Pourier v. South Dakota Dept. of Revenue

658 N.W.2d 395

2003 SD 21

Loren POURIER, d/b/a Muddy Creek Oil and Gas, Inc., and Muddy Creek Oil and Gas, Inc., Plaintiffs and Appellants, v. SOUTH DAKOTA DEPARTMENT OF REVENUE, Defendant and Appellee.

No. 22221.

Supreme Court of South Dakota.

Argued November 19, 2002.

Decided February 26, 2003.

Rehearing Denied April 1, 2003.

Rehearing Granted April 2, 2003.

Vanya S. Hogen of Faegre & Benson, LLP, Minneapolis, MN, Frank Lawrence of Holland & Knight, LLP, Los Angeles, CA, for plaintiffs and appellants.

Lawrence E. Long, Attorney General, David D. Wiest, Assistant Attorney General, Pierre, SD, for defendant and appellee.

Mario Gonzalez, Pine Ridge, SD, Tracy A. Labin, Washington, DC, for Amicus Curiae, Oglala Sioux Tribe.

Appellant's Rehearing Denied April 1, 2003.

Appellee's Rehearing Granted April 2, 2003, Solely on Issue One.

SABERS, Justice.

[¶ 1.] Loren Pourier is an enrolled member of the Oglala Sioux Tribe and a resident of the Pine Ridge Indian Reservation in South Dakota. Muddy Creek Oil and Gas, Inc., (Muddy Creek) is a South Dakota corporation whose sole shareholder and president is Pourier. The corporation's principal place of business is Pine Ridge. Muddy Creek purchased gas in Nebraska and trucked it to Pine Ridge for resale to consumers including reservation residents. The South Dakota Department of Revenue (Department) imposed a state motor fuel tax on Muddy Creek and refused Muddy Creek's refund request without a hearing. Muddy Creek appealed to the circuit court. After oral arguments, the circuit court entered an order remanding the case back to the Department for a full consideration of Muddy Creek's claims. The Department accepted the proposed decision against Muddy Creek from the Hearing Examiner and Pourier appealed that decision to the circuit court. The court affirmed the Department's ruling and Pourier appeals. We reverse and remand.

FACTS

[¶ 2.] Muddy Creek is licensed by South Dakota as a fuel importer, exporter, marketer and distributor. It is also licensed by the Oglala Sioux Tribe to do business on the reservation, but does not hold a Federal Indian Trader license.

[¶ 3.] Muddy Creek purchases fuel at a terminal rack in Nebraska and trucks the fuel onto the reservation with its own tanker trucks. The corporation sells the fuel at its retail gas station on the reservation. It is apparently undisputed that approximately 90% of the purchasers are Indians who reside on the reservation.

[¶ 4.] South Dakota taxes motor fuel at in-state terminal racks and on importation. SDCL 10-47B-5 and 10-47B-6. Since Muddy Creek bought its motor fuel at an out-of-state terminal rack, it was taxed as an importer and was liable for the tax at the point of importation, regardless of use of the fuel once it entered the state.¹ Muddy Creek has paid the tax under protest since 1995. Pourier testified that he did not pass the tax through to his customers, but evidence at the administrative hearing led the circuit court to the finding that the tax was passed on to the consumers. Specifically, sales to the federal government are exempted from the state motor fuel tax. According to Muddy Creek's own accounts and returns, the government paid 22 cents less per gallon than the pump price. If Muddy Creek were not passing the tax on to the consumer, no such reduction from the pump price for the federal government would have been necessary.

[¶ 5.] Muddy Creek claims it is entitled to a refund of approximately $940,000.00 for taxes paid since July 1995. The claim is based on the assertion that the State is taxing an Indian on an Indian reservation without explicit congressional authorization. The circuit court held that the Hayden-Cartwright Act of 1936 provided the necessary authorization for the imposition of the motor fuel tax. Muddy Creek appeals raising the following issues:

1. Whether the Hayden-Cartwright Act expressly permits state taxation of motor fuel sales to tribal members by a Native American corporation operating on an Indian reservation.

2. Whether Muddy Creek bears the legal incidence of the fuel tax.

3. Whether the State's motor fuel taxation scheme deprived Muddy Creek of procedural due process.

4. Whether State statutes of limitation bar a challenge to an illegal tax in this case.

STANDARD OF REVIEW

[¶ 6.] SDCL 1-26-36 provides our standard of review for administrative appeals. The statute

requires us to give great weight to the findings and inferences made by the [agency] on factual questions. We examine agency findings in the same manner as the circuit court to decide whether they were clearly erroneous in light of all of the evidence. If after careful review of the entire record we are definitely and firmly convinced a mistake has been committed, only then will we reverse. Questions of law, of course, are fully reviewable.

Sopko v. C & R Transfer Co., Inc., 1998 SD 8, ¶ 6, 575 N.W.2d 225, 228 (internal citations omitted). Questions requiring application of a legal standard are reviewed de novo. Voeltz v. John Morrell & Co., 1997 SD 69, ¶ 9, 564 N.W.2d 315, 316.

[¶ 7.] 1. WHETHER THE HAYDEN-CARTWRIGHT ACT EXPRESSLY PERMITS STATE TAXATION OF MOTOR FUEL SALES TO TRIBAL MEMBERS BY A NATIVE AMERICAN CORPORATION OPERATING ON AN INDIAN RESERVATION.

[¶ 8.] A state has no power to tax tribes, Indian reservation lands, or tribal members residing on Indian reservations unless there has been a cession of jurisdiction or other federal statute permitting the tax. County of Yakima v. Confederated Tribes and Bands of the Yakima Indian Nation, 502 U.S. 251, 258, 112 S.Ct. 683, 688, 116 L.Ed.2d 687, 697 (1992) (quoting Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148, 93 S.Ct. 1267, 1270, 36 L.Ed.2d 114 (1973)). In order for the Court to find congressional authorization of such a tax, the Supreme Court has held that Congress must have "made its intention to do so unmistakably clear." Yakima,502 U.S. at 258,112 S.Ct. at 688,116 L.Ed.2d at 697-698 (quoting Montana v. Blackfeet Tribe, 471 U.S. 759, 765, 105 S.Ct. 2399, 2403, 85 L.Ed.2d 753 (1985)) (citation omitted). See also, Oklahoma Tax Com'n v. Sac and Fox Nation, 508 U.S. 114, 128, 113 S.Ct. 1985, 1993, 124 L.Ed.2d 30, 43 (1993) (stating, "[a]bsent explicit congressional direction to the contrary, we presume against a State's having the jurisdiction to tax within Indian country"). Furthermore, "[w]hen we are faced with ... two possible constructions [of a statute], our choice between them must be dictated by a principle deeply rooted in [the United States Supreme] Court's Indian jurisprudence: `[s]tatutes are to be construed liberally in favor of the Indians, with ambiguous provisions interpreted to their benefit.'" Yakima,502 U.S. at 269,112 S.Ct. at 693,116 L.Ed.2d at 704 (quoting, Blackfeet Tribe, 471 U.S. at 766,105 S.Ct. at 2403,85 L.Ed.2d at 753) (citation omitted). These presumptions and rules of construction form the necessary background to our consideration of any attempt by the State to assert taxation jurisdiction over Indians in Indian Country.

[¶ 9.] The statute upon which the Department of Revenue bases its claim of right to tax Muddy Creek is 4 U.S.C. § 104, otherwise known as the Hayden-Cartwright Act of 1936 (Act). Subsection (a) of the Act provides in part:

All taxes levied by any State ... upon, with respect to, or measured by, sales, purchases, storage, or use of gasoline or other motor vehicle fuels may be levied, in the same manner and to the same extent, with respect to such fuels when sold by or through post exchanges, ship service stores, commissaries, filling stations, licensed traders, and other similar agencies, located on United States military or other reservations, when such fuels are not for the exclusive use of the United States.

[¶ 10.] The Department contends that by use of the phrases "filling stations," "other reservations" and "licensed traders," Congress manifested the requisite intent to allow the State to tax Indian proprietors on the Indian reservation. We disagree. The language of the statute does not make Congress' intention to allow such taxation "unmistakably clear."²

[¶ 11.] In two cases, the United States Supreme Court has declined to address the issue of whether the Act applies to Indians on Indian reservations. See Oklahoma Tax Com'n v. Chickasaw Nation, 515 U.S. 450, 457, 115 S.Ct. 2214, 2219, 132 L.Ed.2d 400, 408 (1995) (declining to address the issue because it was not raised below); White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980) (holding that the Act did not overcome the preemptive effect of federal regulation of tribal timber and declining to reach the question of whether the Act applies to Indian reservations at all). However, this Court has addressed the issue of whether the Act applies to non-Indians operating on Indian reservations. In Matter of State Motor Fuel Tax Liability of A.G.E. Corporation, this Court stated,

[w]e are of the opinion that the United States has granted to the states the right to exercise limited jurisdiction in taxing the use or sale of gasoline or other motor vehicle fuel within federal areas in exactly the same manner as if those areas did not exist, except in cases where the gasoline is to be used exclusively by the United States. Jurisdiction was extended to the states by Section 10 of the Hayden-Cartwright Act and in Section 1 of the Buck Act.

273 N.W.2d 737, 739 (1978) (internal citations omitted).

[¶ 12.] In A.G.E., the Court faced the question whether a non-Indian contractor working on a reservation was subject to state taxation. The narrow holding was that the activities of a non-Indian on Indian land working pursuant to a federal contract were taxable. Id. That holding was based on a finding that the contractor did not fall within the federal instrumentality doctrine and that federal law did not preempt the tax. The Court was very clear that its analysis was based on the fact that the State was...