CHAPTER 13 MULTIPLE TAXATION OF MINERAL EXTRACTION IN INDIAN COUNTRY: STATE AND INDIAN TRIBAL JURISDICTION
| Jurisdiction | United States |
(Feb 1989)
MULTIPLE TAXATION OF MINERAL EXTRACTION IN INDIAN COUNTRY: STATE AND INDIAN TRIBAL JURISDICTION
Gover, Stetson, Williams & West, P.C.
Albuquerque, New Mexico
I. INTRODUCTION AND SUMMARY
Tribal and state jurisdiction to tax in Indian country has been the subject of a flurry of United States Supreme Court decisions over the last sixteen years, and a comprehensive jurisprudence in this area is emerging. The Supreme Court previously had addressed tribal and state taxing jurisdiction only on two other occasions. In Thomas v. Gay, 169 U.S. 264 (1897), the United States Supreme Court held that the Territory of Oklahoma could impose a personal property tax upon non-Indian lessees, based on the value of their cattle grazing on Reservation lands pursuant to tribal leases. Justice Chiras, writing for a unanimous court, opined that the territorial taxation would not cause "the value of the (leased) lands ... (to fluctuate or be destroyed,)" stating "It is obvious that a tax upon the cattle of the lessees is too remote and indirect to be a tax upon the lands or the privileges of Indians." Id. at 273. The Court also noted that territorial taxation did not interfere with the power of Congress to regulate commerce with Indian tribes since "[t]he taxes ... were not imposed on the business of grazing, or on the rents received by the Indians, but on cattle as property of the lessees ... (and are) too remote and indirect to be regarded as an interference with the legislative power of
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Congress" Id. at 275.
In 1904, the Supreme Court in Morris v. Hitchcock, 194 U.S. 84 (1904) upheld a tribal tax on livestock grazed within the tribal territory by non-Indian lessees. In Morris and Thomas, the Court rendered decisions tailored carefully to the facts at hand, and, as a result, the broader contours of tribal and state powers to tax in Indian country were not delineated clearly.
Beginning in 1965, however, the Supreme Court began developing a framework for the resolution of issues involving taxation of persons, property, and activities in Indian country. In just the last sixteen years, the Court has issued eleven decisions addressing tribal and state taxes imposed in Indian country. Eight cases were decided from 1980 to 1985.
Certain axioms now exist, although important questions remain. For example, the Court has held a tribe may tax whenever it has a significant interest at stake. Such an interest is present where the taxpayers are Indians, or where non-Indians enter Indian-owned lands. Significant tribal interests also are at stake where non-Indians engage in commercial dealings with tribal members on reservations, or create or threaten impacts upon the tribe's political or economic integrity, or health and welfare. Early indications are that courts are not reluctant to uphold substantial tribal jurisdiction to tax both Indians and non-Indians. E.g. Burlington Northern Railroad v. Blackfeet Tribe, No. CV-87-120-GF, slip op. (D. Mont. 1988) (upholding the Blackfeet Tribe's Possessory Interest Tax as applied to Burlington Northern Railroad property located on a right-of-way through the Blackfeet Reservation).
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With respect to state taxation, the Court has upheld certain taxes upon non-Indians, but has prohibited taxation of Indians, absent congressional consent. The precise scope of state power to tax in Indian country remains uncertain. In part, this uncertainty exists because the Court, with one exception, decides state jurisdiction questions on a case-by-case basis and upon a balance of governmental interests. While this approach gives the courts flexibility to deal with diverse circumstances in Indian country, uncertainty regarding tax obligations continues to burden investment decisions.
State taxation issues increasingly will involve circumstances where Indian tribes tax the same activities. Thus, challenges to state power to tax likely will be litigated in the context of unequally high tax burdens in Indian country due to tribal and state taxes upon the same activity.
The scope of state power to tax will turn on several inquiries, including, most importantly, an identification of the state interests that will be deemed to justify state taxation. The Court also will be refining its balancing test, the particularized inquiry employed by the Court to determine whether state taxes have been pre-empted under federal law in particular cases.
The additions of Justices Kennedy and Scalia on the United States Supreme Court may give Chief Justice Rehnquist more support for his views on the subject of state taxation in Indian country. As a result, the Supreme Court well may limit the grounds for finding federal pre-emption, and also may require more rigorous proof of injury by state tax laws to federal or tribal interests. The Court's earlier willingness to presume such injury may subside.
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Some of these questions may be resolved in the decision of the Supreme Court in Cotton Petroleum v. State of New Mexico, 745 P.2d 1170 (N.M. Ct. App. 1987), prob. juris. noted, 108 S.Ct. 1466 (1988). Although the state court in Cotton focused upon a purported interstate Commerce Clause limitation on the state tax, the Supreme Court very well may address the pre-emption claim raised by Cotton. Of particular interest will be whether the Court provides guidance as to the scope of state services to the reservation or to the taxpayer that is sufficient to justify state taxation.
Increasing expressions of concern by taxpayers, and state and tribal leaders with the tensions that result from states and tribes taxing the same activities, the extraordinary costs of litigation, the complexities of the particularized inquiry into state tax jurisdiction in each case, and the usually inadequate results of court decrees have compelled many such leaders to consider resolving the issue out of court. A few state/tribal intergovernmental agreements on taxation have been successful because they recognize appropriate state interests on the reservation, while also recognizing that the tribal and federal governments are the primary providers of services in Indian country.
Moreover, if the Rehnquist Court truly were to depart from vigorous federal protection of the tribal tax base from undue state taxes, the tribes likely will seek new forms of business relationships to avoid such taxes. For example, tribes may determine that tribal ownership of mineral producing operations is best advised, or that the tribe should agree to pay the lessee's share of state taxes to support findings by courts that state
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taxes upon mineral production on Indian lands injures federal objectives and, thus, is federally pre-empted.
This paper first will discuss the modern Supreme Court decisions on the subject of state taxation in Indian country. The paper then will conclude with observations on the future trends in the area, including possible resolutions to foreseeable problems.
II. STATE TAXATION OF INDIANS
In 1973, the United States Supreme Court held that the State of Arizona's income tax could not be applied to an Indian's income earned on a reservation. In McClanahan v. Arizona State Tax Commission, 411 U.S. 164 (1973), Arizona had sought to impose its income tax on a Navajo tribal member whose income was derived solely from sources within the Navajo Reservation. In reaching its decision, the Court first reviewed the previous case law on the subject of state taxation of Indians on Reservations. The McClanahan Court first noted that in The Kansas Indians, 72 U.S. 737, 755 (1867), the Court had struck down a state land tax saying that:
If the tribal organization of the Shawnees is preserved intact and recognized by the political department of the government as existing, then they are a 'people distinct from others' capable of making treaties, separated from the jurisdiction of Kansas and to be governed exclusively by the government of the Union. If under the control of
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Congress, from necessity there can be no divided authority.
The Court then addressed the argument that the tribe, as a federal instrumentality, should be immune from state taxes. The Court noted that the federal instrumentality doctrine was frequently relied upon by the Court in striking down state taxes in the 1930s. This reliance, said the Court, does not indicate that the tribal sovereignty doctrine was no longer valid: "[I]t would vastly over simplify the problem to say that nothing remains of the notion that reservation Indians are a separate people to whom state jurisdiction and, therefore, state tax legislation, may not extend." 411 U.S. at 169-170.
Thereafter, the Court's analysis in the opinion departs from the conceptual clarity that the Court had established in Worcester v. Georgia, 31 U.S. 515 (1832). In Worcester, the Supreme Court had held that federal law per se precludes the application of Georgia's laws in the Cherokee Nation. In McClanahan, the Court acknowledged the Worcester rule, but limited the force of the doctrine by noting:
[T]his is not to say that the Indian sovereignty doctrine, with its concomitant jurisdictional limit on the reach of state law, has remained static during the one hundred forty years since it was decided. Not surprisingly, the doctrine has undergone considerable evolution in response to changed circumstances. ... This line of cases was summarized in this Court's landmark decision in Williams v. Lee, 358 U.S. 217 (1959): "[O]ver the years this Court has modified [the Worcester principle] in cases where essential tribal relations were not involved and where the rights of Indians would not be jeopardized. ... Essentially, absent governing acts of Congress, the question has always been whether the state action infringed on the right of reservation Indians to make their own laws and be ruled by them."
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