Indian Territory Illuminating Oil Company v. State of Oklahoma

Decision Date03 April 1916
Docket NumberNo. 283,283
Citation60 L.Ed. 779,36 S.Ct. 453,240 U.S. 522
CourtU.S. Supreme Court

Messrs. Preston C. West and John H. Brennan for plaintiff in error.

Messrs. John B. Harrison and J. H. Miley, and Mr. S. P. Freeling, Attorney General of Oklahoma, for defendant in error.

Mr. Justice McKenna delivered the opinion of the court:

The question in the case is whether a certain assignment of a lease and rights thereunder, made by the Osage Tribe of Indians, which lease conferred the privilege of prospecting, drilling wells and mining and producing petroleum and natural gas upon lands in Oklahoma territory, are subject to a tax assessed under the laws of Oklahoma as the property of plaintiff in error in its capacity of a public service corporation.1

Plaintiff in error, herein designated as the oil company, is assignee of the lease, and asserts the negative of the question, contending that under the lease and the assignment of the lease it became 'a Federal agent, acting under a Federal appointment and authorization, in the development of lands belonging to the Osage Tribe of Indians in the Osage Reservation, and that its business, license, or permit as such cannot be taxed by the state government, although its physical properties are always subject to taxation.' It rests its contention upon an act of Congress of February 28, 1891 (26 Stat. at L. 794, 795, chap. 383, Comp. Stat. 1913, § 4195), and an act of Congress of March 3, 1905 (33 Stat. at L. 1049, 1061, chap. 1479, Comp. Stat. 1913,§ 3986), which extended the lease to the extent of such portion of the lands as had been subleased, namely, 680,000 acres.

By the act of 1891 it was provided: 'That where lands are occupied by Indians who have bought and paid for the same, and which lands are not needed for farming or agricultural purposes, and are not desired for individual allotments, the same may be leased by authority of the council speaking for such Indians, for a period not to exceed five years for grazing, or ten years for mining purposes in such quantities and upon such terms and conditions as the agent in charge of such reservation may recommend, subject to the approval of the Secretary of the Interior.' Comp. St. 1913, § 4218.

The act of 1905 recognized the oil company as the owner by assignment of the lease, which assignment was approved by the Secretary of the Interior, and extended the lease for a period of ten years from March 16, 1906, with all the conditons of the original lease except that from and after that date the royalty to be paid on gas should be $100 per annum on each gas well instead of $50, as provided in the lease, and except that the President of the United States should determine the amount of royalty to be paid to all.

The state opposes the contentions of the oil company and asserts that the lease was 'not a grant of any authority, franchise, or privilege to any particular person or corporation, and is merely a permit to the Osage Tribe, authorizing such tribe to lease to any person or any number of persons upon the approval of such lease contract by the Secretary of the Interior.' It further asserts that the oil company merely occupied 'the position of an independent contractor, acting for itself and in its own behalf, in a contract with the Osage Indian Tribe,' and that therefore the relation of principal and agent between it and the government did not exist.

A statement of the case is as follows: The oil company made a sworn return of what it considered the fair cash value of that part of its property engaged in the public service at $53,835.10. The State Board of Equalization, after a hearing, increased the valuation to $538,350, the basis of the order of the Board being that the oil company was not protected from taxation by the lease from the Indians. Under the procedure of the state, the oil company appealed from that order to the supreme court of the state.

In the latter court a referee was appointed to take testimony and report his findings of fact and conclusions of law. He duly reported the facts and from them also reported as a conclusion of law that the oil company was 'liable to taxation by the state of Oklahoma for the full value of its property, tangible and intangible,—that is, for the sum of $500,000;' and that it was 'not exempt from taxation upon the theory that it is a Federal agent, or that it holds a franchise from the Federal government.' And he recommended that judgment be entered fixing the assessment of the oil company's property for taxation for the year 1911 at $447,169.98, this being the difference between the total value of all the property and the amount ($52,830.02) locally assessed.

The report was confirmed, the court adjudging that the property of the oil company be assessed as recommended by the referee.

The question in the case seems to be a simple one. It is given some complexity by the opinions of the court on the hearing and rehearing, which require some reconciliation. It appears from the findings of the referee that on March 16, 1896, the Osage Nation of Indians in Oklahoma territory entered into a contract with one Edwin B. Foster, by the terms of which Foster had a blanket lease upon the Osage Indian Reservation for the sole purpose of prospecting and drilling wells and mining and producing petroleum and natural gas only. The lease was for a term of ten years, and was approved by the Secretary of the Interior. By an act passed March 3, 1905, Congress extended the lease as to 680,000 acres for ten years. The lease has therefore expired. Prior to its extension in 1905, the lease was assigned to the oil company.

The oil company has sublet to more than one hundred persons and corporations and the operations upon most of the lands covered by the lease have been and are conducted by sublessees. A small portion, the amount not appearing, is operated by the company.

By the terms of the lease as extended, the sublessees are required to pay a royalty of 1/6 of the oil produced upon the property, of which 1/24 goes to the company and 3/24 to the Indians, the payments on behalf of the latter being made to the Indian Agency under and by virtue of the rules and regulations of the Department of the Interior.

The oil company has laid pipe lines upon the leased lands for conveying natural gas, and it has been its practice to furnish gas to the sublessee for use as fuel for their drilling and pumping operations at a flat rate, the amount of which is not disclosed. The company also furnished gas during 1911 for domestic consumption to the residents of Bigheart and Avant, two small towns in which it had no franchise, in the Osage Nation, adjacent to the pipe lines of the company. It also furnished gas to a local corporation in the city of Bartlesville, which company held a franchise for and was engaged in the...

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