Dec. 19, 2017 – Land established for timber growth before 1986 is exempt from property tax under state law, but a “severance tax” on timber applies to expired contracts unless the landowner is a sovereign Indian Tribe, a state appeals court recently ruled.

In the 1990s, the Lac Courte Oreilles Band of Lake Superior Chippewa Indians of Wisconsin (Tribe) acquired land in Sawyer County. A previous owner, in the 1960s, had filed a petition to enroll the subject land in Wisconsin’s Forest Croplands Program.

Wisconsin’s Forest Croplands Law was enacted in 1927 to encourage sustainable timber growth. Those who enrolled their land in the program agreed to use sound forestry practices to grow timber while keeping it publicly open for fishing and hunting.

In exchange, the land is exempt from real estate property taxes. However, other taxes apply, including an annual “acreage” tax of 10 cents per acre, a “withdrawal” tax if the land is delisted, a “severance” tax when wood products are harvested, and a “termination severance tax” on timber ready for harvest if the land is not re-enrolled when the 50-year contract expires.

When the Tribe acquired the land, tribal representatives executed transfer of ownership forms that kept the land in the Forest Croplands Program, and the Tribe agreed to the terms described within Wisconsin’s Forest Croplands Law, including applicable taxes.

But when the Wisconsin Department of Natural Resources (DNR) notified the Tribe that its Forest Croplands Program contract was set to expire – triggering a potential “termination severance tax” – the Tribe did not respond or take any action.

The DNR then determined that the Tribe owed about $75,000 as a termination severance tax, calculated at 10 percent of the land’s timber value in the area. When the contract expired without re-enrollment, the DNR sent the Tribe an invoice.

The Tribe did not pay, and the DNR sent a new invoice with a 10-percent penalty for nonpayment. Again, the Tribe did not pay, and the DNR filed suit. The Tribe moved to dismiss the claims on grounds that sovereign immunity barred the DNR’s lawsuit.

Although the DNR argued that the Tribe waived sovereign immunity by signing transfer forms that bound the Tribe to the Forest Croplands Program, the Sawyer County Circuit Court dismissed the DNR’s claims, and the DNR filed an appeal.

But in Wisconsin Dept. of Natural Resources v. Timber and Wood Products Located in Sawyer County, 2017AP181 (Dec. 19, 2017), a three-judge panel for the District III Appeals Court affirmed, concluding that sovereign immunity barred the claims.

Tribe Did Not Waive Immunity

The panel noted that sovereign immunity bars lawsuits against Indian tribes “absent a clear waiver by the tribe or congressional abrogation.” But the panel ruled that the Tribe did not waive immunity, even though it agreed to abide by the Forest Croplands Law.

“[C]ourts throughout the country have repeatedly held that a tribe’s mere agreement to comply with a particular law does not amount to an unequivocal waiver of the tribe’s sovereign immunity,” wrote Judge Lisa Stark.

And the panel rejected the DNR’s argument that this case is different because the Forest Croplands Law contains provisions on enforcement, including a provision that says landowners are personally liable for severance taxes.

“[W]hile the statute makes the Tribe liable for the payment of the severance tax, it does not state that the landowner consents to be sued in order to enforce any lien on personal liability,” Judge Stark explained.

At most, the panel noted, the statutory provisions create ambiguity on whether the Tribe consented to the lawsuit, and there is a strong presumption against the waiver.

“[A]ny ambiguity created by provisions in the Forest Croplands Law related to the collection of unpaid taxes is insufficient to support a conclusion that the Tribe unequivocally waived its sovereign immunity,” Judge Stark wrote.

Panel Rejects In Rem Claim

Even if sovereign immunity blocks in personam claims against the Tribe, the DNR argued, it could still attach in rem claims against the timber and wood products at issue because the law allows a lien against that property to satisfy a tax debt.

The panel disagreed. “[T]he Tribe cites state and federal cases that have rejected the DNR’s position and instead held that sovereign immunity bars in rem actions pertaining to a tribe’s property,” Judge Stark wrote. “We find these cases cited by the Tribe more persuasive than those cited by the DNR.”

A lien does not attach without an underlying debt, the panel noted, rejecting the DNR’s claim that it had a pre-existing interest in the timber and wood products, an interest that was triggered when the Tribe’s predecessor enlisted the land in the state law program.

“[A]ny lien the DNR acquired did not predate the Tribe’s ownership of the timber, and enforcement of the lien would necessarily invade the Tribe’s possession of its own property, a result contrary to United States Supreme Court precedent,” Stark wrote.