian conduct occurring on the trust allotments is beyond the State’s jurisdiction, being instead the proper concern of tribal or federal authorities.” [Emphasis added], DeCoteau v. District County Court, 420 U.S. 425, 428, 95 S.Ct. 1082, 1085, 43 L.Ed.2d 300, 305 (1975). Taxpayer is not an Indian. It rendered the service necessary to fix the houses for use on the reservation. To build a building means to erect a structure fixed on the soil. State v. Ornelas, 42 N. M. 17, 74 P.2d 723 (1937); Board of Com’rs of Guadalupe County v. State, 43 N.M. 409, 94 P.2d 515 (1939). Taxpayer accomplished this fact. It fixed the houses on the soil.
In Hunt v. O’Cheskey, 85 N.M. 381, 387, 512 P.2d 954, 960 (Ct.App.1973), this Court said:
Taxation is largely a matter of jurisdiction. As early as 1819 the Supreme Court pointed out that there are limits to a State’s power to tax, that taxation power, flowing from jurisdiction,
“ * * * is an incident of sovereignty, and is co-extensive with that to which it is an incident. All subjects over which the sovereign power of a State extends, are objects of taxation; but those over which it does not extend, are, upon the soundest principles, exempt from taxation.”
M’Culloch v. Maryland, 4 Wheat. 315, 4 L.Ed. 579 (1819). Similarly, a noted authority on Indian law has commented, "To the extent that Indians and Indian property within an Indian reservation are not subject to State laws, they are not subject to State tax laws.” F. Cohen, Handbook of Federal Indian Law 254 (1970). [Emphasis added].
For a further discussion of “The State’s Power to Tax”, see Price, Law and the American Indian, pp. 251 to 276 (1973).
Taxpayer is a corporation over which the sovereign power of a state extends.
Second, a domestic private business corporation, controlled by Indians, falls within the same status and category as all other private business corporations that do business with an Indian tribe. The racial, religious or national origins of stockholders have no effect on the character of a corporate business entity. Taxpayer claims that a corporation controlled by Indians makes the corporation an “Indian” on the same level as an incorporated pueblo. I can understand its pride, albeit not its phylogeny. Taxpayer cannot direct us to any instance in American Indian history where a private business corporation controlled by Indians evolved into an entity which it calls “Indianness”. For incorporated pueblos and federal Indian chartered corporations, see Mescalero Apache Tribe v. Jones, 83 N.M. 158, 489 P.2d 666 (Ct.App.1971) (Sutin, J., concurring opinion), rev’d in part, 411 U.S. 145, 93 S.Ct. 1267, 36 L.Ed.2d 114 (1973). The gross receipts tax assessed on the Mescalero Apache Tribe was affirmed.
A corporation and stockholders of a corporation are separate entities, Shillinglaw v. Owen Shillinglaw Fuel Company, 70 N. M. 65, 370 P.2d 502 (1962), for tax purposes. Coca-Cola Bottling Co. of Gallup v. United States, 443 F.2d 1253 (10th Cir. 1971). This same principle applies to a domestic corporation with Indian stockholders which voluntarily chooses to engage in business in corporate form. It cannot seek the benefits of state corporate law and deny the burden of the status which its incorporators voluntarily sought. United States v. State Tax Com’n of State of Miss., 505 F.2d 633 (5th Cir. 1974). Taxpayer wants all of the benefits of New Mexico corporate law, but it does not want to assume any of its burdens.
Third, imposition of a gross receipts tax on a domestic business corporation that builds homes on Indian lands does not constitute any control over Indian lands. Taxpayer seeks to place itself in the position of the Navajo Tribe to escape taxation. It relies on Hunt v. O’Cheskey, supra. This case holds that New Mexico may not tax gross receipts of Indians residing on a reservation when the gross receipts involved are derived solely from activities within the reservation. The reason is that the State, based on its lack of control over Indian lands, cannot determine what business may be carried on by Indians on an Indian reservation. See also, Your Food Stores, Inc. (NSL) v. Village of Espanola, 68 N.M. 327, 361 P.2d 950 (1961).
Taxpayer, however, is not an “Indian”, and cannot become one by clothing itself with the apparatus of a domestic business corporation.
D. Taxpayer was not entitled to deduction of gross receipts.
Taxpayer seeks relief under § 72-16A-14.9, N.M.S.A.1953 (Repl. Vol. 10, pt. 2, 1973 Supp.). It provides in part:
Receipts from selling tangible personal property ... to the governing body of any Indian tribe or Indian pueblo for use on Indian reservations or pueblo grants, may be deducted from gross receipts.
Taxpayer claims that its receipts are deductible because it sold modular and prefabricated houses, i. e., tangible personal property, to the Navajo Housing Authority-
We must determine what is meant by taxpayer “selling tangible personal property” to the Navajo Housing Authority. By definition, “ ‘selling’ means any transfer of [tangible personal] property for consideration or any performance of service for consideration.” [Emphasis added]. Section 72-16A-3(B), (I).
(1) A house which is affixed to the soil on the Navajo reservation is not tangible personal property. It is real property. (2) To construct is to build in the ordinary course of business, and a construction activity is a “service”, and all tangible personal property is a component part of that service. Section 72-16A-3(C), (K).
This means that, when a taxpayer builds a home, this constitutes a “service”. In rendering this service, all tangible personal property that goes into the assembly of the home, such as the sections, trusses, roofing, nails, etc., become a component part of the building process.
In the instant case, taxpayer was engaged in rendering a service, not in the business of selling tangible personal property. Taxpayer would be engaged in selling tangible personal property if it sold the component parts of the home to the Navajo Tribe, and the Tribe built the homes on the reservation. Under some limited factual situations, taxpayer’s receipts could result “from selling tangible personal property ... to the governing body of” the Navajo Tribe within the meaning of § 72-16A-14.9, supra.
The Commissioner decided that “The taxpayer entered into contracts with the Navajo Housing Authority (Authority) to construct houses on the Navajo Indian Reservation. . . . The modular or prefabricated units were used by the taxpayer in building houses on the Navajo Reservation.” [Emphasis added]. Taxpayer did not contest the emphasized language.
This decision is supported by substantial evidence. Taxpayer was not only a manufacturer who made and assembled component parts of the house, assembled and sold the houses, but it built the houses on the Navajo Reservation. It was in the “construction” business and rendered a “service”.
Taxpayer relies on Evco v. Jones, 81 N. M. 724, 472 P.2d 987 (Ct.App.1970); 83 N.M. 110, 488 P.2d 1214 (Ct.App.1971), rev’d on other grounds, 409 U.S. 91, 93 S. Ct. 349, 34 L.Ed.2d 325 (1972). For an analysis of Evco, see Advance Schools, Inc. v. Bureau of Revenue, 89 N.M. 633, 548 P.2d 95 (Ct.App.1975) (Sutin, J., dissenting) ; rev’d, 89 N.M. 79, 547 P.2d 562 (1976).
Evco was engaged in business as a designer or creator of instructional or educational programs. It entered into contracts with agencies of the federal government. These items constituted sales of finished items, i. e., tangible personal property. Receipts from these sales were exempt from the gross receipts tax because the principal objective of the contracts was to secure from the taxpayer the finished items. Services were merely incidental. The reverse is true in the instant case. The principal objective of the contracts between taxpayer and Navajo Housing Authority was to secure from the taxpayer a service, the building of homes.
Taxpayer was not entitled to a deduction of receipts from selling the homes to the Navajo Tribe.