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State-Tribal Relations

Case in Brief: Oklahoma Tax Commission v. Chickasaw Nation (1995)

Respondent Chickasaw Nation (Tribe) filed this action to stop Oklahoma from enforcing several state taxes against the Tribe and its members. Oklahoma was attempting to impose its motor fuels excise tax upon fuel sold by Chickasaw Nation retail stores on tribal trust land, and its income tax upon members of the Tribe who are employed by the Tribe but who reside in the state outside Indian country. The U.S. Supreme Court held that Oklahoma may not apply its motor fuels tax, as currently designed, to fuel sold by the Tribe in Indian country. Oklahoma could, however, tax the income of tribal members who work for the Tribe but reside in the state outside Indian country.

Q.        What was the case about?

A.        The Chickasaw Nation, a federally recognized Indian Tribe, commenced this civil action in the United States District Court for the Eastern District of Oklahoma to stop the state of Oklahoma from enforcing several state taxes against the Tribe and its members. The Tribe claimed that Oklahoma’s fuel tax is levied on retailers, not on distributors or consumers. Thus, in the absence of permission from Congress, the Tribe’s sovereignty prevented Oklahoma from collecting its tax for fuel supplied to, and sold by the Tribe at its convenience stores. In response, Oklahoma argued that Indian tribes and their members are not inevitably, but only “generally” immune from state taxation.

The Tribe also sought to block the state from taxing the income of tribal members who live in Oklahoma outside of Indian country but work for the Tribe on tribal lands.

Q.        What did the U.S. District Court say?

A.        The United States District Court for the Eastern District of Oklahoma ruled in favor of the state on the motor fuels tax question, and largely for the Tribe on the income tax issue.

Q.        What did the U.S. Court of Appeals say?

A.        The U.S. Court of Appeals for the Tenth Circuit ruled for the Tribe and its members on both issues, determining: 1) without congressional authorization, Oklahoma could not impose a motor fuels tax on fuel sold by the Tribe at its retail stores on tribal trust land; and 2) that the state could not tax the wages of tribal members employed by the Tribe, even if they reside outside Indian country.

Q.        What did the U.S. Supreme Court say?

A.        The U.S. Supreme Court held that Oklahoma may not apply its motor fuels tax, as currently designed, to fuel sold by the Tribe in Indian country. When Congress does not direct otherwise, a state’s excise tax is unenforceable if its legal incidence falls on a Tribe or its members for sales made within Indian country. The “legal incidence” test provides, from an administrative perspective, that if a state is unable to enforce a tax because the legal incidence of the tax falls on Indians or Indian tribes, the state generally is free to amend its law to shift the tax’s legal incidence.  Thus, if the legal incidence of an excise tax rests on a tribe or on tribal members for sales made inside Indian country, the tax cannot be enforced absent clear congressional authorization. However, if the legal incidence of the tax rests on non-Indians, no categorical bar prevents enforcement of the tax, despite the possibility that enforcement may pose an administrative burden for the tribe.

In this case, the state recognized and the Tribe agreed that Oklahoma could accomplish what it sought to do with the motor fuels taxes here by ‘declaring the tax to fall on the consumer and directing the Tribe to collect and remit the levy.”

Regarding Oklahoma’s income tax, the Court held that Oklahoma may tax the income, including wages from tribal employment, of all persons, Indian and non-Indian alike, residing in the state outside of Indian country. The Court expressly overruled the Court of Appeals on this point, stating “a jurisdiction, such as Oklahoma, may tax all the income of its residents, even income earned outside the taxing jurisdiction.” The Court denied the exception the Tribe attempted to carve out for its members who lived outside Indian country but earned their income within it. “The Tribe gains no support from the rule that Indians and Indian tribes are generally immune from state taxation, as this principle does not operate outside Indian country.”

The Tribe invoked the 1830 Treaty of Dancing Rabbit Creek to further state its income tax exception claim, but the Court found that even liberal construction of the Treaty applied only to persons and property within the [tribe’s] limits. The Court comprehended this Treaty language to provide for the Tribe’s sovereignty within Indian country, but not as conferring super-sovereign authority to interfere with the state’s sovereign right to tax income, from all sources, of those who chose to live within that state’s jurisdiction’s limits.

Q.        What does this ruling mean for other states and tribes?

A.        This case’s holding provides that a state can tax the income of a tribal member domiciled outside of Indian country even if the income is earned from employment with the tribe on the reservation.

Additionally, the Court directs that when a state attempts to levy a tax directly on Indian tribes or their members inside Indian country, the proper approach is not to weigh the relevant state and tribal interests. Rather, a more categorical approach should be employed: absent clear congressional authorization, a state is without power to tax reservation lands and reservation Indians. The initial and frequently dispositive question in Indian tax cases, therefore, is who bears the “legal incidence” of the tax? If it is a tribe or tribal members inside Indian country, the tax cannot be enforced absent federal legislation permitting otherwise. And a state unable to enforce its tax because the legal incidence falls on tribes or on Indians within Indian country, generally is free to amend its law to shift the tax’s legal incidence.

Case Citation:
Oklahoma Tax Commission v. Chickasaw Nation, 515 U.S. 450 (1995)

For More Information:
Contact Andrea Wilkins of NCSL's State-Tribal Relations Project at 303-856-1558 or State-Tribal Relations Program.

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