The Oklahoma Supreme Court has scheduled oral arguments in the case of Stroble v. Oklahoma Tax Commission. Justices will decide whether the state can tax tribal citizens employed by their respective tribes within the boundaries of tribal reservations in Oklahoma. State taxation in Indian country presents complex jurisdictional challenges for all stakeholders in this ever-evolving landscape.
On the surface, this case may seem like a straightforward application of McClanahan v. State Tax Commission of Arizona, a U.S. Supreme Court decision that is now five decades old. In the McClanahan case, the Supreme Court ruled that a state cannot impose taxes on the income of a Native American residing within a reservation when that income is derived from activities conducted within the reservation. The issue arose when Arizona attempted to tax the income of Mrs. McClanahan, a citizen of the Navajo Nation. The Court reasoned that tribal reservations are regarded as domestic, dependent nations, and unless Congress explicitly authorizes state taxation of reservation income, such taxation is not permissible. As she derived her income from activities conducted within the reservation, the tribe’s treaties and federal law prohibited Arizona from taxation.
In the current case, Alicia Stroble, a citizen of the Muscogee Nation, sought an income tax refund from Oklahoma for the years 2017, 2018, and 2019 following the U.S. Supreme Court’s 2020 decision in McGirt v. Oklahoma. McGirt established that the Muscogee Nation’s reservation remains intact. Other decisions followed based on nearly identical treaty language, including the Cherokee, Chickasaw, Choctaw, and Seminole Nations, and smaller tribes such as the Peoria, Quapaw, and Ottawa. These reservations encompass almost all of eastern Oklahoma and comprise about 44% of the state.
Consistent with McClanahan, Oklahoma’s tax regulations explicitly prohibit the state from collecting income taxes from individuals who meet the following criteria:
- tribal citizenship,
- income derived from work for their respective tribe
- residence within the Indian country of their tribe, including formal reservations
In Stroble, there is no dispute concerning the first two elements, nor is there any contention regarding her residence within the boundaries of the Muscogee Nation’s reservation. Rather, the dispute’s crux lies in the contrasting definitions of “Indian country”: the definition of “reservation” used in federal criminal law in contrast to the “formal reservation” terminology used within Oklahoma’s state tax regulations for the purpose of establishing the residency element.
On one hand, the federal Major Crimes Act says that all land within the boundaries of any reservation is defined as Indian country. This definition is widely adopted in federal Indian country laws. Oklahoma, however, argues that the Major Crimes Act’s definition of Indian only relates to federal criminal law, and is only applicable to state statutes or regulations when expressly adopted. For state income taxation purposes, Oklahoma contends that “formal reservation” is confined to specific land held in trust by the U.S. government. In essence, Oklahoma’s argument implies that many, if not all, reservations in eastern Oklahoma would be considered “Indian country” for criminal jurisdiction purposes but not for state taxation.
At first blush, Oklahoma’s position seems odd. After all, when considering the three primary categories of Indian country—reservations, restricted or trust lands, and dependent Indian communities— courts typically hold reservations as the most quintessential form of Indian country. Reservations, by tradition, embody the very essence of what we perceive as Indian country—land set aside for Native American governments under the superintendence of the United States. That said, the path to this argument was paved by the Supreme Court in McGirt.
While Oklahoma interprets the Indian country definition more restrictively than the Major Crimes Act definition, it leverages the foundation laid by the McGirt decision. McGirt confines itself primarily to the context of the Major Crimes Act, and explicitly states that it does not mandate other civil state statutes or regulations to adhere to definitions inherent in federal criminal law.
Moreover, in the subsequent case of Oklahoma v. Castro-Huerta, the U.S. Supreme Court overturned the presumption against state jurisdiction. It held that, unless Congress acts to preempt state jurisdiction, states can assert criminal jurisdiction within Indian country against non-Indians. This stance continues the trend noted by Justice Thurgood Marshall in McClanahan, moving away from the idea of inherent Indian sovereignty as a bar to state jurisdiction and toward a greater reliance on federal preemption.
Federal preemption of state law in Indian country can come either implicitly or explicitly from federal law or by employing a balancing test weighing state, tribal, and federal interest set forth in White Mountain Apache Tribe v. Bracker. No doubt this case underscores the fundamental tension between state interests in taxation and the tribal interest in the preservation of tribal sovereignty. Still, Stroble’s resolution of state taxation in Indian country may extend beyond mere collection of state revenue. It could touch upon broader questions of tribal sovereignty, federal-state relations, and the harmonious coexistence of diverse legal systems.
The case also highlights the importance of federal law and Supreme Court precedent in shaping the contours of this delicate balance in the field of Native American affairs. Recently, nowhere else has that been truer than in Oklahoma. Stroble’s resolution next year (and inevitable appeal to the U.S. Supreme Court) will give that Court a broader opportunity to expand or contract tribal and state sovereignty interests as it did in McGirt and Castro-Huerta. Both were five-to-four decisions going in different directions. Stay tuned.
The case is set for oral argument before the Court en banc commencing at 10:00 a.m. on January 17, 2024, in the Courtroom of the Oklahoma Supreme Court, located on the second floor of the State Capitol. Check the Oklahoma Supreme Court Network website closer to the argument date for information on whether there will be live video of the argument on the internet.
For more information on Stroble and the recent Supreme Court decisions regarding tribal jurisdiction, please contact Randall J. Yates or another member of the firm’s Indian Law & Gaming Practice Group.