Court to Mull Indian Reservation Fuel Tax

The Supreme Court (search) said Monday it will consider whether states may tax motor fuel that is sold on Indian reservations.

Justices will review a case that sided with the Prairie Band Potawatomi (search) tribe in Kansas. At issue is whether states may tax non-Indian companies off-site that distribute fuel to tribal operators on reservations, with the expectation that the companies would then recoup their costs by collecting from tribal retailers.

Federal law bars the imposition of tax on tribal retailers without clear congressional authorization. As a result, the Denver-based 10th U.S. Circuit Court of Appeals ruled that the tax, while not directly imposed on tribes, violated tribal sovereignty (search) and created a barrier to interstate commerce.

"Although Kansas has a legitimate interest in raising revenue, this general interest is insufficient to justify the tax ... because it interferes with and is incompatible with strong tribal and federal interests against taxation," the court stated in imposing the ban.

Thirteen other states that impose a motor fuel tax and have Indian lands within their borders had urged the high court to hear the case. They argued that a restriction on their ability to tax uniformly throughout the state will inhibit their ability to fund highway construction and maintenance.

The states filing the friend of the court brief are Arizona, California, Connecticut, Idaho, Iowa, Massachusetts, Missouri, New Mexico, North Dakota, Oklahoma, South Dakota, Utah and Wyoming.

The Kansas tribe runs a casino and a convenience store and gas station.

"The state is not attempting to regulate any activity on tribal lands, is not attempting to exercise jurisdiction over the tribe or its members, and is not even requiring the tribes to collect and remit taxes to the state," Kansas lawyers said in the appeal.

The case is Richards v. Prairie Band Potawatomi Nation, 04-631. Arguments will be heard this fall, with a ruling by July 2006.