New Mexico Reacts to Taxing Gas on Indian Reservations

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New Mexico Reacts to Taxing Gas on Indian Reservations

NEW MEXICO -- Despite a U.S. Supreme Court ruling last week allowing states to impose taxes on fuel sold on Indian reservations, New Mexico officials say the ruling will not impact gasoline tax for the Navajo Nation, reported New Mexico’s The Daily Times .

The recent ruling came in the form of a 7-2 decision in favor of Kansas, in a case pitting the state against the Potawatomi Nation. The issue was whether the state could impose a 24 cents per gallon tax on motor fuel sold to a reservation gas station by non-Indian wholesalers. The Potawatomi Nation contended that the tax was an infringement of tribal sovereignty.

For the Navajo Nation, the possibility of consumers paying a state tax on fuel bought on the reservation isn't too much of an issue because of an existing fuel tax agreement between the tribe and the three states where reservation gas is sold, Mark Graham, Navajo Tax Commission executive director, told the newspaper. The tax has been imposed since 1999.

A New Mexico state official acknowledged the agreement. "We already created a set of deductions that would prevent double taxation of gasoline on tribal land," Kelley O'Donnell, New Mexico tax policy director, told The Daily Times . Currently, the Navajo Tribe has an 18 cents per gallon tax on gasoline which is 1 cent higher than New Mexico's per gallon of unleaded fuel tax.

The tribe raises about $11.2 million a year from its fuel tax, Graham said in the report.

He added that the Navajo fuel tax is applied by the distributor and the wholesaler receives a state tax exemption once they provide the state with the information that the fuel is going to reservation fueling stations, reported The Daily Times .

As a result, people who buy gas from reservation or non-reservation fueling stations pay only one tax.

The Potawatomi Nation did place a 20 cents per gallon tax on fuel sold on the reservation, but didn't have an agreement with Kansas, whose gas tax is 24 cents per gallon, according to court documents.

One central issue in the case was that because the two taxes were similar, it kept the fuel market competitive with neither the tribe nor the state undercutting the other entity as a result, court documents state.

"To tell you the truth, this ruling doesn't come as a great surprise," O'Donnell said in the report. "The refiner and the distributor weren't Native American."

According to the opinion written by Justice Clarence Thomas, that was one of the reasons the court sided with the state.

"Kansas law makes clear that it is the distributor, rather than the retailer, that is liable to pay the motor fuel tax," Thomas wrote.

In addition, the transaction of purchased gasoline takes place off the reservation and Kansas law is written to where the distributor is responsible for the motor fuel tax and can "pass along the cost of the tax to downstream purchasers," Thomas wrote.

O'Donnell said in the report that New Mexico doesn't currently have any interest in pursuing any changes in the current fuel tax agreement between the Navajo Nation and the state.

"It's not the state's place to create economic disadvantage ... that doesn't do any of us any good," she told The Daily Times .