HOLMES, Circuit Judge.
In this case, we must resolve the issue of whether federal law preempts five state taxes imposed on non-Indian lessees extracting oil and gas from the Ute Mountain Ute Reservation ("Ute Reservation") in New Mexico. The district court, finding in favor of Plaintiff-Appellee Ute Mountain Ute Tribe ("Ute Tribe" or "Tribe"), held that the five state taxes were preempted by federal law and enjoined the State of New Mexico from further imposing the taxes on the non-Indian lessees operating on the Ute Reservation. The Secretary of the New Mexico Taxation and Revenue Department, Dorothy Rodriguez ("the
On appeal, the State argues, inter alia, that the district court misinterpreted and misapplied Supreme Court precedent. Specifically, the State asserts that the five New Mexico state taxes are valid and enforceable under the Supreme Court case Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 109 S.Ct. 1698, 104 L.Ed.2d 209 (1989), and therefore asks this court to reverse the district court's judgment and vacate the injunction. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we reverse the district court's judgment and remand the case for further proceedings not inconsistent with this opinion.
The Ute Tribe is a federally recognized Indian Tribe with approximately 2000 enrolled members. The Ute Reservation—which is located in the States of New Mexico, Utah, and Colorado—was first established by treaty in 1868.
The Ute Tribe is authorized by federal law, subject to approval by the Secretary of the Interior, to enter into oil and gas leases and development agreements on the Reservation.
There are 186 active oil and gas wells on the Ute Reservation, which are operated under existing leases and agreements by twelve different oil and gas companies. Natural gas is the primary resource extracted from the wells, with oil being the secondary resource. Most, if not all, of the existing leases between the Ute Tribe and the twelve lessees were executed under the IMLA. In fact, the district court identified no leases, and only three development agreements, executed under the IMDA.
The federal statutory and regulatory scheme governing oil and gas operations on Indian land covers virtually every aspect of such operations on the Ute Reservation. See 25 C.F.R. pt. 211 (governing "[l]easing of [t]ribal [l]ands for [m]ineral [d]evelopment"); 25 C.F.R. pt. 224 (governing "[t]ribal [e]nergy [r]esource [a]greements"); 25 C.F.R. pt. 225 (governing "mineral agreements for the development of Indian-owned minerals entered into pursuant to the [IMDA]"); 30 C.F.R. §§ 1202.550-.558 (governing royalties on gas production from Indian leases); 30 C.F.R. §§ 1206.50-.62 (governing product valuation for mineral resources produced from Indian oil and gas leases); 43 C.F.R. pt. 3160 (governing onshore oil and gas operations, which are overseen by the Bureau of Land Management ("BLM")).
Once the oil and gas is severed from the tribal land, the mineral resources are transported off the reservation to be processed and sold, which is only made possible through the use of an off-reservation infrastructure. Oil extracted from the Ute Reservation is transported by truck to refineries in New Mexico, outside of the Reservation, "on roads ... [that] are constructed and maintained by the State of New Mexico." Id. at 200. Natural gas extracted from the Reservation is transported to processing facilities within the State "through gathering pipelines in the [Reservation] to main lines in New Mexico." Id. at 184, 201. The off-reservation infrastructure used to transport the extracted resources is regulated—and in the case of roads, provided and maintained—by the State of New Mexico. See, e.g., Pipeline Safety Act, N.M. Stat. Ann. §§ 70-3-1 to -22; Gathering Line Land Acquisition Act, N.M. Stat. Ann. §§ 70-3A-1 to 70-3A-7. "Without an off-reservation infrastructure in New Mexico to transport oil and gas," which is only made possible by the State, "the economic value of the oil and gas produced on the [Ute Reservation] would be substantially less." R. at 201. The district court consequently found that "[t]he State provides substantial services by regulating the off-reservation infrastructure that makes transport of oil and gas possible." Id.
The State also makes available to the non-Indian oil and gas operators some onreservation services, including "a hearing process for resolving disputes between operators, publicly available geologic records, publicly available production records, and
The Ute Tribe generates revenue from the oil and gas operations on the Reservation through royalties and taxes. The Tribe "receives 13.1% of the wellhead value [of the oil or gas] in royalties," which are "distributed to enrolled members of the [Tribe] on a per-capita basis." Id. at 201. In 2007, the Tribe received almost $4.5 million in royalties. The Tribe also imposes two taxes on non-Indian operators extracting resources from the Reservation: (1) a possessory interest tax, which is "assessed at the rate of 6% of the market value of the lease or agreement," and (2) a severance tax, which is "assessed at the rate of 5% of the wellhead value of the oil or gas severed on the [Reservation] and sold or transported off the Reservation." Id. at 202. The net effect of the two taxes "has been, on average, a 9.5% tax on the gross wellhead value of oil and gas extracted on the [Reservation]." Id.
In addition to the tribal taxes, the State of New Mexico imposes five taxes on oil and gas operators working in the State, including operators extracting resources from the Ute Reservation. These five taxes are the Oil and Gas Severance Tax, N.M. Stat. Ann. § 7-29-1; the Oil and Gas Conservation Tax, id. § 7-30-1; the Oil and Gas Emergency School Tax, id. § 7-31-1; the Oil and Gas Ad Valorem Production Tax, id. § 7-32-1; and the Oil and Gas Production Equipment Ad Valorem Tax, id. § 7-34-1. These are the five taxes that the Tribe challenges in the case at bar. As the district court found, the existing leases and agreements between the oil and gas operators and the Ute Tribe "do not directly pass the cost of the five New Mexico taxes on to the [Tribe]"; the oil and gas operators pay the taxes. Id. at 203.
In 1992, the Ute Tribe passed Resolution No. 3874, which dictates that "in the event the five New Mexico taxes are found unlawful, the [Tribe's] severance tax will be increased by the amount of the five New Mexico taxes." Id. at 203; see also
On August 10, 2007, the Tribe filed a complaint in district court challenging the five New Mexico taxes. The Tribe asserted that: (1) "the imposition of the state taxes violates federal common law, the federal right of the [Tribe] to self-determination, and the Supremacy Clause"; and (2) the imposition of the ad valorem property tax on oil and gas production equipment "violates the Fourteenth Amendment and the Enabling Act of June 20, 1910," in which the State "disclaimed any taxing jurisdiction over lands held by the United States of America for the benefit of tribes." Id. at 173.
The Ute Tribe challenges the five New Mexico taxes at issue on the grounds that they are preempted by federal law and that they interfere with the Tribe's right of self-governance. The same five New Mexico taxes at issue in this appeal were also challenged in Cotton Petroleum, where the taxes were upheld. In that case, the Supreme Court applied a flexible preemption analysis unique to federal Indian law, which was first articulated in White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980), and further established in Ramah Navajo School Board, Inc. v. Bureau of Revenue of New Mexico, 458 U.S. 832, 102 S.Ct. 3394, 73 L.Ed.2d 1174 (1982). The district court applied the same preemption analysis in the present case. On appeal, the State argues that the district court misinterpreted and misapplied the applicable Supreme Court case law, and that the outcome of this case is controlled by Cotton Petroleum—that is, the State argues that this case cannot be materially distinguished from Cotton Petroleum and therefore the taxes should be deemed lawful and enforceable, just as they were in that case. Applying the "flexible preemption analysis" developed by the Supreme Court in Bracker, Ramah, and Cotton Petroleum, we must resolve whether the five New Mexico taxes at issue are preempted by federal law.
On appeal, "[w]e review the district court's preemption determination de novo." Ramsey Winch Inc. v. Henry, 555 F.3d 1199, 1204 (10th Cir.2009). We review the district court's underlying factual findings for "clear error." Green v. Haskell Cnty. Bd. of Comm'rs, 568 F.3d 784, 795 (10th Cir.2009), cert. denied, ___ U.S. ___, 130 S.Ct. 1687, 176 L.Ed.2d 180 (2010). Clear error exists "only if a finding is wholly without factual support in the record, or after reviewing the evidence, we are definitively and firmly convinced that a mistake has been made." United States v. Ivory, 532 F.3d 1095, 1103 (10th Cir.2008) (quoting United States v. Rodriguez-Felix, 450 F.3d 1117, 1130 (10th Cir.2006)) (internal quotation marks omitted). However, neither party challenges the district court's specific factual findings on appeal. See supra note 2.
"[T]here is no rigid rule by which to resolve the question whether a particular state law may be applied to an Indian reservation or to tribal members." Bracker, 448 U.S. at 142, 100 S.Ct. 2578. The Supreme Court has identified "two independent but related barriers to the assertion of state regulatory authority over tribal reservations and members"—preemption by federal law and tribal sovereignty. Id.; see also Ramah, 458 U.S. at 837, 102 S.Ct. 3394. As the Supreme Court explained in Ramah:
458 U.S. at 837, 102 S.Ct. 3394 (quoting Bracker, 448 U.S. at 143, 100 S.Ct. 2578) (internal quotation marks omitted). Therefore, "[a]lthough determining whether federal legislation has pre-empted state taxation of lessees of Indian land is primarily an exercise in examining congressional intent, the history of tribal sovereignty serves as a necessary `backdrop' to that process." Cotton Petroleum, 490 U.S. at 176, 109 S.Ct. 1698 (citing Rice v. Rehner, 463 U.S. 713, 719, 103 S.Ct. 3291, 77 L.Ed.2d 961 (1983)).
In this particular context, Supreme Court jurisprudence regarding "whether a State may tax on-reservation oil production by non-Indian lessees has varied over the course of the past century." Cotton Petroleum, 490 U.S. at 173, 109 S.Ct. 1698. "At one time, such a tax was held invalid unless expressly authorized by Congress; more recently, such taxes have been upheld unless expressly or impliedly prohibited by Congress." Id. Under the current doctrine, when determining whether a state has authority to impose a nondiscriminatory tax on non-Indian lessees operating on Indian lands, the court must undertake a preemption analysis that is unique to this area of the law. See, e.g., Ramah, 458 U.S. at 838, 102 S.Ct. 3394 (stating that "[t]he question [of] whether federal law ... pre-empts the State's exercise of its regulatory authority [in this area] is not controlled by standards of pre-emption developed in other areas" (citing Bracker, 448 U.S. at 143-44, 100 S.Ct. 2578)). This analysis is "not controlled by `mechanical or absolute conceptions of state or tribal sovereignty.'" Cotton Petroleum, 490 U.S. at 176, 109 S.Ct. 1698 (quoting Bracker, 448 U.S. at 145, 100 S.Ct. 2578). Instead, courts are instructed to "appl[y] a flexible pre-emption analysis sensitive to the particular facts and legislation involved." Id. This fact-specific examination requires a reviewing court to undertake a "particularized inquiry into the nature of the state, federal, and tribal interests at stake," which is "designed to determine whether, in the specific context, the exercise of state authority would violate federal law." Bracker, 448 U.S. at 145, 100 S.Ct. 2578. Moreover, as alluded to above, when making this inquiry the court must be "cognizant of both the broad policies that underlie the legislation and the history of tribal independence in the field at issue." Cotton Petroleum, 490 U.S. at 176, 109 S.Ct. 1698; see also Ramah, 458 U.S. at 838, 102 S.Ct. 3394 ("[T]he traditional notions of tribal sovereignty, and the recognition and encouragement of this sovereignty in congressional Acts promoting tribal independence and economic development, inform the pre-emption analysis that governs this inquiry."). Under this balancing test, "[s]tate jurisdiction is preempted by the operation of federal law if it interferes or is incompatible with federal and tribal interests reflected in federal law, unless the State interests at stake are sufficient to justify the assertion of State authority." New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 334, 103 S.Ct. 2378, 76 L.Ed.2d 611 (1983) (citing Bracker, 448 U.S. at 145, 100 S.Ct. 2578; Ramah, 458 U.S. at 846, 102 S.Ct. 3394).
The "particularized inquiry" we are instructed to employ is better understood as it has been applied by the Supreme
In Bracker, the Supreme Court addressed a challenge to Arizona's motor carrier license and use fuel taxes as applied to a non-Indian logging company's use of roads located solely on tribal land. 448 U.S. at 139-40, 100 S.Ct. 2578. The Court assessed the "state, federal, and tribal interests at stake," and concluded that the Arizona state taxes were preempted by federal law. Id. at 145-51, 100 S.Ct. 2578. In evaluating the federal interest, the Court found "that the federal regulatory scheme [was] so pervasive as to preclude the additional burdens sought to be imposed in th[at] case." Id. at 148, 100 S.Ct. 2578. It found that the "assessment of [the] state taxes would obstruct federal policies," including the federal objective "that the Tribe should retain the benefits derived from the harvesting and sale of reservation timber." Id. at 148-49, 100 S.Ct. 2578. As to the state interest involved, the Court deemed it "equally important" that the respondents were "unable to identify any regulatory function or service performed by the State that would justify the assessment of taxes for activities on Bureau and tribal roads within the reservation." Id. at 148-49, 100 S.Ct. 2578. That is, the Court was not "able to identify a legitimate regulatory interest served by the taxes" other than "a general desire to raise revenue." Id. at 150, 100 S.Ct. 2578. Furthermore, because the "Tribe agreed to reimburse [the company] for any tax liability incurred as a result of its on-reservation business activities," including the Arizona taxes at issue, it was "undisputed that the economic burden of the asserted taxes [would] ultimately fall on the Tribe." Id. at 140, 151, 100 S.Ct. 2578; see also id. at 150, 100 S.Ct. 2578 (stating that "this is not a case in which the State seeks to assess taxes in return for governmental functions it performs for those on whom the taxes fall" (emphasis added)).
In Ramah, the State of New Mexico sought to impose a tax on two non-Indian construction companies hired by the tribe
Looking to the federal interest—that is, the extent of the federal scheme—the Court observed that the "[f]ederal regulation of the construction and financing of Indian educational facilities [was] both comprehensive and pervasive," Ramah, 458 U.S. at 839, 102 S.Ct. 3394, which "left the State with no duties or responsibilities" when it came to the education of Indian children, id. at 843, 102 S.Ct. 3394 (quoting Warren Trading Post Co. v. Ariz. Tax Comm'n, 380 U.S. 685, 691, 85 S.Ct. 1242, 14 L.Ed.2d 165 (1965)) (internal quotation marks omitted). The existence of this "comprehensive and pervasive" federal scheme, and corresponding lack of any identified state role, left "no room for the additional burden sought to be imposed by the State through its taxation of the gross receipts." Id. at 842, 102 S.Ct. 3394. The state was otherwise unable to identify "any specific, legitimate regulatory interest to justify the imposition of its gross receipts tax." Id. at 843, 102 S.Ct. 3394. The state argued that the services provided to the company for its activities off the reservation were significant enough to justify the tax, but the Court rejected this argument:
Id. at 843-44, 102 S.Ct. 3394 (footnote omitted).
In Cotton Petroleum, which is most important for our purposes, the Court considered a challenge to the same five taxes at issue in the present appeal, brought by a
Next, the Court examined the history of tribal independence in the area of oil and gas leasing on Indian land. Id. at 181-82, 109 S.Ct. 1698. "[A]t least as to Executive Order reservations," it concluded, "state taxation of nonmember oil and gas lessees was the norm from the very start," and therefore there was "no history of tribal independence from state taxation of the lessees to form a `backdrop' against which the [IMLA] must be read." Id. at 182, 109 S.Ct. 1698.
The Court then analyzed the state, federal, and tribal interests at stake, focusing on the same factors that had been highlighted in Bracker and Ramah—the extent of the federal regulatory scheme, the economic burden, and the services and functions of the State justifying the taxes.
We agree with the district court, and the parties, that the preemption analysis applied by the Supreme Court in Bracker, Ramah, and Cotton Petroleum governs the outcome of this case. Furthermore, we note that the district court correctly "follow[ed] the sequence taken by the United States Supreme Court in Cotton Petroleum," looking first to the relevant legislation (i.e., the IMLA and IMDA), then considering the "historical backdrop" of relevant tribal sovereignty in the area of oil and gas leasing on Indian land, and lastly carrying out what the district court termed "Bracker balancing," by examining the relevant state, federal, and tribal interests and "taking into account the three factual areas deemed important by the Cotton Petroleum Court: the State's involvement in the activity, the economic burden of the tax, and the extent of federal and tribal regulation." R. at 224-25. Our analysis follows this same sequence.
In the present case, the leases and agreements entered into by the Ute Tribe were executed under the IMLA and IMDA. In Cotton Petroleum, the Supreme Court evaluated the IMLA under standard principles of statutory interpretation and determined that the IMLA "neither expressly permits state taxation nor expressly precludes it." 490 U.S. at 177, 109 S.Ct. 1698; see Montana v. Crow Tribe of Indians, 523 U.S. 696, 714, 118 S.Ct. 1650, 140 L.Ed.2d 898 (1998) (stating that "Cotton Petroleum clarified that neither the IMLA, nor any other federal law, categorically preempts state mineral severance taxes imposed, without discrimination, on all extraction enterprises in the State, including on-reservation operations"); see also R. at 218-19 ("As there was no doubt at the time of enactment of the IMLA that leases on public lands were subject to state taxation, the Supreme Court [in Cotton Petroleum] inferred that Congress would have understood Tribal leases to be equally subject to state taxation."). The same conclusion applies in this case—the IMLA, which governs almost all of the leases and agreements between the Ute Tribe and the oil and gas operators, does not expressly permit or expressly authorize taxation.
The Tribe asserts that the "IMDA was a step in the direction of tribal self-determination, freeing Indian tribes from the shackles of the anachronistic statutory authorizations of the past," which it asserts "should weigh heavily in any Indian preemption analysis." Aplee. Br. at 25 n. 10. However, the Tribe fails to cite any relevant, persuasive statutory language or legislative history that evidences an express or implied congressional intent to prohibit state taxation of agreements executed under the IMDA.
The only mention of taxation in the legislative history of the IMDA appears in the House Report, which states:
H.R. Rep. 97-746, at 8-9 (1982), reprinted in 1982 U.S.C.C.A.N. 3465, 3470-71 (emphasis added). In other words, express authority for state taxation of "non-Indian... activities under" mineral leases executed pursuant to the IMDA was put on the table; however, the Committee refrained from including this in the Act, choosing instead to defer to the Supreme Court's evolving jurisprudence on the topic. This statement, if anything, evidences congressional neutrality on the issue of state taxation under the Act. It does not, on the other hand, evidence a clear congressional intent to prohibit taxation of activity carried out under the IMDA.
Furthermore, when the IMDA was enacted in 1982, the doctrine of intergovernmental tax immunity had long been abolished, and it was well-established that non-Indian oil and gas lessees were subject to state taxation, absent clear disapproval by Congress. See Cotton Petroleum, 490 U.S. at 175-76, 179-80, 109 S.Ct. 1698 (stating that by 1938 "oil and gas lessees operating on Indian reservations were subject to nondiscriminatory state taxation as long as Congress did not act affirmatively to preempt the state taxes"); id. (stating that "a lessee's oil production on Indian land is... not `automatically exempt from state taxation,'" but "Congress does, of course, retain the power to grant such immunity" (quoting Mescalero Apache Tribe v. Jones, 411 U.S. 145, 150, 93 S.Ct. 1267, 36 L.Ed.2d 114 (1973))). Had Congress intended to absolutely prohibit (or absolutely permit) state taxation under the IMDA, we think it would have been more clear in expressing such intent. Thus, we conclude that the IMDA is silent regarding the issue of taxation—that is, like the IMLA, the IMDA neither expressly prohibits nor expressly authorizes state taxation.
We look next to the "historical backdrop" of relevant tribal sovereignty in the field at issue—viz., in the field of oil and gas leasing on treaty and statutory reservations. In Cotton Petroleum, the Supreme Court found that there was no history of tribal independence from taxation to serve as a "backdrop" to the analysis because, "at least as to Executive Order reservations, state taxation of nonmember oil and gas lessees was the norm from the very start." 490 U.S. at 182, 109 S.Ct. 1698. The Ute Reservation, however, is a treaty and statutory reservation.
Congress first authorized mineral leasing on statutory and treaty reservations in 1891. See Act of Feb. 28, 1891 ("1891 Act"), ch. 383, 26 Stat. 795 (codified at 25 U.S.C. § 397). At that time, the doctrine
After the 1924 Act was passed, oil and gas leases on statutory and treaty reservations were expressly subject to state taxation; that is, in complete contrast to the previous era of tax immunity, oil and gas operations on statutory and treaty reservations were wholly exposed to state taxation.
Unlike executive reservations—which had "no history of tribal independence from state taxation of [oil and gas] lessees," Cotton Petroleum, 490 U.S. at 182, 109 S.Ct. 1698—treaty and statutory reservations were immune from state taxation from 1891 to 1924, more than three decades. The district court concluded that this "`important backdrop' of Tribal sovereignty... acts as a thumb on the scales in favor of the [Ute Tribe] that the United States Supreme Court in Cotton Petroleum did not afford the Jicarilla Apache Tribe." R. at 225-26. The district court was correct in noting that this "historical backdrop" of relevant tribal sovereignty—namely, the period of tax immunity from 1891 until 1924—was not present in Cotton Petroleum. However, unlike the district court, we do not consider this distinction, as a legal matter, to be so "significant" as to tilt the scales in the Tribe's favor.
As stated above, since the period of complete immunity from state taxation ended in 1924, for a period of more than eight decades, oil and gas lessees on statutory reservations have been either expressly subject to state taxation or have been subject to such taxation absent clear congressional disapproval. In other words, a review of the relevant history of taxation in this field demonstrates that for the lion's share of that history, state taxation has been permitted to some extent. Although this history—which includes a shorter period of immunity followed by a much longer period of exposure to taxation—is relevant and should be taken into consideration, we do not find that the "scales," as the district court put it, are tipped significantly in the Tribe's favor. That is, we do not find that this "backdrop" weighs heavily in favor of a finding of preemption, particularly when viewed in conjunction with the remainder of our analysis. See Rice, 463 U.S. at 720, 103 S.Ct. 3291 ("If ... we determine that the balance of state, federal, and tribal interests so requires, our pre-emption analysis may accord less weight to the `backdrop' of tribal sovereignty." (citing Washington, 447 U.S. at 154-59, 100 S.Ct. 2069; Jones, 411 U.S. 145, 93 S.Ct. 1267)).
Against this "backdrop," we must weigh the state, federal, and tribal interests at stake in order to determine whether the New Mexico taxes are preempted. Cotton Petroleum, 490 U.S. at 176-77, 109 S.Ct. 1698; Ramah, 458 U.S. at 838, 102 S.Ct. 3394; Bracker, 448 U.S. at 145, 100 S.Ct. 2578. As discussed infra, the facts demonstrate that this case falls more in line with Cotton Petroleum than Bracker and Ramah. Therefore, we conclude—even when considering the relevant legislation and historical backdrop—that the five challenged taxes are not preempted by federal law in this instance.
As previously noted, in assessing the relevant federal and tribal interest, the Supreme Court has looked primarily to the extent of the federal (and, if applicable, tribal) regulatory scheme. In Cotton Petroleum, the Supreme Court found that although the federal regulations governing oil and gas operations on the reservation were "extensive, they [were] not exclusive, as were the regulations in Bracker and Ramah." 490 U.S. at 186, 109 S.Ct. 1698 (footnote omitted). See also Ramah, 458 U.S. at 839, 843, 102 S.Ct. 3394 (noting that the "comprehensive and pervasive" federal scheme "left the State with no duties or responsibilities"); Bracker, 448 U.S. at 149, 100 S.Ct. 2578 (stating that the "pervasive" and "comprehensive" federal scheme left "no room for [state] taxes,"
The relevant federal regulatory scheme governing oil and gas operations in this case is largely the same as the regulatory scheme at play in Cotton Petroleum.
Next, we look to the economic burden of the tax. In Bracker, Ramah, and Cotton Petroleum, the Supreme Court found that the economic burden fell on the entity that was directly responsible for the amount of taxes paid to the State.
By contrast, in Cotton Petroleum, the economic burden fell on the non-Indian operators because they paid the taxes, without protest, and the tribe did not reimburse or compensate the operators in any way for those payments. 490 U.S. at 168, 173 n. 9, 185, 109 S.Ct. 1698. The Jicarilla Apache Tribe argued that it bore the burden of the taxes at issue because they interfered with the tribe's ability to raise its own taxes on oil and gas operations and would diminish the desirability of on-reservation leases. In response, the Cotton Petroleum Court stated:
Id. at 186-87, 109 S.Ct. 1698 (footnote omitted). In other words, in rejecting the tribe's argument for preemption in that case, the Court concluded that the indirect burdens on the tribe's ability to raise its own taxes or attract new leases—as opposed to the more direct burden of ultimately bearing the cost of the taxes paid to the State—were insufficient to establish that the economic burden of the taxes fell on the tribe.
In this instance, the five state taxes are paid by the non-Indian operators and, as in Cotton Petroleum, those costs are not passed directly on to the Tribe; that is, the Tribe does not reimburse or compensate the operators for the amount of taxes paid to the State. See R. at 203 ("The leases and agreements do not directly pass the cost of the five New Mexico taxes on the [Tribe]."). Furthermore, as in Cotton Petroleum, the district court found that regardless of the status of the five state taxes (and Resolution No. 3874), the Tribe "has the authority to increase severance taxes on existing leases and agreements it has entered into with operators, or to enact a third [tribal] tax." R. at 203 (emphasis added); cf. id. at 206 ("There is no record evidence that the imposition of the
Nevertheless, the district court found that, even though the taxes were paid directly by the non-Indian operators and were not passed on to the Tribe, the economic burden of the taxes—as a real-world matter—fell on the Tribe because "the evidence shows that the taxes impair, in practically one-to-one proportion, the ability of the [Tribe] to impose additional taxes." Id. at 226; see also id. at 227 (stating that in the absence of the five state taxes, the Tribe "could implement Resolution No. 3874 to increase its severance tax and—assuming the market for oil and gas remained stable—raise an additional $1,300,000 in revenue, an increase of approximately $650 per enrolled member per year"); id. (indicating that even if the resolution was rescinded, absent the five state taxes, "oil and gas production on the [Reservation] would become more attractive relative to oil and gas production elsewhere in New Mexico, which would result in increased production" and therefore an increase in revenues from royalties and current taxes).
However, these indirect economic burdens on the Tribe's ability to increase its own taxes and attract new leases are akin to the indirect burdens that the Supreme Court dismissed in Cotton Petroleum. See 490 U.S. at 186-87, 109 S.Ct. 1698. "[M]arginal effect[s] on the demand for on-reservation leases, the value to the Tribe of those leases, and the ability of the Tribe to increase its tax rate" are impacts that are "simply too indirect and too insubstantial to support [a] claim of pre-emption." Id. at 187, 109 S.Ct. 1698.
Lastly, we must consider the State's interest—more specifically, the
In Bracker and Ramah, the Court noted that it was "unable to identify any legitimate regulatory function or service [that the state] performed ... that would justify the assessment of [the] taxes." Cotton Petroleum, 490 U.S. at 184, 109 S.Ct. 1698 (emphasis added) (quoting Bracker, 448 U.S. at 148-49, 100 S.Ct. 2578) (internal quotation marks omitted). Those cases "involved complete abdication or noninvolvement of the State in the on-reservation activity." Id. at 185, 109 S.Ct. 1698 (emphasis added). On the other hand, in Cotton Petroleum, the State provided "substantial services" to both the Jicarilla Apache Tribe and the non-Indian operator, costing the State approximately $3 million per year, id., which served as a sufficient justification for the taxes.
In this case, the district court itself acknowledged that the State "is not absolutely uninvolved in the oil and gas operations on the [Reservation]." R. at 234. As the district court noted, the services provided to the oil and gas operators on the Reservation include "a hearing process for resolving disputes between operators, publicly available geologic records, publicly available production records, and records of sales and transfers," as well as "plugging of abandoned wells" and "environmental cleanup and site inspection." Id. at 199. However, because the evidence demonstrated that these services were rarely, if ever, utilized by the oil and gas operators or the Tribe in connection with the on-reservation activity, the district court found that these services only were offered "in theory" and only provided a "de minimis" benefit. Id. at 201, 232-33. Based on this reasoning, the district court concluded that the State's interest was "minimal." Id. at 233. We disagree.
First, as previously discussed, the State plays a supporting regulatory role in the regulation of well spacing, setbacks, and non-standard well location. This "specific, legitimate regulatory interest" serves as a partial justification for the imposition of the state taxes. Ramah, 458 U.S. at 843, 102 S.Ct. 3394; see Bracker, 448 U.S. at 144, 100 S.Ct. 2578 (stating that "any applicable regulatory interest of the State must be given weight" (citing McClanahan v. State Tax Comm'n of Ariz., 411 U.S. 164, 171, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973))). We also afford some weight to the services, enumerated by the district court, that are provided on the Reservation—such as a hearing process and the provision of records—despite the fact that the Tribe and the lessees scarcely utilize them. In other words, this is not a case—like those before the Supreme Court in Bracker and Ramah—"involv[ing] complete abdication or noninvolvement of the State in the on-reservation activity." Cotton Petroleum, 490 U.S. at 185, 109 S.Ct. 1698.
However, the more important state service—and the one that primarily justifies the New Mexico taxes at issue—is the offreservation infrastructure used to transport the oil and gas after it is severed. Oil extracted from the Reservation "is transported by truck through New Mexico to refineries outside the [Reservation]" on
The district court found that "[t]he State provides substantial services by regulating the off-reservation infrastructure that makes transport of oil and gas possible." R. at 201 (emphasis added). In fact, the evidence presented at trial made clear that "[w]ithout the off-reservation infrastructure in New Mexico to transport oil and gas, the economic value of the oil and gas produced on the [Reservation] would be substantially less." Id. (emphasis added). The State's counsel highlighted this point during oral argument:
Oral Argument at 9:33, 12:03. We conclude that this "substantial service" provided by the State—which "substantially" contributes to the economic value of the resources extracted—serves as a legitimate and important justification for the imposition of the State's taxes.
The district court concluded, as the Tribe argues on appeal, that Ramah prohibits any consideration of the off-reservation infrastructure in the analysis. In Ramah, the Supreme Court concluded that the state services provided to the non-Indian contractor for its activities off the reservation could not serve as a justification for taxing the on-reservation activity. 458 U.S. at 843-44, 102 S.Ct. 3394. The Court posited that "the state tax revenues derived from [the contractor's] off-reservation
However, what the Ramah Court stated was that the off-reservation services provided to the non-Indian entity could not serve as "a legitimate justification for a tax whose ultimate burden [fell] on the tribal organization." Id. at 844, 102 S.Ct. 3394 (emphasis added). In other words, because the economic burden ultimately fell on the tribe, the services that the state provided to the contractor for activity off the reservation were not a sufficient justification. Cf. Bracker, 448 U.S. at 150, 100 S.Ct. 2578 (noting that a state generally may "seek[] to assess taxes in return for governmental functions it performs for those on whom the taxes fall"). In the present case, unlike in Ramah, the economic burden of the tax falls on the non-Indian operators, not the Tribe.
Furthermore, there is no indication that the asserted off-reservation services provided to the non-Indian contractor in Ramah in any way related to the on-reservation activity the state sought to tax. In contrast, the services provided off the reservation in this instance substantially benefit and relate to the on-reservation activity being taxed. In fact, without the off-reservation infrastructure, the economic value of the resources—which "drives the value of the royalty enjoyed by the Tribe, the tribal taxes, and the income of the non-tribal lessees," Oral Argument at 12:08—"would be substantially less." R. at 201 (emphasis added). This case, therefore, can be distinguished from Ramah.
The Supreme Court's decision in New Mexico v. Mescalero Apache Tribe could also be read to permit the consideration of state services or functions as long as they are connected to the on-reservation activity in some substantial way, regardless of whether those services or functions are carried out on or off the tribal reservation. In that case, the issue was whether the State of New Mexico could regulate the hunting and fishing activities of non-Indians on the tribe's reservation. Mescalero Apache Tribe, 462 U.S. at 325, 103 S.Ct. 2378. At the outset, the Court noted that "[t]he exercise of State authority which imposes additional burdens on a tribal enterprise must ordinarily be justified by functions or services performed by the State in connection with the on-reservation activity." Id. at 336, 103 S.Ct. 2378 (emphasis added) (citing Ramah, 458 U.S. at 843-44 & n. 7, 102 S.Ct. 3394; Bracker, 448 U.S. at 148-49, 100 S.Ct. 2578). In concluding that New Mexico's authority was preempted by federal law, the Court noted that "the State ha[d] pointed to no services it ha[d] performed in connection with hunting and fishing by nonmembers which justif[ied] imposing a tax in the form of a hunting and fishing license," and stated that the State's "general desire to obtain revenues [wa]s simply inadequate to justify the assertion of concurrent jurisdiction." Id. at 343, 103 S.Ct. 2378 (emphasis added); see also Barona Band of Mission Indians v. Yee, 528 F.3d 1184, 1193 (9th Cir.2008) ("We recognize that the state interest strengthens where there is a nexus between the taxed activity and the government function provided ...." (citing Ramah, 458 U.S. at 843, 102 S.Ct. 3394)). The off-reservation services that the State provides in this instance are undoubtedly "connected to" the on-reservation activity being taxed.
The district court's refusal to consider the off-reservation infrastructure was also based on its observation that "[i]n Bracker, the economic value of the tribal timber would likely have been minimal in the absence of Arizona state roads outside the White Mountain Apache Reservation to transport the timber to market, but those state roads played no part in the analysis." Id. (citing Bracker, 448 U.S. at 146-52, 100 S.Ct. 2578). However, in Bracker the Supreme Court indicated that the timber was harvested, processed, and sold on the reservation. See 448 U.S. at 139, 100 S.Ct. 2578 (stating that the logging company's activities—which included "fell[ing] trees, cut[ting] them to the correct size, and transport[ing] them to [the tribe's] sawmill in return for a contractually specified fee"—were performed "solely on the Fort Apache Reservation," and that the timber was "manage[d], harvest[ed], processe[d], and s[old] ... on the reservation." (emphasis added)). Therefore, contrary to the district court's statement, it appears that the timber harvested from the reservation in Bracker took on its economic value on the reservation without the required use of any off-reservation infrastructure provided by the state. By contrast, the mineral resources severed from the Ute Reservation only take on significant economic value when they are processed off the Reservation, which is only made possible by the off-reservation infrastructure. And furthermore, we also note that in Bracker, unlike the present case, the economic burden of the tax fell on the tribe. Accordingly, we cannot agree with the district court's decision to disregard the "substantial services" provided to the lessees off the Reservation. R. at 201.
In sum, the Supreme Court has not instructed that the type of off-reservation services presently before us—that substantially relate to and benefit the on reservation activity and that benefit the entity that directly bears the economic burden of the tax—cannot be considered under Bracker, Ramah, and Cotton Petroleum. What the Supreme Court has made clear, however, is that we are to conduct a "particularized examination" that is "sensitive to the particular facts and legislation involved." Cotton Petroleum, 490 U.S. at 177, 109 S.Ct. 1698. In this specific situation, where the burden of the tax falls on the non-Indian lessees and the off-reservation infrastructure substantially benefits the on-reservation activity, we think it is appropriate for us to consider the off-reservation infrastructure as part of the equation.
In conclusion, the evidence presented, particularly in light of the Supreme Court's decision in Cotton Petroleum, demonstrates that (1) the federal regulatory scheme is not "exclusive," although it is indeed "extensive"; (2) the economic burden—as that concept was applied by the Supreme Court in Bracker, Ramah, and Cotton Petroleum—falls on the non-Indian operators, not on the Tribe; and (3) the State has asserted a sufficient justification for imposing the taxes. Furthermore, although
Based on the foregoing, we
LUCERO, J., dissenting.
Although I concur in my colleagues' statement of the law, I cannot do so with respect to their application of the law to the facts. In contrast to the Jicarilla Apache Tribe in Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 109 S.Ct. 1698, 104 L.Ed.2d 209 (1989), the Ute Mountain Ute Tribe in the case before us presented evidence and the district court found that: (1) New Mexico's taxation of on-reservation oil and gas extraction imposes a substantial economic burden on the tribe; and (2) neither the tribe nor private oil and gas companies receive any on-reservation economic benefit in return. These findings compel the conclusion that the New Mexico taxes are preempted. It is not enough to correctly state the law; by not adhering to it, we deny parties their due justice and distort the jurisprudence of the Supreme Court. Thus I must respectfully dissent.
My colleagues thoughtfully explain the basic legal principles that distinguish Indian law preemption from traditional implied preemption doctrine. (Majority Op. 1185-90.) I have no problem with most of that discussion. Although "generalizations on [Indian law preemption remain] treacherous," White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 141, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980), the roadmap for this case was drawn by the Supreme Court in Cotton Petroleum, which examined the same five New Mexico taxes at issue in this case as applied on the Jicarilla Apache reservation. 490 U.S. at 168-69, 109 S.Ct. 1698. Four factors that control this appeal were enumerated by the Supreme Court
I agree with the majority's conclusions as to the first and second of these factors. The history of Ute Mountain Ute sovereignty over oil and gas leasing is relevant but not decisive (Majority Op. 1193-94), and the federal regulatory scheme is "extensive [but] not exclusive" (Majority Op. 1189). But, given the district court's uncontested
There is no dispute; indirect taxes—that is taxes paid by an entity other than the tribe itself—may burden an Indian tribe enough to justify a finding of preemption in some circumstances. See Cotton Petroleum, 490 U.S. at 187 n. 17, 109 S.Ct. 1698; Montana v. Crow Tribe of Indians, 484 U.S. 997, 108 S.Ct. 685, 98 L.Ed.2d 638 (1988) summarily aff'g 819 F.2d 895 (9th Cir.1987); Ramah Navajo Sch. Bd. v. Bureau of Revenue of New Mexico, 458 U.S. 832, 836-37, 102 S.Ct. 3394, 73 L.Ed.2d 1174 (1982). The majority concedes as much. (Majority Op. 1196 n. 29.)
The principle that an indirect economic burden on a tribe may support preemption of a state tax originates in Ramah Navajo. 458 U.S. at 835-36, 846-47, 102 S.Ct. 3394. There, New Mexico taxed private construction companies for activities on the Navajo reservation. Id. at 835, 102 S.Ct. 3394. The "legal incidence" of the tax fell squarely on the construction contractors. Id. at 836, 844 n. 8, 102 S.Ct. 3394. But the tribe agreed to reimburse contractors for the tax. Id. at 835-36, 102 S.Ct. 3394. Thus, the Supreme Court recognized that "the economic burden of the asserted taxes would ultimately fall on the Tribe," id., and held the tax was preempted in part because of "burdens ... imposed indirectly through a tax on a non-Indian contractor...." Id. at 844 n. 8, 102 S.Ct. 3394. As the dissent in Ramah Navajo characterized the opinion, "the Court clearly [chose] to bar the State from taxing [the private contractor] principally because the tax impose[d] an indirect economic burden on the tribal organization." Id. at 854, 102 S.Ct. 3394 (Rehnquist, J., dissenting).
Although the Court did not explain precisely when an indirect tax should be considered burdensome to a tribe, Cotton Petroleum provides us some guidance. In particular, Cotton Petroleum's focus on trial court findings of fact strongly suggests that the degree of economic burden is best determined by the fact-finder. See 490 U.S. at 185-86, 187 n. 17, 109 S.Ct. 1698. And unlike in Cotton Petroleum, the district court in this matter found that New Mexico's taxation of oil and gas extractors creates a substantial economic burden on the Ute Mountain Ute.
Cotton Petroleum turned on facts found by the New Mexico state district court. 490 U.S. at 185-86, 109 S.Ct. 1698. Although the Jicarilla Apache were not a party to either the New Mexico proceedings or the Supreme Court proceedings, the trial court made several findings concerning the tribe's interests. Importantly, the trial court determined that "no economic burden [fell] on the tribe by virtue of the state taxes," and that the tribe could increase its taxes without adversely affecting its oil and gas development. Id. at 185, 109 S.Ct. 1698 (quotation and alteration omitted).
In reaching this conclusion, the Court distinguished Montana, a case it summarily affirmed a year prior to Cotton Petroleum. 490 U.S. at 187 & n. 17, 109 S.Ct. 1698. Montana considered whether certain state taxes on coal extraction were preempted as applied on the Crow Tribe's
In this case, the Ute Mountain Ute have presented for our consideration facts that are more analogous to Montana and Ramah Navajo. Although the majority conducts an economic burden analysis anew, it is not our office to do so. One must keep in mind that the district court conducted a trial, heard expert testimony, and rendered detailed factual findings, which are now uncontested. As in Montana, the tribe's economic expert testified that the state taxes affect the production and marketability of tribal oil and gas leases. In its findings, the district court concluded that oil and gas production on Ute Mountain Ute lands would be "more attractive" to producers without the taxes and the New Mexico taxes "impose an economic burden on the [tribe] and its members."
Further, as in Ramah Navajo, although the legal incidence of the tax falls on the oil and gas companies, the Ute Mountain Ute lose revenue because they cannot impose the same taxes. The Ute Mountain Ute passed a resolution stating that if the New Mexico taxes were struck down, the tribe would replace them with tribal taxes. Thus, just like the contract provision in Ramah Navajo, the resolution ensures that any revenue collected by New Mexico is revenue the tribe loses. A Ute Mountain Ute tribal tax in the amount equal to the New Mexico taxes would provide an additional $650 per tribal member—no small sum for a tribe whose yearly per capita income is a scant $8,159.
But the majority concludes that the effect of the taxes is "too indirect and too insubstantial" to be considered in the preemption analysis. (Majority Op. 1198.) In spite of its reassurance that indirect economic burden may, under other unidentified facts, support a holding of preemption (Majority Op. 1196 n. 29), the majority seems to have elevated an undisputed fact found by a New Mexico trial court over twenty years ago to a principle of law that binds all tribes indirectly burdened by state taxation. I would leave such fact-finding to the trial courts. The expert testimony proffered by the tribe and adopted by the district court is sufficient to distinguish this case from Cotton Petroleum and support the conclusion that the New Mexico taxes create a substantial economic burden on the Ute Mountain Ute Tribe.
I also disagree with my colleagues' treatment of the fourth Cotton Petroleum factor: the state's interest in taxation of on-reservation oil and gas extraction. Cotton Petroleum was "not a case in which the State [had] nothing to do with the on-reservation activity, save tax it." 490 U.S. at 186, 109 S.Ct. 1698. But this is such a case. In light of the absence of state services utilized by the tribe and on-reservation contractors, this factor strongly supports preemption.
In Cotton Petroleum, the trial court concluded that New Mexico provided "substantial services to both the Jicarilla Tribe and Cotton" approximating $3 million per year. Id. at 185, 109 S.Ct. 1698. Indeed, New Mexico "spen[t] as much per capita on members of the Tribe" as it did on non-members. Id. at 171 n. 7, 109 S.Ct. 1698. Moreover, Cotton Petroleum Corp. conceded that it benefitted substantially from New Mexico's services and admitted to receiving $89,384 to assist its operations. Id. at 185, 109 S.Ct. 1698. Distinguishing Ramah Navajo, the Court determined that these "substantial services," provided to both the tribe and the company on the reservation, supported New Mexico's contention that the taxes were not preempted. Id.
Ramah Navajo explicitly considered the effect of state services provided to a contractor off-reservation. 458 U.S. at 844, 102 S.Ct. 3394. See also Cent. Mach. Co. v. Ariz. State Tax Comm'n, 448 U.S. 160, 169-70, 100 S.Ct. 2592, 65 L.Ed.2d 684 (1980) (Stewart, J., dissenting) (scolding the Court for ignoring the state's provision of off-reservation services). The Court roundly rejected the suggestion that off-reservation services could justify a tax whose "burden falls on the tribal organization." Ramah, 458 U.S. at 844, 102 S.Ct. 3394.
Although the majority recognizes the salient distinction between on- and off-reservation services, my colleagues read Ramah Navajo as suggesting that this factor matters only if the burden of the tax falls on the tribe. (Majority Op. 1201.) As discussed supra, the burden of the taxes in this case does fall on the Ute Mountain Ute, albeit indirectly. Ramah Navajo does not support the majority's conclusion even under the majority's reasoning. Immediately following the sentence upon which the majority relies, the Court stated: "although the state may confer substantial benefits on [the contractor] as a state contractor, we fail to see how these benefits can justify a tax imposed on the construction of school facilities on tribal lands." 458 U.S. at 844, 102 S.Ct. 3394. This statement is consonant with the Court's conclusion in White Mountain Apache that "though the reservation boundary is not absolute, it remains an important factor to weigh in determining whether state authority has exceeded the permissible limits." 448 U.S. 136, 151, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980).
According to the district court, New Mexico "provides substantial services by regulating the off-reservation infrastructure that makes transport of oil and gas possible." Such provisions fall squarely outside the scope of our analysis as delimited by Ramah Navajo and Cotton Petroleum. Neither case considered off-reservation services provided by the state to the company to be a significant part of the preemption analysis. And this distinction makes perfect sense. New Mexico may tax oil and gas companies for their activities off the reservation to compensate for services the state provides generally. As the Ramah Navajo Court stated, "[p]resumably, the state tax revenues derived from [the contractor's] off-reservation business activities are adequate to reimburse the State for the services it provides...."
Because New Mexico provides no on-reservation services
I cannot agree with the majority's conclusion that the economic effect of the challenged taxes on the Ute Mountain Ute is "too indirect and too insubstantial." Nor can I agree that New Mexico's provision of off-reservation services may be used to justify taxation of on-reservation activities. Because of the extensive (if not exclusive) federal regulation of tribal oil and gas extraction, the economic burden borne by the Ute Mountain Ute, and New Mexico's de minimis interest in collecting the taxes at issue, the district court should be affirmed. I respectfully
R. at 228-29 (third, fourth, and fifth alterations in original) (Dist. Ct. Op., dated Oct. 2, 2009). We do not disagree with this characterization.
Cotton Petroleum, 490 U.S. at 183 n.14, 109 S.Ct. 1698. Although not the focus of our analysis here, we see no reason why the Supreme Court's analysis of these other federal acts would not apply with equal force in this case.
The State also raises the issue of whether the Indian Oil Act of 1927, which simultaneously authorized oil and gas leases on executive reservations and waived immunity from state taxation on such leases, likewise operates to authorize the five taxes. However, this argument is equally unmeritorious. The Oil Act of 1927 only applied to oil and gas leases on executive reservations, not statutory and treaty reservations such as the Ute Reservation, see 25 U.S.C. § 398(a); therefore, it is inapplicable and irrelevant.
However, we note that this does not necessarily mean that indirect financial burdens on a tribe are categorically barred from the analysis. Indeed, the Cotton Petroleum Court noted that the indirect economic burdens identified by the tribe in that case were "too indirect and too insubstantial to support [a] claim of pre-emption." Cotton Petroleum, 490 U.S. at 187, 109 S.Ct. 1698 (emphasis added). The underscored language suggests that some indirect economic burdens of a substantial nature might lend support to a finding of preemption under certain circumstances. However, as further discussed infra, the indirect burdens asserted by the Ute Tribe in this case are similar in nature to those rejected by the Supreme Court in Cotton Petroleum; therefore, they do not factor into our analysis.
