Appendix — Montana v. Crow Tribe of Indians
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87-3 48 fETE Ea
a |__ AUG 28 B67
In The " JOSEPH F. SPANIOL, JR,
Supreme Court of the United Slates &=™ —
October Term, 1987
ty)
STATE OF MONTANA; JOHN D. LaFAVER, Director,
Montana Department of Revenue; BIG HORN COUNTY,
Montana; TREASURE COUNTY, Montana; YELLOW-
STONE COUNTY, Montana; LORRAINE HAMILTON,
Treasurer, Big Horn County, Montana; KATHLEEN
THOMAS, Treasurer, Treasure County, Montana; and
MAY JENKINS, Treasurer, Yellowstone County,
Montana,
Appellants,
Vs.
CROW TRIBE OF INDIANS; UNITED STATES OF
AMERICA; and WESTMORELAND
RESOURCKES, INC., -
Appellees.
fy
ON APPEAL FROM THE
NINTH CIRCUIT COURT OF APPEALS
fa’
APPENDIX TO JURISDICTIONAL STATEMENT
ew |
Vv
MicHaeu T. Greeiy*
Attorney General of Montana
Cray R. Smita
Assistant Attorney General
State of Montana
Justice Building
215 North Sanders
Helena, MT 59620-1401
(406) 444-2026
Joun W. Ross
7 Special Assistant Attorney General
P.O. Box 849
Billings, MT 59103
(406) 248-2611
ATTORNEYS FOR THE APPELLANTS
*Counsel of Record
COCKLE LAW BRIEF PRINTING CO., (800) 225-6964
or call collect (402) 342-2831
INDEX TO JURISDICTIONAL STATEMENT
APPENDIX DOCUMENTS
Page
1. Opinion of Court of Appeals Filed June 11,1987 1a
District Court Findings of Fact and Conclusions
of Law Filed September 10, 1985 22a
District Court Order Directing Entry of Judg-
ment Filed September 10, 1988 ........ 75a
District Court Judgment Filed September 11,
1985 77a
5. Opinion of Court of Appeals Filed July 13, 1981.. 79a
6. Order Amending Court of Appeals’ July 13, 1981
Opinion Filed January 5, 1982 ......... 105a
Appellants’ Notice of Appeal Pursuant to 28
U.S.C. § 1254(2) Filed with Court of Appeals
I TRE sini csahdciansicclin pti ocectiensbeScleectiion 107a
Third Amended Complaint for Declaratory Judg- .
ment, Injunction, Restitution, Tax Refunds,
Monetary Damages, and Other Relief filed No-
vember 22, 1982 . 110a
Answer of Defendants to Third Amended Com-
plaint Filed December 20, 1982 126a
Article VI, clause 2, of the United States Consti-
Seta re Miter Gee eet ir Daa On 135a
. Act of April 27, 1904, 33 Stat. 352 136a
. Act of February 17, 1917, 39 Stat. 944 (codified
m 30 U.S.C. §§ 86-89) 158a
Act of June 4, 1920, 41 Stat. 751 (Sections 1 and
6) 161la
. Act of May 19, 1926, 44 Stat. 566 0. 164a
. Act of May 26, 1926, 44 Stat. 658 (Sections 1
Me ee ee 165a
ii
INDEX TO JURISDICTIONAL STATEMENT
APPENDIX DOCUMENTS—Continued
Page
16. Act of May 2, 1928, 44 Stat. 482 00 169a
17. Act of August 31, 1937, 50 Stat. 884 20 170a
18. Act of May 11, 1938, 52 Stat. 347 (codified as
amended in 25 U.S.C. §§ 396a-B96 2) oc ccccseecesenee 172a
19. Act of May 19, 1956, 72 Stat. 228 2 176a
20. Act of August 14, 1958, 72 Stat. 575 (relevant
portions of section 1 and sections 2-4) 200. 178a
21. Act of September 16, 1959, 73 Stat. 565 ww. 18la
22. Act of May 17, 1968, 82 Stat. 123 00 183a
23. Relevant Provisions of Title 25, Part 211 of the
1987 Code of Federal Regulations 220.0000 184a
24. Article IX, Section 5 of the Montana Constitution 205a
25. Montana Coal Gross Proceeds Tax (Mont. Code
Ann. §§ 15-23-701 to 704 (1985) ) secs 206a
26. Montana Coal Severance Tax (Mont. Code Ann.
$6 16-30-1013 to 2G .(1966)) 208a
27. 1987 Montana Laws, ch. 608 ccc csssssssssesesene 227a
28. 1987 Montana Laws, ch. 662 (Sections 1 and 15) 241a
29. Senate Report No. 985, 75th Cong., 1st Sess.
CRY ce 244a
30. Senate Report No. 1508, 85th Cong., 2d Sess.
CRIED wcssiciniities sciences eet tanga eae 249a
31. Statement of Edward P. Whiteman, Chairman of
32.
the Crow Indian Tribal Council in Support of
H. R. 8544, to restore to ownership 5,480.95 Acres
of Vacant and Undisposed-of Ceded Lands on
the Crow Indian Reservation (Trial Exhibit
D-328) Pe EERIE eM ner LMA NESE Ny 257a
1985 Memorandum of Understanding ~.0 259a
1. Opinion of Court of Appeals Filed June 11, 1987
FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
THE Crow Trise or Inp1ans;
Forest Horn, a member of the
Crow Tribe and Chairman of
Crow Tribal Council; Tep Hocan,
a member of the Crow Tribe and
Secretary of the Crow Tribal
Council; Jiccs YELLOwTalL, a
member of the Crow Tribe;
Barney Op Coyore, a member of
the Crow Tribe,
Plaintiff-A ppellant,
Unitep States or AMERICA,
Plaintiff-Intervenor,
v.
State oF Montana,
Defendant-A ppellee.
THe Crow TRIBE oF INDIANS,
Plaintiff-Appellant,
and
Unirep States or AMERICA,
Piaintiff-Intervenor-A ppellant,
v.
Tue State oF Montana,
Defendant-A ppellee,
and
WESTMORELAND; WESTMORELAND,
Westmoreland Resources, Inc.,
Defendant-Intervenor-A ppellee.
la
No. 86-3842
D.C. No.
CV-78-110-BLG
No. 86-3845
D.C. No.
CV-78-110-BLG
OPINION
24
Argued and Submitted
April 6, 1987—Seattle, Washington
Filed June 11, 1987
Before: James R. Browning, Eugene A. Wright, and
Cynthia Holeomb Hall, Circuit Judges.
Opinion by Judge Wright
Appeal from the United States District Court
for the District of Montana
James F. Battin, Chief District Judge, Presiding
COUNSEL
Clay R. Smith, Helena, Montana, and John W. Ross, Bill-
ings, Montana, for the defendant-appellee.
Gerald B. Murphy, Billings, Montana, and William A.
White, Philadelphia, Pennsylvania, for the appellees.
Daniel M. Rosenfeit, Albuquerque, New Mexico, for the
plaintiffs-appellants.
N. Jean Bearcrane, Billings, Montana, for the appellant.
Laura E. Frossard, Washington, D.C., for the plaintiff-
intervenor-appellant.
OPINION
WRIGHT, Circuit Judge:
This case, which comes before us a second time, pre-
sents two primary issues: (1) does federal action preempt
the application of Montana’s coal taxes to coal mined on
Indian tribal property; and (2) do these taxes infringe
unlawfully on the Crow Indians’ tribal sovereignty? \We
answer both questions in the affirmative and reverse the
judgment of the district court.
3a
PROCEDURAL HISTORY
This is an appeal by the Crow Tribe, with the United
States intervening on behalf of the Tribe, from a district
court judgment upholding the application of Montana
taxes on coal extracted from tribal land. The district court
abstained from deciding whether the taxes could be im-
posed on revenues from coal mined on the reservation
proper. It found that issue nonjusticiable.
The Crow Tribe brought action against Montana in
1978, joining three Montana counties and their treasurers.
That action sought declaratory and injunctive relief
against the imposition of the state’s severance and gross
proceeds taxes on coal mined from the reservation and
what has been referred to as the ‘‘ceded strip.’’
The district court dismissed that action for failure to
state a claim. Crow Tribe of Indians v. Montana, 469
F. Supp. 154 (D. Mont. 1979). This court reversed and
remanded. Crow Tribe of Indians v. Montana (Crow I),
650 F.2d 1104 (9th Cir. 1981), amended, 665 F.2d 1390
(1982). We indicated that if the Tribe could show that the
Montana taxes deprived it of ‘‘a large portion of the eco-
nomic benefits of its coal,’ Crow, I, 650 F.2d at 1113, or
‘‘diminish[ed] the Tribe’s own power to regulate,’’ id.
at 1114, these taxes would conflict with federal statutes
that were intended to allow Crow to regulate the de-
velopment of its natural resources. Our decision pro-
vided, however, that if Montana showed that these iaxes
were ‘‘carefully tailored to effectuate the state’s legiti-
mate interests, [they] might survive.’’ Id.
Upon remand, the district court upheld the applica-
tion of Montana taxes to coal extracted from the ‘‘ceded
4a
area’’ and abstained from deciding whether the taxes
could be imposed on revenue from coal mined on the
reservation proper.
FACTS
In 1904, Congress enacted legislation requiring the
Crow Tribe to cede to the United States its interests in
the surface area and underlying minerals of a portion of
its reservation (‘‘the ceded strip’’). Act of April 27, 1904,
Ch. 1624, 33 Stat. 352; Little Light v. Crist, 649 F.2d 682,
685, 689 (9th Cir. 1981). The United States was to hold
in trust for Indians the surface area and underlying
minerals rights to the ceded strip. The United States was
to sell the property and pay the proceeds to the Indians.
Id. Approximately 98% of the surface area of the ‘‘ceded
strip’? was conveyed to non-Indians.
The government conveyed ceded strip properties in
different forms: (1) rights to both the surface area and
underlying minerals and (2) rights to the surface area
only. A portion of the ceded strip was never conveyed,
leaving both the surface area and underlying mineral in-
terests in a trust held by the United States for the benefit
of the Crow Tribe.
In 1934, Congress enacted the Indian Reorganization
Act (IRA), 25 U.S.C. § 461 (1982), which returned to the
various tribes previously ceded lands and underlying min-
erals. The Act transferred ownership rights from the
United States back to the Indians. The tribes involved
could choose to accept or decline the arrangement. Crow
declined.
da
In 1958, Congress passed another Indian Restoration
Act, which required Indians to accept ownership of va-
cant lands ceded previously. It restored the previously
undisposed minerals to the full beneficial ownership of the
Crow Tribe. This terminated the United States’ right to
lease or sell these minerals for the Tribe. The parties
agree that the Tribe owns these minerals underlying the
ceded area, but whether they are now part of the Crow
reservation is disputed.
In 1972, the Tribe leased to Westmoreland Resources
the rights to mine coal underlying the ceded strip. The
surface area of the leased land had been sold to non-
Indians. Rights to the underlying minerals had not been
conveyed. Such leasing activity is governed by the Min-
eral Leasing Act of 1938, 25 U.S.C. $4 396(a)-(g) (1982),
and regulations promulgated thereunder.
In 1975, Montana imposed two taxes on all coal pro-
ducers. The first was a severance tax, ‘‘imposed on each
ton of coal produced in the state.’’ Mont. Code Ann. § 15-
35-103 (1985). The rate varies from three to 30% of the
coal’s value, depending on quality and whether the min-
ing is on the surface or underground.
The second tax is the gross proceeds tax, imposed on
each person engaged in coal mining. Mont. Code Ann.
§ 15-23-701. The rate is determined by applying the rele-
vant county’s property tax to the assessed value of the
coal producer’s gross yield from coal contract sales. The
amount varies by county and vear.
Between 1975 and 1982, Westmoreland paid $53,800,-
000 in severance taxes and $8,100,000 in gross proceeds
6a
taxes for its ceded strip mining operations. Westmoreland
has since paid $20,000,000 on these taxes to the district
court registry.
In 1976, the Tribe imposed its own severance tax of
25% for coal mined on the reservation. In 1982, it enacted
a similar tax for coal mined on the ceded strip. The De-
partment of Interior rejected the latter tax because the
Crow constitution disclaimed tribal jurisdiction over the
ceded strip. In 1982, Westmoreland agreed to pay the
tribal tax, but received credit for the coal taxes paid to
Montana. Hence, it has paid no severance tax to Crow.
Interior approved the application of Crow severance
taxes to coal produced on the reservation proper. In
1980, Shell Oil and Crow agreed to a lease contract for
mining coal on the reservation. It required Shell to pay
Crow an amount equal to the Montana coal taxes less
whatever was required to be paid to the state.
Shell never began to mine, being unwilling to begin
digging because it was unable to find a buyer for its coal.
It surrendered its rights to the mine in December 1985.
DISCUSSION
I. Preemption
The district court found that the minerals underlying
the ceded strip were technically outside the reservation
boundaries. It held that tribal activities conducted out-
side the reservation ‘‘present different considerations”’
than do activities conducted within. ‘‘ ‘Absent express
federal law to the contrary, Indians going beyond reser-
vation boundaries have generally been held subject to non-
discriminatory state law otherwise applicable to all citi-
7a
zens of the State.’’’ (Quoting Mescalero Apache Tribe v.
Jones, 411 U.S. 145, 148-49 (1973)). The district court
stated also that, in order for the taxes to be preempted,
there would have to exist federal legislation that ‘‘ez-
pressly bars .. . Montana . . . from imposing its coal
taxes.’’ It found no express federal prohibition against
the taxes and, therefore, held they were not preempted.
The court erred in these findings and in the conclu-
sions of law, which we review de novo. United States v.
McConney, 728 F.2d 1195 (9th Cir.) (en banc), cert. denied,
469 U.S. 824 (1984). The district court’s legal conclu-
sions deviate from this court’s 1981 opinion and misapply
recent Supreme Court cases that establish the relevant
preemption analysis. We found, contrary to the district
court, that the underlying minerals are a ‘‘component of
the reservation land itself.’’ Crow I, 650 F.2d at 1117.
This follows the plain meaning of the 1958 Act, which re-
stored to reservation status all lands returned to tribal
ownership under the Act.
Title to the lands restored to tribal ownership by this
Act shall be held by the United States in trust for the
respective tribe or tribes, and such lands are hereby
added to and made part of the existing reservations
for such tribe or tribes.
Act of May 19, 1958, 72 Stat. 121.’
IThe 1958 Act does not give the Tribe jurisdiction over the
surface of the ceded strip. The Act restored only the mineral
interests to tribal ownership. These interests were once part of
the reservation and remain adjacent to it.
8a
The law of the case as expressed in our previous opin-
ion has been ignored. We held in Crow I that, irrespective
of the location of the tribal coal on or off the reservation,
the Mineral Leasing Act of 1938, 25 U.S.C. §§ 461-479
(1982), applied to the Tribe’s coal leases. Crow I, 650
F.2d at 1114 n.16. re
The preemption analysis in Indian tribal cases differs
from that used in other circumstances. Crow I, 650 F:2d
at 1109 (citing White Mountain Apache Tribe v. Bracker,
448 U.S. 136, 140, 149 (1980)); see also Ramah Navajo
School Board v. Bureau of Revenue, 458 U.S. 832, 838
(1982). Congress attaches great significance to the ‘‘firm
federal policy of promoting tribal self-sufficiency and
economic development.’’ Crow I, 650 F.2d at 1109 (quot-
ing Bracker, 448 U.S. at 140); see also California v. Caba-
zon Band of Mission Indians, 107 S.Ct. 1083, 1092 (1987) ;
New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 334-
35 (1983). It intended that this policy be given ‘‘broad
preemptive effect.’? Crow I, 650 F.2d at 1109. Moreover,
‘‘(njo express congressional statement of preemptive in-
tent is required; it is enough that the state law conflicts
with the purpose or operation of a federai statute, regula-
tion, or policy.’’ Id. (emphasis added).
We have already indicated that the purpose of the
1938 Act was, inter alia, to revitalize tribal governments \
by giving them control over the lease of their lands sub-
_ject to the approval of the Secretary of Interior, and to
/ promote tribal economic development. Crow I, 650 F.2d
at 1112-13; see also Montana v. Blackfeet Tribe of Indians,
471 U.S. 759, 767 n.5 (1985) (a major purpose of the 1938
Act is ‘‘to ensure that Indians receive ‘the greatest return
y 9a
from their property’ ’’) (quoting S. Rep. No. 2, H.R. Rep.
No. 1872, 75th Cong., 3d Sess. 2 (1938) ).
If the Tribe demonstrates that the taxes imposed by
the state interfered with the policies underlying the 1938
Act, the taxes will be subject to preemption. Crow I, 650
F.2d at 1113; see also Cabazon, 107 S. Ct. at 1092.
A. Interference with Tribal Economic Interests
We review for clear error the district court’s finding
that the Montana taxes did not interfere with federal or
tribal court policies. Fed. R. Civ. P. 52(a); LaDuke v.
Nelson, 762 F.2d 1318, 1321 (9th Cir. 1985).
The district court did not find that the taxes inter-
fered with federal Indian law and policies. Rather, it
found that Westmoreland’s marketing problems were due’
to a decrease in coal demand from Montana’s traditional
coal buyers.
Montana argues that its taxes do not burden Crow’s
economic interests because the Tribe itself does not pay
the tax. In other words, the taxes were imposed on the
lessee, Westmoreland, and the Tribe had no duty to reim-
burse. So, says Montana, the Tribe’s economic interests
were not affected.
We have already rejected this argument. Crow I, 650
F.2d at 1113 n. 13. The state taxes increase the costs of
production by the coal producers, reducing in turn the
royalty that can be paid the Tribe. The taxes also forced
the coal producers to charge higher prices, reducing the
demand for their Montana coal and resulting in fewer
sales for the producers and fewer royalties to the Tribe.
10a
Montana argues that it may impose these taxes under
Washington v. Confederated Tribes of the Colville Indian
Reservation, 447 U.S. 134 (1980). Colville held that the
state could tax cigarettes purchased by non-Indians at
tribal smokeshops. Id. at 161. Principles of preemption
and tribal self-government do not authorize Indian tribes
to ‘‘market an exemption from state taxation to persons
who would normally do their business elsewhere.’’ Jd. at
155.
But the Court has distinguished Colville from cases
in which the Tribe was trying to market a product gen-
erated on the reseryation by activities in which the Tribe
had a strong interest. See Cabazon, 107 S. Ct. at 1093-94.
In Cabazon, the Court held that state regulation of In-
dian-run bingo games was preempted by federal action.
Id. at 1092-95. Unlike the tobacco sold in Colville, bingo
was not a product that the Indians imported for resale to
non-Indians. Jd. at 1093.
The Indians had invested considerable time and re-
sources into the enterprise. Jd. at 1094. The tribes there
were ‘‘generating value on the reservations through
activities in which they have a substantial interest.’’ Jd.
The Court in Cabazon explicitly noted that this was not
the case in Colville. The tribes were merely marketing
their exemption from state cigarette taxes. Id. at 1093.
Clearly, this case resembles Cabazon more than it
does Colville. The coal is the Tribe’s property, a natural
resource. Its lease brings revenue that represents value
generated by tribal activities and in which the Tribe has
a substantial interest. Colville does not apply.
Pe
lla
We should consider the economic aspects and the
practical effects of Montana’s severance and gross pro-
ceeds taxes.”
The Tribe cites a study prepared by an economic re-
search firm, referred to as the NERA report. It showed
that the Montana coal tax forced coal producers to raise
coal prices. That resulted in reduced demand for Mon-
tana coal. Montana’s customers stopped buying from
Montana producers and went to Wyoming and other states
that have lower coal taxes. The report says that in 1975,
before the taxes were imposed, Montana accounted for
40.6% of the Northern Great Plains coal output. Wyom-
ing produced 43.8%. In each subsequent year, Montana
has lost, while Wyoming has gained, in the percentage of
this region’s coal production. By 1982, Montana pro-
duced 18.2%, and Wyoming 69.5%, of the region’s coal
output.
Production by the coal producers on Crow tribal
properties fell from 7.4 to 2.78% during that time. The
NERA report concluded that the taxes prevented Crow
coal from competing with that of Wyoming and resulted
in far less Crow coal production than would have other-
wise occurred.
Montana counters that the NERA report is unreliable.
It refers to testimony that the report was ‘‘grounded on
2Figures submitted by the Crow Tribe tell us that the Mon-
tana taxes totalled an effective rate of 32.9°/o, more than twice
that of any other state’s coal taxes. Montana counters that the
effective rate is 21-22°/o. It appears that experts for the parties
reached different results because they used different methods
of calculating the effective tax rates.
12a
a supply {and] demand theory which failed to consider
adequately the myriad of factors influencing a [buyer’s]
determination to use certain coal.’’ Montana’s expert ac-
counted for the differences in production by noting Wy-
oming coal’s lower sulfur content, and the increased pop-
ulation in Wyoming’s traditional buyer markets. Further,
says Montana, the taxes when factored into total coal
sales constituted only one to three percent of the price.
Montana places some emphasis also on the cost of coal
transportation and says that, for distances of more than
1,100 miles, it costs less to ship Wyoming coal than it does
Montana coal. This had a far greater impact on price than
did the taxes, Montana argues.
From all of this, one must conclude that the taxes im-
posed are the components that differ most clearly between
Montana and Wyoming. The timing of the loss in coal pro-
duction in Montana and the losses sustained by the Crow
Tribe correspond exactly with the imposition of taxes. The
district court erred in relving on transportation costs. Coal
production form areas in Montana just across the Wyoming
border decreased after the taxes were imposed, while the
Wyoming production experienced a large increase.
Montana has failed to rebut evidence that the taxes had
at least some negative impact on the coal’s marketability.
The district court did not find the impact of taxes to be
neglible. As long as the taxes ‘‘interfere[] or [are] in-
compatible with federal and tribal interests reflected in
federal law,’’ they are deemed preempted ‘‘unless the state
interests at stake are sufficient to justify the assertion of
state authority.’’ Cabazon, 107 S. Ct. at 1092 (quoting
Mescalero, 462 U.S. at 333-34). Any finding of interference,
then, would be enough to subject the state taxes to pre-
l3a
emption. This record shows interference. The district
court erred in failing to so find.
B. Legitimacy of State Interests
If the state coal taxes conflict and interfere with fed-
eral or tribal objectives, we must review the legitimacy of
the state’s interests, and the relationships of the taxes to
achieving those interests. Crow I, 650 F.2d at 1113-14;
see also Bracker, 448 U.S. at 148-49 (to justify its assess-
ment of taxes, state must identify a regulatory function or
a service it performs).
We have identified interests that we thought might
justify these taxes: (a) the additional government services
required by miners and others involved in coal production;
and (b) the costs of treating the pollution and solid waste
disposal that attend coal production. Crow I, 650 F.2d at
1114.
The district court found that Montana and its political
subdivisions provided numerous services to the ceded strip.
It held that the costs of these services could not be docu-
mented precisely and were unquantifiable. The court said
that many of coal mining’s effects were unknown: ‘‘[fJor
example, reclamation is not yet complete and its degree of
success is uncertain.’’ The court said that some of coal
mining’s effects could be identified if not precisely quanti-
fied, e.g., air and water pollution, soil and plant damage,
harmed wildlife, and road wear. It noted also the socioeco-
nomic effects of the Westmoreland mine, particularly the
disruption in the lives of those living on the ceded strip.
The court observed that the burden of providing services
l4a
had fallen upon state and local governments, not upon the
Tribe. |
These findings are correct, says Montana. It cites ex-
pert testimony that the appellant’s NERA report failed
to consider environmental and other long term conse-
quences of coal development. Montana contends that it
is not necessary to account for the economic and social
factors in setting its tax rate.
The state cites The Commonwealth Edison Co. v. Mon-
tana, 453 U.S. 609 (1981), which on its face seems to apply.
But there the issue was whether a state’s coal severence
tax violated the Commerce or Due Process Clauses because
the amount of tax revenues was not ‘‘fairly related’’ to the
government services required by coal mining. Id. at 620.
That analysis differs from the one used to determine
whether state actions affecting Indians are preempted by
existing federal policy. In denying Montana’s petition for
rehearing in the previous appeal, we rejected expressly
Commonwealth Edison. Crow Tribe v. Montana, 665 F.2d
1390, 1391 (9th Cir. 1982) (amending Crow I).
We held that the preemption analysis requires a court
to consider the state’s legitimate interests. Ultimately the
question is one of reviewing the state, federal, and tribal
interests involved and whether, in this context, the state
action is contrary to federal action.
In Cabazon, the Supreme Court stated that ‘‘the fed-
eral tradition of Indian immunity from state taxation is
very strong and... the state interest in taxation is corres-
pondingly weak. Accordingly, it is unnecessary to rebal-
ance these interests in every case.’’ 107 S. Ct. at 1091 n.17
q
:
i:
;
lda
(emphasis added). The Supreme Court has increased the
presump‘ion against finding legitimate state interests.
Hence, even if we agree with the district court that Mon-
tana taxes support legitimate interests, the interests de-
seribed in Crow I, and argued by Montana, may no longer
be sufficient.
The Court found in Cabazon that:
[t]he tribal [bingo] games at present provide the sole
source of revenues for the operation of the tribal
governments and the provision of tribal services. They
are also the major sources of employment on the reser-
vations. Self-determination and economic development
are not within reach if the Tribes cannot raise revenues
and provide employment for their members. The
Tribes’ interests obviously parallel the federal in-
terests.
Id. at 1093.
The same may be said here. Coal production is vital
to the economic development of the Crow Tribe. Like the
bingo games, Crow’s coal leases ‘‘generate funds for es-
sential Tribal service and provide employment for Tribal
members.’’ Id. at 1094.
Given the significance Cabazon attaches to these fed-
eral and tribal interests, Montana faces a heavy burden in
overcoming these with a showing of legitimate state in-
terests. Even if Montana’s interests are sufficiently legiti-
mate, there is substantial evidence that the coal taxes are
not narrowly tailored to support them.
C. Relationship Between Taxes and State Interests
The district court was unable to quantify or forecast
the current or future costs resulting from coal develop-
l6a
ment. It ignored hard evidence. The NERA report con-
cluded that from 1970 to 1982, population growth associated
with coal mining resulted in $38 million of government
costs. But for that period, state, local, and excise taxes,
other than the coal taxes, provided state and local govern-
ments with $42 million.
There may be additional costs associated with treating
the environmental consequences of coal production, but the
state failed to provide a specific figure. Instead it would
charge a heavy tax for indeterminable future costs, im-
posing on the Tribe the burden of the doubt.
It appears further that many of these environmental
concerns have been addressed already by federal and state
regulations. Montana’s environmental interests are pro-
tected by the Surface Mining Control and Reclamation Act
of 1977, 30 U.S.C. § 1201, et seq. (1982), which imposes
surface mine bonding and reclamation fee requirements.
Id. at §§ 1258, 1269. EPA and state programs carefully
regulate point source discharge from the mines.
The district court found that state taxes were narrow-
ly tailored to achieve legitimate interests. This is under-
mined by Montana’s use of these tax revenues. The
severance tax statute requires that 50% of the revenues
be allocated to a permanent trust fund and, according to
the NERA report, 19 to 30% to the state general fund.
Mont. Code Ann. § 15-35-108 (1985). These two funds are
not dedicated to environmental or coal-related services.
The three coal-related funds established by the severance
tax statute were to be initially allocated 31% of the sever-
ance tax revenues. As of 1981, they received only 8.75%.
This indicates a distant, rather than carefully tailored, re-
17a
lationship between the severance tax revenues and the
coal-related services.
It appears that Montana intended, at least to some ex-
tent, to use the taxes to profit from the Indians’ valuable
coal resources:
[t]he Montana legislature predicated its tax upon a
finding that strip coal ‘is in sufficient demand that at
least one-third of the price it commands at the mine
may go to the economic rents of royalties and pro-
duction taxes.’ ... Mont. Code Ann. § 15-35-101(1)
(e). By setting the severance tax rate at 30 percent
of value, Montana made plain its intention to appro-
priate most of the economic rent.
Crow I, 650 F.2d at 1113. We stated that the Tribe’s coal
‘*is not the state’s to regulate. ... it has no such legitimate
interest in appropriating Indian mineral wealth.’’ Id. at
1114.
Accordingly, even if we assume Montana’s interests
were legitimate, the district court clearly erred in finding
that the taxes were narrowly tailored to achieve them.
Montana coal taxes are preempted.
II. Tribal Sovereignty
The district court concluded as a matter of law that
the Montana taxes do not infringe on tribal sovereignty.
It reasoned that the application of the state’s coal taxes
to tribal coal mined in the ceded area did not infringe upon
tribal self-government because the coal lay outside the
reservation. It erred in this conclusion because the min-
erals underlying the ceded area are owned by the Tribe and
are considered part of the Crow Reservation. See Crow I,
650 F.2d at 1117.
18a
The self-government doctrine differs from the pre-
eniption analysis and is an independent barrier to state
regulation. Bracker, 448 U.S. at 142-43; Crow I, 650 F.2d
at 1110. Either is a sufficient basis to hold the state tax
inapplicable to tribal coal. Bracker, 448 U.S. at 143.
Whether the state taxes infringe on tribal sovereignty
depends on whether tribal self-government is affected.
Crow I, 650 F.2d at 1116. The power to tax members and
non-Indians alike is an essential attribute of self-govern-
ment. Kerr-McGee Corp. v. Navajo Tribe of Indians, 471
U.S. 195, 201 (1985). Any assertion of state authority over
tribal interests must be assessed against the traditional no-
tions of Indian sovereignty. Mescalero, 462 U.S. at 334.
State action may not infringe unlawfully ‘‘on the right of
reservation Indians to make their own laws and be ruled
by them.’’ Bracker, 448 U.S. at 142 (quoting Williams v.
Lee, 358 U.S. 217, 220 (1959)).
Tribal sovereignty contains a significant geographical
component, and tribes have the power to manage the use
of their territory and resources by both members and non-
members. Mescalero, 462 U.S. at 335; Bracker, 448 U.S. at
151. Taxing Indian reservation lands or Indian income
from activities carried on within the boundaries of the
reservation is not permissible absent congressional consent.
Cabazon, 107 S. Ct. at 1091 n.17 (citing McClanahan v.
Arizona State Tax Comm’n, 411 U.S. 164 (1973)).
While the federal tradition of Indian immunity from °
state taxation is very strong, see id., this court has recog-
nized that a state tax is not invalid merely because it de-
prives the Tribe of revenues used to sustain itself and its
programs. Crow I, 650 F.2d at 1116. The principle of
Walia renin
19a
tribal self-government is to seek ‘‘an accomodation between
the interests of the Tribes and the Federal Government, on
the one hand, and those of the State, on the other.’’ Col-
vile, 447 U.S. at 156.
Montana taxes mineral resources that are ‘‘a compo-
nent of the reservation land itself.’’ Crow I, 650 F.2d at
1117. Tue tax revenue from coal production could generate
funds for tribal services and provide employment for
tribal members. Mescalero, 462 U.S. at 341. By taking
revenue that would otherwise go towards supporting the
Tribe and its programs, and by limiting the Tribe’s ability
to regulate the development of its coal resources, the state
tax threatens Congress’ overriding objective of encour-
aging tribal self-government and economic development.
See Mescalero, 462 U.S. at 341; Bracker, 448 U.S. at 149.
While some interference with the Tribe’s economic de-
velopment may be justified if the state’s interests ‘n im-
posing the taxes are legitimate, Crow I, 650 F.2d a‘; 1113;
Colville, 447 U.S. at 163, the State has not shown ‘hat its
taxes are narrowly tailored to meet these interests. We
conclude that the Montana tax is invalid because ic erodes
the Tribe’s sovereign authority.
III. Coal Within Ré@servation Boundaries
The district court declined to rule whether the taxes
applied to coal mined within the external boundaries of the
reservation. Although Shell Oil Company had an agree-
ment with the Tribe to mine this coal, it never did so. Be-
cause of that, the district court found there was no sub-
stantial controversy with this issue.
We disagree. The Tribe need not wait for mining to
commence to challenge the taxes’ application to coal mined
20a
within the Reservation boundaries. See Babbitt v. United
Farm Workers Nat’l Union, 442 U.S. 289, 298 (1979) (it is
not necessary to await the consummation of a threatened
injury to obtain preventive relief); State of Arizona v.
Atchison, Topeka & Santa Fe R.R. Co., 656 F.2d 398, 402-03
(9th Cir. 1981) (court may enter declaratory judgment as
to validity of tax even though action is commenced prior to
the effective date of the tax scheme).
The taxes are already in effect and Montana intends
to apply them to this coal. These high taxes affect tribal
revenues by interfering with the Tribe’s coal leasing ef-
forts. Because of the taxes, the lessee cannot find a buyer,
making it diffieult for Crow to find a lessee.
These taxes burden the Tribe’s interests in coal within
the Reservation boundaries, just as they do its interests in
coal from the ceded strip, as these interests are the same
The reasons for disallowing these taxes on coal from the
ceded strip apply with equal force to the coal within the
Reservation boundaires.
CONCLUSION
Montana’s coal taxes are preempted by federal law and
policies. They interfere with tribal economic development
and autonomy. The state interests they promote may or
may not be sufficiently legitimate to overcome these con-
flicts, but even if they are, the taxes are not narrowly
tailored in pursuit of these interests.
In addition, the taxes are void for interfering with
tribal self-government, a separate and independent barrier
to state regulation of Indian affairs. The mineral estate
of the ceded strip is legally part of the Crow reservation,
2la
and taxing Indian income derived from activities conducted
on reservation property is prohibited without congressional
consent. Here, Congress did not consent. Montana’s in-
terests in imposing the coal taxes do not overcome the
tribe’s economic and governmental interests in coa! pro-
duction.
Finally, because taxes on coal mined on the ceded strip
are invalid, taxes on coal from the reservation proper are
likewise invalid. The district court erred in holding this
question non-justiciable. The taxes impair the tribe’s
ability to negotiate leases with Shell Oil and other coal
companies. They also reduce tribal revenues by impairing
the coal’s marketability.
REVERSED.
22a
2. District Court Findings of Fact and Conclusions of
Law Filed September 10, 1985
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
THE CROW TRIBE OF INDIANS,
et al., .
Plaintiffs,
CV178-110-BLG
-VS-
UNITED STATES OF AMERICA,
et al.,
Plaintiff-Intervenor,
)
)
)
)
)
)
)
)
)
)
)
)
-Vs- )
) FINDINGS
STATE OF MONTANA: ELLEN ) OF FACT AND
FEAVER, Director, Montana ) CONCLUSIONS
Department of Revenue; BIG HORN ) OF LAW
COUNTY, Montana; YELLOW- )
STONE COUNTY, Montana; )
TREASURE COUNTY, Montana; )
LORRAINE HAMILTON, Treasurer, )
Big Horn County, Montana; MAY _)
JENKINS, Treasurer, Yellowstone )
County, Montana, CLARIBEL )
BONINE, Treasurer, Treasure )
County, Montana, )
)
)
)
)
)
)
)
Defendants.
WESTMORELAND RESOURCES
ING,,
?
Defendant-Intervenor.
Ee eS et tee nee
a a i ain
23a
Plaintiff, the Crow Tribe of Indians, has filed this
civil action challenging the validity of the Montana Coal
Severance Tax and the Montana Gross Proceeds from Coal
Tax insofar as these taxes are applied to coal produced on
the Tribe’s reservation and to coal produced on a ceded
strip of land situated adjacent to the reservation. The
Tribe seeks injunctive, declaratory, restitutionary, tax and
money refunds, money damages, and other relief. Although
this Court and the Court of Appeals considered the tax
with respect to mining on both locations on a motion to
dismiss, the evidence at trial led this Court to conclude
that there is no case or controversy with respect to coal
mined on the reservation. See infra Conclusion of Law II.
The following findings, therefore, focus on coal mined on
the ceded strip.
This matter came on for trial before the Court, sitting
without a jury, on January 9, 1984. The plaintiff was rep-
resented by counsel Robert S. Peleyger and Dale T. White
of Boulder, Colorado. Defendants were represented by
counsel Jerome Anderson and John W. Ross of Billings,
Montana, Assistant Attorney General Chris D. Tweeten
of Helena, Montana, Treasure County Attorney James R.
Carlson, Jr., of Hysham, Montana, Big Horn County At-
torney James E. Seykora of Hardin, Montana, and Yellow-
stone County David W. Hoefer of Billings, Montana. De-
fendant-intervenor Westmoreland Resources, Inc., was rep-
resented by Gerald B. Murphy of Billings, Montana, and
Daniel H. Israel of Denver, Colorado. The plaintiff-inter-
venor United States was represented by Department of
Justice attorney Stephen E. Carroll. From the testimony
and evidence submitted by the parties and the briefs and
v* of 24a a
arguments of counsel, the Court now makes the following
Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
Parties
1. The plaintiff, Crow Tribe of Indians, is an Ameri-
ean Indian tribe, with the governing body, the Crow
Tribal Council, duly recognized by the United States Sec-
retary of the Interior as the governing body of the Crow
Indian Reservation.
2. The defendant State of Montana is a sovereign
state of the Union, pursuant to the Enabling Act of Feb-
ruary 22, 1889, 22 Stat. 676. Defendants Big Horn County,
Yellowstone County, and Treasure County are political sub-
divisions of the State of Montana. Defendant Hamilton is
Treasurer of Big Horn County; defendant Jenkins is
Treasurer of Yellowstone County; defendant Bonine was
Treasurer of Treasure County.
3. Defendant-Intervenor Westmoreland Resources,
Ine., is a Deleware corporation having its principal place
of business at Billings, Montana.
Cedéed Strip—Creation and Description
4. The Crow Reservation was first set apart by the
Treaty of Fort Laramie, 11 Stat. 749 (1851), and encom-
passed 38.5 million acres in what is now southern Montana
and northern Wyoming. The second Treaty of Fort Lara-
mie, entered into in 1868, 15 Stat. 649, reduced the Crow
Reservation to 8 million acres situated entirely within what
is now the State of Montana. The 1868 treaty set apart
the reservation for the absolute and undisturbed use and
25a
occupation of the Crow Tribe. Montana v. United States,
450 U.S. 544, 547-48 (1981).
5. The 1868 treaty was followed by three major ces-
sions of territory by the Crow Tribe: the Act of April 11,
1882, 22 Stat. 157, the Act of March 3, 1981, 29 Stat. 981,
and the Act of April 27, 1904, 33 Stat. 352. The third, 1904,
cession reduced the Crow Reservation to its present bound-
aries and created the ‘‘ceded strip,’’ an area consisting of
about 1,137,500 acres which lies to the north of the acknowl-
edged reservation.
6. Large deposits of coal underly both the Crow
Reservation proper and the ceded strip.
7. Most of the surface in the ceded strip is owned
in fee by non-Indians.
8. The ceded area has a population of approximately
4600. Approximately 1% of the population is Indian.
9. The ceded area has been developed by non-Indians
pursuant to state and county governmental law and regu-
lation.
10. Land use within the ceded strip is primarily range
land, irrigated cropland, hay land, pasture, forest cover,
and non-irrigated cropland. Rural residential housing is
located throughout the ceded strip.
11. The ceded strip includes one incorporated mu-
nicipality, numerous unincorporated communities, a va-
riety of special districts, and public school districts which
are governed by state law.
12. The ceded area is not a legally constituted politi-
cal subdivision of the State of Montana, but it lies within
26a
the boundaries of Big Horn, Treasure, and Yellowstone
Counties. It does not conform to any political or admini-
strative boundaries for which any economic or demographic
data are normally collected. It receives full governmental
representation in accordance with state law. This ceded
area is located in the Thirteenth and Sixteenth Judicial
Districts of the District Courts in the State of Montana.
Ownership of Coal Underlying the Ceded Strip
13. In 1904, the Crow Tribe ceded ‘‘all right, title,
and interest’’ in the area presently referred to as the
ceded strip. Act of April 27, 1904, 33 Stat. 352. The United
States agreed to act as trustee for the Tribe, to dispose
of the ceded lands under the various reclamation, home-
stead, and mineral laws, and to pay the Indians the pro-
ceeds of the sales. See 33 Stat at 361. The Indians re-
leased their possessory right to the ceded strip lands but
retained a beneficil [sic] interest in the undisposed-of ced-
ed lands. See Ash Sheep Co. v. United States, 259 U.S. 159
(1920).
14. In accordance with the 1904 Cession Act, lands
within the ceded strip were disposed of by the United
States. Under §5 of the Act, the State of Montana re-
ceived sections 16 and 36 for the support of common
schools. 33 Stat. at 360. Some allotments to individual
Indians were made under § 4. 33 Stat. at 358-59. The re-
maining lands in the ceded strip were opened to homestead
entries. Under §5, lands were offered for settlement for
the price of $4 per acre. The lands that could not be sold
for this price were to be offered for sale at a lesser price
under such presidential proclamations as were deemed
Dit sran jtalann x
27a
necessary. Further dispositions were made under a num-
ber of presidential proclamations. See May 24, 1906, 24
Stat. 3200; September 9, 1910, 36 Stat. 2742; August 9,
1912, 37 Stat. 1759; September 28, 1914, 38 Stat. 2029; and
April 6, 1917, 40 Stat. 1653.
15. Under the 1904 Act and these various proclama-
tions, a considerable amount of both surface land and
mineral estate was conveyed to non-Indians. A few thou-
sand acres of surface lands were never conveyed. The
patents issued to non-Indians for approximately 70,000
acres of coal lands expressly excluded rights to the under-
lying minerals in favor of the United States.
16. In 1934, Congress enacted the Indian Reorgani-
zation Act (IRA). 25 U.S.C. $461 et seq. Under §3 of
the IRA, 25 U.S.C. § 463(a), the Secretary of the Interior
was authorized to restore to tribal ownership ‘‘the re-
maining surplus lands of any Indian reservation opened
before June 18, 1934... .”’
17. Three months after the IRA’s enactment, in
September 1934, the Secretary temporarily withdrew the
surplus or open Indian lands that the United States had
been authorized to sell as trustee or broker for Indian
tribes. 54 I.D. 559 (1934). This Secretarial Order express-
ly withdrew the previously undisposed-of surface lands
and minerals in the Crow ceded area. Id. at 561-63.
18. The Secretarial Order terminated, at least tem-
porarily, leasing by the federal government of the previous-
ly undisposed-of minerals within the ceded area pursuant
to the mineral leasing laws governing public lands. In due
course, the surplus or ceded lands, including previously
28a
undisposed-of mineral interests, of tribes that elected to
accept the IRA were restored to tribal ownership. See.
e.g., 59 I.D. 393 (1947); 60 I.D. 174 (1948).
19. The Crow Tribe elected not to accept the pro-
visions of the IRA. See 25 U.S.C. § 478. Consequently,
these surplus or ceded lands were not restored to tribal
ownership under 25 U.S.C. § 463.
20. The Act of May 19, 1958, Pub. L. No. 85-420, 72
Stat. 121, provided
[t}]hat all lands now or hereafter classified as vacant
and undisposed-of ceded lands (including townsite
lots) on the following named Indian reservations are
hereby restored to tribal ownership subject to valid
existing rights: ... Crow, Montana—10,260.95 [acres]
... Provided, That such restoration shall not apply to
any lands while they are within reclamation projects
heretofore authorized.
See. 2. Title to the lands restored to tribal ownership
by this Act shall be held by the United States in trust
for the respective tribe or tribes, and such lands are
hereby added to and made a part of the existing reser-
vations for such tribe or tribes.
Sec. 3. The lands restored to tribal ownership by this
Act may be sold or exchanged by the tribe, with the
approval of the Secretary of the Interior.
21. The two major purposes of the 1958 Act, as re-
vealed by its legislative history, were to treat non-IRA
tribes in a similar manner as IRA tribes with respect to
ceded or surplus lands and to restore to tribal ownership
all the surface lands and mineral interests that were with-
drawn from entry by the Secretarial Order (54 I.D. 559
(1934)). S.Rep. No. 1508 (85th Cong., 2d Sess. 1-2, 2-3
29a
(1958) ; H.Rep. No. 1336, 85th Cong., 2d Sess. 1-2 (1958)).
Both committee reports state:
This legislation, if enacted, will restore the lands [tem-
porarily withdrawn by, inter alia, the September 1934
Order] to tribal ownership, thus terminating the right
of the Federal Government to dispose of them under
the cession statutes, and will assure the Indians the
continued use rights.
Id. The reports expressly refer to the Secretarial Order
which withdrew the previously undisposed-of ceded surface
lands and mineral interests.
22. If the ceded strip minerals in which the Crow
Tribe retains a beneficial interest were not restored to full
tribal ownership by the 1958 Act, the Crow Tribe would not
receive the same treatment as the tribes whose lands and
minerals were restored under §3 of the IRA, 25 U.S.C.
§ 463. See 60 I.D. 174 (1948) ; 59 I.D. 393 (1947). Similarly,
excluding the Tribe’s ceded strip minerals from the cover-
age of the 1958 Act would conflict with that Act’s express
purpose of fully restoring to tribal ownership all of the sur-
face lands and minerals that had been temporarily with-
drawn in September 1934.
23. No significance can be attached to the use of the
term ‘‘vacant and undisposed-of ceded lands’’ in the 1958
Act instead of the ‘‘surplus lands’’ language from $3 of
the IRA. See 25 U.S.C. § 463. The legislative history dis-
closes why different language was used in these similar
Acts.
24. S. 1757, the bill introduced by Senators Murray
and Mansfield, and H.R. 3490 and H.R. 6160, predecessor
bills introduced by Representative Metcalf, had used tne
30a
phrase ‘‘surplus ceded lands of the class mentioned in the
Indian Reorganization Act of June 18, 1934, Section 3 (48
Stat. 984; 25 U.S.C. § 463)’’ in §1 of the bills to describe
the lands that would be restored to tribal ownership. In its
comments on these bills, the Interior Department recom-
mended that the lands be described instead ‘‘as vacant and
undisposed of ceded lands’’ in order to ‘‘avoid the neces-
sity for a cross reference’’ to the IRA. The Interior De-
partment’s report expressly stated that the recommended
change ‘‘relate([d] to matters of form and do[es] not affect
the substance of the bill.’’ S.Rep. No. 1508, at 3; H.Rep.
No. 1336, at 3.
25. The 1958 Act was intended to, and did in fact,
fully restore the previously undisposed-of minerals in the
Crow ceded strip to the full beneficial ownership of the
Crow Tribe. The right and power of the United States to
lease or sell those minerals was terminated. This Court ex-
pressly so held in Redding v. Morton, CV-74-12-BLG@ (D.
Mont. 1974):
In 1958, Congress restored to the Crow Tribe all of the
undisposed of lands in the ceded area. 72 Stat. 121
(1958). The Interior Department has interpreted this
series of enactments and case law to mean that the
Crow Tribe owns all of the coal underlying the surface
within the ceded area. Consequently, it must be con-
cluded that the Crow Tribe was never divested of its
title to coal which was not conveyed when the United
States disposed of the surface land.
Id., Slip Op. at 8. The Court of Appeals did not reach the
ierits of the title question in the appeal of the Reddiny
case. Cady v. Morton, 527 F.2d 786, 791, 798 (9th Cir.
(1975).
3la
26. The Act of August 14, 1958, 72 Stat. 575, amended
the 1958 Act by authorizing the purchase by the federal
government of the Tribe’s right to some 4900 acres within
the ceded area included within the Huntley Reclamation
Project. The effect of the August 1958 Act was to reduce
the surface lands restored under the May 1958 Act to ap-
proximately 5366 acres. S.Rep. No. 1508, at 4-5. A pro-
vision in the August 1958 Act evidences Congress’ intent to
restore minerals in the ceded strip to the Crow Tribe. §1 of
the August 1958 Act provides for the Tribe’s retention of
the minerals underlying these 4900 acres, and § 2 of that
Act, 72 Stat. at 582, states ‘‘that the minerals reserved for
the benefit of the Crow Tribe pursuant to Section 1 hereof
shall be leased or otherwise disposed of under the laws and
regulations relating to Indian trust lands.’’
27. The Department of the Interior has consistently
treated the undisposed-of lands and minerals in the ceded
area as being held in trust for the Crow Tribe. In a cir-
cular issued to explain the application of the Act of Febru-
ary 27, 1917, 39 Stat. 944, one of the Acts which permitted
entry of the surface estate and reservation of the mineral
estate, the General Land Office recognized that the Tribe
retained a beneficial interest in the minerals after the sur-
face estate was conveyed. Exhibits introduced at trial also
showed that the Bureau of Indian Affairs has consistently
treated the undisposed-of minerals as being held in trust
for the Tribe.
28. There is a clear, consistent, and contemporaneous
administrative construction by the Interior Department
that the undisposed of minerals underlying the Crow ceded
area were restored to full tribal ownership by the 1958 Act.
See Exhibits 97, 87, D-435, 128.
32a
29. Both the Crow Tribe and Westmoreland Re-
ssource have relied on this consistent administrative inter-
pretation. This reliance is manifested by an investment of
tens of millions of dollars in a coal mine.
Surface Coal Mining on the Ceded Strip
30. In June 1972, Westmoreland, a non-Indian com-
pany, entered into two leases with the Crow Tribe to mine
coal underlying about 31,000 acres of the ceded strip. One
of these leases, encompassing over 16,000 acres, was can-
celled in 1982 by mutual consent of Westmoreland, the
Tribe, and the federal government. The second lease re-
mains in effect and authorizes production of coal on Tract
III which is located in Big Horn County on the ceded strip
in sections 25, 26, and 36, Township 1 North, Range 37
Kast.
31. In 1974, Westmoreland’s leases were amended to
reflect a renegotiation and consequent increase in the
Tribe’s royalty rate. Agreement was also reached to re-
negotiate the royalty rate in ten years to a point at or about
the prevailing market rate.
32. The coal leases and subsequent amendments were
the result of arm’s-length negotiations between Westmore-
land, the Tribe, and the federal government. The leases
and amendments were subject to federal approval and were
approved by the Secretary of the Interior. The Tribe was
free to accept or reject the terms of the agreements.
33. In October 1972, Westmoreland began construec-
tion of its ‘‘Absaloka Mine’’ on Tract III. Mine facilities
were built on the lease tract, and a 36-mile railroad spur
line was built along Sarpy Creek to connect the minesite
33a
with the Burlington Northern line in Treasure County,
; Montana.
34. Surface coal mining operations at Westmore-
land’s Absaloka Mine commenced in Spring of 1974. Pro-
duction reached 4 million tons in 1975 and has remained
relatively constant, reaching a peak of 4.9 million ton in
1979 and declining since 1981. Under long-term sales con-
tracts entered into in 1974, Westmoreland annually ships
approximately 4 million tons of coal to four mid-west util-
ities. Such deliveries are to continue through 1993.
Surface Coal Mining on the Crow Indian Reservation
35. Although negotiations have taken place between
the Crow Tribe and various mining companies, and some
preliminary prospecting and exploration has been accom-
plished, no actual mining of coal by non-Indian lessees has
occurred within the boundaries of the Crow Indian Reser-
vation.
36. In April 1983, the Secretary of the Interior ap-
proved a 1980 coal mining agreement between the Crow
Tribe and Shell Oil Company for a coal tract situated in the
extreme southeastern corner of the Crow Reservation im-
mediately north of the Wyoming border. Shell has not
mined coal on the reservation nor does it have any current
long-term contracts to sell reservation coal.
Governmental Services and Jurisdiction on the Ceded Strip
37. Since 1904 the State of Montana and its political
subdivisions have had legal authority and responsibility for
the provision of public services on the ceded strip. The
state and its political subdivisions exercise exclusive juris-
diction on the ceded strip.
icine
34a
38. Public services provided by the state and local
governments to the ceded strip include general government
services, public safety, health and welfare, natural re-
sources, public works, transportation, recreation, and cul-
ture and education.
39. The state makes available services toe and exer-
cises jurisdiction over the counties containing the ceded
strip and the ceded strip itself in the same manner as it
would for all ether counties, or portions thereof, within the
state. The state provided specific evidence that at least 11
public agencies of the state are involved in various govern-
mental activities on the ceded strip. These state agencies
include: the Department of Agriculture; Department of
Commerce; Department of Fish, Wildlife, and Parks; De-
partment of Highways; Department of Justice; Depart-
ment of Health; Department of Labor; Department of
State Lands; the Montana State Library; Department of
Natural Resources and Conservation; and the Department
of Public Service Regulation. This list does not represent
the entirety of state involvement in governmental activities
on the ceded strip.
40. The total cost of these services cannot be pre-
cisely documented. The state’s budgeting process in a com-
plex, interrelated system, and it is not appropriate to look
at one or a few components of that system in isolation. The
budgetary process is not designed to identify all monies
expended in response to a certain area or taxpayer or re-
cipient. The budgetary process and accounting system is
not designed to trace funds from a taxpayer to an expendi-
ture.
41. Big Horn, Treasure, and Yellowstone Counties
have historically provided and continue to provide, num-
> ell = aati
35a
erous and various services to the ceded strip. County and
local governments have jurisdictional authority on the
ceded strip.
42. Throughout the ceded strip, law enforcement is
provided by the counties. In some cases law enforcement is
provided by a consolidated city/county law enforcement
agency. A courthouse building is located in the county
seat of each County to provide administrative facilities for
the function of general government in the ceded strip. The
counties provide recreational facilities as well as health
and welfare, library, emergency medical, and fire-fighting
services. The ceded area is completely encompassed within
the elementary and secondary school districts in the three
counties. The extent and cost of these facilities and ser-
vices and substantial as evidenced by both the value of phy-
sical assets and the budgets of the counties.
43. There are approximately 105 miles of Federal In-
terstate Highway, 45 miles of state primary and secondary
highways, and 600 miles of paved and unpaved county
roads located on the ceded strip. The county governments
of Big Horn, Treasure, and Yellowstone have responsibility
for paved and unpaved roads and bridges.
44. The county seat of Big Horn County is located in
Hardin, Montana. The city of Hardin was specifically ex-
cluded from the Crow Indian Reservation in 1937. Act of
August 31, 1937, 50 Stat. 884. Hardin provides numerous
services to and is impacted by activities on the ceded strip
as evidenced by its budgets. Big Horn County budgets on a
county-wide basis for all necessary public services, includ-
ing road construction, maintenance, and improvements,
provisions for health and weHare services, fire, ambulance
36a
and police protection, and all normal incidental require-
ments of county services. Big Horn County operates a hos-
pital and nursing home located in Hardin. Big Horn
County has exclusively provided these services to the por-
tion of the ceded strip in Big Horn County to the exclusion
of the Crow Tribe and the Bureau of Indian Affairs. Ex-
amples of general governmental activities provided by Big
Horn County within the ceded strip include functions of the
County Commissioners’ office, the County Assessor, the
Clerk and Recorder, Treasurer, County Clerk, Justice of
the Peace, County Attorney, and County Extension Office.
45. There are 202 miles of road responsibility located
on the ceded strip in Big Horn County. The Big Horn
County government is the only governmental agency which
maintains and repairs state secondary highways within the
county. Neither the Bureau of Indian Affairs nor the Crow
Tribe contributes to the maintenance of state secondary
highways on the ceded strip.
46. Big Horn County, to the exclusion of the Crow
Tribe and the Bureau of Indian Affairs, has fought all fires
on the ceded strip in Big Horn County.
47. Big Horn County provides substantial education
facilities and services on the ceded strip. High School Dis-
trict No. 1 is located partly on the ceded strip.
48. Treasure County is the exclusive provider of po-
lice services, judicial services, and general governmental
services in that part of the ceded strip located in Treasure
County, including district court, juvenile court, fire pro-
tection services, ambulance services, road and bridge con-
struction and repair, a medical clinic, sanitary landfill ser-
vices, all schools and related services, and through inter-
37a
local agreement with Rosebud County, services of the
county to indigents.
49. The fire service and ambulance service are
manned by volunteers who receive either no compensation
or nominal compensation.
50. A large majority of the population in Treasure
County resides on the ceded strip.
51. Treasure County’s total budget has increased
nearly fivefold since 1970 while tax revenue has only
doubled. Treasure County has deleted or reduced services
as a result, specifically deleting all library services, all
mental health services, and delaying or postponing bridge
repair, road maintenance, and construction. In recent
years, Treasure County has levied the legal maximum rate
for its general governmental levy, and since 1975 it has
levied the legal maximum rate for the road and bridge
funds.
52. Treasure County has approximately 11,000 acres—
of non-fee patent lands located on the ceded strip for which
it receives no tax revenues or payments in lieu of taxes
from th? federal government, the Crow Tribe, or any other
government. Treasure County provides all governmental
services, including fire protection, law enforcement, and
the other services for these lands.
53. Yellowstone County provides a full range of gov-
ernmental services which are available to residents on that
portion of the ceded strip within Yellowstone County. Yel-
lowstone County maintains about 335 miles of roads in the
ceded area. It also maintains seven parks located within
the ceded area in Yellowstone County.
38a
54. The Crow Tribe provides little or no governmen-
tal services to the ceded strip, and it has not exercised and
does not exercise general civil jurisdiction in the ceded
area. Neither the Crow Tribe nor the Bureau of Indian
Affairs provides fire protection, roads, police, or other gov-
ernmental services on the ceded strip. None of the Crow
Tribe’s ordinances apply on tlie ceded area, and in its con-
stitution the Tribe has disclaimed jurisdiction outside of
the boundaries of its reservation.
ify: seer retton- and Services Related to
/ oal Mining on the Ceded Strip
55. Coal mining has an extensive, pervasive effect,
both direct and indirect, on state and local government.
The state and county governments provide numerous facil-
ities, assistance, and services, to coal mining, which enable
coal development everywhere in the state to occur in an
orderly manner. The costs of these facilities, assistance,
and services are difficult te document and quantify in their
entirety, but the total cost is substantial.
56. State government is affected both in specific ser-
vice provisions and general governmental activities by
coal development occurring anywhere in the state including
areas affected by the Westmoreland mine. The state gov-
ernment incurs costs in responding specifically to coal min-
ing activities, both on and off the ceded strip, and to in-
cremental demands placed on the government by coal de-
velopment. Organizations and people associated with coal
development have access to and utilize the entire array of
state governmental activities, including those provided by
the judicial, legislative, and executive branches.
39a
57. The state and its political subdivisions had re-
sponsibility for and incurred the costs of developing and
maintaining the governmental and physical infrastructure
that allowed development of coal on the ceded strip. West-
moreland Resources has utilized and had the advantage of
various services, facilities, or governmental structures that
were in place when its mining activities commenced. These
services, facilities, and governmental infrastructures were
developed, maintained, and financed at substantial cost by
the state and local governments.
58. It is not possible to identify and quantify the total
extent of coal-related demands on or use of state services
generally, or Westmoreland’s demands on or use of state
services. The state and the ceded strip counties have pro-
vided extensive services to and regulated the ceded strip
and the Westmoreland mine. There are numerous examples
demonstrating that such services are extensive and sub-
stantial. For example, the Montana Department of Com-
merce, which administers the Montana Coal Board grants,
has made numerous grants to the area affected by West-
moreland’s mining operation. The Montana Department of
Health and Environmental Sciences inspects the West-
moreland Mine at least five times annually and has pro-
vided operational assistance for sewer lagoons in commun-
ities near the Westmoreland Mine. The Montana Depart-
ment of Highways has constructed and maintained high-
ways in the vicinity of the Westmoreland Mine. The De-
partment of Justice has provided highway patrol and fire
marshal activities in the vicinity of the Westmoreland
Mine. The Montana Department of Labor and Industry
has provided safety and health inspections at the West-
moreland Mine and provides the unemployment and work-
40a
man’s compensation programs for employees at the West-
moreland Mine.
59. Governinental services used by the available to
the Westmoreland Mine are indistinguishable in form from
those available to other mines operating in Big Horn
County and elsewhere in Montana.
60. With regard to mining and reclamation at West-
moreland’s Mine, Montana has historically taken the lead
and continues to take the lead and de the bulk of the regu-
latory work. Westmoreland’s Mine is regulated in the same
manner as any other surface coal inine in Montana.
61. The Montana legislature has enacted numerous
mining and reclamation requirements at the insistence of its
citizens. Westmoreland’s mining operation has been de-
veloped and conducted pursuant to Montana’s mining and
reclamation and environmental requirements.
62. Numerous state permits and approvals may be re-
quired in conjunction with coal mining. ‘I'he State of Mon-
tana and its political subdivisions have issued a number of
permits and approvals for the Westmoreland Mine.
63. The Montana Department of State Lands has is-
sued numerous permits and prepared several environmen-
tal impact statements on the Westmoreland Mine. The De-
partment also reviews and inspects the Westmoreland
Mine on a regular basis, and it las issued a number of
notices of violation to Westmoreland.
64. The Montana Department of State Lands, even
after the passage of the Federal Surface Mining Control
and Reclamation Act (SMCRA), still has the primary role
4la
with regard to regulation of mining and reclamation at
Westmoreland’s Mine.
65. The Crow Tribe does not have an approved min-
ing and reclamation program which applies to the ceded
area. SMCRA provides that before Indian tribes may be-
come eligible to administer a mining and reclamation pro-
gram, Congress will have to amend SMCRA, and Indian
tribes will have to take various actions before the tribes can
be eligible and can implement a mining and reclamation
program. Neither Congress nor the Crow Tribe have taken
these necessary actions.
ets te a ee ANC haa ate ae
A RNA AR Be IN Fale BIDE ENE Rae CORTE Me MS MENTE A
66. The Crow Tribe does not have jurisdiction to pro-
vide services on the ceded strip. The Tribe has not pro-
vided and will not provide services to the Westmoreland
Mine.
WARES 2A TA Ge ae Oe
67. The roles of the federal government and the Crow
Tribe with regard to coal development are limited to leas-
ing and monitoring of production. The role of the BIA is
limited primarily to receiving payments and determining
how much coal is mined. The BIA responsibilities with re-
gard to the Westmoreland Mine do not extend beyond those
in the lease.
Fea NAL Aer Meat Tah a icon nis
BE eM alls PRA REL IR ies UP aap Me ee Lette
70. The only functions performed by the Crow Tribe
or the BIA on the ceded strip relate to the Tribe’s status as
royalty owner and not to its status as sovereign. Because
the Crow Tribe is not responsible for governmental! ser-
vices associated with coal development in the ceded strip,
its interest in the ceded strip is limited to the interests of
mahal Paw ent
mets ihe st Stet” Sits bees ae
any other coal lessor.
eee Se
42a
Impacts of Surface Coal Mining on the Ceded Strip
71. In addition to responsibility for providing the
infrastructure which enables coal development in the state,
and more particularly on the ceded area, to occur, and for
responding to ongoing administrative and service demands
from Westmoreland’s and others’ mining activity in Mon-
tana, the state and its political subdivisions have jurisdic-
tion over, and thus responsibility for, résponding to de-
leterious socioeconomic, political, and governmental con-
sequences of coal mining. ’
72. Impacts of coal mining are characterized by a
boom and bust cycle.
73. The effects and impacts of coal mining and re-
lated activities are not limited to direct impacts of mining
or mine-related activities themselves. Environmental and
socioeconomic effects occur which are geographically dis-
bursed and indirectly related to project activities but which
nevertheless have the potential to require state and local
governmental response.
74. An important function of state government is to
assume responsibility for responding to unforeseen effects
of activities such as coal mining. Despite all efforts to
anticipate serious adverse effects, and despite permitting
and bonding requirements, the risks of significant, costly,
unforeseen effects still exist. It is the responsibility of the
state to obtain compensation for assuming these risks on
behalf of the state’s citizens.
75. The impacts caused by coal mining and related
activities, including impacts from the Westmoreland Mine,
can only be partially identified and documented at this
time. Significant problems of measurement and quantifi-
a
;
4
g
|
:
4
4
4
43a
cation prevent an accurate and complete estimation of
many of those impacts Many of the effects and costs asso-
ciated with coal mining are currently unknown. For exam-
ple, reclamation is not yet complete, and its degree of suc-
cess is uncertain.
76. Some impacts and effects of coal mining can be
currently identified, but it is difficult to quantify precisely
and entirely the costs and impacts associated with a par-
ticular coal mine. The nature of the effects of coal mining
do not allow such complete quantification, and govern-
mental accounting systems are not designed to track service
provisions or utilizations by geographic area, taxpayer, or
purpose.
77. The land ownership patterns, and the distribution
of environmental and socioeconomic effects of coal mining,
particularly at Westmoreland’s mine on the ceded strip
place the responsibility and burdens for response to these
effects on state and local governments, in a manner similar
to that of other coal mining activities i Montana.
78. Because few Crow Indians live on the ceded strip,
the Tribe has a limited interest in insuring that the en-
vironment of the ceded strip and the public services avail-
able on the ceded strip are protected and maintained.
79. There is no evidence that the Crow Tribe provides
any response to the impacts from mining on the ceded area.
80. Impacts from Westmoreland’s mine are both so-
cioeconomie and environmental. Some have occurred or will
occur in the short term, and others will occur after a longer
period of time. Some have occurred or will occur in the im-
mediate vicinity of the mine, including the ceded strip, and
others have oceurred or will occur statewide.
44a
81. Certain environment impacts can be measured,
identified, and associated with the Westmoreland Mine at
this time. For example, Westmoreland’s mining activity
lias increased and will continue to increase the concentra-
tion of air borne particulates and other pollutants. There
are surface and ground water effects or potential effects
associated with Westmoreland’s mine which may be sub-
stantial but which may not be known for a relatively long
time. The Westmoreland Mine has short-term and perhaps
long-term effects on soils, vegetation, and wildlife. Because
reclamation at the Westmoreland Mine has only occurred
over a relatively short time, it is too soon to determine
what the effects of the Westmoreland Mine will be on vege-
tation. The effects on wildlife caused by the Westmoreland
Mine depend significantly on long-term results of reclama-
tion.
82. The Westmoreland Mine has caused impacts on
state and county roads in the area requiring construction
of certain roads and increased maintenance to others.
83. The socioeconomic effects of the Westmoreland
Mine are also difficult to identify and document in their
entirety at this time. The state of Montana and its politi-
eal subdivisions, however, have incurred the major socio-
economic burdens associated with the Westmoreland Mine
and assumed the risk for further adverse impacts. For
exampie, most of the employees at the Westmoreland Mine
live off the reservation, primarily in Hardin, Montana.
The Westmoreland Mine has also indirect socioeconomie
effects in other areas of Montana, including Big Horn,
Yellowstone, and Treasure Counties.
84. There have been substantial impacts upon resi-
dents of Big Horn and Treasure Counties as a result of
. 45a
; the Westmoreland Mine arising from the construction of
the railroad spur to that mine, increased rail traffic, and
! increased vehicle traffic. These impacts caused changes
in the lifestyles of the local residents, and many have not
been compensated by Westmoreland, the Tribe, or the
United States.
85. There are timing and jurisdictional mismatches
of revenues and demands resulting from the Westmore-
land Mine. For example, Treasure County has experi-
enced impacts from the Westmoreland Mine to its county
roads, law enforcement, and other programs which have
not been offset by property or gross proceeds taxes from
the Westmoreland Mine.
86. The responsibilities to respond to effects of the
Westmoreland Mine to date have fallen upon the state and
county governments and not upon the Crow Reservation
or Crow Tribe. ,
Leasing of Tribally-Owned Coal—The 1938 Act
87. The development of minerals held by the United
States in trust for the Crow Tribe on the ceded strip, at
least after 1968, has been subject to the provisions of the
1938 Indian Mineral Leasing Act (1938 Act), 25 U.S.C.
§ 396a-396¢g.
88. The leasing activity with regard to coal located
in the ceded area, including the lease issued to Westmore-
land for Tract III, has taken place under the 1938 Act and
the regulations promulgated under that Act, 25 C.F.R.
§ 211.1-.30 (1983).
89. Crow coal can now also be developed pursuant
to the Indian Mineral Development Act of 1982, 25 U.S.C.
| a eae
46a
a
§ 2101, et seq. The only actual development of Crow-
owned coal, however, has taken place under the authority
of the 1938 Act.
90. Westmoreland’s lease was issued under the 1938
Act.
The Need for Revenues on the Crow Reservation
91. Evidence presented at trial showed that there
are enormous unmet needs on the Crow Indian Reserva.
tion for additional revenues to fund essential govern-
mental programs and services for the Crow people in the
areas of housing, health, employment, land acquisition,
law enforcement, welfare, and education. While some of
the witnesses whose testimony concerned the needs of the
Crow people sought amounts of funding that might be dif-
ficult to attain even in prosperous areas, all of the wit-
nesses identified basic needs in their specialty areas that
the Crow Tribe, even with federal and state assistance, is
unable to provide due to insufficient revenues.
92. Revenues gained from the development of tribal-
ly-owned coal reserves, through taxation, royalty collee-
tion, or by any other legally-sanctioned means, could sig-
nificantly assist the Tribe in developing a more effective
tribal government and a stronger economic base.
Montana’s Coal Tazes
93. In 1975, Montana enacted statutes that imposs
erators a severance tax on each ton of
'
state and a gross proceeds tax on the
‘
ee
|
47a
Code Ann. §§ 15-35-101 to 111 (1983) and §§ 15-23-701 to
704 (1983).
94. The Montana Coal Severance Tax, Mont. Code
Ann. § 15-35-1083, is ‘‘imposed on each ton of coal pro-
duced in the State.’’? ‘‘Produced’’ means ‘‘severed from
the earth.’’ Mont. Code Ann. § 15-35-102. The tax is
measured by the value of the ‘‘contract sales price’’ of
the coal which is defined as ‘‘the price of coal extracted
and prepared for shipment f.o.b. mine, excluding that
amount charged by the seller to pay taxes paid on produc-
tion....’’? Mont. Code Ann. §§ 15-35-102. The statutory
rate of tax varies from 3 to 30% of the value of the coal,
depending upon the heating quality of the coal and the
method by which it is mined. Mont. Code Ann. § 15-35-103.
95. Montana’s coal taxes are paid quarterly by the
producers, Mont. Code Ann. § 15-35-104, who then pass
them forward to their utility company customers accord-
ing to the terms of their coal contracts.
96. Montana has made provision for the disposition
of funds gained through the coal severance tax. Mont.
Code Ann. § 15-35-108. The major recipient is a perma-
nent trust fund which was approved as a constitutional
amendment by referendum. Mont. Const. Art. IX § 5.
The purpose of the constitutional trust fund is to address
environmental and socioeconomic impacts which may arise
in the future and which may be consequences of the cessa-
tion of large-scale coal mining in Montana. The trust fund
contains only moneys collected pursuant to the coal sever-
ance tax. The principle of the fund may only be invaded
on a three-fourths vote of the Montana Legislature. The
48a
Legislature may, however, appropriate the interest in-
come earned by the fund. Approximately 25% of the coal
severance tax moneys collected between July 1, 1977, and
December 31, 1979, were allocated to the trust fund; 50%
of the collections after that date go into the fund.
97. The remaining severance tax moneys are allo-
cated to a variety of uses. The two largest uses are a ‘‘lo-
’ which has
eal impact and education trust fund account,’
received between 18 and 28% of the severance tax revenues
and the state’s general fund, which has received between
19 and 40% of severance tax revenues. The remaining
revenues have gone to state equalization aid to public
schools, a coal area highway improvement fund, archeo-
logical preservation, various cultural projects, park ac-
qui ion and management, an alternative energy research
fund, the general funds of the counties where the coal is
mined, county land use planning, and a sinking fund serv-
icing renewable resources development bond accounts.
Mont. Code Ann. § 15-35-108.
98. The Gross Proceeds from Coal Tax is imposed
on ‘‘each person engaged in mining coal.’’ Mont. Code
Ann. § 15-35-701. Each person mining coal must file with
the State Department of Revenue an annual report that
must include, among other things, a statement of the
number of ‘‘tons of coal extracted, treated, and sold from
the mine during the taxable period’’ and ‘‘the gross
vield or value in dollars and cents derived from the con-
tract sales price.’’ Id. The Department of Revenue trans-
mits the valuation of the gross proceeds of the mine to
the county assessor of each county in which the coal mines
are located. Mont. Code Ann. § 15-23-7C2. The county
49a
assessor then enters the value on the assessment role, id.,
and transmits a tax assessment to the county treasurer,
who collects the taxes due from the coal operator. Mont.
Code Ann. § 15-23-7083.
99. The gross proceeds tax enacted in 1975 is sub-
stantially a reenactment of the net proceeds tax on coal
at substantially the same effective rate. The net proceeds
tax was first enacted in 1981. The tax generates revenue
for the counties, school districts, and other local taxing
entities. The rate of the gross proceeds tax is set by the
local taxing entities’ mill rate which is dependent upon
revenue needed to operate.
100. All of the benefits of governmental services re-
sulting from Montana’s coal taxes are available to all
citizens, including members of the Crow Tribe.
101. Montana’s coal tax allocation structure has made
it possible to make grants to communities located within
the boundaries of the Crow Reservation, as evidenced by
a number of Coal Board grants to the communities of
Lodge Grass and Wyola, provisions in the Montana coal
tax law specifically identify Indian tribes as being eligible
for coal board grants.
102. Impact moneys are available from the state to
aid in mitigating impacts occurring on the reservation
from coal mining on the ceded strip.
History of the Coal Tax and its
Legislative Justification
103. Montana’s coal taxes were influenced by Mon-
tana’s history of boom and bust in the mineral industry,
50a
the apparent coal boom in Montana in the early 1970’s, and
Montanans’ desire and the Montana constitutional obli-
gation that resource development within Montana occur
without harm to the residents and environment of the state.
104. Coal tax bills were introduced in the 1973 Mon-
tana Legislature. -None pased, and the legislature estab-
lished an interin [sic] legislative fossil fuel study commit-
tee. The interim study committee conducted extensive stud-
ies, held public hearings, conducted extensive investigation
regarding coal sales and coal taxes, and considered the
short and long term impacts of coal mining. The committee
reported its findings and proposed severance and gross
proceeds tax legislation. After extensive debate, the
legislature overwhelmingly enacted Montana’s current coal
taxes.
105. As stated in the April 16, 1975, ‘‘Statement to
Accompany the Report of the Free Joint Conference Com-
miitees on Coal Taxation:”’
In setting the level of the tax, the conference commit-
tee looked at the needs to be met. The objectives were
to (a) preserve or modestly increase the revenue going
to the general fund, (b) to respond to current social
impacts attributable to coal development, and (c) to
invest in the future, when new technologies reduce our
dependence on coal and mining activity may decline.
The conference concluded that a severance tax of 20%
on low grade lignite and 30% on other coal, plus a
gross proceeds tax running at around 4-5% on all coal,
was necessary and equitable.
Id. at 1.
106. The Montana Legislature was aware of the po-
tential impacts and costs of mining when debating Mon-
tana’s coal severance and gross proceeds taxes. The legis-
ee ee oe ere ee
a ain Othe nL
ll career hh tre Aa i
te at Atte Ltr th ble BP SEB Sat el (Tite ahr Rac ot
ere ee
5la
lature believed that other environmental laws would not
prevent or remedy all impacts and costs of coal mining
and that a tax on coal operators was therefore necessary.
Legislators supporting the coal severance and gross pro-
ceeds taxes were determined to have coal development pay
its own way.
107. Because demands for services can occur both
before mining operations begin and after they cease, the
legislature took the position that reasonable and prudent
response to large scale coal development required the es-
tablishment of a taxing and administrative structure that
(1) collected adequate resources to cover current and
future costs, (2) compensated the state and local jurisdic-
tions for assuming the risk associated with these responsi-
bilities, and (3) is flexible enough to address the issues of
jurisdictional and temporal mismatch and cumulative ef-
fects. State taxing policy required that any tax levied also
have uniform application, be efficient to collect, and pro-
vide a stable revenue flow.
108. The structure of Montana’s coal severance tax
and the distribution of coal severance tax revenues reflects
the intent of the legislature to meet the needs of Montana
with respect to coal mining. The structure of the tax was
designed to:
(a) Allow the severance taxes on coal production to
remain a constant percentage of the price of coal;
(b) stablize the flow of tax revenue from coa! mines
to local governments through the property tax-
ation system ;
(c) simplify the structure of coal taxation in Mon-
tana, reducing tax overlap and improving the
predictability of tax projections;
52a
(d) accomplish the foregoing purposes by establishing
categories of taxation which would recognize the
unique character of coal.
Mont. Code Ann. § 15-35-101(2) (1983). The severance tax
rates imposed were derived by the coal tax oversight com-
mittee based on its best estimate of the short and long-
term costs to the state from coal mining.
109. Montana’s coal taxes were not designed to pro-
hibit coal development, but were designed to promote order-
ly development which would protect the environment and
the interests of Montanans and to make coal development
pay its fair share. A proposed moratorium on coal develop-
ment in the 1974 Montana Legislature was defeated.
110. Montana’s coal taxes were not designed to cap-
ture maximum economic rents or excess profits. The Mon-
tana Legislature recognized that coal development would
place a variety of demands on state and local government
and would benefit from the trained work force and or-
ganized society that resulted from state and local govern-
ment activities. The legislature also recognized that large
scale coal development imposed a risk of environmental
impact on state and local governments, on surface owners,
and on all residents of the state.
111. Montana’s coal severance tax was designed to
address some of the major problems associated with coal
development. Tax revenues were intended to provide front
end financing to communities and agencies faced with rapid
increases in demands for various services. Severance tax
revenues are and will continue to be used to remedy prob-
lems created by jurisdictional mismatches. Severance tax
revenues are also set aside for the future and will be used
es ee —
53a
to respond to problems, both foreseen and unforeseen, that
will arise when coal mining operations cease.
112. The Montana Legislature and the interim coal
committee have the Montana severance and gross proceeds
taxes under continuous review, and all citizens and coal
companies are given periodic opportunities to express their
views on the appropriateness of the Montana coal taxes.
The Crow Tribe’s Coal Severance Tax
113. On January 31, 1976, the Crow Tribe enacted
its own coal severance tax code to tax coal mined on the
reservation at a statutory rate of 25%.
114. In July 1982, the Tribe enacted a new code pro-
viding for taxation on the ceded strip. The 1982 severance
tax code has not been approved by the Secretary of the In-
terior for enforcement on the ceded strip. The Secretary
has withheld approval because the Tribe lacks the power
under its constitution to levy a tax off its reservation and
because the Secretary has not determined whether such
power exists as a matter of federal law.
115. Any tribal tax revenue is subject to future allo-
eation. The Tribe’s tax is a general revenue tax, and the
Tribe makes no claim that it would be used to offset reser-
vation or ceded strip impacts resulting from coal mining.
The Tribe has no statutory provision to allocate coal de-
velopment funds to mitigate impacts or provide coal min-
ing-related services on the ceded strip.
116. Presently, about 60% of the revenue obtained
by the Crow Tribe from coal development goes to per capita
distribution to tribal members.
54a
117. Because there has been no actual mining of coal
by lessees on the reservation, no revenues have been col-
lected under the Tribe’s severance tax code. The Tribe’s
severance tax is not applicable presently to coal produced
at Westmoreland’s Absaloka Mine on the ceded strip.
118. In September 1982, Westmoreland and the Crow
Tribe entered into an agreement under which Westmore-
land agreed to pay to the Tribe ‘‘a tax’’ equivalent in
amount to Montana’s taxes, and the Tribe agreed to give
Westmoreland credit for any severance and gross proceeds
taxes that Westmoreland is required to pay to the State
of Montana or its political subdivisions.
119. The arrangement under which Westmoreland
agreed to pay the Tribe this ‘‘tax’’ was proposed by the
Tribe’s counsel and appears to have been motivated large-
ly by the Tribe’s desire to improve its position in this liti-
gation.
120. The payments under this arrangement were
denominated a tax to allow the producers to pass them
forward to their utility eustomers under their coal con-
tracts.
Application of Coal Taxes to
the Westmoreland Mine.
121. Westmoreland Resources has been paying Mon-
tana’s severance and gross proceeds taxes since 1975 pur-
suant to Mont. Code Ann. §§ 15-35-102 and 103. At year
end 1982, Westmoreland had paid approximately $53,800,-
000 in severance taxes and approximately $8,100,000 in
gross proceeds taxes.
SRN act set debe 173, acai
5da
122. Westmoreland has not paid any coal taxes to
the Crow Tribe.
Effect of Montana’s Coal Taxes on the Tribe’s
Royalty Interest on Ceded Strip Coal
123. There is no convincing evidence that the state’s
taxes affect the Crow Tribe’s ability to obtain a reason-
able royalty from Westmoreland.
124. The Tribe’s first lease agreement with West-
moreland provided for a royalty of 1714¢ per ton plus
other benefits. Further negotiations in 1974 led to a lease
amendment increasing the royalty payment to the Tribe
to 35¢ per ton, or 6% f.o.b. mine price, whichever is greater.
The 1974 agreement between the Tribe and Westmoreland
also increases the royalty on future contracts to 40¢ or 8%,
whichever is greater.
125. Under the 1974 agreement between the Tribe and
Westmoreland, Westmoreland has agreed to renegotiate
its royalty payments to the Tribe every ten years. The
agreement provides that the renegotiated royalties will be
set at or near the prevailing market rate.
126. The royalty payments which the Crow Tribe has
negotiated from Westmoreland were recognized at the
time as being among the highest anywhere, and the Tribe
presented no evidence of any higher royalties being paid
to any other Indian coal owner.
127. While the royalty percentage of the Tribe has
increased since 1975, the percentage rate of the Montana
severance tax has stayed the same, and there have in fact
been adjustments to Montana’s tax which reduce the ef-
56a
fective rate of the tax, which, in turn, will reduce the dis-
parity of total income received by the tribe and the State
of Montana.
128. The Tribe received approximately $17,877,126
in royalties from Westmoreland through October 1983. In
addition to royalties, the Tribe has received other benefits
from Westmoreland. For example, the Crow Tribe has an
employment preference provision in its agreement with
Westmoreland which results in additional money and bene-
fits to the Tribe.
Effect of Montana’s Coal Taxes on the
Marketability of Ceded Strip Coal
129. There is no convincing evidence in the record
that the gross proceeds tax has prevented or impeded the
marketing of the Tribe’s ceded strip coal. There was also
no testimony that any past or present negotiations to mar-
ket Crow coal have focused on the gross proceeds tax as
a marketing factor.
130. There are numerous factors which affect the
marketability of Montana coal, and more specifically, the
Tribe’s marketing of its ceded strip coal. Although the
cumulative effect of coal taxes is one of these factors, the
evidence at trial showed that the tax rate, at least at
present, is overshadowed by other factors.
131. During a period from 1965 to 1983, the uncer-
tainties created by the Crow Tribe’s failure to adhere to
agreements or establish clear policies, procedures, and
directives, regarding development of their coal became
significant factors in the development or lack of develop-
ment of tribally-owned coal.
ES ee eee
57a
152. In the early to mid-1970’s, with the adoption of
clean air legislation, projections of increased electrical de-
mand, and the Arab oil embargo, there was a boom in the
demand for western coal. The coal market since the mid-
1970’s has softened, and there is now little or no demand
for additional coal. Many coal companies in several states
presently have excess production capacity and have found
it increasingly difficult to market coal.
133. The characteristics of coal from a particular
mine are important to a utility when a decision is being
made to purchase coal. The ash, chemical characteristics,
and physical properties, such as moisture, BTU value, and
contamination, are important considerations for existing
coal-burning plants. The plants’ characteristics also affect
a utility’s decision to purchase. For new coal-burning
plants, these factors, along with delivered cost, possibility
of future cost increases, environmental considerations, reli-
ability of souree, production capacity, reserves, and altern-
ative sources influence the utilities’ purchasing decisions.
134. Transportation costs are a major factor in the
marketability of coal. It is generally acknowledged that the
‘delivered price’’ of coal is the critical economic factor in
any purchaser’s decision. A major component of the de-
livered price is the rail or transportation costs. Montana’s
coal taxes are a relatively small percentage of delivered
price. Transportation costs and distances are the major
factor in determining the logical marketing area for a
mine’s coal production. The railroads are in a position to
significantly influence the marketing of a particular coal.
135. Montana’s logical coal marketing area, which
includes the upper midwest and the Pacific northwest, has
58a
experience [sic] less demand for coal since 1975 than Wyo-
ming’s logical market for coal, which is the south and south-
west. Demand for coal in Montana’s primary market in the
midwest has been relatively soft because the demand for
electricity and additional coal by utilities in the midwest !,as
declined since the mid-1970’s compared to the demand for
electricity and additional coal in the south and southwest.
136. While the delivered price of coal is a critical
economic factor in a purchaser’s coal-sourcing decision,
there are other non-economic factors which sometimes re-
quire a utility to purchase a higher-priced coal. For ex-
aimple, there are utilities in the midwest which have pur-
chased coal froui Wyoming which will have significantly
higher delivered price than purchase of Montana coal be-
cause these utilities require the better quality of Wyoming
coal for environniental reasons.
137. There is no evidence that Westmoreland has
lost or will lose any particular coal contract because of
Montana’s coal taxes. In spite of the relatively low BTU
quality of Westmoreland’s coal and the high moisture con-
tent generally present in Montana coal, a Westmoreland
representative expressed guarded optimism that West-
moreland could effectively compete for contracts to supply
coal to three plants scheduled to be on line in the next few
years. Westmoreland has a significant transportation ad-
vantage with respect to these three plants.
138. The continued competitiveness of Montana coal
is also demonstrated by the fact that there have been new
mines opened in Montana since the severance tax was en-
acted in 1975, and there have been new applications filed
with the Montana Department of State Lands by other coal
59a
companies expressing a desire to open new mines in Mon-
tana. l‘urther, Montana companies have lad new contract
sales since the adoption of Montana’s coal taxes in 1975.
139. Based on the 1982 agreement between the Crow
Tribe and Westmoreland, if the Crow Tribe prevails in this
lawsuit the Tribe wouid receive a payment equal to the
amount Westmoreland is-presently required to pay to the
State of Montana. Based on this agreement, there would
be no change in the effect, if any, of the taxes on the mar-
ketability of ceded strip coal. The Court does recognize,
however, that the Crow Tribe-Westmoreland agreement
may be changed by further negotiation.
CONCLUSIONS OF LAW
Re
The Court has jurisdiction of this matter under 28
U.S.C. §§ 1331, 1845, and 1362. Venue is established under
28 U.S.C. §$ 1391(b).
Il.
It is inappropriate at this time to declare the rights of
the parties respecting the validity of Montana’s coal taxes
assessed on coal produced within the external boundaries
of the Crow Indian Reservation. Although the matter was
considered on a motion to dismiss by both this Court and
the United States Court of Appeals for the Ninth Cireuit,
the evidence adduced at trial indicates that there is no
‘“‘substantial controversy, between parties having adverse
legal interests, of sufficient immediacy and reality to war-
rant the issuance of a declaratory judgment.” Maryland
Casualty Co. v. Pacific Coal & Oil, 312 U.S. 270, 273 (1941).
60a
The decision to issue declaratory relief rests in the sound
discretion of the trial court. See Provident Tradesmen’s
Bank & Trust v. Patterson, 390 U.S. 102, 126 (1968). The
Court is reluctant to declare whether or not the state’s coal
tax statutes are valid on the reservation because: (a) no
severance or gross proceeds tax has been assessed or col-
lected on the Crow Indian Reservation; (b) there is no sur-
face coal mine on the reservation which produces coal argu-
ably subject to the state’s coal taxes; (c) although coal
mining agreements have been reached between the Tribe
and non-Indian lessees, the lessees have not entered into
long-term coal contracts, and, because of a slumping coal
market, the mines contemplated by the agreements may not
come to fruition; (d) the record lacks detail with respect to
surface coal mining on the reservation; and (e) the State
should have an opportunity to reassess its position with re-
gard to taxation of on-reservation coal after final resolu-
tion of the validity of the state’s taxes on tribally-owned
coal on the ceded strip.
IIL.
Title to undisposed-of minerals underlying the ceded
strip is held in trust by the United States for the Crow
Indian Tribe.
(a) The second treaty of Fort Laramie, 1868, which
set apart the 8 million acre Crow Reservation for undis-
turbed use and occupation of the Crow Tribe vested all
beneficial property interests in the Tribe, including the
rights to the underlying minerals. United States v. Sho-
shone Tribe, 303 U.S. 111, 117-118 (1938).
(b) Under the 1904 Cession Act, the Tribe gave up
all right, title and interest to the ceded strip, but until the
6la
lands covered by the Act were actually disposed of, the
Crow Tribe retained a beneficial interest in them. The
United States acted as trustee for the Tribe with respect
to disposal of lands and payment of sale proceeds. Ash
Sheep Co. v. United States, 252 U.S. 159 (1920); Act
of April 27, 1904, 33 Stat. 352.
(c) When lands were disposed of under some of the
homestead laws, e.g., Act of February 27, 1917, 39 Stat. 944,
only the surface estates were granted. The mineral estates
were reserved to the United States, and the Tribe retained
the beneficial interest in the minerals that were reserved.
See Ash Sheep Co. v. United States, supra.
(d) The 1958 Act restoring undisposed of lands to the
Crow Tribe expressly states that ‘‘all lands now or here-
after classified as vacant and undisposed-of ceded lands .. .
are hereby restored to tribal ownership.’’ The vacant and
undisposed of minerals underlying the ceded strip fall
within this description and are embraced by this provision
of the 1958 Act. Act of May 19, 1958, Pub. L. No. 85-420,
72 Stat. 121.
(e) In spite of the language designating approximate
surface acreage to be restored on named reservations, the
1958 Act restored the minerals in the ceded strip to Crow
tribal ownership. Act of May 19, 1985, 72 Stat. 121; Cf.
Solicitor’s Opinion M-34836, 59 I.D. 393 (1947; Solicitor’s
Opinion A-25219, 60 I.D. 174 (1948). The approximate
acreage figure of 10,260.95 acres listed for the Crow Reser-
vation creates an ambiguity on the face of the statute which
ean only be resolved by resort to legislative history. See
DeCoteau v. District Court, 420 U.S. 425, 447 (1975). The
legislative history supports the conclusion that the 1958
62a
Act restored the ceded strip minerals to the Crow Tribe.
The two major related purposes of the 1958 Act, as re-
vealed by its legislative history, were to accord equal treat-
ment to the tribes that did not accept the IRA and to re-
store to tribal ownership all of the surface lands and min-
erals interests that had been temporarily withdrawn follow-
ing the enactment of the IRA. See supra Findings of Fact
21-22. If the ceded strip minerals in which the Crow Tribe
retains a beneficial interest were not restored to full tribal
ownership by the 1958 Act, the Crow Tribe would not re-
ceive the same treatment as the tribes whose lands and
minerals were restored under (3 of the IRA, 25 U.S.C.
§ 463. See 60 L.D. 174 (1948) ; 59 I.D. 393 (1947). Similarly,
excluding the Tribe’s ceded strip minerals from the cov-
erage of the 1958 Act would conflict with that Act’s express
purpose of fully restoring to tribal ownership all of the
surface lands and minerals that had temporarily withdrawn
in 1934.
(f) Courts must interpret statutes in a manner that
will promote, not defeat, the purposes that Congress sought
to achieve. See Dickerson v. New Banner Institute, Inc.,
460 U.S. 103, 118 (1983; Chapman v. Houston Welfare
Rights Organization, 441 U.S. 600, 607-08 (1979). Apply-
ing that principle of statutory construction to the 1958
Act ineseapably leads to the conclusion that the ‘‘vacant
and undisposed-of ceded lands’’ restored to the full bene-
ficial ownership of the Crow Tribe include the previously
undisposed-of mineral interests in the ceded strip in which
the Tribe retained a beneficial interest.
(g) The undisposed-of ceded minerals underlying en-
tered land were not added to and made a part of the Crow
_
Le RR A a ae
63a
Reservation by the 1958 Act. The term ‘‘reservation
status’’ has little significance in describing a tribally-
owned mineral estate which lies outside the surface bound-
aries of a tribe’s reservation. The 1958 Act’s legislative
history provides no support for the anomalous proposition
that Congress extended governmental powers and attri-
butes of a tribe’s inherent sovereignty to the subsurface
estate in an area outside the boundaries of a diminished
reservation where the surface is held predominently by
non-Indians.
IV.
There exists no express authorization for the imposi-
tion of Montana’s coal severance and gross proceeds taxes
on the mining of coal held by the United States in trust
for the Crow Tribe. The Supreme Court recently held that
state authorization under the 1924 Indian Mineral Leasing
Act, 25 U.S.C. § 398, to tax mineral production does not
extend to leases issued pursuant to the 1938 Indian Mineral
Leasing Act, 25 U.S.C. § 396a-396¢. Montana v. Blackfeet
Tribe of Indians, 105 8.Ct. 2399 (1985).
V.
The Court of Appeals recognized that mining of coal
on the ceded strip created a ‘‘further complexity’’ in ana-
lyzing the validity of Montana’s coal taxes. Crow Tribe of
Indians v, State of Montana, 650 F.2d at 1114. Because
this case was before the Cireuit on a motion to dismiss, the
factual record was insufficient to allow the court to analyze
fully the distinctions between state taxation on the ceded
strip and state taxation on the reservation. This Court
64a
notes that the predominant focus of the Ninth Circuit’s
opinion is on the larger question of state taxation on the
reservation. Insofar as this Court’s conclusions depart
from the Ninth Circuit’s opinion, the Court believes them
to be justified by the full factual record and by the juris-
dictional vagaries applicable to the ceded strip which were
elucidated at trial.
VI.
Montana’s coal taxes imposed on the production by a
non-Indian mining company of coal held by the United
States in trust for the Crow Indian Tribe outside the bound-
aries of the Crow Reservation are not preempted by fed-
eral law.
(a) An exercise of state jurisdiction is preempted
when it directly conflicts with a federal enactment, see,
e.g., Kennerly v. District Court, 400 U.S. 423 (1971), or
when federal law or policy so pervasively governs the tar-
geted activity that there remains no room for the addi-
tional burdens sought to be imposed by the state. See, e.q.,
Warren Trading Post Co. v. Arizona Tax Commission,
380 U.S. 685 (1965).
(b) Montana’s coal taxes do not directly conflict with
a congressional enactment because none exists which ex-
pressly bars the State of Montana from imposing its coal
taxes on coal held by the United States in trust for the
‘row Tribe. The Court finds this especially significant
_ with respect to coal mined on the ceded strip. In Mescalero
Apache Tribe v. Jones, 411 U.S. 145 (1973), the Supreme
Court, noting that it does not lightly imply tax emeptions,
stated that tribal activities conducted outside the reserva-
65a
tion present ‘‘different considerations’’ and that ‘‘|a]bsent
express federal law to the contrary, Indians going beyond
reservation boundaries have generally been held subject to
non-discriminatory state law otherwise applicable to all
citizens of the State.’’ Jd. at 148-49. The state urges that
any fair reading of Jones leads to the conclusion that state
coal taxes levied on the ceded strip aie not preempted since
Congress has not explicitly done so. While the Court
- agrees that the state’s argument has force, it declines the
opportunity to buttress its conclusion solely on Jones.
Further analysis of federal policy underlying the 1938
Mineral Leasing Act, analysis which the Court of Appeals
held to be applicable and which appropriately takes into
account the tradition of Indian sovereignty, also leads to
the conclusicn that the Montana coal taxes are not pre-
empted on the ceded strip.
(c) There exists no pervasive federal law or policy
governing the leasing of tribally-owned coal that ousts a
state tax on production of tribally-owned coal on the ceded
strip.
(d) In determining whether a state law is preempted
by pervasive federal law or policy, a court must undertake
‘‘a particularized inquiry into the nature of the state, fed-
eral, and tribal interests at stake... .’’ White Mountain
Apache Tribe v. Bracker, 448 U.S. 136, 145 (1980). The
standards of preemption applied in Indian law differ from
those that have emerged in other areas of law. ‘‘The tra-
dition of Indian sovereignty over the reservation and tribal
members must inform the determination-whether the exer-
cise of state authority has been pre-empted by operation of
federal law.’’ Id. at 143.
66a
(e) The fact that the tribally-owned ceded strip coal
lies outside the boundary of the diminished reservation is
an important consideration in the preemption analysis.
‘““The Court has repeatedly emphasized that there is a
significant geographical component to tribal sovereignty, a
component which remains highly relevant to the preemp-
tion inquiry; though the reservation boundary is not ab-
solute, it remains an important factor to weigh in determin-
ing whether state authority has exceeded the permissible
limits.’’ White Mountain Apache Tribe v. Bracker, 448
U.S. at 151.
(f{) The Court of Appeals found that the 1938 Indian
Mineral Leasing Act, 25 U.S.C. § 396a-396f, and the regula-
tions promulgated under that Act, constituted the potential
preemptive federal law in this case. The Ninth Circuit
identified and directed this Court’s preemption inquiry to
three goals that Congress sought to achieve in enacting the
1938 Act:
First, the Act sought to achieve uniformity in the law
governing mineral leases on Indian lands... . Second,
the 1938 Act was designed to help achieve the broad
policy of the Indian Reorganization Act of 1934,
25 U.S.C. §§ 461-479 (1976), that tribal governments
be revitalized .... Third, the 1938 Act was intended
to encourage tribal economic development... .
Crow Tribe of Indians v. State of Montana, 650 F.2d at
1112-13; see Montana v. Blackfeet Tribe of Indians, 105
S.Ct. at 2404 n. 5. The Tribe’s arguments and evidence
attempt to prove that the latter two goals are frustrated
by the imposition of Montana’s coal tax.
(zg) State taxation of Crow coal on the ceded strip
does not hinder the revitalization of Crow tribal govern-
re No lt ae Sir a a se
i he Nee OR
67a
ment. The Court of Appeals determined that in the mineral
leasing context, revitalization entailed increasing of tribal
government’s control over decisions to lease tribal lands
and over conditions to be placed on leases. Evidence at
trial did not show that the Montana taxes either deprived
the Tribe of control in leasing its ceded strip coal or sig-
nificantly affect the rate of development of coal mining
on the ceded strip. Any deterrent in the marketing of
tribally-owned ceded strip coal caused by the severance
and gross proceeds taxes is overshadowed by the present
marketing difficulties common to all Montana coal due to
a decreased market for coal in markets traditionally
served by Montana coal. Coal owned by the Crow Tribe
has been further disadvantaged in the marketplace by the
Tribe’s inability to put a marketing program in place.
(h) Discouragement, if any, of tribal economic de-
velopment caused by state taxation of tribally-owned coal
on the ceded strip can be justified by the state’s legitimate
interests in raising revenue to offset the cost of services
it provides on the ceded strip, to mitigate short and long-
term impacts of mining, and to perpetuate the mineral
wealth subject to its general civil jurisdiction. Contrary
to the Tribe’s assertion, the Ninth Cireuit’s opinion re-
manding this case does not require, at least with respect
to ceded strip coal, that the state establish a mathematical
equilibrium between the quantifia sts of coal develop-
ment and the revenue raised by its taxes to avoid a finding
that the state’s taxes are preempted by federal law. In-
stead, the Ninth Circuit recognized that a state’s legitimate
interests also include such wnquantifiable interests as the
value of a trained workforce, an organized government and
system of laws, as well as the unquantifiable burden of
68a
future socio-economic and environmental impacts result-
ing from coal mining. Crow Tribe, 650 F.2d at 1114. The
ceded strip lies within the general civil jurisdiction of the
State of Montana and outside the civil jurisdiction of the
Crow Tribe. The state legislature has articulated legiti-
mate and exceedingly strong regulatory interests and re-
sponsibilities and has imposed its coal taxes accordingly.
Cf. White Mountain Apache Tribe, 448 U.S. at 150. Ramah
Navaho School Board v. Bureau of Revenue, 458 U.S. 832,
845 (1982). The state’s coal taxes do not impair the Crow
Tribe’s ability to obtain reasonable royalty rates when
tribally-owned coal is leased.
(i) Montana’s coal taxes are not in conflict with
tribal taxation in the ceded area. The Tribe’s tax ordi-
~nances have not been approved by the Secretary of the
Interior for application to off-reservation mining because
the Tribe lacks power under its own constitution to tax
outside the reservation boundaries. The Court notes that
in 1983 the Secretary withheld approval for the Hopi
severance tax in part on the ground that due process does
not permit a tribe to tax an activity with which it has no
governmental nexus, See Exhibit D-417. A challenge that
the Hopi Tribe was not empowered by its constitution to
impose an off-reservation severance tax on its coal was
raised but not addressed in the opinion.
Vil.
Montana’s severance and gross proceeds taxes levied
on the production of triba!ly-owned coal on the ceded strip
do not infringe ‘‘on the right of reservation Indians to
make their own laws and be ruled by them.’’ Williams v.
Lee, 358 U.S. 217, 220 (1959).
3 gst Ahab ht waa
69a
(a) This ‘‘self-government test’’ is related to the
preemption analysis insofar as federal law and policy en-
courage tribal self-sufficiency and economic development,
but the right of tribal self-government serves as an inde-
pendent barrier to the intrusive assertion of state regula-
tory authority over tribal reservations and members. White
Mountain Apache Tribe, 448 U.S. at 142-43.
(b) In Washington v. Confederated Tribes of Col-
ville, 447 U.S. 184 (1980), the Supreme Court deseribed
the important considerations when the self-government
test is applied to resolve a conflict between a state and an
Indian tribe.
The principle of tribal self-government, grounded in
notions of inherent sovereignty and in congressional
policies, seeks an accommodation between the interests
of the Tribes and the Federal Government on one
hand, and those of the State on the other. While the
Tribes do have an interest in raising revenues for
essential governmental programs, that interest is
strongest when the revenues are derived from value
generated on the reservation by activities- involving
the Tribes and when the taxpayer is the recipient of
tribal services. The State also has a legitimate govern-
mental interest in rasing revenues, and that interest is
likewise strongest when the tax is directed at off-
reservation value and when the taxpayer is the re-
cipient of state services.
Id. at 156-57 (citation omitted, emphasis added).
(c) Washington v. Confederated Tribes of Colville
illustrates that the reservation boundary is a significant
factor in balancing the interests of the state against those
of the federal government and tribe. The self-government
70a
analysis has little applicability to cases such as this where
the state seeks to tax a non-Indian company for activities
engaged in outside the reservation because, while tribes
do retain ‘‘attributes of sovereignty over both their mem-
bers and their territory,’’ United States v. Mazurie, 419
U.S. 544, 547 (1975), a tribe’s governmental powers which
arise from its retained sovereignty do not extend beyond
the reservation boundaries. In 1904 the Crow Tribe re-
linquished its inherent authority to regulate or tax on the
ceded strip and there has been no showing here that such
power has been expressly returned to the Tribe by the
United States. The relationship between Westmoreland
Resources, Ine., and the Crow Tribe is purely contractual.
Outside the reservation boundaries, on the ceded strip, this
relationship carries with it no consent by Westmoreland
to submit to the retained Givil jurisdiction of the Crow
Tribe. Cf. Montana v. United States, 450 U.S. 544, 565-
66 (1981). Thus, on the ceded strip, the Tribe’s interest in
raising revenues is weak because the Tribe lacks govern-
mental power and other sovereign interests which require
accommodation with state interests under the self-govern-
ment analysis.
—_ (d) In any event, the self-government analysis leads
to the conclusion that the state’s taxes on the production
of tribally-owned coal on the ceded strip are valid. A mere
interest in raising revenues, even though the Tribe is in
dire need of revenues to provide needed services on the
reservation and to strengthen its economic base, does not
in and of itself invalidate the state tax. There must be
some contact between the Tribe’s governmental power and
the activities sought to be taxed. The Crow Tribe lacks
such a connection with the off-reservation mining of its
7la
coal. The Tribe does not provide services on the ceded
strip nor is it responsible for the impacts traceable to coal
mining on the ceded strip. The evidence shows that the im-
pacts of mining and the responsibilities for provision of
services predominantly fall off the reservation and onto
the state and local governments. With respect to ceded
strip coal, the Tribe is not seeking increased revenues from
a value which is generated on the reservation. The Tribe’s
interest in its off-reservation coal is an ownership interest
which is not substantially different than the interest held
by any other coal lessor. The evidence shows that this own-
ership interest, the royalty interest, has not been impaired
by the imposition of the state’s coal taxes.
VIII.
The Court concludes that the Tribe and its lessees can-
not create a tax on coal produced on the ceded strip by
agreement. The 1982 lease agreement between the Tribe
and Westmoreland contains a clause under which West-
moreland agreed to pay the Tribe a ‘‘tax’’ equal to the
amount due under Montana’s severance and gross proceeds
tax laws with a credit for amounts actually paid to the
state and local governments. Payment under this arrange-
ment, which is collectible only because payor has consented,
is simply not a tax. See In re Lorber Industries, 675 F.2d
1062, 1066 (9th Cir. 1982).
IX.
Montana’s taxes have not been shown to constitute
an impermissible ‘‘multiple burden’’ on interstate com-
merece. In Merrion v. Jicarilla Apache Tribe, 455 U.S. 130
72a
(1982), the Supreme Court noted that an impermissible
burden on interstate commerce could arise if both the state
and tribe taxed the same mining activity or if one or both
taxed the activity at a greater rate than their contact with
the activity would justify. Jd. at 158 n. 26. The Crow
Tribe is not authorized to tax the production of coal on
the ceded strip. Thus, the ceded strip is within the state’s
and not the Tribe’s taxing jurisdiction. Therefore, the
Court need not reach this interstate commerce issue with
respect to the ceded strip as there can be no multiple tax
burden.
X.
The Tribe has also raised a claim that Montana’s coal
taxes on tribally-owned coal are invalid under the Indian
Commerce Clause of the Constitution, Art. I, See. 8, Cl. 3.
The Tribe claims that the taxes are invalid because they
are not authorized by Congress or, at the least, they con-
stitute an undue burden on Indian commerce. As the Tribe
recognizes, however, the Supreme Court has found it un-
necessary to modify the preemption analysis ‘‘to hold that
on-reservation activities involving a resident tribe are pre-
sumptively beyond the reach of state law even in the ab-
sence of comprehensive federal regulation... .’’ Ramah
Navaho School Board, Inc. v. Bureau of Revenue of New
Mexico, 458 U.S. 832, 845 (1982). Therefore, the dormant
indian commerce clause cannot be used by the courts as
an analytical avenue to the merits of cases such as that
before this Court in addition to, or in lieu of, the pre-
emption analysis absent a change in position by the Su-
preme Court.
73a
XI.
This Court’s finding that there is presently no ap-
proved tribal tax on the ceded strip negates the Tribe’s
contention that Montana must provide a eredit against its
taxes in the amount of analogous tribal taxes. The Court,
therefore, need not entertain the merits of that claim.
XII.
Montana’s coal taxes are not impermissible taxes on
tribal trust property. The Tribe argues that because the
taxes are in essence taxes on real property, the taxes must
be viewed as being imposed ratably on both the producer’s
share and the royalty share. Consequently, the Tribe con-
tends that the state cannot impose that portion of the tax
attributable to the Tribe’s royalty share. The Court con-
cludes that Montana’s taxes are not taxes on tribal trust
property. Both the Montana Supreme Court and the Court
of Appeals have held that the legal incidence of the coal
taxes falls on the producer. See Commonwealth Edison v.
Montana, — Mont. —, 615 P.2d 847, 850 (1980), affirmed
453 U.S. 609 (1981); Crow Tribe, 650 F.2d at 1110. The
Court of Appeals has noted, however, that it did not spe-
cifically address the question of where the tax incidence
on the Tribe’s royalty interest lies. See Crow Tribe, 665
I’.2d at 1390 (1982). The severance tax statute clearly re-
quires the ‘‘coal mine operator’’ to file the tax return
and pay the severance tax. Mont. Code Ann. § 15-35-104
(1983). There is no requirement that the mine operator
pass the tax back to the royalty owner. Similarly, the pro-
ducer must pay the gross proceeds tax and there is no re-
74a
quirement that the tax be assessed against the royalty in-
terest. See Mont. Code Ann. §§ 15-23-701 to 704 (1983).
The producer, not the holder of the royalty interest, is
subject to the imposition of liens upon the coal mine and
the producer’s personal property should the taxes not be
paid. See Mont. Code Ann. § 15-23-704 (1983). The evi-
dence at trial shows that coal mine operators pass Mon-
tana’s coal taxes forward to the consumer. Thus, Mon-
tana’s coal taxes are not levied on tribal property. The
royalty interest is merely a component of the f.o.b. price
on which the taxes directed at the producer are calculated.
XII.
For the foregoing reasons, the Court concludes that
the Montana Coal Severance Tax and the Montana Gross
Proceeds from Coal Tax are valid insofar as they are
applied to the production of coal held by the United States
in trust for the Crow Tribe on the ceded strip.
An appropriate order shall issue in accordance with
these Findings of Fact and Conclusions of Law.
Done and dated this 10th day of September, 198).
/s/ James F. Battin
Chief Judge
7da
3. District Court Order Directing Entry of Judgment
Filed September 10, 1985
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
THE CROW TRIBE OF INDIANS,
et al., CV-78-100-BLG
Plaintiffs,
-V8s-
UNITED STATES OF AMERICA,
et al.,
Plaintiff-Intervenor,
-VS-
FEVER, Director, Montana Department
of Revenue; BIG HORN COUNTY,
Montana; YELLOWSTONE COUNTY,
Montana; TREASURE COUNTY,
Montana; LORRAINE HAMILTON,
Treasurer, Big Horn County, Montana:
MAY JENKINS, Treasurer, Yellow-
stone County, Montana, CLARIBEL
BONINE, Treasurer, Treasure County,
Montana,
ORDER
Defendants.
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)
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STATE OF MONTANA: ELLEN )
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)
)
)
)
)
)
)
)
)
)
)
WESTMORELAND RESOURCES, _ )
INC., )
)
)
Defendant-Intervenor.
Pursuant to the Findings of Fact and Conclusions of
Law issued this day in the above-captioned case,
76a
The Clerk is directed to enter judgment in favor of
defendant State of Montana and against plaintiff Crow
Tribe of Indians and plaintiff-intervenor United States
declaring that the Montana Coal Severance Tax, Mont.
Code Ann. §§ 15-35-101 to 111 (1983), and the Montana
Gross Proceeds from Coal Tax, Mont. Code Ann. §§ 1o-
93-701 to 704 (1983), are valid insofar as they are levied
against the production of coal held by the United States
in trust for the Crow Tribe on the ceded strip which was
created by the Cession Act of April 27, 1904, 33 Stat. 352,
and which lies outside the boundaries of the Crow Indian
Reservation.
The Clerk is directed forthwith to notify counsel for
the respective parties of the making of this order.
Done and dated this 10th day of September, 198).
/s/ James F. Battin
Chief Judge
Tia
4. District Court Judgment Filed September 11, 1985
JUDGMENT IN A CIVIL CASE
Filed, Entered and Noted in Civil Docket
September 11, 1985
United States District Court District
\ ane
Case, Title lontana
The Crow Tribe of
Indians, et al Docket Number
CV-78-110-BLG
Vv.
USA, Plaintiff-
Intervenor, Name of Judge or
> Magistrate
The State of Montana
et al. James F. Battin
(] Jury Verdict. This action came before the Court and a
jury with the judicial officer named above presiding.
The issues have been tried and the jury has rendered
its verdict.
[x] Decision by Court. This action came to trial or hearing
before the Court with the judge (magistrate) named
above presiding. The issues have been tried or heard
and a decision has been rendered.
IT IS ORDERED AND ADJUDGED
that the Clerk is directed to enter judgment in favor of De-
fendant State of Montana and against Plaintiff crow Tribe
of Indians & Plaintiff Intervenor United States, declaring
that the Montana coal Severance Tax, MCA 9§ 15-35-101 Lo
111 (1983), and the Montana Gross Proceeds from Coal
Tax, MCA §§ 15-23-701 to 704 (1083), are valid insofar as
they are levied against the production of coal held by the
78a
United States in trust for the Crow Tribe on the ceded strip
which was created by the cession Act of April 27, 1904, 35
Stat. 352, and which lies outside the boundaries of the Crow
Indian Reservation.
Clerk Date
LOU ALEKSICH, JR. 9-11-85
(By) Deputy Clerk
KATHRYN L. WOODWARD
79a
5. Opinion of Court of Appeals Filed July 13, 1981
Crow Trise or InpIANs,
Plaintiff-A ppellant,
v.
StaTE oF Montana, and Ramon Dore,
Director, Montana Department of Revenue,
Defendants-A ppellees.
No. 79-4321
United States Court of Appeals,
Ninth Cireuit.
Argued and Submitted Jan. 14, 1980.
Decided July 13, 1981.
Appeal From The United States District
Court For The District Of Montana
Before TANG, FLETCHER and ALARCON, Cir-
cuit Judges.
FLETCHER, Circuit Judge:
In 1975, Montana imposed severance and gross pro-
ceeds taxes on all coal mined and sold in Montana, inelud-
ing coal mined by non-Indians from the Crow Indian Res-
ervation and from deposits held in trust for the Crow Tribe
of Indians (Tribe). The Tribe sought injunctive and de-
claratory relief against the imposition of taxes on the pro-
duction of non-Indian mineral lessees. The district court
469 I’.Supp. 154 dismissed the complaint under Fed.R.
Civ.P. 12(b)(6) for failure to state a claim upon which re-
lief could be granted, and the 'l'ribe now appeals. Our
jurisdiction is based on 28 U.S.C. § 1291.
80a
We hold that even though the incidence of these
taxes falls upon non-Indian lessees, the Tribe has alleged
facts that, if proved, would establish that the taxes are
preempted by the Mineral Leasing Act of 1938, 25 U.S.C.
$§ 396a-396¢ (1976), and that the taxes infringe upon the
Tribe’s right to govern itself. Accordingly, we reverse
and remand.
Vast deposits of coal underlie both the Crow Res-
ervation proper and an adjacent area known as the
+9
‘‘eeded strip.’’ The ceded strip consists of about 1,137,500
acres that were originally part of the reservation. The
Crow Tribe ceded its interest in the surface estate of the
area to the Unite States in 1904 in order to open the area
to non-Indian entry and settlement, pursuant to the Act
of April 27, 1904, ch. 1624, 33 Stat. 352. Although surface
interests were thereafter conveyed to non-Indians, see
Cady v. Morton, 527 F.2d 786, 789 (9th Cir. 1975), rights
to minerals underlying the ceded strip were in large part
retained by the United States for the benefit of the Tribe.
We held recently that the eeded area is not a part of the
reservation. Little Light v. Crist, — F.2d — at —, No.
79-2714, slip op. at 408 (9th Cir. 1981). Regardless of the
status of the ceded strip, however, the underlying minerals
are held by the United States Government in trust for the
Tribe.
Since 1967, the Seeretary of the Interior has actively
encouraged the Tribe to develop its coal resources through
the granting of prospecting permits and mining leases. The
leasing activity has taken place under the aegis of the Min-
eral Leasing Act of 1938, 25 U.S.C. §§ 396a-396¢ (1976).
>
and the regulations promulgated under the Act, 25 C.F.R.
§§ 171.-1-.30 (1980).
Sla
In 1972, Westmoreland Resourees, : n-Indian com-
pany entered into two mining leases with the Crow Tribe
that embraced coal underlying about 31,000 acres of the
ceded strip. The Tribe has also granted prospecting per-
mits to and entered into leases with other non-Indian com-
panies. T’o date, only Westmoreland Resources has actual-
ly mined coal under the leases.
In 1975, Montana enacted statutes that impose on coal
mine operators a severance tax on each ton of coal pro-
duced in the state and a gross proceeds tax on the sale of
each ton of coal produced in the state. 4 Mont. Code Ann.
§§ 15-35-101 through 15-35-111 and §§ 15-23-701 through
15-23-704 (1979) (formerly Mont. Rev. Code Ann. §§ 84-
1312 through 84-1325 (1947)). Westmoreland Resources
has been paying Montana’s severance and gross proceeds
taxes since 1975. Because Westmoreland Resources falls
into the highest statutory classification, that of one who
surface mines high-quality coal, it is required to pay a
severance tax equal to 30 percent of the value of the coal
mined. Since 1975, Westmoreland has paid $27 million in
severance taxes and $3 million in gross proceeds taxes.
During the same period, Westmoreland has paid about $8
million in royalties to the Tribe under the terms of its
leases.
On January 31, 1976, the Tribe enacted its own coal
tax code which provides for a severance tax of 25 percent
of the value of coal mined by the Tribe’s lessees. At
present, the tribal severance tax applies only to coal mined
on the reservation, and not to coal mined on the ceeded
strip.'
‘See note 19 infra
82a
II
The Montana Coal Severance Tax, Mont. Code Ann.
§$§ 15-35-1038, is ‘‘imposed on each ton of coal produced in
the state.’’ ‘‘Produced’’ means ‘‘severed from the earth.”’
Mont. Code Ann. § 15-35-102. The tax is measured by the
value of the ‘‘contract sales price’’ of the coal, which is
defined as ‘‘the price of coal extracted and prepared for
shipment f.o.b. mine, excluding that amount charged by
the seller to pay taxes on production.’’ Jd. The rate of
tax varies from 3 to 30 percent of the value of the coal, de-
pending upon the quality of the coal and whether the mine
is a surface or an underground mine. Mont. Code Ann.
§ 15-35-1083. The tax is paid quarterly directly to the Mon-
tana Department of Revenue by each coal mine operator.
Mont. Code Ann. § 15-35-104.
Montana has made elaborate provision for the dispo-
sition of funds gained through the coal severance tax. The
major recipient is a special trust fund created by the Mon-
tana Constitution. Mont. Const. art [X,§5. The fund
contains only monies collected pursuant to the sever-
ance tax. The principal of the fund may only be invaded
on a three-fourths vote of the Montana legislature. The
legislature may, however, appropriate the interest and in-
come earned by the fund. Twenty-five percent of the coal
severance tax monies collected prior to- December 31, 1979
were to go directly to the trust fund; 50 percent of the
collections after that date go into the fund.
The remaining severance tax monies are allocated to
a variety of uses. The largest single use is a ‘‘local im-
pact and education trust fund account,’’ which is to re-
83a
ceive between 26 and 37% percent of revenues. The re-
maining revenues go to state equalization aid to public
schools, a coal area highway improvement fund, archeologi-
cal preservation, various cultural projects, park acquisition
and management, an alternative energy research fund, the
general funds of the counties where the coal is mined,
county land planning, and a sinking fund servicing renew-
able resource development bond accounts. Mont. Code Ann.
§ 15-35-108.
The Gross Proceeds from Coal Tax is imposed on
‘feach person engaged in mining coal.’’ Mont. Code Ann.
§ 15-23-701. Each person mining coal must file with the
State Department of Revenue an annual report that must
include, inter alia, a statement of the number of tons of
coal extracted, treated, and sold from the mine during the
taxable period’’ and ‘‘the gross yield or value in dollars
and cents derived from the contract sales price.’’? Id. The
Department of Revenue transmits to the county assessor of
each county in which the coal mines are located the valua-
tion of the gross proceeds of the mine. Mont. Code Ann.
§ 15-23-702. The county assessor then enters the value on
an assessment roll, zd., and transmits a tax assessment to
the county treasurer, who collects the taxes due from the
coal operator. Mont. Code Ann. § 15-23-703.
III
The litigants ask us to make difficult determinations
concerning the limits of state power to tax Indians and
Indian-related activities. Although the issue before the
Supreme Court in McClanahan v. Arizona State Tax
Comm’n, 411 U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973),
84a
was the narrow one of whether a state may tax reserva-
tion Indians for income earned on the reservation, the
Court used the occasion to describe the analytical context
in which such questions are to be viewed.
The Court in J/cClanahan stated that, in recent years,
‘‘the trend has been away from the idea of inherent Indian
sovereignty as a bar to state jurisdiction and toward re-
liance on federal pre-emption.’’ 411 U.S. at 172, 93 S.Ct.
at 1262. The Court noted, however, that it would be a vast
oversimplification to say that nothing is left of the doc-
trine of Indian sovereignty. Jd. at 170, 938 S.Ct. at 1261.
The doctrine remains relevant as a ‘‘backdrop against
which the applicable treaties and federal statutes must be
read.’’ Id. at 172, 93 S.Ct. at 1262. The Court made the
further observation that because the federal treaties and
statutes in almost all cases do define the boundaries of
federal and state jurisdiction, the extent of federal pre-
emption and residual Indian sovereignty in the absence
of federal legislation or treaty is essentially moot. Jd. at
172 n.8, 93 S.Ct. at 1262 n.8. Finally, the Court in Mc-
Clanahan stated that, if the state action is not preempted
by federal legislation or treaty, the state need only satisfy
the test laid down in Williams v. Lee, 358 U.S. 217, 79
S.Ct. 269, 3 L.Ed.2d 251 (1958), that state action must not
infringe on the riehts of reservation Indians to govern
themselves. Id. at 171-72, 93 S.Ct. at 1261-1262.
Although the Court in McClanahan stated that
tribal immunity from state taxation does not rest primarily
on any inherent tribal sovereignty, we note that remnants
of the sovereignty rationale are implicit in the holding of
McClanahan in the form of certain presumptions. Direct
85a
state taxation of tribal property or the income of reserva-
tion Indians is presumed to be preempted, absent express
Congressional authorization. Bryan v. Itasca County, 426
U.S. 373, 376-77, 96 S.Ct. 2102, 2105-2106, 48 L.Ed.2d 710
(1976); Moe v. Confederated Salish & Kootenai Tribes,
425 U.S. 463, 475-81, 96 S.Ct. 1634, 1642-1645, 48 L.Ed.2d
96 (1976) ; Mescalero Apache Tribe v. Jones, 411 U.S. 145,
93 8.Ct. 1267, 1270, 36 L.Ed.2d 114 (1973). In contrast,
state taxation of non-Indian activities on the reservation
can proceed without express congressional authorization,
even if the taxation affects Indians in some way. See Wash-
ington v. Confederated Tribes of Colville, 447 U.S. 134,
148, 100 S.Ct. 2069, 2078, 65 L.Ed.2d 10 (1980). It is
enough that such taxation does not conflict with federal
statutes or treaties or interfere to an impermissible ex-
tent with the ability of the tribe to govern itself.
In White Mountain Apache Tribe v. Bracker, 448
U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980), the
Supreme Court discussed the principles of preemption to
be applied in a case such as this. The Court noted that the
test of whether a state law concerning Indians has been
preempted is different from the test used to find federal
preemption in other contexts. 7d. at 448 U.S. at 140, 100
S.Ct. at 2582. The tradition of Indian independence from
state control and the broad federal policies to the same
end (the ‘‘backdrop’’ of Indian sovereignty described in
McClanahan) color the way in which we view federal
statutes and regulations affecting Indians. Jd. The Court
found that Congress intended broad preemptive effect to
be accorded federal statutes and regulations when the state
action in question threatens the ‘‘firm federal policy of
86a
promoting tribal self-sufficiency and economic develop-
ment.’’ Id. See generally D. Getches, D. Rosentelt, & C.
Wilkinson, Cases and Materials on Federal Indian Law,
295-99 (1979). No express congressional statement of pre-
emptive intent is required; it is enough that the state law
contlicts with the purpose or operation of a federal statute,
regulation, or policy.* On the other hand, legitimate in-
terests of the state must be considered, and the ultimate
result where the conduct of non-Indians on the reservation
is involved depends on ‘‘a particularized inquiry into the
nature of the State, Federal, and tribal interests at stake,
an inquiry designed to determine whether, in the specific
context, the exercise of state authority would violate fed-
eral law.’’ White Mountain Apache Tribe v. Bracker, 448
U.S. at 149, 100 S.Ct. at 2586.
The accommodation of state and tribal interests
is also central to the analysis of whether a state
law infringes upon the right of reservation Indians to
‘(make their own laws and be ruled by them.’’? Washing-
ton v. Confederated Tribes of Colville, 447 U.S. 134, 156,
100 S.Ct. 206942083, 65 L.Ed.2d 10 (1980) (quoting Wil-
liams v. Lee, 358 U.S. 217, 220, 79 S.Ct. 269, 270, 3 L.Ed.2d
251 (1959)). The self-government doctrine differs from
the preemption analysis in that it specifically prohibits
state action that impairs the ability of a tribe to exercise
traditional governmental functions such as zoning, Santa
Rosa Band of Indians v. Kings County, D382 F.2d 655, 663-
2Of course, state law will be preempted where Congress
expressly so provides, or where the federal regulation is of such
breadth that it occupies the field, leaving no room for state
involvement.
87a
64 (9th Cir. 1975), cert. denied, 429 U.S. 1038, 97 S.Ct.
731, 50 L.Kd.2d 748 (1977) ; vehicle registration, Red Lake
Band of Chippewa Indians v. Minnesota, 311 Minn. 241,
248 N.W.2d 722 (1976), or the exercise of general civil
jurisdiction over the members of the tribe, Fisher v. Dis-
trict Court, 424 U.s. 382, 96 S.Ct. 948, 47 L.Ed.2d 106
(1976) ; Littell v. Nakai, 344 F.2d 486 (9th Cir. 1965), cert.
denied, 382 U.S. 986, 86 S.Ct. 531, 15 L.Ed.2d 474 (1966) :
White v. Califano, 581 F.2d 697 (8th Cir. 1978) ; California
v. Quechan Tribe, 424 F.Supp. 969 (S.D.Cal. 1977), vacated
on other grounds, 595 F.2d 1153 (9th Cir. 1979) (tribe’s
sovereign immunity barred suit); United States ex rel.
Rollingson v. Blackfeet Tribal Court, 244 F.Supp. 474 (D.
Mont. 1965). See also Arizona ex rel. Merrill v. Turtle,
413 F.2d 683 (9th Cir. 1969), cert. denied, 396 U.S. 1003,
90 S.Ct. 551, 24 L.Hd.2d 494 (1970) (state has no authority
to extradite Indians living on reservation). At base, how-
ever, the right of tribal self-government is a federal policy
established by and subject to the will of Congress. Al-
though self-government is related to federal preemption in
the sense that both depend on congressional action and in
the sense that preemption is considered in the context of
the deeply ingrained traditional notions of self-govern-
ment, the self-government doctrine is an independent bar-
rier to state regulation. See White Mountain Apache Tribe
v. Bracker, 448 U.S. at 140, 100 S.Ct. at 2582.
IV
The Tribe initially argues that the incidence of Mon-
tana’s taxes is on the Tribe. The tax is invalid, the Tribe
contends, because Congress has not authorized the direct
»
88a
taxation of tribal mineral holdings, as required by the Su-
preme Court’s rulings in Mescalero Apache Tribe v. Jones,
411 U.S. 145, 148, 93 S.Ct. 1267, 1270 36 L.Ed.2d 114
(1973), and McClanahan v. Arizona State Tax Comm’n,
411 U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973).
This court must look to the operation of the
taxing statutes to determine which party the Montana
legislature intended to be liable for the tax. We find that
the incidence of these taxes is on the non-Indian mineral
lessee. Neither of the taxes is collected from the owner of
the mineral rights in situ (unless the owner also happens ‘o
be the producer), and the tax is not required by law to be
passed on to the owner or to any other party. See Ameri-
can Oil Co. v. Neill, 380 U.S. 451, 455-56, 85 S.Ct. 1130,
1133-1134. 14 L.Ed.2d 1 (1965); First Agricultural Nat’l
Bank v. State Tax Comm’n, 392 U.S. 339, 346-47, 88 S.Ct.
9173, 2177-2178, 20 L.Ed.2d 1138 (1968); Federal Land
Bank v. Bismarck Lumber Co., 314 U.S. 95, 99, 62 S.Ct.
1, 3, 86 L.Ed. 65 (1941). Nor is the Tribe subject to any
reporting requirements in connection with the tax. Fur-
thermore, we note that the Montana Supreme Court has
held that the severance tax is levied on the preducer, and
that the taxable event is the act of severance. Common-
wealth Edison Co. v. Montana, 615 P.2d 847, 850, 857 ( Mont.
1980), prob. juris. noted, — U.S. —, 101 S.Ct. 607, 66
L.Ed.2d 494 (1980) (No. 80-581). The Tribe is not obli-
3The Tribe has not alleged that it has mined any coal itself
or that it has paid any taxes directly to the State of Montana.
85a
gated to pay the taxes, and it cannot be held liable for
deficiencies.4
The extent to which the economic burden of the
tax is passed on to the Tribe in the form of decreased
royalties is not relevant to the limited inquiry we make
here to determine the legal incidence of the tax. Moe v.
Confederated Salish € Kootenai Tribes, 425 U.S. 463, 481-
82, 96 S.Ct. 1634, 1645-1646, 48 L.Ed.2d 95 (1976); Fert
Mojave Tribe v. County of San Bernardino, 543 F.2d 1253,
1250 n.2, 1256 (9th Cir. 1976), cert. denied, 430 U.S. 983, 97
S.Ct. 1678, 52 L.Ed.2d 377 (1977); Agua Caliente Band of
Mission Indians v. County of Riverside, 442 F.2d 1184 (9th
Cir. 1971), cert. denied, 405 U.S. 933, 92 S.Ct. 930, 30
L.Kd.2d 809 (1972); Mescalero Tribe v. O’Cheskey, 625
F.2d 967, 970 (10th Cir. 1980). See also United States v.
County of Fresno, 429 U.S. 452, 97 S.Ct. 699, 50 L.Ed.2d
683 (1977); Gurley v. Rhoden, 421 U.S. 200, 204, 207, 95
S.Ct. 1605, 1608, 1610, 44 L.Ed.2d 110 (1975); Polar Ice
Cream & Creamery Co. v. Andrews, 375 U.S. 361, 382 n.12,
84 S.Ct. 378, 390 n.12, 11 L.Ed.2d 389 (1964): Connecticut
General Life Ins. Co. v. Johnson, 303 U.S. 77, 80, 58 S.Ct.
436, 438, 82 L.Ed. 673 (1938); Lash’s Prods. Co. v. United
States, 278 U.S. 175, 49 S.Ct. 100, 73 L.Ed. 251 (1929).
[14] The Tribe argues that the ultimate intent of the
Montana legislature was to tax the coal itself and thereby
raise revenue, regulate the rate of production, and pre-
serve the value of the natural resource. Our inquiry into
‘The coal mines themselves, however, are subject to the
imposition of liens in the event the taxes are not paid. Mont.
Code Ann. § 15-23-704. We are not called upon to express a
view on the validity of this provision as applied to Indian coal
in situ.
90a
the legislature’s intent in this regard is limited to ascer-
taining the legal obligations imposed upon the concerned
parties, however, and does not extend to divining the legis-
lature’s ‘‘true’’ economie object. Gurley v. Rhoden, 421
U.S. 200, 204-07, 95 S.Ct. 1605, 1608-10, 44 L.Ed.2d 404
(1975); American Ou Co. v. Neill, 380 U.S. 451, 455-57, 85
S.Ct. 1130, 1133-1134, 14 L.Ed.2d 1 (1965); Federal Land
Bank v. Bismarck Lumber Co., 314 U.S. 95, 99, 62 S.Ct. 1,
3, 86 L.Ed. 65 (1941); Alabama v. King € Boozer, 314 U.S.
1, 62 S.Ct. 43, 86 L.Ed. 3 (1941). But see United States v.
City of Leavenworth, 443 F.Supp. 274, 281-82 (D.Kan.
1977).°
SThe Tribe also argues that Montana’s taxes violate section
4 of the Enabling Act pursuant to which Montana was admitted
to the Union. Section 4 provides:
Second. That the people inhabitating said proposed
States do agree and declare that they forever disclaim all
all right and title to the unappropriated public lands lying
within the boundaries thereof, and to all lands lying within
said limits owned or held by any Indian or Indian tribes;
and that until the title thereto shall have been extinguished
by the United States, the same shall be and remain subject
to the disposition of the United States, and said Indian
lands shall remain under the absolute jurisdiction and con-
trol of the Congress of the United States ....
Act of February 22, 1889, ch. 180 § 4, 25 Stat. 676. This disclaimer
was adopted and ratified in Montana’s original constitution,
Mont. Const. Ord. 1, 2 (1889), and in the state’s new constitu-
tion.. Mont. Const. art. | (1972).
Because we find that the incidence of these taxes falls on
on the non-Indian mineral lessee, we see no conflict between
the taxes and the Enabling Act. Truscott v. Hurlbut Land & Cattle
Co., 73 F. 60 (9th Cir. 1896).
9la
V
The Tribe argues that the Mineral Leasing Act
of 1938, 25 U.S.C. §§ 396a-396g (1976),° and the regulations
promulgated thereunder, 25 C.F.R. §§ 171.1-.30 (1980)7
sweep so broadly through the area of Indian mineral
leasing that there is no room for state involvement.® See
Warren Trading Post Co. v. Arizona Tax Comm’n, 380
U.S. 685, 85 S.Ct. 1242, 14 L.Ed.2d 165 (1965); Central
Machinery Co. v. Arizona State Tax Comm’n, 448 US.
160, 100 S.Ct. 2592, 2599, 65 L.Ed.2d 684 (1980). We need
not view preemption as so comprehensive in this case be-
cause we find that the Tribe’s allegations, if not contro-
*The 1938 Act originally excluded the Crow Reservation
from its coverage. 25 U.S.C. § 396f. Until 1959, mineral leasing
on the Crow Reservation was governed by section 6 of the
Crow Allotment Act of 1920, ch. 224 §6, 41 Stat. 751, as
amended by the Act of May 26, 1926, ch. 403, 44 Stat. 658.
In 1959, Congress amended section 6 of the Crow Allotment
Act of 1920 to provide that mineral leases on Crow lands were
to be governed by provisions of the 1938 Act. Act of September
16, 1959, Pub. L. No. 86-283, 73 Stat. 565. See also Act of May
17, 1968, Pub. L. No. 90-308, 82 Stat. 123.
7See also 25 C.F.R. §§ 173.1-.29 (1980).
®The Tribe also argues that the taxes are preempted by the
Tribe’s enactment of its own coal severance tax on the mining
of coal underlying the reservation and ceded strip. Absent a
demonstration of congressional intent to delegate authority to
the Tribe to preempt Montana’s taxing statutes, the tribal or-
dinances carry no such preemptive effect.
The Tribe will have an opportunity to demonstrate on re-
mand that Congress intended to delegate such regulatory and
preemptive authority to the Tribe, and that there is a “direct
conflict’ between state and tribal schemes.” Washington v.
Confederated Tribes of Colville, 447 U.S. 134, 156, 100 S.Ct.
2069, 2083, 65 L.Ed.2d 10. We note in this regard that 30 U.S.C.
§ 1300(a) (Supp.! 1977) indicates that Congress is contemplating
a delegation to Indian tribes of some authority over surface
mining on Indian lands. See note 17 infra.
92a
verted, would establish that the challenged Montana taxes
directly and substantially thwart the policies underlying
the Mineral Leasing Act of 1938.
The 1938 Act? was designed to achieve three goals.
See H.R.Rep.No. 1872, 75th Cong., 3d Sess. at 1-3
(1938); S.Rep.No. 985, 75th Cong., Ist Sess. 2-3 (1937) ;
United States Dep’t of Interior, Federal Indian Law 695
n.45 (1958). First, the Act sought to achieve uniformity
in the law governing mineral leases on Indian Jands. Prior
law had been a statutory hodgepodge that imposed dit-
ferent requirements for mineral leases on different Indian
°The 1938 Act provides that an Indian tribe may lease its
lands for mining purposes with the approval of the Secretary
of the Interior. 25 U.S.C. § 396a. Section 396b provides for
the sale of oil and gas mining leases under regulations to be
prescribed by the Secretary. The Secretary is authorized to
reject all bids and readvertise leases when in the Secretary’s
judgment that course would be in the Indians’ best interests.
With the Indians’ consent, a lease may be privately negotiated.
Section 396b also safeguards the rights of tribes organized un-
der the Indian Reorganization Act of 1934, 25 U.S.C. §§ 461-479
(1976), to enter into mining leases in accordance with the pro-
visions of that Act and with their tribal constitutions and cor-
porate charters. Other sections specify the type of bond to be
furnished by the lessees and authorize the Secretary to prom-
ulgate regulations. 25 U.S.C. §§ 396c, 396d.
The regulations promulgated by the Secretary under author-
ity of the 1938 Act cover many aspects of mineral leasing be-
tween tribes and non-Indian lessees, including the procedures
for acquiring mineral leases, minimum rates for rentals and
royalties and the manner in which payments are to be made,
penalties for failure to comply with the terms of leases, in-
formation to be supplied by lessees, acreage limitations, inspec-
tions of lessees’ records by Indian lessors or by Department
of Interior Officials, and cancellation of leases. 25 C.F.R.
§§ 171.1-.30 (1980); see also 25 C.F.R. 66 173.-1-.29 (1980).
93a
lands.’ Second, the 1938 Act was designed to help achieve
the broad policy of the Indian Reorganization Act of 1934,
29 U.S.C. $$ 461-479 (1976), that tribal governments be
revitalized. In the mineral leasing context, this meant
giving tribal governments control over decisions to lease
their lands and over lease conditions, subject to approval
of the Secretary of Interior, where before the responsibility
for such decisions was lodged in large part only with the
Secretary."' Third, the 1938 Act was intended t’ ‘ncourage
tribal economic development, an important objective of the
Indian Reorganization Act of 1934. Prior to the 1938 Act,
the leasing of Indian lands for mining purposes was gov-
The 1938 Act achieved uniformity by including all tribally-
owned (unallotted) lands, on or off the reservation, within its
ambit, and by repealing “[a]ll Act [sic] or parts of Acts incon-
sistent herewith.” Section 7 of the Act, 52 Stat. at 348 (not
codified but set out at 25 U.S.C. § 396a note). The latter pro-
vision probably repealed the prior leasing statutes. See 84 In-
terior Dec. 905 (1977); cf. Merrion v. Jicarilla Apache Tribe,
617 F.2d 537 (10th Cir. 1980), cert. granted, — U.S. —, 101
S.Ct. 71, 66 L.Ed.2d 21 (1981) (No. 80-11) (reserving the ques-
tion). Since 1938, the Interior Department has operated under
the 1938 Act with regard to Indian mineral leases. See 84 In-
terior Dec. 905 (1977).
"Early Indian mineral leasing legislation placed varying
amounts of control over leasing decisions with the Indian agent
in charge of the reservation, 25 U.S.C. § 397 (1976), and with
the Secretary of the Interior. 25 U.S.C. § 399 (1976). The latter
statute contained no provision for Indian consent to the leases
and permitted the Secretary to prescribe reasonable terms and
conditions. Other statutes provided that Congress could ap-
= lease revenues for various purposes. 25 U.S.C. §§ 400a,
398b.
Tribal control over resources was further diluted by hold-
ings that the secretary had no discretion in the granting of leases
once land had been declared open for prospecting. In some
cases, leases were granted over tribal objections. H.R.Rep.No.
1872, 75th Cong., 3d Sess. at 2 (1938); S.Rep.No.985, 75th Cong.,
Ist Sess. at 2 (1937).
94a
erned by mining laws applicable to public lands generally.
Technical requirements and complicated procedures under
these laws had prevented the leasing of much of the In-
dians’ land, thus depriving them of considerable revenue.
See H.R.Rep.No. 1872, 75th Cong., 3d Sess. at 2 (1938) ;
S.Rep. No. 985, 75th Cong., Ist Sess. at 2 (1937); 79 Cong.
Ree. 7815 (1938) (remarks of Sen. Thomas), Jd. at 8307-08
(remarks of Sen. Thomas). The 1938 Act provided that
the land was to be leased by the Indians on terms restricted
only by regulations to be adopted by the Secretary pur-
suant to the Act.
If the allegations of the complaint are sustained
at trial, the Montana Coal Severance Tax will conflict with
the purposes of the 1938 Act in several respects. Most
prominently, the magnitude of the tax will prevent the
Tribe from receiving a large portion of the economic bene
fits of its coal. The Montana legislature predicated its
tax upon finding that strip coal
is in sufficient demand that at least one-third of the
price it commands at the mine may go to the economic
rents of royalties and production taxes...
Mont. Code Ann. §15-35-101(1)(e).* By setting the
severance tax rate at 30 percent of value, Montana made
plain its intention to appropriate most of the economic
rent. The substantial adverse effect on the Tribe’s po-
tential revenues is obvious when the state takes such a
Economic rent” is the amount of revenue that can be
extracted from an activity, here in the form of royalties and
taxes, without significantly discouraging production.
95a
large portion of this economic surplus. The Tribe has
alleged that, to date, Montana has realized $27 million
from its severance tax while the Tribe has received only
$8 million in royalties."*
Some economic impact on the Tribe can be jus-
tified if the state’s interest in imposing the tax are
legitimate. Of course, revenue raising to support govern-
ment is a proper purpose behind most taxes. Montana’s
severance tax, however, has an unusual and additional pur-
pose going far beyond revenue raising to support govern-
Montana argues that the Crow Tribe has not itself paid
a penny in severance taxes, that Westmoreland is the only party
that has been so burdened, and that the Tribe has therefore
received everything to which it was entitled under the terms
of the Westmoreland lease. Thus, the state contends, the Tribe
has suffered no economic hardship from the tax.
The argument is unconvincing for several reasons. First,
the Tribe’s complaint asks for a declaration that the tax will
not apply to production under future leases that the Tribe
wishes to enter into. The Tribe has alleged that the tax will
reduce the royalties future lessees would be willing to pay.
In this regard, we note that Shell Oil Company has asserted
in its amicus brief that Montana’s taxes severely reduce the com-
pensation Shell can offer the Tribe in its ongoing coal lease
negotiations. Furthermore, the Tribe alleges that the royalties
under the Westmoreland lease are subject to renegotiation
every ten years, and that the Tribe could negotiate for a greater
portion of the coal’s value if the severance tax were declared
to be inapplicable.
As to the taxes already paid by Westmoreland, however,
it is true that the tribe has not paid any of the taxes and is
apparently not entitled to any refund if the tax statutes are
declared invalid.
4While none of the $27 million came out of the Crow
Tribe’s pocket, see note 13 supra, the disparity between the
revenues of the state and those of the Tribe arguably indicates
the extent to which the state is attempting to secure a large
share of the economic surplus.
96a
ment. The legislative subcommittee that gave birth to
Montana’s system of coal taxation described the severance
tax device as follows:
Severance Taxes are levied upon a state’s natural re-
sources for several reasons. One, obviously, is the
need for revenue. Another is that a state’s natural
resources are nonrenewable. When the resources are
mined, the state loses a valuable asset forever. The
levying of a severance tax is one manner by which
the state can share in the profits associated with the
extraction of a mineral asset....
Subcommittee on Fossil Fuel Taxation, Montana Leg-
islative Council, Fossil Fuel Taxation 3 (Dee. 1974 Interim
Study). This statement demonstrates a purpose to keep
the value represented by the state’s nonrenewable assets
intact, for use by Montanans in the future. This purpose
vas implemented through the creation of the special trust
fund under Article [X, Section 5 of the Montana Consti-
tution. As discussed above, the fund is the major recipient
of severance tax monies.!* While the state may have an
interest in perpetuating the value of mineral wealth sub-
ject to its general civil jurisdiction, it has no such legiti-
mate interest in appropriating Indian mineral wealth.
Furthermore, the severance tax is more than a rev-
enue-raising device. It has regulatory purposes as well.
The Subcommittee on Fossil Fuel Taxation, in describing
the purposes behind severance taxes, stated
A severance tax ... can help discourage resource
waste: a basic assumption of severance taxation is
that future generations will need mineral resources
1SSee discussion at pp. 1108-1109 supra.
97a
similar to those used today. By being production
[sic], a severance tax can encourage producers to
manage their operations efficiently.
Subcommittee on Fossil Fuel Taxation, Montana Leg-
islative Council, Fossil Fuel Taxation 3-4 (Dee. 1974
Interim Study). This coal is not the state’s to regulate,
and assertion of such authority diminishes the Tribe’s
own power to regulate. Such state action conflicts with
the 1938 Act’s purpose of allowing tribes to control the
development of their mineral resources.
Montana asserts other legitimate interests, however,
that if substantiated at trial may ultimately affect the
outcome of the litigation. It argues that western states
are burdened with the phenomenon of the ‘‘energy boom-
town.’’ Large-scale mining operations in rural areas
place great strains on state and local governments to pro-
vide roads, schools, utilities, fire and police protection,
recreation and health facilities, and other more subtle bene-
fits such as a trained work force and an organized govern-
ment and system of laws. Coal may be mined on the
reservation or ceded strip, but the coal miner will un- —
doubtedly be using state services and burdening state
government. In addition, mining on the reservation or
ceded strip could cause significant environmental effects
elsewhere, such as ground and surface water pollution, air
pollution, and solid waste disposal problems. The state
may encounter substantial costs in dealing with these
effects.
On balance, we suspect that these legitimate interests
will not be shown to be enough to save the severance tax
from fatal conflict with the purposes behind the 1938 Act.
98a
A tax carefully tailored to effectuate the state’s legitimate
interests might survive. Washington v. Confederated
Tribes of Colville, 447 U.S. 134, 163, 100 S.Ct. 2069, 2089,
65 L.Ed.2d 10 (1980).
One further complexity deserves mention. West-
moreland is mining coal on the ceded strip. As dis-
cussed at p. 1107 supra, the ceded strip has been
severed from the reservation proper.’® That being the
case, the balance of responsibilities between state and
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