## Facts

- The Jicarilla Apache Tribe leased reservation lands in New Mexico to Cotton Petroleum Corporation, a non-Indian oil and gas producer, under the Indian Mineral Leasing Act of 1938.
- Cotton’s on-reservation oil and gas production was subject to a 6% tribal severance tax and New Mexico severance taxes totaling about 8%, imposed generally on producers statewide.
- Cotton paid New Mexico’s taxes under protest and challenged them, asserting federal preemption and a dormant Commerce Clause violation, emphasizing that state tax collections on reservation production greatly exceeded the value of state services connected to that activity.
- The Tribe, as amicus, argued that allowing state taxation would reduce the competitiveness of reservation leases and constrain the Tribe’s ability to raise revenue through its own taxes.
- The New Mexico trial court upheld the taxes, finding New Mexico provided substantial services to the Tribe and Cotton, that tax revenues need not match expenditures, and that the legal and economic incidence fell on Cotton rather than the Tribe.
- The New Mexico Court of Appeals affirmed.
- The Supreme Court noted probable jurisdiction and requested briefing on whether the Commerce Clause requires treating a tribe as a “State” for tax apportionment purposes when both a state and tribe tax the same activity.

## Issues

1. Whether federal law governing Indian mineral leasing and regulation preempts New Mexico’s nondiscriminatory severance taxes imposed on a non-Indian lessee’s on-reservation oil and gas production.
2. Whether New Mexico’s taxes violate the dormant Commerce Clause because (a) they are not fairly related to services provided and create multiple taxation when combined with the tribal tax, and (b) the Tribe must be treated as a “State” for apportionment and multiple-burden analysis.

## Decision

- The Court held that New Mexico may impose its nondiscriminatory severance taxes on Cotton’s on-reservation production even though the same production is also taxed by the Tribe.
- The Court rejected the federal preemption challenge, concluding Congress had not expressly or impliedly barred state taxation of non-Indian lessees in this context.
- Applying a fact-specific balancing approach, the Court found the combined federal, tribal, and state interests did not warrant invalidating the state taxes.
- The Court rejected a constitutional requirement that the amount of tax be proportional to the value of governmental services associated with the taxed activity.
- The Court rejected the argument that the Commerce Clause requires apportionment of the state tax to account for the Tribe’s tax, declining to treat tribes as “States” for this purpose.
- The Court held that overlapping taxation by distinct sovereigns is not inherently unconstitutional and that New Mexico’s tax, as a generally applicable and nondiscriminatory levy, satisfied Commerce Clause standards.

## Legal Principles

- State taxes imposed on non-Indians for on-reservation activity are generally valid if nondiscriminatory, unless Congress has expressly or impliedly preempted them.
- Preemption in this context turns on a particularized assessment of federal, tribal, and state interests, including the degree of interference with tribal self-government and federal regulatory aims.
- The Constitution does not require a strict equivalence between tax revenues collected and the monetary value of services provided by the taxing jurisdiction.
- The dormant Commerce Clause does not require a state to apportion its tax to offset a tribe’s concurrent tax on the same on-reservation activity, and tribes are not treated as “States” for that apportionment inquiry.
- Multiple taxation by separate sovereigns is not per se invalid; the key Commerce Clause inquiries include nondiscrimination and an adequate connection between the taxed activity and the taxing jurisdiction.

## Conclusion

The Court upheld New Mexico’s generally applicable severance taxes on a non-Indian company’s on-reservation oil and gas production, ruling that federal law did not preempt the taxes and that the dormant Commerce Clause neither demands proportionality to state services nor requires apportionment to account for concurrent tribal taxation.


Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989)