The U.S. Supreme Court has declined to review a ruling that affirmed the power of New Mexico to levy taxes on tribal lands where the state does not provide services and where Ute Mountain Ute Tribe members cannot vote in state elections.
Because taxes are imposed by the state on oil and gas companies on reservation land, the tribe loses revenue through its inability to levy the existing or additional taxes itself.
The appeal to the high court was in Ute Mountain Ute Tribe v. Demesia Padilla, Secretary, Taxation and Revenue Department for the State of New Mexico. The tax issues went through several levels of judicial review:
- The case was initially filed in 2007 by the tribe, which received a favorable hearing in U.S. District Court for the District of New Mexico;
- The State of New Mexico appealed in 2010 to the U.S. 10th Circuit Court of Appeals, which in 2011 reversed the District Court, ruling in the state’s favor;
- The appeals court in 2011 declined the tribe’s request for a hearing en banc, and
- The U.S. Supreme Court declined review February 21, 2012.
New Mexico taxed oil and gas operators’ mineral extraction even though the state has “nothing to do with the on-reservation activity, save tax it,” the tribe said.
Some 186 active oil and gas wells are operated by 12 companies in the section of the Ute Mountain Ute Reservation in New Mexico, an area that adjoins the larger reservation in southwest Colorado.
New Mexico successfully appealed to the 10th Circuit its contention that it could tax the minerals extraction on tribal lands, although the District Court had ruled that state taxes were preempted by federal law.
Since 1992, the tribe has banned New Mexico officials from entering the reservation without permission. Instead, the tribe and the United States regulate on-reservation oil and gas activities.
The District Court had found that even though the taxes were paid by the oil and gas operators the economic burden of the taxes actually fell on the tribe because the taxes impaired the ability of the tribe to impose additional taxes. The court said that the taxes were preempted by federal law and it prevented the state from further levies.
Reversing the lower court, the federal appeals court in a split decision July 27, 2011 said the economic burden of reinstating the taxes would fall on the oil and gas operators rather than on the tribe and said New Mexico had “asserted a sufficient justification for imposing the taxes” even taking tribal sovereignty into account.
The state taxes are primarily for oil and gas severance and production. Although from 2001-2007 they totaled more than $8 million for the state, none went to the tribe.
“If the state taxes were not in place, the tribe could either keep taxes low to increase exploration and production endeavors from oil and gas operators or increase tribal taxes to directly generate revenue for the tribe,” the tribe said.
The tribe generates revenue from oil and gas operations on the reservation through royalties and taxes, receiving 13.1 percent of the wellhead value of the minerals in royalties totaling about $4.5 million in 2007. The tribe would receive an additional $1.3 million if they could levy the taxes now paid to New Mexico.
No one resides on tribal lands in the New Mexico area, but because Tribal members overall are affected by the tax revenues going to the state and yet are not allowed to vote in state elections, it is “taxation without representation,” the tribe said. A similar situation could occur wherever it is contended that outside business activities add value to a tribe’s natural resources.
In the current case, once oil and gas are extracted from tribal land, they are taken off-reservation to be processed and sold using state-maintained roads over which oil goes to refineries in New Mexico and natural gas over pipelines leading to main lines in New Mexico, all of which, it was said, increases the economic value of the resources. That contention of the 10th Circuit is a contradiction to the District Court’s assessment.