Sinclair Crude Oil Co. v. Oklahoma Tax Commission, 37676

• Decision Date: 29 April 1958
• Docket Number: No. 37676,37676
• Citation: 326 P.2d 1051
• Parties: SINCLAIR CRUDE OIL COMPANY, a corporation, Plaintiff in Error, v. The OKLAHOMA TAX COMMISSION et al., Defendants in Error.
• Court: Oklahoma Supreme Court

Page 1051

326 P.2d 1051

1958 OK 110

SINCLAIR CRUDE OIL COMPANY, a corporation, Plaintiff in Error, v. The OKLAHOMA TAX COMMISSION et al., Defendants in Error.

No. 37676.

Supreme Court of Oklahoma.

April 29, 1958.

Rehearing Denied May 20, 1958.

Application for Leave to File Second Petition for Rehearing

Denied July 2, 1958.

Syllabus by the Court

1. Homestead lands allotted to members of the Cherokee Tribe of Indians are exempt from taxation so long as they are held by the allottees and oil produced from said lands is likewise exempt from gross production tax and proration tax if owned by the allottees at the time of its recovery.

2. Oil underlying or produced from exempt lands, as above stated, does not lose its tax exempt status, nor is title and ownership to any portion thereof exchanged and conveyed to other royalty owners when by voluntary agreement it is consolidated and communitized, along with other mineral interests in lands owned by other parties, into one tract or unit to be developed and operated for oil and gas as one tract.

An appeal by Sinclair Crude Oil Company from an order of the Oklahoma Tax Commission assessing gross production taxes and proration taxes on royalty oil belonging to two Cherokee Indians whose allotted homestead lands were exempt from taxation, which lands were included in areas operated as units under voluntary communitization agreements. Reversed.

Angus A. Davidson, James H. McGowan, Tulsa, Geo. B. Schwabe, Jr., Regional Sol., Tulsa Region, Jesse L. Ballard, Asst. Regional Sol., James O. Worrell, Trial Atty., U. S. Dept. of the Interior, Tulsa, of counsel, for plaintiff in error.

R. F. Barry, Oklahoma City, for defendants in error.

CARLILE, Justice.

This is an appeal by Sinclair Crude Oil Company, a corporation, from an order of the Oklahoma Tax Commission assessing a gross production tax and a proration tax under the provision of Title 68 O.S.1951 § 833 and § 1220.1, against the company by reason of its having purchased the oil produced from land communitized and consolidated into two tracts or units, one tract being designated in the written communitization agreement as Delaware Extension Unit, or sometimes referred to as Central Consolidated Tract, covering 2,540 acres of land, and the other tract designated as Delaware District Unit, covering 2,490 acres. The communitization agreements are very similar in form and the general statements herein apply to each. The agreements provide in their introductory portions that the lessee is the holder of subsisting oil and gas leases, or interests in leases, on the land comprising the unit and desires to operate the land as a single unit for the purpose of enabling it to more efficiently produce and operate the leases and to attempt to increase production and ultimate recovery by means of water flood methods, and further recites that the other parties designated as royalty owners are the owners in severalty of land or certain portions of the land or mineral interests, including oil and gas and all rights incident thereto, subject to the valid oil and gas leases of record, in the land within the boundaries of the unit; that all the described lands insofar as the oil, gas and other mineral rights in said unit be communitized and consolidated into one tract and united for the purpose of the payment of royalties on the oil or gas produced and saved therefrom in order that the properties may be more efficiently developed, produced and operated; to obtain the greatest recovery of oil and gas; to promote maximum conservation, and to assure to each of the parties to the agreement his or its fair and equitable share of the products recovered, and for such purpose and to that extend amend and modify the oil and gas leases.

The record shows that Rachel Collins and Emma Rogers, parties to separate communitization agreements, were enrolled as members of the Cherokee Tribe of Indians, and as such were awarded homestead allotments of land, which allotments were by treaty with the United States Government exempt from taxation while owned by the allottees. Each of said allottees, with the approval of the Secretary of the Interior, executed an oil and gas lease on her respective homestead. On June 1, 1954, while the homestead lands were productive of oil, each of the allottees, with the approval of the Secretary of the Interior, voluntarily executed the communitization agreements in which the homestead allotments were situated. The State Tax Commission assessed a gross production tax and proration tax on the royalty oil which the Cherokee allottees were entitled to receive, and the purchaser of the oil, Sinclair Crude Oil Company, withheld the amount of the taxes assessed and filed a written protest against the assessment on the ground that the allottees' lands, including the minerals therein, were exempt from taxation. At a hearing on the protest there was filed by the respective parties a written stipulation of fact, one paragraph of which is as follows:

'It is stipulated that Emma Rogers' royalty interest in the oil and gas underlying her homestead was found and determined to give her the right to take .0031121% of the oil and gas produced from the Central Consolidated Tract, and Rachel Collins' royalty interest in the oil and gas underlying the homestead was found and determined to give her the right to take .0010358% of the oil and gas produced from the Delaware District Unit.'

At the conclusion of the hearing on the tax protest the Tax Commission made findings of fact, Findings 5, 6 and 7 are as follow:

'5. Rachel Collins and Emma Rogers voluntarily exchanged the major portion of their 1/8th royalty interest in the productive minerals underlying their respective homesteads for the following stated undivided fractional interest in the productive minerals underlying the communitized area which embraced their homesteads:

'Emma Rogers

.0031121% (or .0248968% of the 1/8th royalty interest).

'Rachel Collins

.0010358% (or .0082864% of the 1/8th royalty interest).

'6. The interest that Rachel Collins and Emma Rogers acquired in the productive minerals underlying the communitized area was a new and distinct interest from their interest in the productive minerals underlying their homesteads, which is evidenced by the fact that Emma Rogers has a vested interest in .0031121% of said oil and gas produced from the communitized area and Rachel Collins has a vested interest in .0010358% of said oil and gas irrespective of whether oil or gas was produced from their homesteads.

'7. In view of the fact that the provisions of the Indian Allotment Acts are liberally construed in favor of Indians, and in view of the fact that it has not been shown that no oil was produced from either of the homesteads in controversy, the Commission finds that Emma Rogers and Rachel Collins should be held to have received and retained .0248968% and .0082864% respectively, of 1/8th of the royalty oil produced from their homesteads and said interest in the productive minerals underlying their homesteads should therefore be held exempt from gross production tax.'

The Tax Commission concluded, as a matter of law, that each of the allottees alienated the royalty interest so exchanged as fully and to the same extent as if they had sold and conveyed said exchanged interest outright, and upon so alienating said interest they each lost any exemption from the taxes in controversy that they might otherwise have had under the provisions of the Cherokee Allotment Act, 32 Stat. 716, and denied the tax protest except to the extent as stated in paragraph 7 of the Commission's finding of fact, as quoted herein, and assessed a gross production tax and a proration tax in the total sum of $475.79.

The plaintiff in error, protestant, asserts, and the Tax Commission apparently agrees, that the separate tracts of land allotted as homesteads to Rachel Collins and Emma Rogers are non-taxable so long as they are held and owned by the allottees. Such tax exemption is sustained by the following authorities: Choate v. Trapp, 224 U.S. 665, 32 S.Ct. 565, 56 L.Ed. 941; Carpenter v. Shaw, 280 U.S. 363, 50 S.Ct. 121, 74 L.Ed. 478; Weilep v. Audrain, 36 Okl. 288, 128 P. 254. 68 O.S.1951 § 15.2, provides:

'The following property shall be exempt from taxation:

'All property of the United...