JurisdictionUnited States
Natural Resources Development in Indian Country
(Nov 2005)


Charles G. Cole
Steptoe & Johnson LLP
Washington, D.C.

Mr. Cole is a partner in the law firm of Steptoe & Johnson LLP in Washington, D.C. and chair of its appellate practice. Mr. Cole has argued several cases addressing the authority of tribes to tax non-Indian enterprises, including Atkinson Trading Co. v. Shirley, 532 U.S. 645 (2001), and Burlington Northern Santa Fe Railroad v. Assiniboine and Sioux Tribes, 323 F.3d 767 (9th Cir. 2003).

Mr. Cole maintains a diverse appellate practice, including the representation of energy companies in regulatory matters. Recent cases include New York v. FERC, 535 U.S. 1 (2002); Idaho Power Co. v. FERC, 312 F.3d 454 (D.C. Cir. 2002); and Atlantic City Electric Co. v. FERC, 295 F.3d 1 (D.C. Cir. 2002).

Mr. Cole is a former law clerk to the late Justice Byron R. White in the U.S. Supreme Court and Judge Harold Leventhal in the U.S. Court of Appeals for the D.C. Circuit. He served as the Chair of the ABA Council of Appellate Lawyers from 2004-2005. Mr. Cole received his undergraduate degree from Yale College and his law degree from Harvard Law School, magna cum laude.

I. Reasons to Worry About Tribal Taxes

Any entrepreneur must think about taxes, but those who venture within the borders of an Indian reservation must pay particular care to this issue. While there are prior examples of tribal taxation of mineral resource development, tribes today have become more aggressive about taxation. In part, the reasons may be financial. Faced with declining per capita federal aid and a desire to expand social services and other programs, tribes are seeking other sources of revenue. In part, the reasons may be ideological; tribes may believe that the exercise of their power of taxation is part of their role as sovereigns. Thus, developers should prepare for tribal efforts at taxation, either at the outset or -- more ominously -- after substantial investments have been made.

A. Concurrent State Tax Burden

The burden of tribal taxes is a particular concern because mineral firms already face state taxes on their activities within the reservations. They cannot rely on federal law as a protection against those state taxes. True, there are doctrines of federal preemption that may immunize certain on-reservation economic activity from state taxation where the burden of that state taxation falls primarily on the tribe and its members. 1 However, under current law, each case "requires a particularized examination of the relevant state, federal and tribal interests." 2 The U.S. Supreme Court has already taken up the question of whether oil and gas production on tribal lands has immunity from state taxation and -- at least in one case -- found that it does not. 3 Moreover, the Supreme Court has specifically confronted the question of whether double taxation (state and tribal) violates the Commerce or Due Process Clauses of the U.S. Constitution and held it permissible, at least absent special circumstances. 4 Thus, the developer must prepare to face the burden of state taxes. 5

B. Absence of Commerce Clause and Other Protections Under U.S. Constitution

At the same time, there may be limited restraints on tribal taxes. Tribal taxes do not need approval from the Bureau of Indian Affairs unless the tribal constitution so requires. 6 The dormant Commerce Clause -- which typically provides protection against some forms of excessive state taxes 7 -- has been held not to apply to tribal taxes at all on the ground that tribes are not "states." 8 A parallel doctrine protecting against excessive tribal taxation might have been developed under the Indian Commerce Clause. 9 However, one circuit has rejected that notion, holding instead that the Indian Commerce Clause does not furnish comparable protection against excessive taxation. 10 And other constitutional challenges are extraordinarily difficult to raise because the Constitution itself does not apply to Indian tribes as it does to states, 11 and the Indian Civil Rights Act has been construed not to give rise to a claim for relief cognizable in federal court. 12

C. Absence of Political Restraints

Finally, tribal taxes are particularly worrisome because some of the usual political restraints on excessive taxes may not be present. Tribal governments are typically closed, elected only by enrolled members of the tribe. Mineral development entrepreneurs may not have any representation in tribal government, even indirectly, through stockholders or employees. While some taxes -- such as gasoline taxes -- might fall on tribal members and nonmembers alike, taxes on mineral resource development may appear to fall almost entirely on nonmembers. Perceived as outsiders taking value from the land, mineral entrepreneurs may be viewed as an ideal target of tribal taxes, protected only by the recognition that at some point the tax burden could discourage any development at all.

II. Two Models of Tribal Sovereignty Bearing on the Tribal Tax Power

In view of the lack of other legal or political restraints, the key factor governing tribal taxes on mineral resource development is whether the tribe has the sovereign power to impose the taxes on persons -- including companies -- that are not members. The varying decisions are discussed below. Historically, there have been two basic models for defining the scope of that power: one which views the power to tax as an inherent aspect of tribal sovereignty; the other which relates the taxation power to the tribe's power over its own lands. The case law reflects a continuing tension between these two models -- a conflict resolved in Atkinson Trading Co. v. Shirley. 13

A. First Model -- Inherent Sovereignty

The first model assumes that "the power to tax is an essential attribute of Indian sovereignty because it is a necessary instrument of self government and territorial management." 14 This power "derives from the tribe's general authority, as sovereign, to control economic activity within its jurisdiction, and to defray the cost of providing governmental services by requiring contributions from persons or enterprises engaged in economic activities within that jurisdiction." 15 Under this model, "a tax is not an assessment of benefits. . . . The only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public purposes." 16

This first model relies heavily on cases in which states, as full sovereigns, were held empowered to impose taxes on entities engaged in economic activities crossing state lines. 17 Under this case law, the Due Process Clause of the Fourteenth Amendment permits states to tax income generated in interstate commerce so long as there is 1) a "'minimal connection' between the interstate activities and the taxing State," and 2) "a rational relationship between the income attributed to the State and the intrastate values of the enterprise." 18 However, the "minimal connection" requirement is satisfied "if the corporation avails itself of the 'substantial privilege of carrying on business' within the State." 19 Thus, within these confines, a state is permitted to tax a portion of income earned from multi-state oil and gas exploration, extraction, and production activities. 20 However, as noted earlier, the Due Process and Commerce Clause restraints have been held inapplicable to tribes. Thus, under this model, tribes could obtain the sovereign tax powers analogous to those of states but without the constitutional limitations.

B. Second Model -- Consent

The second model, by contrast, does not treat the tribes as sovereigns on a par with the states. It assumes that, through their original incorporation into the United States, the tribes have lost some important attributes of sovereigns. 21 It further assumes that tribes have no inherent power to impose taxes on nonmembers, but must acquire that power by virtue of specific acts of the nonmembers. This is a concept of government with the consent of the governed. Writing for the Court in Duro v. Reina, Justice Kennedy observed, "the retained sovereignty of the tribe is but a recognition of certain additional authority the tribes maintain over Indians who consent to be tribal members. . . . A tribe's additional authority comes from the consent of its members. . . ." 22 Under this premise, it is even more clear that a tribe's authority over nonmembers must come from their consent.

Thus, the tribes have power to govern relations among those who have given consent, i.e., their own members, but tribes lack inherent sovereignty over nonmembers who have not done so. 23 Of course, nonmembers could create such consent by their actions as well as by express consent. An early opinion of the Attorney General reflects this concept of consent. It holds that a non-Indian who by adoption becomes a member of the tribe also becomes subject to its civil jurisdiction. 24 Even more to the point, the concept of consent was the earliest basis for tribal taxes on nonmember activity. That consent arose from entry onto tribal lands; a nonmember who entered on reservation lands was required to have the permission of the tribe, and the tribe could charge for this permission. Thus, an early Senate Report explains that one of the standard Indian treaties of that time -- the treaty with the Chickasaw -- prohibited persons who were not members of the tribe from entering onto reservation lands. 25 With some exceptions, such as persons employed by the U.S. government, anyone who entered those lands was deemed to be an intruder and subject to removal. 26 In this context, the Committee indicated that it saw no problem with a Chickasaw law requiring a contract with a Chickasaw...

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