CHAPTER 11 PITFALLS AND POSSIBILITIES: UNDERSTANDING TAX ISSUES IMPACTING DEVELOPMENT IN INDIAN COUNTRY

• Jurisdiction: United States

Natural Resources Development on Indian Lands
(Mar 2011)
CHAPTER 11
PITFALLS AND POSSIBILITIES: UNDERSTANDING TAX ISSUES IMPACTING DEVELOPMENT IN INDIAN COUNTRY
Jennifer H. Weddle
Greenburg Traurig LLP
Denver, Colorado
Robert Thompson IV
Greenburg Traurig LLP
Denver, Colorado

JENNIFER H. WEDDLE is a partner at the Greenburg Traurig LLP in Denver. She has broad experience in Indian law, handling a variety of matters for tribal and non-tribal clients. She has particular experience in the areas of tribal jurisdiction and natural resources development on tribal lands. Jennifer also has U.S. Supreme Court experience, serving as one of the attorneys for the respondent in the important Indian Law case of Nevada v. Hicks (2001). Jennifer's work has included negotiations for mineral leasing on tribal lands, tribal employment matters and representation of tribes before federal agencies. She has also been involved in civil litigation, working on numerous complex federal and state litigation matters, including class action tort litigation and large commercial disputes. Jennifer also has significant securities litigation experience and products liability litigation experience. Jennifer has recently handled more than 30 trials in connection with her participation in Municipal Court Assistance Program (MCTAP) and subsequent pro bono prosecution work for the City of Denver. Jennifer is a frequent speaker on tribal rights, Indian Law matters and Native Americans' unique racial and political perspective on legal diversity issues.

ROBERT THOMPSON IV is a litigation associate in the Denver office of Greenberg Traurig, LLP, and is a member of the firm's American Indian Law Group. He has experience working on a variety of American Indian legal issues, as well as issues regarding the National Environmental Policy Act (NEPA), the Clean Air Act (CAA) and Resource Conservation and Recovery Act (RCRA). Prior to law school, Robert worked as a legal assistant researching and analyzing oil and gas title documents, chained oil and gas title interests and performed a number of activities related to natural resource interests located in Indian Country. Robert is an enrolled member of the Cherokee Nation of Oklahoma and grew up in the heart of the oil and gas fields located on the Uintah and Ouray Reservation of the Ute Indian Reservation in Northeastern, Utah.

I. INTRODUCTION

In recent years, governmental bodies have become increasingly more aggressive regarding taxation and tax-related governance. American Indian tribes are very much part of this trend. For tribes, the reason for this increase in tribal taxation efforts is two-fold. First, in the last twenty years tribes have strived to increase the social services and programs available to their members. Unfortunately, this increase has been impeded by the decrease in available federal aid. Tribes today receive much less federal aid then only a few years ago. The annual federal budget for the Bureau of Indian Affairs ("BIA") has also decreased significantly during this time period. The continuing decline in federal aid has forced tribes to pursue new avenues by which to fund their increasing social services and programs for growing tribal populations.¹ Second, tribal taxation and tribal tax-related governance has increased as tribes continue to strategically exercise more of their inherent sovereignty. Like the federal and state governments, tribes perceive taxation has a vehicle to increase their annual budgets and exercise their sovereign authority. Tribal taxation power is an inherent sovereign power, and thus, federal authorization of tribal taxation authority is not required.² Taxation has proven to be one of the few mechanisms available to tribes to exercise their sovereign authority without risk of judicial scrutiny. As such, tribal taxation is something of a "safe zone" for the exercise of tribal sovereignty.

In this new era of taxation, mineral developers operating in Indian country³ should be acutely aware of the taxation schemes they face. Mineral developers operating within Indian country currently face the possibility of complex dual taxation schemes unparalleled on non-Indian lands. Developers of tribal mineral developers typically face the both state taxation as well as tribal taxation.

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However, a new case out of the District of New Mexico offers a glimmer of hope to producers and to tribes seeking to lower the overall tax burden and retain more minerals-generated dollars in Indian country.⁴ In Ute Mountain Ute Tribe v. Homans, currently on appeal to the Tenth Circuit, at least one federal court has found that an absence of on-reservation state services negates a state's ability to impose taxes on non-Indian mineral producers as to their on-reservation minerals development.

II. OVERVIEW OF TRIBAL AUTHORITY TO TAX NON-MEMBERS

Seeing as how the majority of entities producing minerals within Indian country are nonmembers,⁵ this paper will proceed with a brief history regarding tribal authority to tax non-members. As mentioned above, tribes have the inherent authority to tax individuals and entities operating within their jurisdiction. Both Congress and the Executive Branch have routinely upheld broad based tribal taxation authority.⁶ The United States Supreme Court, however, has limited the extent to which tribes may tax non-members within Indian county.

A. Brief History Of Tribal Tax Authority Over Non-Members

As early as 1904, the Supreme Court recognized the tribal authority to tax non-member activities within Indian country.⁷ The Court reaffirmed tribal authority to tax non-members within Indian country even after stripping tribes of criminal jurisdiction in the same instance.⁸ Yet, the authority of tribes to tax non-members began to decline when the Court held that tribes did not have the inherent authority to regulate non-Indian conduct on non-Indian fee land whether or not that land was located within an Indian reservation.⁹ In Montana, the Supreme Court developed the categorical rule that tribes do not have the inherent authority to regulate the conduct of non-members on non-Indian land. The Court, also articulated two exceptions regarding instances in which a tribe could exercise such jurisdiction. Under Montana, tribes may exercise jurisdiction over non-member conduct on non-Indian land when: (1) the non-member engaged in a "consensual relationship with the tribe or its members through commercial dealing, contracts, or leases;" or (2) the non-member conduct threatened "the political integrity, the economic security, or the health or welfare of the tribe."¹⁰

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Tribal sovereignty proponents hoped that the holding in Montana would not extend to the tribal taxation arena, and for a short period of time many believed it would not.¹¹ In 2001, however, the Supreme Court held that Montana applied to tribal taxation efforts regarding non-members on non-Indian fee land located within Indian country.¹² The Court held that Montana's main rule was that tribes lacked civil authority over non-member conduct located on fee land, and the only manner in which tribes could gain such authority was if either of the two Montana exception were applicable.¹³ Due to the country, this paper will proceed with a brief overview of tribal taxation authority of non-member activities with regard to these different estates.

B. Federal Rights-Of-Way

Prior to the Supreme Court's holding in Atkinson, the Ninth Circuit Court of Appeals began to analyze how federal rights-of-way should be viewed in light of Montana. First, in 1999, the Ninth Circuit held that a federally-authorized railroad right-of-way should be viewed as non-Indian fee land for Montana civil jurisdictional purposes.¹⁴ Second, in 2000, the Ninth Circuit analyzed how tribal taxation power operated on a right-of-way granted by the Secretary of Interior and approved by the relevant tribe.¹⁵ In Big Horn County Electric Coop., Inc. v. Adams, the Ninth Circuit held that an Indian tribe could not exercise its tribal tax power until at least one of the Montana exceptions were satisfied. The Ninth Circuit reaffirmed its Big Horn holding in 2003 when it again held that Montana and Atkinson governed a tribe's power to tax non-member activities on a Congressionally-granted railroad right-of-way.¹⁶ Although the Supreme Court has never addressed tribal taxation authority on federal rights-of-way, one may assume that Montana and Atkinson govern all non-member activities on such rights-of-way.

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Therefore, tribes generally lack the authority to tax non-member mineral developments on federal rights-of-way, unless of course, there is a consensual relationship between the right-of-way holder and the tribe, as there usually is. Tribes may also have authority to tax particular mineral development activities on federal rights-of-way if the original grant did not include the right to develop tribal minerals underlying the right-of-way.¹⁷ If the original right-of-way grant did not include language regarding the development of minerals underlying the right-of-way, a tribe could argue that its "modern-day" consent is required prior to any such development. The tribe would assert that it has the power to exclude mineral developers from the mineral estate under the silent grant, and hence also has the authority tax any such developments.¹⁸ Therefore, whether a tribe has the power to tax mineral developments on federal rights-of-way may depends on the exact language of the original grant. Mineral developers operating within Indian country should examine this language and be aware this possibility.

C. Individual Indian Allotments

Whether tribal taxation would be permitted for mineral development on individual unrestricted Indian allotments is uncertain. One could easy assume that tribal taxation would be permitted under the Montana doctrine because a mineral developer would have to...