Mont. court strikes down state taxation

WEDNESDAY, JUNE 26, 2002

Montana cannot tax Indian-owned businesses located on reservations, the state Supreme Court ruled last week.

In a 6-1 decision, the court said state laws carry no weight in Indian Country. Writing for the majority, Justice Terry N. Trieweiler ruled that tribal sovereignty was at risk.

"The exercise of state jurisdiction over activities occurring entirely on Indian lands is an infringement on inherent tribal authority and is contrary to principles of self-government and tribal sovereignty," he wrote.

The decision immediately affects a farming operation on the Fort Peck Reservation. Chartered under tribal law, Flat Center Farms Inc. is owned by Kim Murray, a member of the Fort Peck Tribes, and his wife Denise Murray, a member of the Turtle Mountain Ojibwe Tribe of North Dakota.

But since the business also incorporated itself in Montana, the state Department of Revenue sent the Murrays a tax bill in 1996. Appeals through various review boards failed and the couple brought the dispute to court.

A lower court struck down the tax bill and sided with the Murrays. Revenue officials appealed, leading to yesterday's decision.

The state tried to draw a distinction between a corporation and an Indian. Indians, under state law, are exempt from taxes.

The court, however, rejected this argument. "The longstanding rule is that a state is without power to tax reservation lands and Indian income generated from on-reservation activities," wrote Trieweiler.

The state further argued that taxation was lawful because Denise Murray is not a member of the Assiniboine and Sioux tribes, which reside on the Fort Peck Reservation.

The court also rejected this view and said location was the important factor. "We therefore, conclude that situs of the activity is the primary factor in determining whether state taxation jurisdiction exists, not the status of the individual as enrolled or non-enrolled," Trieweiler stated.

Justice Jim Rice disagreed with the majority ruling. In a dissent, he said he would uphold the tax bill because the business should be treated as a corporation.

Justice James C. Nelson wrote a separate opinion agreeing with the outcome of the case. Joined by W. William Leaphart, he based his argument on a recent U.S. Supreme Court decision that struck down the Navajo Nation's tax on a non-Indian business.

"If a tribal sovereign may not tax a state corporation owned by non-Indians doing business on fee land within the reservation, I cannot by analogy see how the state can claim any greater authority to tax a state corporation owned 100% by Indians doing business on non-fee land entirely within the reservation," he wrote.

Justice Karla M. Gray drafted yet another opinion and said she supported the outcome of the case. But she disagreed with the majority's analysis and said if the business wasn't tribally chartered, she would have upheld the tax.

The Assiniboine and Sioux tribes filed a friend of the court brief in support of the business.

Get the Case:
Flat Center Farms, Inc. v State of Montana No. 00-358 (6/21)

Relevant Documents:
Court Briefs