Northern Border Pipeline Co. v. State

• Decision Date: 20 April 1989
• Docket Number: No. 88-386,88-386
• Parties: NORTHERN BORDER PIPELINE COMPANY, a Partnership, Plaintiff and Appellant, v. The STATE of Montana, Department of Revenue, of the State of Montana, et al., Defendants and Respondents.
• Court: Montana Supreme Court

Page 829

772 P.2d 829

237 Mont. 117

NORTHERN BORDER PIPELINE COMPANY, a Partnership, Plaintiff and Appellant, v. The STATE of Montana, Department of Revenue, of the State of

Montana, et al., Defendants and Respondents.

No. 88-386.

Supreme Court of Montana.

Submitted Feb. 10, 1989.

Decided April 20, 1989.

Michael E. Webster argued and Ronald Lodders, Crowley Law Firm, Billings, for plaintiff and appellant.

Marc Racicot, Atty. Gen., Clay Smith argued, Asst. Atty. Gen., David W. Woodgerd, Dept. of Revenue, Helena, David L. Nielsen, Co. Atty., Glasgow, James A. McCann, Co. Atty., Wolf Point, for defendants and respondents.

Reid Peyton Chambers, Sonosky, Chambers & Sachse, Washington, D.C. and Ray F. Koby, for amicus curiae, Swanberg, Koby and Swanberg, Great Falls, Assiniboine and Sioux Tribes.

McDONOUGH, Justice.

This appeal involves a dispute over property taxes assessed and levied against a natural gas pipeline owned by Northern Border Pipeline Company (Northern Border). Northern Border appeals from the summary judgment of the District Court of the Seventeenth Judicial District, Valley County, upholding the power of the State of Montana to impose the disputed tax. We affirm.

Northern Border frames six issues on appeal:

1. Does the factual record before the District Court show that Northern Border was entitled to summary judgment?

2. Did the District Court err in failing to find that the challenged taxes have been preempted by federal law?

3. Did the District Court commit error in failing to find that the challenged taxes are illegal because they interfere to an impermissible extent with the Tribes' sovereign rights of self-government?

4. Did the District Court err in determining that the State has a sufficient nexus with the trust-sited property interests of Northern Border to support imposition of the taxes here challenged?

5. Do the challenged taxes constitute an unreasonable burden on interstate commerce?

6. Do the acts of the State in attempting to assess, levy and collect the challenged taxes conflict with the Enabling Act of the State of Montana and the Constitution of the State?

The pipeline in question carries natural gas from Alaska to the lower 48 states. Northern Border owns the line between the Sasketchewan/Montana border and Chicago. Approximately 181 miles of the line is located in Montana, where a portion of it crosses "trust lands" (lands held by the Federal Government in trust for members of the Indian tribes) within the Fort Peck Indian Reservation. In order to build the line on trust lands, Northern Border was required to obtain a right-of-way grant from the United States Department of the Interior through the Bureau of Indian Affairs. Prior written consent was also required from the Assiniboine and Sioux Tribes (Tribes) with respect to tribal trust lands, and from individual tribal members with respect to lands held in trust for them.

The portion of the pipeline running through reservation trust lands is located in Valley County (12.92 miles), and in Roosevelt County (20.88 miles). From the time of its construction, the pipeline has been subject to a property tax centrally assessed by the State. The assessed tax is levied and collected by the Counties. Northern Border has paid this tax without protest, except for a disagreement in 1986 as to the proper valuation of the line.

In 1987, the Tribes instituted a "utility tax," which is basically a property tax levied on utilities. The amount of the tribal tax related to the pipeline running beneath trust lands was $1,112,396.56 in 1987. The 1987 property tax assessed by the State resulted in Valley County collecting a total of $2,305,346.05 ($370,794.56 of which related to trust lands), and Roosevelt County collecting $2,211,825.37 ($535,243.85 of which related to trust lands).

Northern Border filed its Application for Temporary Restraining Order and Complaint for Injunctive Relief on November 23, 1987, requesting that the District Court prevent the State from assessing, levying or collecting property taxes on the portion of the line running beneath trust lands. The amount of Northern Border's 1987 property tax thereby challenged was $906,038.41. The District Court issued a temporary restraining order enjoining collection of the challenged tax, and later granted a preliminary injunction. The parties then filed cross-motions for summary judgment with supporting affidavits. The District Court granted the State's motion and denied Northern Border's.

At the outset, we note two important features of this case that have shaped our approach to reviewing the District Court's decision. First, the basis for this suit is a state tax levied against property located on an Indian reservation, but owned by non-Indians. The arguments involved are complex and sometimes confusing, due to the legal principles involved and the attempts of counsel to emphasize particular aspects of those principles.

Second, this case was decided below on a motion for summary judgment. The judge sat without a jury, no testimony was taken and the facts are relatively uncontested. The scope of our review is therefore much broader than in other appeals. We are able to make our own examination of the entire case and make a determination in accordance with our findings. Johnson v. Division of Motor Vehicles (1985), 219 Mont. 310, 711 P.2d 815, 42 St.Rep. 2045.

Given the complexity of the arguments and the resulting risk of confusion, we have taken an approach to this case that differs from that proposed by Northern Border. Northern Border's challenge to the taxes imposed by the State rests on three basic grounds: (1) preemption by federal law, (2) violation of the United States Constitution and (3) violation of the Montana Constitution. While the issues framed by Northern Border have relevance, they are component questions of these three main issues.

I. Federal Preemption

Northern Border argues that the pipeline running through reservation trust lands is subject to federal laws and regulations, with which the challenged state property tax will interfere to an impermissible extent. Both sides agree that the test to be applied in this case was set forth by the United States Supreme Court in White Mountain Apache Tribe v. Bracker (1980), 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665. The White Mountain opinion outlines the relationship among the Indian tribes, the Federal Government and the several states.

Indian reservations are a creation of federal law. Indian activities and property on a reservation generally come within the sphere of federal authority, except in matters where an Indian tribe has retained its tribal sovereignty and is self-governing. A state's laws are therefore generally inapplicable where the conduct of Indians on the reservation is concerned. White Mountain, 448 U.S. at 143-44, 100 S.Ct. at 2583-84. Where a state seeks to have its laws apply to the activities or property of non-Indians on a reservation, the separation of authority is less clear.

In White Mountain, the State of Arizona sought to impose fuel use and motor carrier license taxes on trucks owned and operated by a non-Indian company, but used in furtherance of a contract with a tribal enterprise engaged in logging operations on a reservation. The company and the tribe challenged the portion of Arizona's tax that applied to logging and hauling activities carried out exclusively on the reservation, using tribal and federal roads.

The Supreme Court set out essentially a two-pronged test for preemption, because it found that two "independent but related barriers" could preclude a state from asserting its authority on a reservation. First, the exercise of state authority could be preempted by directly applicable federal statutes or regulations. Second, the state could unlawfully infringe on the right of Indians to make their own laws and be governed by them. White Mountain, 448 U.S. at 142, 100 S.Ct. at 2583 (citing Warren Trading Post Co. v. Arizona Tax Comm'n (1965), 380 U.S. 685, 85 S.Ct. 1242, 14 L.Ed.2d 165; and Williams v. Lee (1959), 358 U.S. 217, 79 S.Ct. 269, 3 L.Ed.2d 251, respectively).

The Supreme Court noted that these two barriers are independent, because either standing alone could be a sufficient basis for finding a state law inapplicable. They are also related, because the right of tribal self-government is ultimately subject to the power of Congress, and thus is effectively a creature of federal law just as are statutes and regulations. We will therefore treat these two separate questions as elements of the same federal preemption analysis. Because the interaction of the various governmental interests in each case will vary, the White Mountain test calls for a "particularized inquiry into the nature of the state, federal and tribal interests at stake," which are then balanced to determine whether the state law is preempted. White Mountain, 448 U.S. at 145, 100 S.Ct. at 2584.

A. Federal Statutes and Regulations

Northern Border asserts that the challenged state tax in this case is preempted by two directly applicable bodies of federal law. The first of these is comprised of statutes enunciating the Federal Government's goal of promoting tribal self-sufficiency and economic development, specifically, the Indian Financing Act of 1974, 25 U.S.C. Secs. 1451 et seq.; the Indian Self-Determination and Education Assistance Act of 1975, 25 U.S.C. Secs. 450 et seq.; and the Indian Reorganization Act of 1934, 25 U.S.C. Secs. 461 et seq. For example:

The Congress hereby recognizes the obligation of the United States to respond to the strong expression of the Indian people for self-determination ... through the establishment of a meaningful Indian self-determination policy which will permit an orderly transition from Federal domination of programs for and services to Indians to effective and meaningful participation by the Indian people in the planning, conduct, and...