January 18, 2018

Tenth Circuit: State Taxes Not Preempted by Federal Law, Even when Considered in Light of Purposes of Legislation and History of Tribal Sovereignty in the Field

The Tenth Circuit Court of Appeals issued its opinion in Ute Mountain Ute Tribe v. Rodriguez on Wednesday, July 27, 2011.

The Tenth Circuit reversed and remanded the district court’s decision. The case revolves around 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 in New Mexico. The district court found in favor of Petitioner tribe, holding that the five state taxes were preempted by federal law and enjoined the State of New Mexico from further imposing the taxes. The Respondent, Secretary of the New Mexico Taxation and Revenue Department, appealed that determination, arguing that the district court misinterpreted and misapplied Supreme Court precedent.

Respondent 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 (1998). The Court agreed. “[T]he 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 there is an ‘historical backdrop’ of relevant tribal sovereignty in this area, which was not present in Cotton Petroleum, this backdrop is not so strong as to completely tip the scales in the Tribe’s favor. Therefore, under the flexible preemption analysis applied in Bracker, Ramah, and Cotton Petroleum, we hold that the five state taxes are not preempted by federal law, even when considered in light of the purposes of the relevant legislation and the history of tribal sovereignty in the field.”

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