State of Oklahoma Oklahoma Tax Commission v. Barnsdall Refineries

Decision Date06 January 1936
Docket NumberNo. 116,116
Citation56 S.Ct. 340,296 U.S. 521,80 L.Ed. 366
PartiesSTATE OF OKLAHOMA ex rel. OKLAHOMA TAX COMMISSION et al. v. BARNSDALL REFINERIES, Inc., et al
CourtU.S. Supreme Court

Messrs. C. D. Cund, of Duncan, Okl., Earl Foster and C. W. King, both of Oklahoma City, Okl., and E. L. Richardson, of Lawton, Okl., for petitioners.

Mr. L. G. Owen, of Tulsa, Okl., for respondent.

Mr. Justice STONE delivered the opinion of the Court.

This case presents the single question whether an Oklahoma tax of one-eighth of a cent per barrel on oil produced in the state, chapter 132, Oklahoma Session Laws, 1933, when applied to oil produced by lessees of lands of the Osage Tribe of Indians in Osage county, Okl., is within the congressional enactment consenting to a state tax upon the production of such oil. The challenged tax is paid into the state treasury and used to defray the expenses of administering the State Oil and Gas Proration Law (Laws Okl. 1933, c. 131). The Oklahoma Supreme Court held that the tax is not within the congressional consent, and accordingly enjoined its collection as imposing an unconstitutional burden on the Indian leases, which are deemed to be instrumentalities of the federal government. Barnsdall Refineries, Inc., v. Oklahoma Tax Commission, 171 Okl. 145, 41 P.(2d) 918. We granted certiorari, 296 U.S. 556, 56 S.Ct. 97, 80 L.Ed. 392, to review the judgment of the state court; the case being of public importance because involving relations of the state to the national government.

The Oklahoma Legislature, by Act of February 14, 1916, c. 39, Okl. Session Laws, p. 102, imposed a production tax of 3 per cent. of the gross value of all oil produced within the state. The act provides that the tax shall be in lieu of all other taxes upon oil in place in the ground, oil leases, or equipment used for oil production, and that one-third of the tax collected in each county shall be returned to it for the construction of permanent roads and bridges and 'for and in aid of' the common schools. The levy is denominated by the taxing act a 'gross production tax,' a label which this Court and the Supreme Court of Oklahoma have accepted as appropriate. Gillespie v. Oklahoma, 257 U.S. 501, 504, 42 S.Ct. 171, 66 L.Ed. 338; Barnsdall Refineries, Inc., v. Oklahoma Tax Commission, supra, 171 Okl. 145, 147, 41 P.(2d) 918.

In Howard v. Gipsy Oil Company, 247 U.S. 503, 38 S.Ct. 426, 62 L.Ed. 1239, and Large Oil Co. v. Howard, 248 U.S. 549, 39 S.Ct. 183, 63 L.Ed. 416, this tax was held invalid so far as applied to the production of oil by lessees of lands of the Osage Tribe of Indians, which were located in Osage county, as a tax burden upon instrumentalities of the United States. See Indian Territory Illuminating Oil Co. v. Oklahoma, 240 U.S. 522, 36 S.Ct. 453, 60 L.Ed. 779; Gillespie v. Okla- homa, supra; compare Group No. 1 Oil Corporation v. Bass, 283 U.S. 279, 51 S.Ct. 432, 75 L.Ed. 1032; Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 52 S.Ct. 443, 76 L.Ed. 815.

These decisions were followed by the Act of Congress of March 3, 1921, 41 Stat. 1250, section 51 of which authorized the state of Oklahoma to levy a tax upon the gross production of oil in Osage county, with the proviso that 'all taxes so collected shall be paid and distributed, and in lieu of all other State and county taxes levied upon the production of oil and gas as provided by the laws of Oklahoma.' Other sections of the act permitted the extension, by an additional 25 years, of the period, expiring in 1931, for which mineral leases of the lands of the Osage Indians might be granted by the Secretary of the Interior acting in their behalf.

Congress, in enacting the legislation, was advised of the Oklahoma 3 per cent. gross production tax, of the decisions of this Court holding lessees of Indian oil lands, which were located in Osage county, immune from the tax, and that removal of the immunity would benefit the Osage Indians through the return of one-third of the tax to the county. See Hearings before Committee on Indian Affairs, S. 4039 (particularly letters of the Secretary of the Interior and of the Indian Commissioner to the Chairman of the Committee), part 1, pp. 7, 8; part 2, pp. 108, 109; Report Senate Committee on Indian Affairs, No. 704, 66th Cong., 3rd Sess. As originally introduced, the bill authorized the levy of a gross production tax upon oil produced in Osage county 'not to exceed 3 per centum of the value of the same,' and directed that it should be 'distributed as now provided by the laws of Oklahoma.' With the evident purpose of removing the 3 per cent. limit but not of otherwise altering the character of the permitted tax, the 3 per cent. limitation was stricken from the bill before enactment.

Congress, in removing the tax immunity, chus had in contemplation the particular tax then on the statute books of Oklahoma, then and ever since...

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