Santa Rita Oil & Gas Co. v. Board of Equalization

Decision Date22 January 1936
Docket Number7504.
Citation54 P.2d 117,101 Mont. 268
CourtMontana Supreme Court

Original injunction proceeding by the Santa Rita Oil & Gas Company against the Board of Equalization of the State of Montana and others, wherein the Texas Company and the Blackfeet Tribe filed complaints in intervention.

Judgment in accordance with opinion.

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

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

H. C Hall, of Great Falls, amicus curiae.


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 thereof 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.

Plaintiff in its complaint alleges its corporate capacity and the official capacity of the defendants. Myrtle Billideaux Hardy, an Indian of the Blackfeet Reservation, was the owner of an allotment under a certain "trust patent" granted by the United States of America on February 28, 1918, subject to the laws of the United States. On August 8, 1932, pursuant to such laws and the regulations of the Department of the Interior, and for a good and valuable consideration, the allottee, as lessor, executed and delivered to one P. T. Sweeney an oil and gas lease describing the lands included in her allotment. By the terms of this lease it extended for a period of ten years from and after its approval by the Secretary of the Interior, and for as long thereafter as oil and gas are produced therefrom in paying quantities. The lease was approved by the Secretary of the Interior on November 15, 1932. Thereafter Sweeney, the lessee, for a good and valuable consideration, assigned the lease by an instrument in writing unto the plaintiff, and all of his right, title, and interest therein, which assignment was on November 8, 1935, approved by the Secretary of the Interior as required by law, and in pursuance to the rules and regulations of the Department of the Interior. Pursuant to the terms of the lease plaintiff proceeded to develop the lands therein described, and on or about May 1, 1934, completed a well on these lands, producing oil in paying quantities, and since that date this well, or others located on the lands, have been producing oil in paying quantities. It is asserted in the complaint that plaintiff, in accepting the lease and proceeding with the development of the lands in question, was acting, and now is, an instrumentality and agent of the United States of America, and therefore the state of Montana is without power to enforce, as against the plaintiff, any of the enumerated taxes. 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, all of which are said to be based on oil and gas produced by it as an instrumentality and agent of the United States, and that, unless restrained, they will continue to attempt to compute, assess, levy, and collect taxes on the crude oil produced from these lands. The complaint contains other allegations necessary to invoke the original jurisdiction of this court.

The Texas Company has by leave of court filed a complaint in intervention, containing allegations similar to those found in the complaint of plaintiff, but with reference to another tract of land within the same reservation, on which it holds a lease from another allottee. The Blackfeet Tribe have likewise, by leave of court, filed a complaint in intervention on behalf of the tribe and the individual allottees similarly situated to the allottee in the lease described in plaintiff's complaint.

The defendant board has filed separate demurrers to all of these complaints, on the ground that they fail to state facts sufficient to constitute a cause of action. In their brief filed subsequent to oral argument on these demurrers, it is asserted that this court is without jurisdiction to entertain the complaint 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 Ed. 1023. However, the plaintiff has raised the question of the validity of the net proceeds royalty tax, which is the only concern of the Blackfeet Tribe, as disclosed by their complaint in intervention and their brief in support thereof; and in view of the fact that under the law, as we will presently demonstrate, the plaintiff is obliged, if the tax is valid, to pay this tax on behalf of the royalty owner, it becomes necessary for us to consider the identical question presented by this complaint in intervention, whether the complaint is properly before us or not. Accordingly, we will refrain from expressing an opinion on these questions, but will proceed to consider the case as though the complaint in intervention was improperly filed and the brief of the tribe before us as one filed by amicus curiae.

The corporation license tax law provides, sections 2296 to 2304, inclusive, Revised Codes 1921, 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," etc. Section 2296, as amended by Laws 1933, c. 166, § 1. Certain corporations are without the provisions of the act, none of which are here involved. It contains numerous provisions with reference to the manner of computing the tax, providing for deductions, etc., not here important.

Section 2398, as amended by chapter 67 of the Laws of 1923, § 1, 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, pay to the state treasurer, for the exclusive use and benefit of the State of Montana, a license tax for engaging in and carrying on such business in an amount equal to two per centum of the total gross value of all petroleum and other mineral or crude oil produced by such person within this state during such year." We will refer to this hereafter in the opinion as the "gross production tax."

Section 2089, Revised Codes 1921, as amended by chapter 188 of the Laws of 1935, § 1, provides: "Every person, partnership, corporation, or association, engaged in mining *** from or upon any mine whatsoever containing *** petroleum, natural gas, or other valuable mineral or mineral deposits must on or before the thirty-first day of March in each year make out a statement of the gross yield of the above named metals or minerals from each mine owned or worked by such *** corporation." The statement is to be made by proper officers to the defendant board and is to contain the various matters enumerated in the section.

By the terms of section 2090, as amended by section 2 of chapter 188 of the Laws of 1935, it is made the duty of the defendant board to compute the gross value of the product in dollars and cents so reported, and to calculate and compute the net proceeds by making certain deductions from the gross product as provided in the section.

Under section 1 of chapter 188 of the Laws of 1935, the operator is required to furnish the defendant board with the names and addresses of any and all persons owning or claiming any royalty interest in the product of the mine and the proceeds derived from its sale, and the amounts paid or yielded as royalty to each of such persons during the period covered by the statement. By section 3 of chapter 188 the board is directed on receipt of the schedule setting forth the names and addresses of persons owning or claiming royalty, to assess the same at the full cash value of the money or product yielded during the preceding year, to be taxed on the same basis as the net proceeds of mines as provided by section 1999, Revised Codes of 1921. By section 5 of chapter 188, amending Rev.Codes 1921, § 2091, the board is directed to transmit at a specified time the valuation of the net proceeds of mines and mining claims for the purposes of taxation, to the county clerks of the respective counties, to be placed on the assessment roll of net proceeds of mines. By section 6 of the same act the defendant board is directed to transmit the royalty lists to the county clerks of the respective counties, who must prepare a tax roll in the personal property assessment book in the name of the operator of the mine, "and such assessments when entered shall have all the force and effect as if made in the names of the owners of such royalty individually as well as against the operator. The County Treasurer shall proceed to give full notice thereof to such operator and to collect the same in manner provided by law. The operator or producer shall be liable for the payment of said taxes, and same shall be payable by, and shall be collected from, such operators in the same manner and under the same penalties...

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