Indian Tax Suit Against Northern Border Raises Key Legal Issues

In a move that could have far-reaching legal repercussions for pipelines, producers and other companies operating on Indian lands, two affiliated Montana Indian tribes have brought a civil lawsuit in a tribal court seeking to collect more than $3 million in back taxes from Northern Border Pipeline.

The Fort Peck Assiniboine and Sioux Tribal Nation contend that Northern Border has failed to pay tribal taxes for two years on its Canada-to-Chicago pipeline system, which crosses tribal lands in the northern part of Montana. The 1,214-mile, 2.3 Bcf pipeline is owned by Northern Border Partners, a partnership of Enron Corp., Williams Energy Partners and TransCanada Pipelines.

"From the pipeline completion until recently, Northern Border honored all of its obligations. In fact, the lease has been fully paid, but the company has refused to honor its tax obligations for the past two years," said Tribal Chairman Arlyn Headdress. "We have tried repeatedly to negotiate a resolution of all issues, but have failed."

Headdress said the tax that Northern Border has refused to pay accounts for about 25% of the tribes' total annual revenue. The value of the tax until the lease ends in 2011 is approximately $13.8 million, he noted, adding that the tribes would have little reason to renew the lease if the taxes aren't paid up.

But Northern Border "[is] confident in our position that we have a strong [legal] basis for not paying the taxes," said pipeline spokeswoman Martha Sumner-Kenney, adding that "we will continue to work with the tribes to resolve the issue." She noted that Northern Border stopped paying the tribal taxes when Burlington Northern Santa Fe Corp., which operates 80 miles of railway on the tribes' land, challenged the tax in federal court two years ago. Before that, Northern Border had been paying tribal taxes since 1982, when much of the pipeline had been built, she noted.

In June, a U.S. District Court judge ruled that the tribes could not levy a "utility tax" on Burlington Northern, Sumner-Kenney said. The tribes have appealed the decision to the Ninth Circuit Court of Appeals. They are seeking to collect about $1.2 million in taxes a year from Burlington Northern.

These two legal cases could establish a precedent for commercial operations on reservations across the country, observes Reid Peyton Chambers, a tribal attorney in Washington, DC. "For the past 30 years, Congress and the executive branch have encouraged tribes to govern their own reservations and become economically self-sufficient," he noted. "An important part of that process involves the right of tribes to assess reasonable taxes on non-Indian businesses operating within the boundaries of their reservations. Yet, today we are seeing court rulings that some companies interpret as setting aside those rights. Clearly, much more decisive and definite action is needed [from the courts] if the tribes are to meet the goal of self-sufficiency desired by Congress and the president."

Existing law allows tribes to collect taxes from non-Indian businesses if any of four conditions are present, Chambers said. "If there is a consensual relationship with contracts and agreements over time, if a company's activities threaten public safety and welfare, if the enterprise's activity is on trust land, or if Congress has authorized the tax, [then] the tribes are legally entitled to assess and collect taxes. For both Northern Border and Burlington Northern Santa Fe, these conditions exist."

The lawsuit against Northern Border was filed in tribal court, according to Headdress, because the courts have held that issues concerning Native Americans that occur on tribal land should first be heard in tribal court.

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