British-American Oil Producing Co. v. Board of Equalization

• Decision Date: 22 January 1936
• Docket Number: 7505.
• Citation: 54 P.2d 129,101 Mont. 293
• Parties: BRITISH-AMERICAN OIL PRODUCING CO. v. BOARD OF EQUALIZATION et al.
• Court: Montana Supreme Court

54 P.2d 129

101 Mont. 293

BRITISH-AMERICAN OIL PRODUCING CO. v. BOARD OF EQUALIZATION et al.

No. 7505.

Supreme Court of Montana

January 22, 1936

Rehearing Denied Feb. 8, 1936.

Original injunction proceeding by the British-American Oil Producing Company against the Board of Equalization of the State of Montana and others, wherein the Blackfeet Tribe filed a complaint in intervention.

Judgment in accordance with opinion.

G. S Frary, of Cut Bank, E. K. Cheadle, Jr., of Shelby, for plaintiff.

Raymond T. Nagle, Atty. Gen., and Jeremiah J. Lynch, Asst. Atty Gen., for defendants.

ANDERSON Justice.

Plaintiff the owner of a producing oil and gas lease on certain lands within the Blackfeet Indian Reservation, brought this original proceeding to secure an injunction against the State Board of Equalization and the individual members of the board in their official capacity, to enjoin them from collecting the "corporation license tax," the "operators' net proceeds tax," the "gross production tax," and the "royalty owners' net proceeds tax" arising out of the production and recovery of oil from the leased lands and premises.

In its complaint plaintiff alleges its corporate capacity and the official capacity of the defendant board. It is then alleged that prior to July 10, 1934, the Blackfeet Tribe of Indians of the reservation bearing the same name in Glacier county, was the owner of all the oil and gas and other minerals in and under certain described lands, and that on the latter date, acting in accordance with a resolution of the Blackfeet Tribal Council dated June 10, 1934, and in accordance with the provisions of the laws of the United States and the regulations of the Department of the Interior, and for a good consideration, the superintendent of this Indian reservation as lessor made and delivered to Consolidated Gas Company, a corporation, as lessee, a certain oil and gas lease describing these lands, for a term of five years from the date of the approval of the lease and as long thereafter as oil or gas was found in paying quantities. Thereafter, on October 5, 1934, this oil and gas lease was duly approved by the First Assistant Secretary of the Interior as required by law and the regulations of the Department of the Interior. It is then alleged that thereafter, and for a good and valuable consideration, the lessee sold, assigned, and transferred to the plaintiff the lease and all right, title, and interest therein, which assignment was on August 5, 1935, duly approved by the Assistant Secretary of the Interior as required by the laws of the United States and the regulations of the Department of the Interior, and that pursuant to the terms and provisions of the lease plaintiff entered upon the lands, and during the years 1934 and 1935 drilled to completion ten oil and gas wells, all of which were productive of oil or gas in paying quantities. It is further alleged that the plaintiff in the development and operation of these oil and gas wells is acting as an instrumentality and agent of the United States of America, and as such is not taxable by the state of Montana, and that the state of Montana and its officers are wholly without power to tax the plaintiff in the particulars mentioned supra.

The plaintiff alleges the nature of and the statutory authority for each of the taxes, and that the defendants are attempting and threatening to assess, levy, and collect these taxes on the crude oil produced on these lands. The complaint contains other allegations necessary to invoke the original jurisdiction of this court.

The Blackfeet Tribe have by leave of this court filed a complaint in intervention, which alleges that its members are duly enrolled in accordance with the laws of the United States; that they reside within the Blackfeet Indian Reservation pursuant to and under the provisions of treaties between the tribe and the United States of America; that the complainant is a body politic duly constituted by the laws of the United States, and is governed by the tribal council under the supervision of the Secretary of the Interior, and that all of the lands embraced within the confines of the reservation, except those upon which patents in fee have been issued, are held and owned by the United States of America in trust for the benefit of the tribe. It is then alleged that on October 17, 1835, a treaty was entered into between the United States and the members of this tribe whereunder the tribe or nation was given exclusive jurisdiction over certain territory; that thereafter, in consideration of payments of money, the area of this reservation was reduced pursuant to an agreement, and in consideration of the relinquishment of a large tract of land by the tribe it was "understood by said tribe and the members thereof that the lands embraced within said reservation should be forever free from taxes levied by any local or state authority," which agreement was in effect at the time of the admission of the state of Montana into the Union and the adoption of its Constitution; that subsequent to the year 1896 it was agreed that the lands embraced within the reservation should be allotted in severalty under the existing laws, the title to the lands so allotted to be held for a period of twenty-five years in trust for the benefit of the individual allottees, and that as long as the lands were so held in trust no taxes should be levied by local or state authorities; that upon lands embraced within the reservation and held in trust for the benefit of the tribe oil and gas leases have been given under the authority of the United States with the consent of the tribe, upon and under which leases wells have been drilled which produce oil and gas in commercial quantities, and that the oil and gas leases provide for the payment of a royalty of 12 1/2 per cent., payable in money to the United States for the benefit of the tribe. It is then alleged that the oil so produced from tax-exempt lands, and the royalty derived from the production of the oil are being attempted to be subjected to the oil royalty tax pursuant to certain statutory provisions of the state of Montana, which will be hereafter noted, and that unless the taxing authorities are restrained and enjoined they will proceed to levy, collect, and impose these taxes. It is further alleged that "by reason of the treaties, agreements and statutes of the United States, and the Enabling Act, the Constitution and the statutes of the State of Montana, said lands, the oil and gas produced therefrom and the royalties derived therefrom are exempt from taxation, and that said tribe and the individual members thereof have a vested property right in such tax exemption, and that to permit the levy of such tax upon said oil and gas so produced and upon said royalties, would deprive said tribe and said members of property without due process of law, in violation of the provisions of the Constitution of the United States and would impair the obligations of contracts, treaties and agreements between said tribe and said individual members and the United States, and between the State of Montana and the United States in violation of the provisions of the Constitution of the United States and the State of Montana."

The defendants have interposed demurrers to both complaints challenging their sufficiency for substance. It was stipulated between the plaintiff and defendants that the complaint should be amended to show that all of the lands described in the oil and gas leases mentioned in the complaint were lands on which trust patents had been issued to individual Indian allottees, but all of which trust patents contained the following reservation: "Also reserving, to the United States, in accordance with the provisions of the Act of June 30, 1919 (41 Stat. 17), all minerals, including coal, oil and gas, for the benefit of the Blackfeet Tribe of Indians until Congress shall otherwise direct."

In the brief filed by the state subsequent to oral argument on these demurrers it is asserted that this court is without jurisdiction to entertain the complaint in intervention of the Blackfeet Tribe and they without capacity to sue. This argument presents a serious question. United States v. Candelaria, 271 U.S. 432, 46 S.Ct. 561, 70 L.Ed. 1023. However, in view of the conclusion which we have reached, the net result being the same as if we had sustained this contention, we shall express no opinion on it, but treat the complaint in intervention as though it was one over which we had jurisdiction without doubt.

The corporation license tax law provides (sections 2296 to 2304 inclusive, as amended by chapter 166, Laws 1933) for a tax "of two (2) per centum upon the total net income received by such corporation in the preceding fiscal year from all sources within the State of Montana." Rev.Codes 1921, § 2296, as amended by Laws 1933, c. 166, § 1. Certain corporations are without the provisions of the act, none of which are here involved. The act contains numerous provisions with reference to the manner of computing the tax, and provides for deductions, etc., not here important. Section 2398, as amended by chapter 67, § 1 of the Laws of 1923, provides in part as follows: "Every person engaging in or carrying on the business of producing, within this state, petroleum, or other mineral or crude oil, or engaging in or carrying on the business of owning, controlling, managing, leasing or operating within this state any well or wells from which any merchantable or marketable petroleum or other mineral or crude oil is extracted or produced, sufficient in quantity to justify the marketing of the same, must, for the year 1923, and each year thereafter, when engaged in or carrying on any such business in this state,...