The Ute Mountain Ute Tribe of southwestern Colorado, Utah and New Mexico has asked the U.S. Supreme Court to hear questions concerning state taxation of oil and gas production on Indian trust land.
The tribe asked the court to consider whether New Mexico can tax mineral production within an Indian nation although the state provides no services there, tribal members cannot vote in state elections, and “the state has nothing to do with the on-reservation activity, save tax it” creating a condition of “taxation without representation.”
A new set of circumstances would be created if states can impose taxes on mineral development on Indian lands regardless of the tribes’ own interests as sovereign governments “unless Congress has specifically disclaimed states’ rights to do so,” the petition contends.
The high court is asked to review the judgment of the U.S. 10th Circuit Court of Appeals, which in July reversed a lower court ruling favorable to the tribe. A three-judge panel of the appeals court held in a split decision that certain New Mexico taxes on non-Indian lessees developing the tribe’s minerals on trust land were not illegal under federal law.
In its reversal, the federal appeals court said the economic burden of reinstating the taxes would fall on the non-Indian operators rather than the tribe, and concluded that New Mexico “has asserted a sufficient justification for imposing the taxes” even taking into account relevant legislation and “the history of tribal sovereignty.”
Some 186 active oil and gas wells on the reservation are operated under existing leases and agreements by 12 different oil and gas companies. Natural gas is the primary resource extracted under federal and state mineral development rules.
Once oil and gas are extracted from tribal land, they are taken off-reservation to be processed and sold using an infrastructure generally comprising state-maintained roads over which oil goes to refineries in New Mexico and natural gas over pipelines leading to main lines in that state, all of which increase the economic value of the oil and gas, the 10th Circuit said, contradicting the lower court’s assessment of minimal value, at most.
New Mexico imposes five state taxes addressed in current litigation—those concerning oil and gas severance and conservation, as well as those concerning emergency school taxes and two ad valorem production taxes. The taxes are paid by the oil and gas operators and are not reimbursed by the tribe, the federal appeals court was told.
For 2002 – 2007, the taxes on oil and gas production totaled more than $8 million for New Mexico’s uses, including allocations to local governments, but not including the tribe, despite the five taxes’ indirect burden on revenue-generating possibilities for the tribe, whose per capita income in 2000 was $8,159.
Even though the existing state taxes fall on oil and gas companies, the Utes lose revenue because they cannot impose the same taxes, the lower court found.
By tribal resolution, the Utes in 1992 said if the five taxes were found unlawful, the tribe’s “severance tax will be increased by the amount of the five New Mexico taxes” with some $1.3 million in increased severance tax going to approximately 2,000 enrolled tribal members in an amount of about $650 per enrollee. Judge Carlos F. Lucero, dissenting from the 10th Circuit’s ruling, noted the additional $650 per member would be “no small sum” given the low per capita income.
The current petition says the unoccupied New Mexico reservation lands are used by the tribe only for livestock grazing and oil and gas development and New Mexico provides no services there. Because no one lives on the New Mexico lands, no tribal members are New Mexico voters. In any case, leasing there “has always been a federal and tribal concern and not a state one.”