CHAPTER 8 TAXATION OF MINERALS ON INDIAN RESERVATIONS
| Jurisdiction | United States |
(Mar-Apr 1977)
TAXATION OF MINERALS ON INDIAN RESERVATIONS
Katherine Ott
Vlassis, Ruzow & Linzer
Phoenix, Arizona
I. STATE TAX JURISDICTION: ANYTHING BUT THE LAND ITSELF.
The ability of a state to tax mineral interests on an Indian Reservation was seemingly foreclosed by the language of Chief Justice Marshall in his opinion in Worcester v. Georgia, 31 U.S. (6 Pet.) 515 (1832):
"The Cherokee nation, then, is a distinct community, occupying its own territory, with boundaries accurately described, in which the laws of Georgia can have no force, and which the citizens of Georgia have no right to enter, but with the assent of the Cherokees themselves, or in conformity with treaties, and with the acts of Congress. The whole intercourse between the United States and this nation, is, by our constitution and laws, vested in the government of the United States." 31 U.S. (6 Pet.) at 561.
Within 50 years the Worcester view of an Indian Reservation as a geographic community impervious to the laws of the surrounding state had been substantially modified by the Supreme Court to permit states to assert tax jurisdiction over non-Indian property on Indian Reservations. Thus, in 1885, the Supreme Court held that a tax levied by the Territory of Idaho on a railroad, its depots, and other property situated within the limits of the Fort Hill Indian Reservation, but on non-Indian fee land, was valid. Utah & Northern Ry. v. Fisher, 116 U.S. 28 (1885).
The Utah & Northern Railway Company argued that the provisions of the Treaty between the United States and the Indians occupying this Reservation could not be effectively implemented if the laws of the Territory of Idaho were to be enforced on the Reservation. The Court agreed. If state jurisdiction were upheld in all cases and to the fullest extent, this would undoubtedly interfere with the Treaty provisions designed to protect the Indians. The Court found, however, that such was not the case when it considered the slight interference which might result from the imposition of a state tax on non-Indian property situated within the exterior boundaries of the Reservation. In fact, the Court noted that it failed to perceive that any just rights of the Indians under the Treaty could be impaired by taxing the railroad and property used in operating it. Insofar as the laws of the Territory did not interfere with the Treaty protection of Indians on the Reservation, they would apply. The Court thus departed from the Worcester v. Georgia doctrine of exclusive Federal jurisdiction on Indian Reservations.
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The Supreme Court's Utah & Northern Railway, holding that state laws apply on Indian Reservations insofar as they do not interfere with Treaty provisions was further refined in Thomas v. Gay, 169 U.S. 264 (1898). In Thomas, the Territory of Oklahoma imposed a tax on cattle which were grazing upon reservation lands leased by non-Indians. The Court rejected the argument that a Territory could not tax non-Indian Property located on a Reservation, citing Utah & Northern Railway. The lessees argued that a tax on their cattle would have a direct effect on the value of the lands owned by the Indians. The Court, however, found that a tax upon the cattle of the lessees was too remote and indirect to be deemed a tax upon the lands or privileges of the Indians. The Court characterized the suggestion that a tax on the non-Indian cattle constituted a tax on the Indian lands as "purely fanciful", 169 U.S. at 274, and noted that the result might have been different had the Territory attempted to impose a tax on the business of grazing or on the rents received by the Indians from the land.
The emphasis of the Court shifted and by 1922, a lessee of Indian lands was held to be an instrumentality used by the United States in carrying out its trust responsibilities and, thus, was immune from the imposition of a state tax on the net income derived from the sale of oil and gas from the leased lands. Gillespie v. Oklahoma, 257 U.S. 501 (1922). The Court reasoned that "[a] tax upon the leases is a tax upon the power to make them, and could be used to destroy the power to make them." 257 U.S. at 505.
Soon after the Gillespie ruling by the Supreme Court, Congress passed the Act of May 29, 1924, 43 Stat. 244, 25 U.S.C. § 398 (1970) which provides for leasing of unallotted land on certain Indian reservations and for taxation of the production of oil and gas and other minerals on such lands by the state in which said lands are located in the same manner as the state taxes such production on unrestricted land. The act authorizes the Secretary of the Interior to pay such a tax from the royalty interests on the leased land but provides that such a tax may not become a lien or charge of any kind or character against the land or the property of the Indian owner.
The question of the state's jurisdiction to tax mineral interests on Indian Reservations was again before the Court in Oklahoma Tax Comm'n v. Texas Co., 336 U.S. 342 (1949). The Court specifically overruled Gillespie v. Oklahoma, supra, and held that a lessee of mineral rights in allotted and restricted Indian lands was liable for state gross production taxes and state excise taxes on petroleum produced from such lands. In support of its decision, the Court noted that there was no possibility that ultimate liability for the taxes might fall upon the Indian owner of the land and that it would require more than merely theoretical conceptions of interference with the functions of the federal
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government to find the lessees immune from state tax under the federal instrumentality doctrines. The Court acknowledged the congressional power to immunize these lessees from state taxes, but held that until such an immunity was created by affirmative congressional action, the Constitution permitted the State of Oklahoma to tax the lessees then before the Court.
The state's position was further strengthened by the decision in Agua Caliente Band of Mission Indians v. County of Riverside, 442 F.2d 1184 (9th Cir. 1971), cert. denied, 405 U.S. 933 (1972). The United States Court of Appeals for the Ninth Circuit held that in the absence of Congressional legislation to the contrary, a state could levy a possessory interest tax on the lessees of Indian lands, observing that a tax upon the use of a thing is not a tax upon the thing itself. The Court acknowledged that the tax would have an economic impact on the Indians, but held the evidence to be unpersuasive in light of Oklahoma Tax Comm'n v. Texas Co., supra. In Kahn v. Arizona State Tax Comm'n, 16 Ariz. App. 17, 490 P.2d 846 (1971), appeal dismissed, 411 U.S. 941 (1973), the state income tax was found to have been properly levied against the income of a Tribal lawyer whose income was earned within the boundaries of the Navajo Indian Reservation. The Court reasoned that the grant of absolute jurisdiction over Indian lands to the United States contained in Article XX of the Arizona Constitution was not synonymous with a grant of exclusive jurisdiction, that case law upheld the right of states to tax private non-Indian property within an Indian Reservation, that placing a state income tax on non-Indians living on a Reservation would not interfere with Reservation self-government or impair a right granted or reserved by Federal law, and finally that Federal law did not preempt the field of taxation.
More recently, in New Mexico, a state tax levied upon the corporate lessee of Indian lands was held to be valid. Norvell v. Sangre de Cristo Development Co., 372 F.Supp. 348 (D.N.M. 1974), rev'd on other grounds, 519 F.2d 370 (10th Cir. 1975).
The Supreme Court in 1976, considered a state's ability to impose its taxes on property interests situated within the exterior boundaries of an Indian Reservation, Moe v. Confederated Salish and Kootenai Tribes, 425 U.S. 463 (1976). The Court held that state taxes could not be imposed on cigarette sales with respect to on-Reservation sales by Tribal members to Indians residing on the Reservation. The Court further held that Indians selling cigarettes to non-Indians on the Reservation could be required by a state to add the state cigarette sales tax to the sales price. The Court found that such a state requirement would not interfere with Tribal self-government nor violate any specific Congressional statute.
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A recent New Mexico opinion, Eastern Navajo Industries v. Bureau of Revenue, 89 N.M. 369, 552 P.2d 805 (N.M. Ct.App. 1976), petition for cert. filed, 45 U.S.L.W. 3388 (U.S. Oct. 23, 1976) (No. 76-576), deserves some mention here. The Court determined that the state did not have sufficient jurisdiction to tax a corporation where Indians held a 51% majority of the stock and the Indian/non-Indian corporation had contracted with the Navajo Housing Authority to build houses on the Reservation. The decision was, in part, based on New Mexico law that the separate existence of a corporation is to a certain extent, a...
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