2003 SD 21 | S.D. | 2003
LOREN POURIER, d/b/a MUDDY
CREEK OIL AND GAS, INC., and
MUDDY CREEK OIL AND GAS, INC.,
Plaintiffs and Appellants,
v.
SOUTH DAKOTA DEPARTMENT OF REVENUE,
Defendant and Appellee.
[2003 SD 21]
South Dakota Supreme Court
Appeal from the Circuit Court of
The Sixth Judicial Circuit
Hughes County, South Dakota
Hon. Steven L. Zinter, Judge
VANYA S. HOGEN of
Faegre & Benson LLP
Minneapolis, Minnesota
FRANK LAWRENCE of
Holland & Knight LLP
Los Angeles, California
Attorneys for plaintiff and appellants.
LAWRENCE E. LONG
Attorney General
DAVID D. WIEST
Assistant Attorney General
Pierre, South Dakota
Attorneys for defendant and appellee.
MARIO GONZALEZ
Pine Ridge, South Dakota
TRACY A. LABIN
Washington, DC
Attorneys for Amicus Curiae
Oglala Sioux Tribe.
Argued November 19, 2002
Opinion Filed 2/26/2003
SABERS, Justice
FACTS
[¶2.] Muddy Creek is licensed by South Dakota as a fuel importer, exporter, marketer and distributor. It is also licensed by the Oglala Sioux Tribe to do business on the reservation, but does not hold a Federal Indian Trader license.
[¶3.] Muddy Creek purchases fuel at a terminal rack in Nebraska and trucks the fuel onto the reservation with its own tanker trucks. The corporation sells the fuel at its retail gas station on the reservation. It is apparently undisputed that approximately 90% of the purchasers are Indians who reside on the reservation.
[¶4.] South Dakota taxes motor fuel at in-state terminal racks and on importation. SDCL 10-47B-5 and 10-47B-6. Since Muddy Creek bought its motor fuel at an out-of-state terminal rack, it was taxed as an importer and was liable for the tax at the point of importation, regardless of use of the fuel once it entered the state.[1] Muddy Creek has paid the tax under protest since 1995. Pourier testified that he did not pass the tax through to his customers, but evidence at the administrative hearing led the circuit court to the finding that the tax was passed on to the consumers. Specifically, sales to the federal government are exempted from the state motor fuel tax. According to Muddy Creekâs own accounts and returns, the government paid 22 cents less per gallon than the pump price. If Muddy Creek were not passing the tax on to the consumer, no such reduction from the pump price for the federal government would have been necessary.
[¶5.] Muddy Creek claims it is entitled to a refund of approximately $940,000.00 for taxes paid since July 1995. The claim is based on the assertion that the State is taxing an Indian on an Indian reservation without explicit congressional authorization. The circuit court held that the Hayden-Cartwright Act of 1936 provided the necessary authorization for the imposition of the motor fuel tax. Muddy Creek appeals raising the following issues:
1. Whether the Hayden-Cartwright Act expressly permits state taxation of motor fuel sales to tribal members by a Native American corporation operating on an Indian reservation.
2. Whether Muddy Creek bears the legal incidence of the fuel tax.
3. Whether the Stateâs motor fuel taxation scheme deprived Muddy Creek of procedural due process.
4. Whether State statutes of limitation bar a challenge to an illegal tax in this case.
STANDARD OF REVIEW
[¶6.] SDCL 1-26-36 provides our standard of review for administrative appeals. The statute
requires us to give great weight to the findings and inferences made by the [agency] on factual questions. We examine agency findings in the same manner as the circuit court to decide whether they were clearly erroneous in light of all of the evidence. If after careful review of the entire record we are definitely and firmly convinced a mistake has been committed, only then will we reverse. Questions of law, of course, are fully reviewable.
Sopko v. C & R Transfer Co., Inc., 1998 SD 8, ¶6, 575 NW2d 225, 228 (internal citations omitted). Questions requiring application of a legal standard are reviewed de novo. Voeltz v. John Morrell & Co., 1997 SD 69, ¶9, 564 NW2d 315, 316.
[¶17.] The Act was a floor amendment to the Federal Aid Highway Act legislation of 1936. The language was added to the Act because of a âcomplaint in many parts of the country about the inability of the States to collect revenue on gasoline sold on Government reservations not for governmental use.â 80 CongRec 6913 (statement by Senator Hayden). The legislative history of the Act contains no reference to either Indians, Indian reservations, or licensed Indian traders. This absence of comment on Indian taxation is significant since âsome mention would normally be expected if such a sweeping change in the status of tribal government and reservation Indians had been contemplated by Congress.â Bryan v. Itasca County, 426 US 373, 381, 96 SCt 2102, 2107, 48 LEd2d 710. In fact, language found in the legislative history seems to indicate that Congress was primarily concerned with federal officials on federal reservations being immune from state taxation of motor fuel used for personal rather than governmental purposes. There is no indication Congress was concerned with tribal members being exempt from state fuel taxes. The Department cites a statement by a representative who was a member of the Conference Committee as proof of intent to tax Indians. However, that statement is more indicative of the committeeâs concern over federal officials or employees personally reaping the benefit of federal tax immunity:
In Post Exchange stores and on Government reservations, gasoline and motor vehicle fuel is being sold free from local taxes. The conferees believe that all local taxes should be collected except when the gasoline or motor vehicle fuels are for the exclusive use of the United States. The privilege should not be extended to officials or employees when not in the actual discharge of their official duties. The conferees agreed, therefore, to provide for the collection of all taxes levied by any State, Territory or District upon the sale of gasoline or other motor vehicle fuel, except when for the exclusive use of the United States.
80 CongRec 8701 (1936) (emphasis supplied). Contrary to the Departmentâs assertion, this language seems to refer more to government officials than Indian tribes or tribal members. Even if it does not, this language is far from sufficient to show clear legislative intent to abrogate Indian tax immunity. The vague language of the Act, and Congressâ failure to even address Indian tax immunity either in the Act or the legislative history, lead us to the conclusion that it failed to manifest unmistakably clear intent to abrogate Indian tax immunity.[3] The circuit courtâs decision on this issue is reversed.
[¶18.]
- WHETHER MUDDY CREEK BEARS THE LEGAL INCIDENCE OF THE TAX.
GILBERTSON, Chief Justice (concurring specially).
[¶44.] I join in the Courtâs opinion. I write specially only to address remand procedures which this Courtâs decision now authorizes.
[¶45.] One hundred years ago, the United States Supreme Court struck down the first attempt by the State of South Dakota to levy a tax on personal property owed by Indians who resided in Indian country. United States v. Rickert, 188 US 432, 23 SCt 478, 47 LEd 532 (1903). However, the Court merely struck down the attempted taxation and the subject of refunds was never addressed.
[¶46.] More recent taxation cases between the State and various opponents to its taxation attempts have dealt with the refund issue. Generally, state statutes of limitation such as SDCL 10-47B-141, seeking to limit the time for application of refunds, have not fared well in this context. In United States ex rel. Cheyenne River Sioux Tribe v. South Dakota, 105 F3d 1552 (8thCir 1997), cert. denied, 522 US 981, 118 SCt 441, 139 LEd2d 378 (1997), the district court was reversed for not allowing a monetary refund of motor vehicle excise taxes paid by tribal members. The Eighth Circuit reasoned that a refund was appropriate to tribal members if paid under duress when the stateâs tax was determined to be invalid â¢because it [is] beyond the Stateâs power to imposeâ or âbecause the taxpayers were absolutely immune from the tax.ââ Id. at 1560 (citing McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, 496 US 18, 39, 110 SCt 2238, 2251-52, 110 LEd2d 17 (1990)) (additional citations omitted). Thus, ââthe State must âundoâ the unlawful deprivation by refunding the tax previously paid under duress.ââ Id.
[¶47.] The United States Supreme Court had previously held in McKesson that if a taxpayer was absolutely immune from a tax, it would be a violation of the Fourteenth Amendment to allow the State to retain taxes previously paid under duress without any obligation to refund such unlawfully collected taxes. McKesson, 496 US 18, 39, 110 SCt 2238, 2251, 110 L Ed2d 17 (1990)). In reliance upon McKesson, the Cheyenne Court further refined its ruling by stating that:
[t]axes that are voluntarily paid because of mistake of law cannot be recovered back, but taxes paid under duress or coercion are recoverable, and state refund procedures do not limit such recovery.
Id. at 1561 (internal citations omitted).
[¶48.] The refund issue again arose in United States ex rel. Cheyenne River Sioux Tribe v. South Dakota, 102 FSupp2d 1166 (DSD), which was the remand proceeding from the Cheyenne Eighth Circuit case. Therein, the district court concluded the excise taxes were paid ââunder duress or coercionââ as the âState did not provide a pre-deprivation procedure to challenge the tax and failure to pay the tax subjected tribal members to criminal penalties.â Id. at 1172. The district court cast aside the Stateâs argument that SDCL 10-59-19 governed the time for allowable refunds in favor of the longer 28 USC 2415(a). Id. at 1174. However, that decision hinged on the fact the United States was the plaintiff rather than individual Indians seeking refunds. While the door was not completely closed precluding the application of state statutes of limitation, the district court held that a state statutes of limitation may apply to a federal claim which is analogous to a state cause of action only if there is no applicable federal statutes of limitation and the state statutes of limitation âwould not be inconsistent with underlying federal policies.â Id. (citing Oneida County v. Oneida Indian Nations, 470 US 226, 240-42, 105 SCt 1245, 1254-56, 84 LEd2d 169 (1985)). Therein, the Court applied 28 USC 2415(a) because it concluded the State would be unjustly enriched if it were allowed to keep the illegal collection of the excise tax from tribal members. Cheyenne River, 102 FSupp2d at 1174. See also United States ex rel. Standing Rock Sioux Tribe v. Janklow, 103 FSupp2d 1146, 1155 (DSD 2000).
[¶49.] Thus upon remand, the trial court in this case should determine whether those tribal members[5] paid under coercion and duress and thus are entitled to be considered for a refund. That will also affect whether SDCL 10-47B-131.2 can stand as a valid statute of limitation. If those legal matters are resolved in favor of the tribal members, the trial court should proceed to resolve evidentiary matters concerning the individual claims.
KONENKAMP, Justice (concurring in part and dissenting in part).
[¶50.] I agree that SDCL 10-47B-131.2 permits âconsumersâ to apply for and obtain a refund of motor fuel taxes if a court finds, as we have, that taxation is preempted by federal law. Consumer claimants have not yet made a claim, of course, and, if they do, the question of the statute of limitations should be decided then. Todayâs decision impugns the wise principle that courts must await whatever controversies may arise and decline to reach disputes not before them. The only claim before us is the one sought by Muddy Creek.
[¶51.] All refund claims that Muddy Creek submitted before December 17, 1997 are untimely. SDCL 10-47B-141 limits the time a claimant can obtain a motor fuel tax refund to fifteen months:
Any claim for refund of motor fuel or special fuel tax shall be received by the department within fifteen months of the date the fuel was originally purchased in order to be accepted for refund. Fuel purchased more than fifteen months from the date the claim is received is forever barred from refund eligibility.
The only valid refund Muddy Creek is entitled to is the one for tax paid on its own use of motor fuel on the reservation for the period of December 17, 1997 through December 1999. That period is the one for which Muddy Creek made a timely demand. All prior claims are foreclosed in accord with SDCL 10-47B-141 and are âforever barred from refund eligibility.â
[¶52.] Nonetheless, the Court bypasses this statute, throwing open the Stateâs treasury not only to Muddy Creekâs claims but to all claims to be made in the future by consumers, without regard to any time limitation. This Court has neither the right nor the justification to initiate its own administrative proceedings on behalf of these consumers in order to prejudge the future timeliness of their claims for tax relief against the State. The controversy is not ripe for decision because we do not know how far back claims will be made by consumers or how long in the future the right to make those claims will or should remain open.
[¶53.] The Court relies on the decision of Hough v. Perkins County, 72 SD 236, 32 NW2d 632, 633 (1948) to declare that South Dakotaâs fifteen month limitations period for seeking a refund on motor fuel tax is âinoperativeâ and thus âthe limitation periods imposed by the motor fuel taxation scheme are inapplicable in this case.â But, for the record, Hough had nothing to do with tax refunds. And that case upheld the statute of limitations. At best, Hough only stands for the proposition that certain defects in a tax deed are jurisdictional against which a statute of limitations is necessarily inoperative. See also Cornelius (Lynch, Intervener) v. Ferguson, 23 SD 187, 121 NW 91, 93. Hough follows a long line of South Dakota cases standing for the rule that persons cannot be deprived of their real property through the sale of a tax deed if the defects in the process of obtaining the deed are so serious as to deprive owners of their property without due process of law. Here, with respect to refunds on motor fuel tax, South Dakota taxpayers have not been deprived of due process. They have a right to seek a refund within a reasonable time.
[¶54.] All in all, the holding in Hough is very different from todayâs fiat declaring that the State cannot set a reasonable limit on a motor fuel tax refund claim. On the contrary, the United States Supreme Court has specifically authorized reasonable procedural limitations, including ârelatively short statutes of limitationâ applicable to tax refund claims. McKesson Corp. v. Division of Alcoholic Beverages, 496 US 18, 45 (1990). The Supreme Court acknowledged this vital issue in dealing with tax refunds, endorsing a Stateâs âexceedingly strong interest in financial stability.â Id. at 37. Granted, there is an element of injustice in cutting off the right to seek tax refunds for taxes illegally collected. But statutes of limitations always cut off what may otherwise be just claims. They balance the right to redress against the specter of endless liability. In tax refund cases, to deny such limitations would devastate the Stateâs budgetary planning process.
[¶55.] Since the issue of future consumer claims was never briefed or decided at any level in these proceedings, the matter is simply not appropriate for decision. As Learned Hand would counsel, a court should move cautiously before taking so drastic a step as to prejudge a controversy not before it. Therefore, I concur on Issues 1 and 2, but dissent on Issues 3 and 4.
[¶56.] AMUNDSON, Retired Justice, joins this special writing.
[1] . SDCL 10-47B-6 provides:
A fuel excise tax is imposed on all motor fuel or special fuel, except unblended ethyl alcohol, imported into this state in the bulk cargo area of any motor vehicle, vessel rail car, or trailer by any means other than through a terminal located in this state, upon its entry into this state[.]
[2] . The State of South Dakota argues persuasively that it is responsible for construction and maintenance of the major paved highways (US Highway 18 and South Dakota Highway 407) on the Pine Ridge Reservation. State urges that this expense justifies the motor fuel tax on the reservation. We agree that the expense may justify the tax, but it does very little to make âunmistakably clearâ the intention of Congress to permit taxation on Indian reservations.
3. This Court does not stand alone in coming to this conclusion. Three courts have rejected essentially the same arguments advanced by the State in this case. See, Goodman Oil Co., 28 P3d 996; Coeur D'Alene Tribe v. Hammond, 224 FSupp2d 1264 (DIdaho 2002). The third case, Prairie Band Potawtomi Nation v. Richards, 2003 WL 136197, ___FSupp2d____ (DKan 2003), was handed down subsequent to oral arguments in this case.
4. The Department does not appear to contest the fact that the incidence of the tax falls upon either the Tribe or its members. Rather, the Department argues that because Muddy Creek does not bear the legal incidence, it, as opposed to the consumers, is not entitled to a refund. This is significant because if the State concedes that the incidence falls upon the Tribe or its members, the per se presumption against taxation applies because the majority of consumers are members of the tribe residing on the Indian reservation.
[5] . The immunity from tax does not extend to Indians who are members of a different tribe. Cheyenne River, 105 F3d at 1559.