When and Why are Fuel Distributors Taxed?

Wagnon v. Prairie Band Potawatomi Nation

The state of Kansas applies a tax to fuel delivered to non-Indian distributors who then deliver the fuel to gas stations in the Indian Nation. The Potawatomi Indian Nation argues that this is invalid under White Mountain Apache Tribe v. Bracker, which balances the state, federal and Indian Nation’s interests.

The Nation argues that because it bears the legal incidence of the tax (Chickasaw), and because (even if this is not the case) the tax arises because of the distributor’s actions while he is on the Nation’s land. The Court holds that the incidence of the tax falls on the distributor, demonstrated both by dispositive language in the statute, and by the distributors freedom to pass the burden of the tax along to the Nation or not, as he chooses. A determination by the state court is then discarded because of imprecise language, and because the statute has been altered since its ruling.

In response to the argument that the tax arises from on-reservation actions, the Court holds that statute clearly states that the tax arises because of the amount of fuel a distributor receives each month, and only if the distributor is the first recipient. Though the statute does tax “the use, sale or delivery of all motor vehicle fuels or special fuels which are used sold or delivered in this state for any purpose whatsoever,” this statement taken in the context of the entire statute cannot be read to tax the on-reservation transaction without allowing multiple taxation of the same fuel.

The dissent argues, among other things, that placing the burden on the distributor only avoids the “categorical bar” on imposing a tax directly on a nation or its Tribal members, and that Chickasaw indicated this would bring about the balancing test that the majority holds is not applicable, rather than avoid it. There is then some defense of balancing tests per-se and an evaluation of the Appeals Court’s application of the balancing test in Brakcer.