Cotton Petroleum Corporation v. New Mexico, 87-1327

CourtUnited States Supreme Court
Citation109 S.Ct. 1698,104 L.Ed.2d 209,490 U.S. 163
Docket NumberNo. 87-1327,87-1327
PartiesCOTTON PETROLEUM CORPORATION, et al., Appellants v. NEW MEXICO et al
Decision Date25 April 1989

490 U.S. 163
109 S.Ct. 1698
104 L.Ed.2d 209



No. 87-1327.
Argued Nov. 30, 1988.
Decided April 25, 1989.

Pursuant to authority granted by the Indian Mineral Leasing Act of 1938 (1938 Act), the Jicarilla Apache Tribe (Tribe) leased lands on its New Mexico reservation to appellant Cotton Petroleum Corp. (Cotton), a non-Indian company, for the production of oil and gas. Cotton's on-reservation production is subject to both a 6% tribal severance tax and appellee State's 8% severance taxes, which apply to all producers throughout the State. In 1982, Cotton paid its state taxes under protest and then brought an action in state court under, inter alia, the Commerce Clause of the Federal Constitution, contending that the state taxes were invalid on the basis of evidence tending to prove that the amount of such taxes imposed on reservation activity far exceeded the value of services the State provided in relation to such activity. The Tribe filed a brief amicus curiae arguing that a decision upholding the state taxes would substantially interfere with the Tribe's ability to raise its own tax rates and would diminish the desirability of on-reservation leases. The trial court upheld the state taxes, concluding, among other things, that the State provides substantial services to both the Tribe and Cotton, that the theory of public finance does not require that expenditures equal revenues, that the taxes' economic and legal burden falls on Cotton and has no adverse impact on tribal interests, and that the taxes are not pre-empted by federal law. The State Court of Appeals affirmed. This Court noted probable jurisdiction and invited the parties to brief and argue the additional question whether the Commerce Clause requires a tribe to be treated as a "State" for purposes of determining whether a state tax on nontribal activities conducted on a reservation must be apportioned to account for taxes the tribe imposed on the same activity.

Held: The State may validly impose severance taxes on the same on-reservation production of oil and gas by non-Indian lessees as is subject to the Tribe's own severance tax. Pp. 173-193.

(a) Under this Court's modern decisions, on-reservation oil and gas production by non-Indian lessees is subject to nondiscriminatory state taxation unless Congress has expressly or impliedly acted to pre-empt the state taxes. See, e.g., Helvering v. Mountain Producers Corp., 303 U.S. 376, 386-387, 58 S.Ct. 623, 627-628, 82 L.Ed. 907. Pp. 173-176.

Page 164

(b) The state taxes in question are not pre-empted by federal law, even when it is given the most generous construction under the relevant pre-emption test, which is flexible and sensitive to the particular facts and legislation involved and requires a particularized examination of the relevant state, federal, and tribal interests, including tribal sovereignty and independence. The 1938 Act neither expressly permits nor precludes state taxation, but simply authorizes the leasing for mining purposes of Indian lands. Moreover, that Act's legislative history sheds little light on congressional intent. The statement therein that pre-existing law was inadequate to give Indians the greatest return for their property does not embody a broad congressional policy of maximizing tribes' revenues without regard to competing state interests, but simply suggests that Congress sought to remove disadvantages in mineral leasing on Indian lands that were not present with respect to public lands, which were, at the time, subject to state taxation. Montana v. Bla kfeet Tribe, 471 U.S. 759, 767, n. 5, 105 S.Ct. 2399, 2404, n. 5, 85 L.Ed.2d 753, distinguished. The fact that the 1938 Act's statutory predecessor expressly waived immunity from state taxation of oil and gas lessees on reservations demonstrates that there is no history of tribal independence from such taxation, while the 1938 Act's omission of that waiver simply reflects congressional recognition that this Court's intervening decisions had repudiated the pre-existing doctrine of intergovernmental tax immunity, under which such state taxation was barred absent express congressional authorization. White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665, and Ramah Navajo School Bd., Inc. v. Bureau of Revenue of New Mexico, 458 U.S. 832, 102 S.Ct. 3394, 73 L.Ed.2d 1174, are distinguished on the ground that, here, the State provides substantial services to the Tribe and Cotton that justify the tax; the tax imposes no economic burden on the Tribe; and federal and tribal regulation is not exclusive, since the State regulates the spacing and mechanical integrity of on-reservation wells. Pp. 176-187.

(c) There is no merit to Cotton's contention that the State's severance taxes—insofar as they are imposed without allocation or apportionment on top of tribal taxes—impose an unlawful multiple tax burden on interstate commerce. The fact that the State and Tribe tax the same activity is not dispositive, since each of those entities has taxing jurisdiction over the non-Indian wells by virtue of the location of Cotton's leases entirely on reservation lands within a single State. That the total tax burden on Cotton is greater than the burden on off-reservation producers is also not determinative, since neither taxing jurisdiction's tax is discriminatory, and the burdensome consequence is entirely attributable to the fact of concurrent jurisdiction. The argument that the state taxes generate revenues that far exceed the value of the State's on-reservation services

Page 165

is also rejected. Moreover, there is no constitutional requirement that the benefits received from a taxing authority by an ordinary commercial taxpayer—or by those living in the taxpayer's community—must equal the amount of its tax obligations. Pp. 187-191.

(d) The express language, distinct applications, and judicial interpretation of the Interstate Commerce and Indian Commerce Clauses establish that Indian tribes may not be treated as "States" for tax apportionment purposes. Pp. 191-193.

106 N.M. 517, 745 P.2d 1170 (1987), affirmed.

STEVENS, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, O'CONNOR, SCALIA, and KENNEDY, JJ., joined. BLACKMUN, J., filed a dissenting opinion, in which BRENNAN and MARSHALL, JJ., joined, post, p. 193.

Daniel H. Israel, Denver, Colo., for appellants.

Harold D. Stratton, Santa Fe, N.M., for appellees.

Page 166

Justice STEVENS delivered the opinion of the Court.

This case is a sequel to Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 102 S.Ct. 894, 71 L.Ed.2d 21 (1982), in which we held that the Jicarilla Apache Tribe (Tribe) has the power to impose a severance tax on the production of oil and gas by non-Indian lessees of wells located on the Tribe's reservation. We must now decide whether the State of New Mexico can continue to impose its severance taxes on the same production of oil and gas.


All 742,135 acres of the Jicarilla Apache Reservation are located in northwestern New Mexico. Id., at 133, 102 S.Ct., at 899. In 1887, President Cleveland issued an Executive Order setting aside this tract of public land "as a reservation for the use and occupation of the Jicarilla Apache Indians." 1 C. Kappler, Indian Affairs, Laws and Treaties 875 (1904). The only qualification contained in the order was a proviso protecting bona fide settlers from defeasance of previously acquired federal rights.1

Page 167

Ibid. The land is still owned by the United States a d is held in trust for the Tribe.

The Tribe, which consists of approximately 2,500 enrolled members, is organized under the Indian Reorganization Act. 48 Stat. 984, 25 U.S.C. § 461 et seq. The Indian Mineral Leasing Act of 1938 (1938 Act) grants the Tribe authority, subject to the approval of the Secretary of the Interior (Secretary), to execute mineral leases. 52 Stat. 347, 25 U.S.C. § 396a et seq. Since at least as early as 1953, the Tribe has been leasing reservation lands to nonmembers for the production of oil and gas. See Merrion, supra, at 135, 102 S.Ct., at 900. Mineral leases now encompass a substantial portion of the reservation and constitute the primary source of the Tribe's general operating revenues. In 1969, the Secretary approved an amendment to the Tribe's Constitution authorizing it to enact ordinances, subject to his approval, imposing taxes on non-members doing business in the reservation. See Revised Constitution of the Jicarilla Apache Tribe, Art. XI, § 1(e) (Equity). The Tribe enacted such an ordinance in 1976, imposing a severance tax on "any oil and natural gas severed, saved and removed from Tribal lands." Oil and Gas Severance Tax, Ordinance No. 77-0-02, Jicarilla Apache Tribal Code (hereinafter J.A.T.C.), Tit. 11, ch. 1 (1987) (Equity); see alsoMerrion, supra, at 135-136, 102 S.Ct., at 900-901. The Secretary approved the ordinance later that year, and in 1982 this Court upheld the Tribe's power to impose a severance tax on pre-existing as well as future leases. SeeMerrion, supra. Subsequently, the Tribe enacted a privilege tax, which the

Page 168

Secretary also approved. See Oil and Gas Privilege Tax, Ordinance No. 85-0-434, J.A.T.C., Tit. 11, ch. 2 (1985).2

In 1976, Cotton Petroleum Corporation (Cotton), a non-Indian company in the business of extracting and marketing oil and gas, acquired five leases covering approximately 15,000 acres of the reservation. There were then 15 operating wells on the leased acreage and Cotton has since drilled another 50 wells. The leases were issued by the Tribe and the United States under the authority of the 1938 Act. Pursuant to the terms of the leases, Cotton pays the Tribe a rent of $125 per acre, plus a royalty of 121/2 percent of the value of its production.3 In addition, Cotton pays the Tribe's oil and gas severance and privilege...

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