Court affirms tribes’ rights in gas-tax case

BOISE – The U.S. Supreme Court bolstered tribal sovereignty Monday by refusing to review a lower court ruling forbidding Idaho from taxing motor fuel sold on Indian reservations.

Without comment, justices let stand the 9th U.S. Circuit Court of Appeals’ 2-1 decision last August upholding the ban.

Still, they did agree to review a similar case involving a Kansas tribe whose outcome could have repercussions in Idaho and elsewhere.

In the case involving three Idaho tribes, the Supreme Court opted not to reconsider the appeals court’s decision siding with the Coeur d’Alenes, Nez Perce and Shoshone-Bannocks. All own and operate gas stations on reservation land.

Idaho had sought to reverse it amid concern that tribal gas stations enjoy a competitive advantage over non-reservation stations that must pay the tax and that the state stood to lose millions in revenue.

Sixteen other states had signed on to the case.

“The issues raised in Idaho’s appeal are important not only for Idaho, but also many other states,” said Attorney General Lawrence Wasden in a statement. “I am disappointed.”

Tribal leaders called the decision a victory.

“That’s the last avenue of appeal,” said Julie Kane, an attorney with the Nez Perce Tribe’s Office of Legal Counsel.

That tribe has collected $2 million in gas-tax money in an escrow account pending a resolution, Kane said.

It also has a lawsuit pending against the Idaho Tax Commission to retrieve about $250,000 for 10 months of taxes it says were collected by the state after the tribe’s gas station opened Jan. 1, 1999.

“Our efforts will be focused on trying to recoup the money that was illegally collected,” she said.

In 2001, the Idaho Supreme Court ruled that Idaho’s 25-cent per gallon tax on gas sold on Indian reservations was illegal because federal law bars it from taxing tribal retailers without clear congressional authorization.

State lawmakers then responded by passing a new law that taxed non-tribal companies that distributed fuel to tribal operators. The fuel companies were expected to recoup those costs by collecting them from tribal retailers.

The tribes sued and won.

The federal courts decided that a claim by state legislators that the burden of the tax fell on distributors didn’t make it so.

“We conclude that we should not, under the circumstances of this case, automatically defer to the Idaho state legislature’s mere say-so about where the legal incidence of its motor fuels tax lies,” Circuit Judge Ronald Gould and Judge Richard Tallman wrote in August.

That’s the key difference between the Idaho case and the one involving the Prairie Band Potawatomi tribe in Kansas, said Deputy Attorney General Clay Smith.

In Idaho, the federal courts ruled that the Legislature’s law was illegal because it shifted the so-called “legal incidence” to tribal retailers, Smith said.

In Kansas, however, the question to be resolved is whether an off-reservation tax on gas distributors is inappropriate because tribal retailers are hit by the economic burden of paying for it, Smith said.

The Denver-based 10th U.S. Circuit Court of Appeals ruled that the Kansas tax violates tribal sovereignty and created a barrier to interstate commerce.

That could have consequences for other taxable goods sold on reservations, said Stephen Richards, head of the Kansas Department of Revenue, in a brief to the U.S. Supreme Court opposing the appeals court’s ruling.

“Any tax imposed on a transaction that may ultimately have an economic consequence on a reservation will be subject to challenge,” Richards said.

Idaho is among 13 states that have filed friend of the court briefs in that case.

Others are Arizona, California, Connecticut, Iowa, Massachusetts, Missouri, New Mexico, North Dakota, Oklahoma, South Dakota, Utah and Wyoming.

The Supreme Court could reverse the 10th Circuit’s ruling.

Idaho lawmakers could also pass a law closer to the Kansas statute – making it clear that its intent was to put the legal burden for the tax on the distributors, not the tribes, Smith said.

State Sen. Hal Bunderson, R-Meridian, who in 2003 promoted unsuccessful legislation to impose sales tax on non-Indians buying goods at tribe-owned businesses, said it’s probably already too late in the 2005 Legislative session for that to happen this year.

“A lot of work would have to be done,” Bunderson said.