Cotton Petroleum Corp. v. New Mexico
1989 U.S. LEXIS 2133, 104 L. Ed. 2d 209, 490 U.S. 163 (1989)
Rule of Law:
A state may impose a nondiscriminatory severance tax on oil and gas production by non-Indian lessees on an Indian reservation, even when the tribe also imposes its own severance tax, as such state taxation is not automatically pre-empted by federal law nor does it violate the Commerce Clause.
Facts:
- The Jicarilla Apache Tribe's reservation is located in northwestern New Mexico on land held in trust by the United States.
- Under the authority of the Indian Mineral Leasing Act of 1938, the Tribe leases reservation land to non-members for oil and gas production.
- In 1976, Cotton Petroleum Corporation (Cotton), a non-Indian company, acquired five oil and gas leases on the reservation.
- Cotton pays the Tribe rent, a 12.5% royalty on production, and tribal severance and privilege taxes that total approximately 6% of the value of its production.
- The State of New Mexico imposes five different oil and gas production taxes on Cotton's operations, totaling approximately 8% of the value of its production.
- The combined tax burden on Cotton's on-reservation production is approximately 14%, whereas the tax burden on off-reservation producers in New Mexico is only the state's 8%.
- New Mexico provides some services to the Jicarilla Apache Tribe and Cotton Petroleum, including services available to all citizens both on and off the reservation.
Procedural Posture:
- In 1982, Cotton Petroleum Corporation paid its New Mexico severance taxes under protest.
- Cotton Petroleum Corporation filed suit against the State of New Mexico in the District Court for Santa Fe County, a state trial court.
- The state trial court upheld the validity of the state taxes, finding no constitutional violation or federal preemption.
- Cotton Petroleum Corporation, as appellant, appealed the trial court's decision to the New Mexico Court of Appeals.
- The New Mexico Court of Appeals, an intermediate appellate court, affirmed the trial court's judgment.
- The New Mexico Supreme Court, the state's highest court, initially granted a writ of certiorari but later quashed it.
- The U.S. Supreme Court noted probable jurisdiction to hear the appeal.
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Issue:
Does New Mexico's imposition of severance taxes on the production of oil and gas by a non-Indian lessee on the Jicarilla Apache Tribe's reservation violate the Commerce Clause or is it pre-empted by federal law, where the Tribe also taxes the same activity?
Opinions:
Majority - Justice Stevens
No. New Mexico's severance tax on non-Indian oil and gas production on the Jicarilla Apache reservation is not pre-empted by federal law and does not violate the Commerce Clause. Under modern intergovernmental tax immunity doctrine, a state may impose a nondiscriminatory tax on private parties doing business with an Indian tribe unless Congress has expressly or impliedly acted to preempt the tax. The Indian Mineral Leasing Act of 1938 is silent on the issue and does not implicitly preempt state taxation. This case is distinguishable from precedents like White Mountain Apache Tribe v. Bracker because New Mexico provides substantial services to the Tribe and the lessee, and the economic burden on the Tribe is too indirect and insubstantial to support a claim of preemption. The Commerce Clause argument fails because Indian tribes are not considered 'States' for the purposes of dormant Commerce Clause analysis, which precludes the application of apportionment rules designed for interstate commerce. The tax does not create an unlawful multiple tax burden, as both the State and the Tribe have concurrent jurisdiction to tax the on-reservation activity.
Dissenting - Justice Blackmun
Yes. New Mexico's severance taxes are pre-empted by federal law because they interfere with federal and tribal interests. The majority misinterprets the silence of the Indian Mineral Leasing Act of 1938, which was enacted in the spirit of the Indian Reorganization Act to promote tribal self-sufficiency and maximize tribal revenues. The legislative history and the Act's purpose suggest an intent to foreclose state taxation that would undermine these goals. The federal and tribal regulatory schemes governing oil and gas leasing are comprehensive and pervasive, leaving no room for state taxation. The state's financial contributions are minimal compared to the tax revenue it extracts, and the state tax directly threatens the Tribe's ability to manage its primary economic resource and imposes a ceiling on the Tribe's own ability to raise revenue.
Analysis:
This decision solidifies the modern framework for analyzing state taxation of non-Indian activities on reservations, requiring a high threshold for finding federal preemption. It moves decisively away from the broad intergovernmental tax immunity doctrine, confirming that an indirect economic burden on a tribe is insufficient to invalidate a nondiscriminatory state tax. The ruling establishes that states and tribes can have concurrent taxing jurisdiction over the same on-reservation activity. Furthermore, the Court's clarification that tribes are not 'States' for Commerce Clause purposes prevents the application of interstate apportionment principles, creating a distinct analytical track for issues involving tribal commerce.
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