Though the Ute Indian tribe has the right to tax oil and gas production on tribal lands, its proposed 10 percent mineral severance tax shouldn't supersede state taxes, says Assistant Utah Attorney General Michael Quealy.
The Ute Tribal Business Committee, the eastern Utah tribe's governing body, proposed the tax in July, to be applied to the wellhead value of gas and oil and the gross receipts on the sale of other minerals. The tribe plans to put the tax into effect Nov. 1, following a Sept. 22 public hearing, said Wes Pettingill, director of the tribe's Energy and Mineral Resource Department.The tax is not only needed to fund tribal government, it also allows the tribe to control and protect its natural resources, Pettingill said.
"The land belongs to the Ute Indian tribe. It is their minerals. They do have their sovereign nationality," he said. "There are a number of other tribes that have charged or do charge a severance tax, so it isn't something that the Northern Ute tribe thought up out of the blue."
According to a legal notice published by the tribe this week, the tax would be levied in lieu of the state's 0.2 percent severance tax on oil and gas production, as well as various other state and local taxes applied on tribal trust lands within the Uintah-Ouray Reservation.
But Quealy said Friday the state will continue to assess its taxes unless it receives a court order forbidding it from doing so.
"If they want to go ahead and enact their tax, that's OK, but we don't feel it displaces the state tax," Quealy said.
Both Pettingill and Quealy agree that the tribe's authority to impose the tax was established by two U.S. Supreme Court decisions, Merrion vs. the Jicarilla Apache Tribe in 1982 and Kerr-McGee vs. the Navajo Tribe in 1985.
But Quealy is concerned that the tribe's decision could put oil and gas producers in a dual-tax situation that could discourage energy production on the reservation, a view that is shared by some producers.
"It could be possible that we would have to curtail our production there if we had to pay taxes both to the state and the tribe. It would be uneconomical to operate," said Wendell Carothers, controller for the Lomax Exploration Co., a Salt Lake-based energy exploration and development company.
Similar situations have already prompted legal challenges to states' taxing authorities on Indian lands from energy producers.
The Utes have agreed to hold in abeyance their 1986 lawsuit challenging the state's right to tax oil and gas production on tribal lands. In another case, involving Navajo land in southeastern Utah, it is an oil producer - Texaco - that is challenging the state's and San Juan County's tax authorities. But state attorneys hope to delay that trial until the U.S. Supreme Court decides on a similar case that originated on Jicarilla land in New Mexico.
The high court is expected to rule on the Cotton Petroleum Case sometime next spring, Quealy said.
It's apparent that millions of dollars are at stake in the Ute case, but so far it's impossible to determine how much. The tribe won't comment on what it expects to realize from the tax.
"It's substantial. It's in the millions," Pettingill said. He estimates that value of annual oil and gas production on the reservation is in excess of $50 million.