Court hears reservation tax case

By Sam Hananel, Associated Press Writer | Tuesday, October 04, 2005

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WASHINGTON - The Supreme Court on Monday heard arguments on the power of states to tax fuel sold on Indian reservations, a source of increasing conflict as more retailers thrive on tribal lands outside U.S. control.

At issue is whether Kansas can tax distributors who sell fuel to a gas station owned and operated by the Prairie Band Potawatomi tribe. Gamblers who drive to the tribe's casino 15 miles north of Topeka, Kan., often stop for gas at the reservation's "Nation Station."

The Denver-based 10th U.S. Circuit Court of Appeals ruled that the tax violated tribal sovereignty even though it was not directly imposed on the tribe.

A lawyer for the state argued Monday that Kansas is not trying to regulate tribal activity but is simply taxing non-Indian companies, based outside the reservation, that distribute fuel to tribal operators. All the tax money goes to maintaining state roads used by Kansas drivers on their way to the casino.

"The why, when and where of the tax is all off-reservation and non-Indian," Theodore Olson, the former U.S. solicitor general, argued on behalf of Kansas.

The tribe asserts that it collects its own taxes on the fuel to help maintain the reservation's road system, recognized as one of worst in the nation. Allowing the state to impose a fuel tax runs contrary to federal policy encouraging economic development on tribal lands, according to Ian Gershengorn, lawyer for the tribe.

Several justices questioned whether the tribe was simply making an economic complaint - that it could not impose its tax on top of the state tax and still sell gas at competitive prices. They pointed to the Kansas law, changed in 1995, which states the tax burden is on the distributor, not the tribe.

"Every upstream tax raises the price of goods and services," Justice Stephen Breyer said. "If that's the basis for saying it's an interference, then every tax is an interference."

The power of states to tax activity on Indian reservations has long been a source of conflict between states and Indian tribes. As more businesses move onto reservations, states have tried to stem the loss of revenue.

Thirteen other states that impose a motor fuel tax and have Indian reservations within their borders filed a friend-of-the-court brief, asserting the taxes are needed to fund highway construction and maintenance.

The Justice Department filed a friend-of-the-court brief siding with the Indian tribe. Deputy solicitor general Edwin Kneedler said the burden of the tax falls on the tribal gas station, regardless of how the Kansas fuel-tax statute is worded.

Chief Justice John Roberts, on the bench for the first time, asked Olson whether "some bright young lawyer" encouraged the Kansas legislature to change the fuel tax statute to make it more favorable for the state.

"It suggests we shouldn't give too much weight to that," Roberts said.

Olson said the legislature was entitled to deference. He warned that a ruling for the tribe would jeopardize the state's authority to tax other off-reservation vendors who provide services to Indian tribes.

The states supporting Kansas are Arizona, California, Connecticut, Idaho, Iowa, Massachusetts, Missouri, New Mexico, North Dakota, Oklahoma, South Dakota, Utah and Wyoming.

The case is Richards v. Prairie Band Potawatomi Nation, 04-631.