Citations
- 775 F. Supp. 2d 1259
Full opinion text
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND MEMORANDUM OPINION
JAMES A. PARKER, Senior District Judge.
Background
The State of New Mexico levies five taxes on oil and gas operations throughout New Mexico, including operations on the Ute Mountain Ute Reservation, that lies partly within the State of New Mexico along New Mexico’s border with Colorado. On August 10, 2007, the Ute Mountain Ute Tribe (“UMUT”) filed a Complaint (Doc. No. 1) against the Secretary of the Taxation and Revenue Department for the State of New Mexico. The Complaint is divided into three claims for relief. Under the First Claim for Relief, the UMUT alleged that the imposition of the state taxes violates federal common law, the federal right of the UMUT to self-determination, and the Supremacy Clause of the United States Constitution. In the Second Claim for Relief, the UMUT asserted that the State of New Mexico’s imposition of an ad valorem property tax on oil and gas production equipment violates the Fourteenth Amendment and the Enabling Act of June 20, 1910 in which the State of New Mexico disclaimed any taxing jurisdiction over lands held by the United States of America for the benefit of tribes. In the Third Claim for Relief, the UMUT sued under 42 U.S.C. § 1988 claiming that the State of New Mexico taxes deprive individual Ute Mountain Ute Tribal members of their “property rights and the privileges and immunities secured to them under federal law and the Constitution.” The UMUT seeks an injunction prohibiting the State of New Mexico from imposing the five state taxes on operations on UMUT’s lands in New Mexico.
In a Memorandum Opinion and Order (Doc. No. 15) filed February 4, 2008, the Court denied Defendant’s Motion to Dismiss (Doc. No. 7) as to the First Claim for Relief and the Second Claim for Relief, but granted the Motion to Dismiss as to the Third Claim for Relief and, therefore, dismissed with prejudice the UMUT’s Third Claim for Relief under 42 U.S.C. § 1983 and its accompanying claim for attorney’s fees under 42 U.S.C. § 1988.
On May 6 through May 8, 2009, the Court held a non-jury trial on the UMUT’s remaining claims. Following the presentation of all evidence, the Court issued proposed Findings of Fact based on the evidence introduced at trial. Counsel were permitted to and did submit written comments and suggestions on the Court’s proposed Findings of Fact. After taking the comments and suggestions into account, the Court provided counsel with the Court’s final Findings of Fact (which were not docketed at the time). The Court then permitted counsel to submit briefs on the law as it related to the Court’s final Findings of Fact. The parties have now submitted briefs on the law, which the Court found to be helpful and which the Court has taken into account.
In accordance with Fed.R.Civ.P. 52(a), the Court makes the following FINDINGS OF FACT AND CONCLUSIONS OF LAW.
FINDINGS OF FACT
The UMUT and Its Reservation
1. The UMUT is a federally recognized Indian Tribe.
2. A person is eligible to be an enrolled member of the UMUT if the person is at least 50% Ute Mountain Ute by blood.
3. There are currently slightly more than two thousand enrolled members of the UMUT.
4. A reservation for the UMUT (“Reservation”) — and reservations for other Ute Indians — were first established by treaty in 1868. Treaty Between the United States of America and the Tabeguache, Muache, Capote, Weeminuche, Yampa, Grand River, and Uintah Bands of Ute Indians, Mar. 2, 1868, 15 Stat. 619; Cuthair v. Montezuma-Cortez, Colo. Sch. Dist. No. RE-1, 7 F.Supp.2d 1152, 1158 (D.Colo.1998) (Weeminuche band of Ute Indians now known as UMUT).
5. The Reservation was decreased in size by the Brunot Agreement, which Congress ratified in 1874, Act of Apr. 29, 1874, 18 Stat. 37, and again by a second agreement ratified by Congress in 1880, Act of June 15,1880, 21 Stat. 199.
6. The Reservation is a hybrid treaty/statutory reservation; it is not an executive reservation.
7. The Reservation lies mainly in the State of Colorado, but also lies partly in the State of Utah and partly in the State of New Mexico.
8. The headquarters of the UMUT are in Towaoc, Colorado.
9. The present eastern and southern boundaries of the New Mexico portion of the Reservation (“New Mexico lands”) were fixed by Congress in 1895. Act of Feb. 20,1895, 28 Stat. 677.
10. The New Mexico lands are bounded on the north by the New Mexico-Colorado state line.
11. The present western boundary of the Reservation in New Mexico was fixed in a quiet title action in the United States District Court for the District of New Mexico between the UMUT and the Navajo Tribe. Navajo-Ute Boundary Dispute Act of 1968, Pub. L. 90-256 (Feb. 14, 1968) (giving district court jurisdiction over the action); Ute Mountain Tribe of Indians v. Navajo Tribe of Indians, 409 U.S. 809, 93 S.Ct. 68, 34 L.Ed.2d 70 (1972) (affirming judgment of the district court).
12. The New Mexico lands consist of all sections in Townships 31 and 32 North in Ranges 14 and 15 West of the New Mexico Principal Meridian, and the easternmost two-thirds of the sections in Townships 31 and 32 North in Range 16 West of the New Mexico Principal Meridian.
13. The New Mexico lands are unallotted. Act of Feb. 20,1895, 28 Stat. 677.
14. No part of the New Mexico lands is held privately in fee.
15. The New Mexico lands are held in trust for the UMUT by the United States.
16. No member of the UMUT resides in the New Mexico lands.
17. No other person resides in the New Mexico lands.
18. Tribal members can choose to reside in the New Mexico lands, subject to approval by the UMUT.
19. The only economic activities on the New Mexico lands are grazing and extraction of oil and natural gas.
20. The only roads in the New Mexico lands are unpaved roads.
21. There is no other transportation infrastructure, such as rail lines or air strips, on the New Mexico lands.
22. Members of the UMUT use the unpaved roads in the New Mexico lands for gathering wood and running livestock; and oil and gas operators use the unpaved roads for survey and for access to their wells and equipment.
23. Access to the unpaved roads is primarily from New Mexico state roads.
24. The UMUT and the Bureau of Indian Affairs (“BIA”) share jurisdiction over the roads in the New Mexico lands.
25. The roads in the New Mexico lands are maintained in part by the UMUT and in part by the oil and gas operators.
26. Before an oil and gas operator creates a new unpaved road on the New Mexico lands for survey purposes, the operator must have approval from the BIA.
27. Before an oil and gas operator creates or modifies a road on the New Mexico lands for drilling or maintenance purposes, the operator must have approval from the Bureau of Land Management (“BLM”).
28. The State of New Mexico plays no part in the creation, maintenance, or approval of roads on the New Mexico lands.
Oil and Gas Operations in General
29. Oil and natural gas lie in reservoirs underneath the surface of the earth.
30. In many circumstances, multiple distinct operators have a leasehold or other property interest that grants them the right to extract oil and/or natural gas from the same reservoir.
31. In that circumstance, the rights are correlative: one operator’s exercise of its right to extract oil or natural gas affects the amount and location of the resource in the reservoir and as a result affects the rights of the other operators in the same reservoir.
32. In the absence of constraints on production, multiple operators extracting oil or natural gas from a common reservoir will race to extract the resource as quickly as possible.
33. This race to extract can cause economic waste of the oil or gas resource, either from depressed market prices or from storage costs.
34. This race to extract can also cause physical waste of the oil or gas resource by decreasing pressure in the reservoir or by causing the resource to flow into other areas, making extraction impossible or inefficient.
35. Defects in well design or integrity can also cause waste of the resource by allowing escape of the resource or by allowing water into the reservoir.
36. Historically, waste has been addressed through private agreements or statutory provisions, known as pooling or unitization, that treat a reservoir as a common resource and constrain the operators extracting oil or gas from it.
37. The constraints are typically in the form of well spacing, setbacks, and limits on the rate of production from a well.
38. In addition to addressing waste, these constraints allow each operator to receive the operator’s just and equitable share of the reservoir.
39. Statutes may provide for compulsory or forced pooling where the operators are unable to come to agreement.
40. Pools can grow or shrink as new resources are discovered or existing ones are depleted.
41. Two pools can become connected through discovery of resources between them.
42. Extraction of oil and gas often involves extraction of groundwater as a byproduct, known as “produced water.”
43. Produced water is typically alkaline and not usable for municipal or agricultural purposes; it is also potentially a pollutant.
44. Operators often dispose of produced water by injecting it into wells.
45. Injection of produced water can make oil remaining in a reservoir easier to extract.
46. If produced water is not injected correctly, a formation or a zone can be fractured, resulting in waste of the resource or contamination of groundwater.
47. When revenues from a producing well have repaid the expense of drilling it, the well is said to have reached “payout,” a term used later in these Findings of Fact.
New Mexico Regulation of Oil and Gas
48. The Oil and Conservation Division of the New Mexico Energy, Minerals, and Natural Resources Department (“NMOCD”) is responsible for regulation of oil and gas operations in the State of New Mexico.
49. The primary mission of NMOCD is to prevent waste and to protect correlative rights; in regulating oil and gas operations, NMOCD also seeks to protect public safety and health.
50. NMOCD does so in part by defining oil and gas pools and setting well spacing and well setbacks.
51. When operators are not able to agree on pooling or spacing, NMOCD sometimes issues an order forcing pooling after a public hearing in which the affected operators had the opportunity to participate.
52. NMOCD also seeks to prevent waste by regulating production and transportation of oil and natural gas.
53. Operators may request approval from NMOCD for commingling, which includes extracting oil or gas in a single well from multiple strata.
54. Commingling can cause production issues where, for example, natural gas in one stratum contains much more hydrogen sulfide or water than natural gas in another stratum.
55. NMOCD approval for commingling may be given in an administrative order or may be decided at a hearing.
56. Operators may request approval from NMOCD for infill, which is adding a second or third well to a spacing unit in order to drain the unit more efficiently.
57. Operators may request approval from NMOCD for non-standard well locations.
58. NMOCD hearings are conducted by administrative law judges, who can require evidence to be produced.
59. In NMOCD hearings, geologic evidence is usually presented by the operators, but may also be presented by other interested parties.
60. NMOCD sets standards for casings, the steel pipe and surrounding cement used to construct a well.
61. Casing defects can cause problems that include blowout of a reservoir, mixing of flow from other zones with a reservoir, contamination of groundwater, and escape of hydrogen sulfide.
62. NMOCD requires operators in New Mexico, including operators extracting oil and gas on the New Mexico lands, to file forms for applications for permits to drill, for sundry notices, for plugging abandoned wells, and for various reports on wells, including well completion or recompletion reports. Under December 1, 2008 amendments to NMOCD regulations the operators on federal, public, or tribal lands must use BLM forms for these purposes, but the forms remain subject to NMOCD approval. N.M. Admin. Code § 19.15.7.11.
63. Since 2008, NMOCD also requires operators to file applications for “pit permits” under the “pit rule.”
64. When an operator fails to comply with NMOCD regulations, including the failure to file required forms, NMOCD may revoke the operator’s authority to transport natural gas or oil in the State of New Mexico, making it economically impossible for the operator to continue operations.
65. On one occasion in the early 1990’s, the NMOCD cancelled the authority to transport of an operator on the New Mexico lands who had injected produced water into a well under a U.S. Environmental Protection Agency permit but who failed to comply with NMOCD regulations.
66. On one occasion in the late 1980’s, NMOCD required an operator on the New Mexico lands to cleanup a spill to NMOCD standards; NMOCD later inspected the site to confirm the work.
67. More recently, the UMUT’s Department of Energy assumed responsibility for detecting spills; once a spill is detected, the Department asks the operator and the BLM to cleanup the spill.
68. NMOCD has general authority to plug and abandon a well when an operator fails to do so, but the UMUT does not allow NMOCD officials to plug wells on the New Mexico lands.
69. NMOCD maintains publicly available geologic records, including records of the geology of the New Mexico lands.
70. NMOCD maintains publicly available records of production of oil and gas by operators, including records of production by operators who extract oil and gas from the New Mexico lands.
Oil and Gas Underlying the New Mexico Lands
71. The New Mexico lands lie in the San Juan Basin, a geologic region consisting of sedimentary formations containing reservoirs of oil and natural gas.
72. There are more than 23,000 active oil and gas wells in the New Mexico portion of the San Juan Basin.
73. There are 186 active oil and gas wells on the New Mexico lands.
74. Four oil and gas bearing sedimentary formations underlie the New Mexico Lands: the Gallup, the Dakota, the Morrison, and the Paradox (from shallowest to deepest).
75. The Paradox Formation consists of four geologic stages: Barker Creek, Akah, Desert Creek, and Ismay.
76. Several oil and gas pools which at least partly underlie the New Mexico lands have been established: the Horseshoe Gallup, the Many Rocks Gallup, the Verde Gallup, the Straight Canyon Dakota Gas, the Basin Dakota, the Ute Dome Morrison Gas, the Ute Dome Dakota Gas, the Ute Dome Paradox Gas, the Barker Creek Dakota, the Barker Dome Paradox Gas, the Barker Dome Akah/Upper Barker Creek, the Barker Dome Desert Creek, and the Barker Dome Ismay.
77. Oil and gas pool names have a geographic component — the name of the field, derived from a geographic location — and a stratigraphic component — the name of the geologic formation that contains the oil or gas.
78. A pool in one formation may overlie another pool in a deeper formation.
79. The Horseshoe Gallup pool lies partly under the southwest corner of the New Mexico lands, partly under the Navajo Reservation, and partly under split-estate lands with private surface ownership and federally-owned and BLM-managed subsurface mineral rights.
80. The Horseshoe Gallup pool has very low production.
81. There have been no operator conflicts or complaints of drainage on the Horseshoe Gallup pool.
82. The Many Rocks Gallup pool lies primarily under the Navajo Reservation, but also lies partly under the New Mexico lands.
83. The Verde Gallup pool lies primarily under the New Mexico lands, but also lies partly to the south of the New Mexico lands under mostly federally-owned lands but also under one and one-half sections of privately-owned lands.
84. The Straight Canyon-Dakota Gas Pool, which is obsolete, lies entirely under the New Mexico lands.
85. The Basin Dakota Pool is a San Juan Basin-wide pool for all oil and gas in the Dakota formation that is not in another, more geographically specific Dakota pool.
86. The Ute Dome Morrison Gas Pool lies entirely under the New Mexico lands.
87. There is only one exploratory well on the Ute Dome Morrison Gas Pool and no production from that Pool.
88. The Ute Dome Dakota Gas Pool lies almost entirely under the New Mexico lands, but also underlies two sections with federally-owned subsurface mineral rights, one quarter-section of which is in private surface ownership.
89. The Ute Dome Paradox Gas Pool lies almost entirely under the New Mexico lands, but also underlies one section of federally-owned (both surface and subsurface) land.
90. The Barker Creek Dakota Pool and all of the Barker Dome pools lie partly under the New Mexico lands and partly in the State of Colorado; no part of these pools lies in New Mexico outside the New Mexico lands.
91. The Verde Gallup Pool is the only pool that includes private subsurface oil and gas rights.
92. No pool underlies state land or includes state-owned subsurface oil and gas rights.
93. The Barker Dome and Ute Dome pools account for 85% of the production of natural gas on the New Mexico lands.
94. Oil removed from wells on the New Mexico lands is transported by truck through New Mexico to refineries outside the New Mexico lands, including a refinery in Bloomfield, New Mexico.
95. No processing of oil takes place on the New Mexico lands.
96. Natural gas wells on the New Mexico lands are connected by gathering pipelines to main lines that transport the gas to processing plants outside the New Mexico lands, primarily to a plant near Kirtland, New Mexico.
97. There are a few compressor stations for natural gas pipelines on the New Mexico lands.
98. The only processing of natural gas that takes place on the New Mexico lands is removal of condensate, a form of oil.
99. Natural gas is the primary resource extracted on the New Mexico lands, and oil is a secondary resource.
100. The above mentioned pools were mostly created by NMOCD in the 1940’s and 50’s, with the exception of one or two unitization agreements.
101. NMOCD initially set the well spacing in the above mentioned pools.
102. The last change in spacing and setbacks was made in 1995 on the Ute Dome Dakota pool after an application by XTO Energy, supported by the UMUT, was approved by NMOCD.
Leasing of Oil and Gas on the New Mexico Lands
103. The United States holds title in trust for the UMUT to all subsurface mineral rights — including oil and gas — on the New Mexico lands.
104. Operators on the New Mexico lands take title to gas or oil when it is severed (removed from the ground).
105. In almost all cases, the UMUT does not own any of the physical facilities or equipment used to extract oil and gas on the New Mexico lands; however, the UMUT’s agreement with BIYA Operators, Inc. (“BIYA”) is an example of an exception, under which the operator leases equipment from the UMUT.
106. Natural gas operators construct, maintain, and own the gathering pipelines that transport gas to main pipelines outside the New Mexico lands.
107. Oil operators construct and maintain the roads used to transport oil to refineries outside the New Mexico lands.
108. Oil and gas operators construct and maintain the roads used to service oil and gas wells.
109. There are twelve different oil and gas operators that operate wells on the New Mexico lands.
110. All of the oil and gas operators on the New Mexico lands are non-Indian.
111. The two largest operators — Burlington Resources and XTO Energy — are responsible for approximately 90% of the natural gas extracted on the New Mexico lands.
112. Extraction of natural gas on the New Mexico lands is a small percentage of Burlington Resources’ and XTO Energy’s total extraction of natural gas in New Mexico.
113. Although the United States holds title to the natural gas and oil in trust for the UMUT, it is the UMUT that negotiates and enters into leases with oil and gas operators under the authority of the Indian Mineral Leasing Act of 1938 (“IMLA”).
114. Most of the existing leases on the New Mexico lands were entered into in the 1950’s, 60’s, and 80’s.
115. The UMUT also negotiates and enters into development agreements with oil and gas operators under the authority of the Indian Mineral Development Act of 1982 (“IMDA”).
116. There are at least three development agreements between the UMUT and an operator: one with Elk San Juan, Inc.; one with BIYA Operators Inc.; and one with Texakoma Oil and Gas Corp.
117. Typically, in the leases and development agreements the operator is required to be qualified to do business in the State of New Mexico.
118. Typically, in the leases and development agreements the operator is required to provide worker’s compensation to employees of the operator working on the New Mexico lands.
119. Some development agreements, such as the BIYA agreement, include a forfeiture clause if the operator does not develop the mineral resource.
120. Some development agreements, such as the Texakoma agreement, include an option for the UMUT to take a working interest in a well after payout.
121. Some development agreements, such as the Texakoma agreement, cap the combined UMUT tax and royalty revenue at 30%.
122. Some development agreements, such as the Elk San Juan agreement, provide the UMUT an option to enter into a joint venture with the operator after payout; under the joint venture the UMUT would acquire a working interest, would invest in developing the site, and would have joint control with the BLM over the number and location of wells.
123. As of the date of trial, the UMUT had not entered into any joint ventures.
124. Some development agreements, such as the BIYA agreement, give the UMUT control over the number of wells and their spacing and location.
125. Leases and agreements are subject to approval by the BIA.
126. The BIA acts as trustee for the UMUT.
127. The BIA and the BLM are both subagencies of the Department of Interior.
128. The UMUT Energy Department works with the BIA on leases and agreements.
129. BIA authority to approve leases is granted by § 1 of the IMLA, 25 U.S.C. § 396a, and implemented in regulations at 25 C.F.R. Part 211.
130. BIA authority to approve agreements is granted by § 3 of the IMDA, 25 U.S.C. § 2102, and implemented in regulations at 25 C.F.R. Part 225.
131. The BIA performs site inspections to ensure compliance with lease or agreement terms.
132. Approval of a lease or agreement by the BIA is a federal action that may fall within the scope of the National Environmental Policy Act (“NEPA”).
133. The Minerals Management Service (“MMS”) in the Department of Interior is responsible for accounting for royalties on the leases and agreements.
134. The UMUT Energy Department works with MMS on accounting for royalties and on audits.
135. Leases and agreements on the New Mexico lands are not subject to approval by the State of New Mexico.
Drilling on the New Mexico Lands
136. Before an operator with a lease or agreement for the New Mexico lands can drill, the operator must first get permission from the BIA to survey the land, including creating survey roads, and the BIA must then get consent from the UMUT for the survey.
137. After obtaining UMUT consent for the survey, the BIA informs the BLM that the BIA has approved the survey.
138. After the operator has completed its survey, the operator submits an Application for Permit to Drill (“APD”) to the BLM on a standard BLM form (No. 3160-3) used for all APDs.
139. The operator must attach to the APD the following: 1) a well plat certified by a registered surveyor; 2) a drilling plan; 3) a surface use plan; 4) a bond to cover operations, unless an existing bond covers the operations; and 5) the operator’s certification.
140. An operator must use surveyors registered by a State.
141. Operators typically use NMOCD form C-102 for the well plat.
142. Under federal law, the BLM and BIA share responsibility for approval of an APD; the BLM has final authority, but does not approve an APD until it has received a letter of concurrence from the BIA.
143. BLM authority over oil and gas operations by lessees is granted by § 4 of the IMLA, 25 U.S.C. § 396d, and implemented by regulations at 43 C.F.R. Part 3160.
144. BLM authority over oil and gas operations by agreement holders is granted by the IMDA and implemented by regulations at 43 C.F.R. Part 3160.
145. Under federal law, the BLM is responsible for subsurface (“downhole”) issues raised by an APD.
146. Subsurface issues can include impacts to reservoirs that may be drilled into or through and impacts to groundwater.
147. Under federal law, the BLM and BIA share responsibility for surface issues raised by an APD.
148. The BIA is responsible for surface issues related to cultural resources, endangered species, and air and water quality.
149. The BIA is responsible for granting easements to the oil and gas operators for roads and pipelines.
150. If a well location proposed in an APD creates a surface issue, the BIA, BLM, and the UMUT consult to resolve the well location issue.
151. After an APD has been approved, the operator may request a non-standard location if the approved location causes problems due to the topography or geology of the site.
152. Normally, the operator requests a non-standard location through a sundry notice to the BLM; the BLM then forwards the sundry notice to NMOCD or requires the operator to do so.
153. On some occasions, an operator on the New Mexico lands has requested approval for a non-standard location from NMOCD.
154. Representatives of the BIA, BLM, and the UMUT meet yearly to discuss oil and gas operations on the Reservation.
155. The UMUT Energy Department works with the BIA on surface issues and with the BLM on downhole issues.
156. As to matters on the New Mexico lands, the BIA has no interaction with NMOCD.
157. After the BLM approves an APD, it forwards the form to NMOCD.
158. Once a well is in operation, the operator must provide sundry notices to the BLM as events happen, such as plugging of the well.
159. The BLM sends copies of the sundry notices to BIA and NMOCD.
160. Under federal law, disposal of produced water by an operator is subject to approval by the BLM. 43 C.F.R. § 3162.5-1.
161. When an operator does not want to operate a well any longer, it is the operator’s responsibility to plug the well and abandon it and to reclaim the surface.
162. Under federal law, the operator’s plans to plug and abandon a well and to reclaim the -surface must be approved by the BLM and/or the BIA.
163. The BLM has enforcement authority to plug and abandon a well when an operator fails to do so.
164. The BIA may work with the BLM on a decision to plug and abandon a well.
165. After an operator has completed reclamation of the surface, the BIA issues a notice of completion to the BLM and the BIA releases the bond it holds for the well.
166. The BIA has no adjudicative process to resolve disputes between operators.
167. In general, an action by the BIA is subject to judicial review in federal district court under the Administrative Procedure Act.
168. The BLM has adjudicative processes to resolve disputes relating to resources over which BLM has oversight, and, in general, an action by a field office of the BLM is subject to administrative review by the corresponding BLM State Director and then by the Department of Interior Board of Land Appeals (“IBLA”).
169. The IBLA often hears cases involving Indian trust responsibilities.
170. In general, after the IBLA has administratively reviewed an action by a field office of the BLM, the action is subject to judicial review in federal district court under the Administrative Procedure Act.
Environmental Effects of Oil and Gas Operations
171. Unprocessed natural gas, including that found on the New Mexico lands, can contain hydrogen sulfide (H2S).
172. Hydrogen sulfide is a corrosive and toxic gas.
173. Hydrogen sulfide can corrode equipment and pipelines.
174. Hydrogen sulfide can present a threat to human health.
175. Hydrogen sulfide is heavier than air.
176. On two occasions, residents of La Plata, New Mexico, a town east of the New Mexico lands, complained to NMOCD about hydrogen sulfide, which originated from stuck valves on the New Mexico lands.
177. In general, oil and gas operations can cause groundwater contamination.
178. There is no evidence in the record of actual or potential contamination of groundwater in adjoining private, state, federal, or tribal lands from oil and gas operations on the New Mexico lands.
179. In general, oil and gas operations disrupt the surface, which may cause environmental effects.
180. There is no evidence in the record of actual or potential environmental effects on adjoining private, state, federal, or tribal lands from surface disruption on the New Mexico lands.
181. In general, oil and gas operations can affect wildlife, including endangered or threatened species.
182. There is no evidence in the record of actual or potential effects on wildlife from oil and gas operations on the New Mexico lands.
Relationship of BLM, NMOCD, and the UMUT
183. On June 9, 1995, the BLM issued an order — Ute Mountain Ute No. 1 — setting well spacing for wells on Reservation lands extracting natural gas from the Barker Dome Paradox Formation.
184. The BLM used the hearing processes of NMOCD and the Colorado Oil and Gas Conservation Commission for notification and public hearing on the order for the reasons stated in the order.
185. The BLM issued the Ute Mountain Ute No. 1 order because there was no “cooperative agreement between the [UMUT], the BLM, [and] the states of Colorado and New Mexico[ ] governing establishment of spacing on [UMUT] lands.”
186. In the order, the BLM found that the specified well spacing would “prevent the waste of oil and gas,” “protect the correlative rights of all parties concerned,” and “insure proper and efficient development and promote conservation of the oil and gas resources of the [UMUT].”
187. The BLM considered “geologic and engineering data” in setting well spacing so that the wells could “efficiently and economically drain the gas and associated hydrocarbons” from the geologic stages in the Paradox Formation.
188. The BLM approved commingling in some of the wells.
189. The BLM retained authority to grant permits for non-standard well locations and infill wells.
190. On October 9, 1996, the BLM issued a second order — Ute Mountain Ute No. 2 — setting spacing for wells on Reservation lands extracting oil and gas from the Ute Dome Dakota Formation.
191. Ute Mountain Ute No. 2 was substantially similar to Ute Mountain Ute No. 1, with the exception that no commingling was approved in Ute Mountain Ute No. 2.
192. In July 1999, the BLM and NMOCD entered into a memorandum of understanding (“MOU”) regarding well spacing on Indian lands.
193. BLM’s purpose in entering into the MOU was to provide familiar, consistent procedures for oil and gas operators and to avoid duplication of effort by the two agencies.
194. Under the MOU, the BLM adopted the NMOCD standards for well spacing and setbacks as the standards for Indian lands.
195. The BLM also used the NMOCD hearing process for notification and participation in decisions on well spacing matters on Indian lands, including setting of spacing, approval of non-standard well locations, approval of non-standard spacing units, and forced pooling.
196. Under this process, the NMOCD did not issue final binding orders on well spacing matters on Indian lands; instead, NMOCD issued draft orders to be considered by the BLM in making an independent decision based on the record.
197. Under the MOU, when the BLM agreed with NMOCD’s draft order, the BLM could issue a final order through a letter of concurrence.
198. Under the MOU, when the BLM differed with NMOCD’s draft order, the BLM was required to issue its own order, setting forth “the differences between the ... orders, the reasoning behind those differences, and why the [BLM’s] decision [was] consistent with [its] trust responsibilities.”
199. The MOU left in effect all existing decisions of the NMOCD involving Indian lands, except those dealt with in Ute Mountain Ute Orders Nos. 1 and 2.
200. Under the MOU, when a party was adversely affected by the BLM’s final order, and the matter involved only Indian lands, the party could appeal only to the BLM’s Colorado or New Mexico State Director and then to the IBLA.
201. Under the MOU, when a party was adversely affected by the BLM’s final order, and the matter involved partly Indian and partly non-Indian lands, the party could appeal either 1) to the BLM State Director and IBLA, in order to have review of the order as applied to Indian lands, or 2) through a BLM hearing using the NMOCD process, in order to have review of the order in its entirety.
202. The MOU expired in July 2004.
203. Historically, the BLM has generally adopted well spacing and setbacks set by state agencies.
204. In 2008, NMOCD promulgated the “pit rule,” regulations for the disposal of waste fluids and produced water from oil and gas operations in temporary pits.
205. In 2009, BLM entered into an MOU with NMOCD adopting the pit rule for federal lands and certain tribal lands in New Mexico.
206. The 2009 MOU did not adopt the pit rule for the New Mexico lands.
207. Since 1992, the UMUT has barred NMOCD officials and employees from entering the New Mexico lands without permission, because the UMUT does not recognize the authority of NMOCD over oil and gas on the New Mexico lands; instead, it takes the position that authority is shared by the UMUT, the BLM, and the BIA to the exclusion of NMOCD.
208. NMOCD has abided by the UMUT’s policy.
209. On a few occasions, the UMUT has granted permission to NMOCD to enter the New Mexico lands.
New Mexico’s Taxes on Oil and Gas Operations
210. Defendant Rick Homans is the Secretary of the Taxation and Revenue Department of the State of New Mexico.
211. The Taxation and Revenue Department of the State of New Mexico collects taxes imposed by the State.
212. The State of New Mexico imposes no tax on the UMUT, its real property, or any UMUT organizations.
213. The State of New Mexico imposes five taxes on oil and gas operators in the State, including operators who extract oil and gas on the New Mexico lands: the Oil and Gas Severance Tax, the Oil and Gas Conservation Tax, the Oil and Gas Emergency School Tax, the Oil and Gas Ad Valorem Production Tax, and the Oil and Gas Ad Valorem Production Equipment Tax.
214. No oil and gas operator, including any operator extracting oil and gas on the New Mexico lands, is a party to this lawsuit.
215. The same five taxes, as imposed on non-Indian operators extracting oil and gas on the Jicarilla Apache Reservation in New Mexico, were at issue in Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 109 S.Ct. 1698, 104 L.Ed.2d 209 (1989).
216. Similar taxes are imposed by the State of Colorado on operators extracting oil and gas from the portion of the Reservation lying in Colorado.
217. Four taxes — the Oil and Gas Severance Tax, the Oil and Gas Conservation Tax, the Oil and Gas Emergency School Tax, and the Oil and Gas Ad Valorem Production Tax — are assessed against the taxable value of the oil or natural gas severed.
218. Severance is the taking from the soil of oil or natural gas in any manner whatsoever.
219. For three taxes — the Oil and Gas Severance Tax, the Oil and Gas Conservation Tax, and the Oil and Gas Emergency School Tax — the taxable value of oil or natural gas severed is the actual price received by the operator for the oil or natural gas minus royalties to the UMUT and the reasonable expense of getting the oil or natural gas to the first place of market.
220. The Oil and Gas Severance tax is imposed on oil and natural gas that is severed and sold in the State of New Mexico.
221. The Oil and Gas Severance tax is assessed at 3.75% of the taxable value of the oil or natural gas severed.
222. Revenues from the Oil and Gas Severance Tax are partly used to meet the State’s debt obligations and partly put into the State’s general fund.
223. The Oil and Gas Conservation Tax is assessed at 0.18-0.19% of the taxable value of the oil or natural gas severed.
224. Revenues from the Oil and Gas Conservation Tax are partly used by the NMOCD to survey and plug abandoned, unplugged or improperly plugged wells and are partly put into the State’s general fund.
225. The Oil and Gas Emergency School Tax is a business privilege tax on operators severing oil and gas in the State.
226. The Oil and Gas Emergency School Tax is assessed for oil at 3.15% of the taxable value and for natural gas at 4.0% of the taxable value.
227. Revenues from the Oil and Gas Emergency School Tax are put into the State’s general fund.
228. The Oil and Gas Ad Valorem Production Tax is levied against an assessed value equaling 50% of the product value, at the property tax rate of the corresponding local governmental unit.
229. Revenues from the Oil and Gas Ad Valorem Production Tax are primarily allocated to local governments.
230. The Oil and Gas Ad Valorem Production Equipment Tax is imposed on operators’ equipment used in the extraction of oil and natural gas.
231. The Oil and Gas Ad Valorem Production Equipment Tax is levied against an assessed value of the equipment equaling 9% of the product value, at the property tax rate of the corresponding local governmental unit.
232. Revenues from the Oil and Gas Ad Valorem Production Equipment Tax are primarily allocated to local governments.
233. For each of the five taxes, the taxable event takes place at least partly on the Reservation.
234. The State of New Mexico offers a tax credit, the Intergovernmental Production Tax Credit, to operators who extract oil and gas on UMUT lands and who are subject to the four New Mexico severance taxes.
235. The Intergovernmental Production Tax Credit is 75% of the lesser of the aggregate severance taxes imposed by a Tribe or the aggregate of the four New Mexico severance taxes.
236. The Intergovernmental Production Tax Credit applies only to wells drilled on or after July 1,1995.
237. The State of New Mexico offers a tax credit, the Intergovernmental Production Equipment Tax Credit, to operators subject to the Oil and Gas Production Equipment Ad Valorem Tax.
238. The Intergovernmental Production Equipment Tax Credit is 75% of the lesser of the amount of any Tribal equipment tax or the amount of the Oil and Gas Production Equipment Ad Valorem Tax.
239. The Intergovernmental Production Equipment Tax Credit applies only to wells drilled on or after July 1,1995.
240. The UMUT does not impose an oil and gas equipment tax.
241. Because the UMUT does not impose an oil and gas equipment tax, the operators who extract oil and gas on the New Mexico lands do not receive the Intergovernmental Production Equipment Tax Credit.
242. The net effect of the New Mexico tax credits has been an average reduction (over the years 1999-2007) of approximately 1.14% in the yearly aggregate tax rate of the five New Mexico taxes on operators extracting oil and gas on the New Mexico lands; the reduction is increasing as new wells come into production and old wells are shut down.
243. Under the Intergovernmental Production Tax Credit, if the UMUT increases its taxes on operators extracting oil and natural gas from the New Mexico lands, the State of New Mexico credit to those operators will be reduced by the amount of the UMUT tax increase on wells drilled on or after July 1, 1995. NMSA 1978 § 7-29C-KF).
244. If the State of New Mexico is barred from imposing the five taxes on oil and gas operators on the New Mexico lands, the Intergovernmental Production Tax Credit and the Intergovernmental Production Equipment Tax credit lose all value to the operators, as the credits are specifically applied against the five taxes as levied on wells on the New Mexico lands drilled on or after July 1,1995.
New Mexico’s Services to the UMUT, Its Members, and Oil and Gas Operators
245. The State of New Mexico provides no physical services or infrastructure on the New Mexico lands to the UMUT, its members, or the oil and gas operators.
246. The UMUT is an intervener in a New Mexico state court case involving the general adjudication of water rights in the San Juan River Basin, State of New Mexico ex rel. Reynolds v. United States et al., Civ. No. 75-184-1.
247. Using revenues from the Oil and Gas Conservation tax, NMOCD offers the service of plugging abandoned wells on the New Mexico lands, but NMOCD has never actually plugged an abandoned well on the New Mexico lands.
248. Other than opening its courts to the UMUT and offering plugging of abandoned wells, New Mexico provides no services directly to the UMUT.
249. There is no evidence in the record that members of the UMUT make use of services provided by New Mexico off the New Mexico lands.
250. The services New Mexico provides to oil and gas operators on the New Mexico lands are the following: a hearing process for resolving disputes between operators, publicly available geologic records, publicly available production records, and records of sales and transfers. NMOCD also offers — but the UMUT does not make use of — environmental cleanup and site inspection.
251. Because it is in New Mexico’s governmental interest to do so, New Mexico would continue to provide these services to the operators extracting oil and gas on the New Mexico lands even if the State were not able to impose the five taxes on them.
252. There is no evidence that the NMOCD hearing process has been used to resolve a dispute between operators concerning extraction on the New Mexico lands.
253. The NMOCD administrative and hearing orders regarding wells on the New Mexico lands have approved requests for non-standard locations and commingling.
254. There is no evidence that the operators who extract oil and gas on the New Mexico lands make use of the publicly available geologic records or the publicly available production records.
255. The NMOCD budget for the 2007 fiscal year was $11,132,531.00.
256. There are 50,225 active oil and gas wells in the State of New Mexico.
257. The average expenditure statewide by NMOCD on an active well in 2007 was approximately $221.65.
258. It is not possible to separately determine NMOCD expenditures for wells on the New Mexico lands.
259. The only expenditure that can be identified for a particular well is an expense for plugging that well; NMOCD has not plugged a well on the New Mexico lands since 1992, and there is no evidence it plugged a well on the New Mexico lands before then.
260. After operators take title to oil produced on the New Mexico lands by severing it, they transport the oil to refineries on roads in New Mexico which are constructed and maintained by the State of New Mexico.
261. After operators take title to gas produced on the New Mexico lands by severing it, they transport the gas through gathering pipelines in the New Mexico lands to main lines in New Mexico.
262. Without an off-reservation infrastructure in New Mexico to transport oil and gas, the economic value of the oil and gas produced on the New Mexico lands would be substantially less.
263. The State provides substantial services by regulating the off-reservation infrastructure that makes transport of oil and gas possible.
264. The economic value to the UMUT of services provided by the State of New Mexico on the New Mexico lands to oil and gas operators is de minimis.
265. The economic value to the UMUT of services provided by the State of New Mexico off the New Mexico lands to oil and gas operators is substantial.
The UMUT’s Royalties and Taxes on Oil and Gas Operations
266. The UMUT receives a royalty from all operators extracting oil and gas from the New Mexico lands.
267. The royalty is assessed based on the wellhead value of the oil or gas.
268. The percentage of the royalty is specified in the lease or agreement.
269. On average, the UMUT receives 13.1% of the wellhead value in royalties.
270. Royalties received by the UMUT are distributed to enrolled members of the UMUT on a per-capita basis.
271. Total UMUT royalties in 2007 were $4,426,741.00, almost all of which came from the New Mexico lands; only a small part came from wells in Colorado.
272. Since 1987, the UMUT has imposed a tax on possessory interests in UMUT lands, including leases and agreements.
273. Oil and gas lessees and agreement holders are subject to the possessory interest tax.
274. The UMUT possessory interest tax is assessed at the rate of 6% of the market value of the lease or agreement, including improvements and equipment on the lease parcel.
275. Revenues from the UMUT possessory interest tax are used to defray the costs of providing essential UMUT governmental services and for other UMUT governmental purposes. Ute Mountain Ute Tribe Ordinance No. 3334 § 18, Nov. 24, 1987.
276. Since 1983, the UMUT has imposed a severance tax on oil and gas operators on the New Mexico lands.
277. The UMUT severance tax is assessed at the rate of 5% of the wellhead value of the oil or gas severed on the New Mexico lands and sold or transported off the Reservation.
278. Revenues from the UMUT severance tax are used to defray the costs of providing essential UMUT governmental services and for other UMUT governmental purposes. Ute Mountain Ute Tribe Ordinance No. 3659 § 22, Apr. 6, 1990; Ute Mountain Ute Severance Tax Ordinance § 10, Apr. 20, 1983 (severance tax fund monies to be transferred to general fund).
279. The net effect of the UMUT severance tax and the UMUT possessory interest tax has been, on average, a 9.5% tax on the gross wellhead value of oil and gas extracted on the New Mexico lands.
Economics of the State and UMUT Taxes
280. The UMUT has no economic ability to affect the market price of oil or natural gas.
281. The oil and gas operators have no economic ability to affect the market price of oil or natural gas.
282. The operators are free to choose to extract oil and gas outside the New Mexico lands.
283. The UMUT is free to negotiate leases or agreements with other oil and gas operators.
284. The three development agreements — Elk San Juan, BIYA, and Texakoma — were negotiated in the last five years (2004-2008);' during negotiations, the operators were aware that New Mexico would impose the five taxes on them.
285. To the extent that they can do so without making other operators more attractive to the UMUT, the operators who negotiate leases and agreements with the UMUT take into account the cost of the five New Mexico taxes in reaching terms with the UMUT.
286. The leases and agreements do not directly pass the cost of the five New Mexico taxes on to the UMUT.
287. The UMUT has resolved that, in the event the five New Mexico taxes are found unlawful, the UMUT severance tax will be increased by the amount of the five New Mexico taxes. Ute Mountain Ute Tribal Council Resolution No. 3874, Feb. 13, 1992.
288. Unless specifically surrendered in unmistakable terms in an existing lease or agreement, the UMUT has the authority to increase severance taxes on existing leases and agreements it has entered into with operators, or to enact a third UMUT tax, regardless of the status of New Mexico taxes. Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 102 S.Ct. 894, 71 L.Ed.2d 21 (1982).
289. The only leases or agreements under which the UMUT has surrendered — at least to an extent — its authority to increase severance taxes are the recent agreements that cap UMUT revenues at 30%.
290. Even in agreements that specifically and unmistakably cap total UMUT revenues from an operator at 30%, UMUT revenues in those agreements are currently substantially below 30% and an increase of UMUT revenue to 30% would be significant.
291. The operators with existing leases or agreements have no preference between being taxed an equal amount by the State or by the UMUT and would continue to extract oil and gas from the New Mexico lands if the New Mexico taxes were replaced by equivalent UMUT taxes.
292. If the five New Mexico taxes were found unlawful, the UMUT would have the options of: 1) implementing UMUT Council Resolution No. 3874 and increasing the severance tax as stated in the Resolution; or 2) rescinding Resolution No. 3874; or 3) increasing the severance tax, but not to the extent stated in Resolution No. 3874.
293. For the years 2002-2007, the aggregate of the five New Mexico taxes totaled $8,052,449, an average of $1,342,074.83 per year.
294. The total wellhead value of all oil and gas extracted on the New Mexico lands has not changed significantly since the UMUT started entering into development agreements.
295. Total UMUT revenue from development agreements, including those agreements which cap UMUT revenue at 30%, is not a substantial part of UMUT revenue from oil and gas development.
296. The much greater part of UMUT revenue comes from leases without any cap on UMUT revenues.
297. In the event that the UMUT implemented Resolution No. 3874 — and the market for oil and gas remained stable— the UMUT would receive at least $1,300,000 per year in additional revenue from the severance tax, an increase of approximately $650 per enrolled UMUT member per year.
298. In the event that the UMUT rescinded Resolution No. 3874, oil and gas production on the New Mexico lands would become more attractive to oil and gas operators relative to oil and gas production elsewhere in New Mexico.
299. Oil and gas operators could seek to increase production on the New Mexico lands by discovering new sources of oil and gas on the New Mexico lands, by drilling infill wells on existing pools, or by bringing back into production wells that are not profitable under the current taxes.
300. Increased production through discovery of new sources of oil and gas on the New Mexico lands would increase UMUT revenue from royalties and the current taxes.
301. Increased production through infill or reopening of closed wells on pools that lie entirely or almost entirely within the New Mexico lands would increase UMUT revenue from royalties and the current taxes.
302. Increased production through infill or reopening of closed wells on pools that lie substantially outside the New Mexico lands would have an unpredictable outcome for UMUT revenue, due to the creation of an incentive to operators outside the New Mexico lands to increase their production correspondingly.
303. There is insufficient evidence to quantify the return to the UMUT if it were to rescind Resolution No. 3874.
304. Total UMUT revenue for 2007 was $16,052,092.00.
305. The average per capita income of UMUT members at the time of the 2000 census was $8,159.
306. The average per capita incomes at the time of the 2000 census at corresponding state and county levels were as follows: $17, 261 for New Mexico in general, $14,282 for residents of San Juan County, New Mexico, $24,049 for Colorado in general, and $17,003 for residents of Montezuma County, Colorado.
307. The unemployment rate of UMUT members at the time of the 2000 census was 11.3%; the rate at the corresponding state and county levels ranged from 2.7% to 5.5%.
308. The percentage of UMUT families living below the poverty level at the time of the 2000 census was 38.5%; the percentage at the corresponding state and county levels ranged from 10.2% to 18%.
309. If the five New Mexico taxes were replaced by an equivalent UMUT severance tax, UMUT governmental services or UMUT distributions to members would be increased by at least $650 per year per member, an increase of almost 8% of the average per capita income of UMUT members.
310. The five New Mexico taxes impose an economic burden on the UMUT and its members, the extent of which is laid out above in these Findings of Fact.
311. There is no record evidence that the imposition of the five New Mexico taxes substantially interferes with the UMUT’s ability to govern itself.
CONCLUSIONS OF LAW AND MEMORANDUM OPINION
To decide this case, the Court must first review the law governing state taxation of activities on tribal lands and the law governing leasing and development of tribal oil and gas resources. The Court initially notes that jurisdiction is proper: “a suit by an Indian tribe to enjoin the enforcement of state tax laws is cognizable in [ ] district court under [28 U.S.C.] § 1362 despite the general ban in 28 U.S.C. § 1341 against seeking federal injunctions of such laws.” Montana v. Blackfeet Tribe of Indians, 471 U.S. 759, 762 n. 2, 105 S.Ct. 2399, 85 L.Ed.2d 753 (1985).
State Taxation of Tribal Activities
Stated most simply, the issue presented here is whether the State of New Mexico may assert jurisdiction to tax non-Indians engaged in transactions with the UMUT on the part of the Reservation that lies in New Mexico. In 1832, the Supreme Court announced a clear rule: States had no jurisdiction at all within the boundaries of a reservation. Worcester v. Georgia, 6 Pet. 515, 561, 8 L.Ed. 483 (1832) (Marshall, J.); see also The Kansas Indians, 72 U.S. 737, 5 Wall. 737, 18 L.Ed. 667 (1867) (state has no power to tax Indian lands); The New York Indians, 72 U.S. 761, 5 Wall. 761, 18 L.Ed. 708 (1867) (same). One hundred and twenty-seven years later, after “adjust[ing] [the rule] to take account of the State’s legitimate interest in regulating the affairs of non-Indians,” the Court articulated a new standard: “[A]bsent governing Acts by Congress, the question [is] whether the state action infringe[s] on the right of reservation Indians to make their own laws and be ruled by them.” Williams v. Lee, 358 U.S. 217, 220, 79 S.Ct. 269, 3 L.Ed.2d 251 (1959). Thus, Congress may expressly authorize state jurisdiction; but if Congress has not, tribal sovereignty predominates the analysis of whether the state may assert jurisdiction. See id. at 222, 79 S.Ct. 269.
The Supreme Court subsequently developed a second, more nuanced preemption-based approach to questions of state jurisdiction in Indian country. McClanahan, 411 U.S. at 172, 93 S.Ct. 1257. The approach is unlike that for standard federal-state preemption. Compare Pacific Gas & Elec. Co. v. State Energy Resources Conservation & Dev. Comm’n, 461 U.S. 190, 203-04, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983)(describing the three traditional approaches to federal-state preemption analysis) with White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 143, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980)(recognizing the different approach to tribal preemption and finding that application of traditional federal-state preemption principles is unhelpful in the tribal context). For example, tribal sovereignty is “a backdrop against which the applicable treaties and federal statutes must be read.” Id. In McClanahan, a Navajo Indian “whose entire income derivefd] from reservation resources” challenged application of Arizona’s state income tax to her. Id. at 165, 93 S.Ct. 1257. Instead of evaluating the tax’s effect on “Platonic notions of tribal sovereignty,” the Court examined federal law — the United States’ 1868 treaty with the Navajo Nation, the Arizona Enabling Act, the Buck Act, and Public Law 280— with the backdrop of tribal sovereignty in mind. Id. at 174-78, 93 S.Ct. 1257. Although federal law neither expressly allowed nor prohibited Arizona’s taxation, when that law was interpreted under the canon that ambiguities in treaties and federal statutes are to be resolved in favor of tribes, no authority remained for Arizona to impose its taxes. See id. The “backdrop of tribal sovereignty” acted essentially as a thumb on the scales in favor of the Navajo Nation. See also Warren Trading Post Co. v. Ariz. State Tax Comm’n, 380 U.S. 685, 85 S.Ct. 1242, 14 L.Ed.2d 165 (1965) (preemptive effect of federal regulation of Indian traders on state tax).
Similarly, in White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980), the Supreme Court considered state taxation of non-Indians engaged in activities on a reservation. A non-Indian logging company had contracted with a White Mountain Apache tribal enterprise to log timber on the White Mountain Apache Reservation and transport it to the tribal enterprise’s mill. Id. at 138-39, 100 S.Ct. 2578. Tribal timber operations as a whole “accounted for over 90% of the Tribe’s total annual profits.” Id. at 138, 100 S.Ct. 2578. The company operated its logging trucks entirely within the reservation, partly on state roads and partly on BIA and tribal roads. Id. at 139-40, 100 S.Ct. 2578. Because its activities were limited to the reservation, the company challenged the State of Arizona’s imposition of its motor carrier license tax and its excise fuel tax on the company. Id. at 140, 100 S.Ct. 2578. The company conceded that it was liable for a pro rata share of the tax in proportion to its use of state roads, but contested any tax for its use of BIA and tribal roads. Id.
As in McClanahan, the Supreme Court rejected an approach based in “mechanical or absolute conceptions of state or tribal sovereignty.” Id. at 145, 100 S.Ct. 2578. Instead, to determine whether “a State [may] assert[ ] authority over the conduct of non-Indians engaging in activity on [a] reservation,” a court must make “a particularized inquiry into the nature of the state, federal, and tribal interests at stake.” Id. at 144-45, 100 S.Ct. 2578. In so doing, “traditional notions of Indian self-government ... provide an important ‘backdrop’ against which vague or ambiguous federal enactments must always be measured.” Id. at 144, 100 S.Ct. 2578 (citing McClanahan, 411 U.S. at 172, 93 S.Ct. 1257).
In applying that standard, the Supreme Court then looked to the three interests at stake: the federal interest in reservation timber and roads, the Tribe’s interest in making use of its timber, and Arizona’s interest in taxing the company’s activities. The Supreme Court found that logging on the reservation and use of the BIA and tribal roads were governed by comprehensive federal regulations, Bracker, 448 U.S. at 146-48, 100 S.Ct. 2578, that the economic burden of the state tax on the Tribe would interfere with the federal objective of providing the Tribe with the benefit of its timber resources and with “the Tribe’s ability to comply with the sustained-yield management policies imposed by federal law,” id. at 149-50, 100 S.Ct. 2578, and that Arizona’s interest was nothing more than “a general desire to raise revenue” without providing any relevant service to the Tribe, id. at 150, 100 S.Ct. 2578. As a result, the balance of interests favored preemption of Arizona’s taxes. Id. at 152, 100 S.Ct. 2578. The Supreme Court noted that an economic burden on the Tribe, standing alone, would not suffice to invalidate the taxes. Id. at 151 n. 15, 100 S.Ct. 2578. However, even a small burden — as noted by the dissent, “$5,000-$6,000 or less than 1% of the total annual profits” — was unacceptable in these circumstances. Id. at 149-50, 100 S.Ct. 2578; id. at 159, 100 S.Ct. 2578 (Stevens, J., dissenting).
In its first application of Bracket balancing, the Supreme Court struck down New Mexico’s imposition of a tax “on the gross receipts that a non-Indian construction company receive[d] from a [Tjribal school board for the construction of a school for Indian children on the reservation.” Ramah Navajo School Bd. v. Bureau of Revenue of N.M., 458 U.S. 832, 834, 102 S.Ct. 3394, 73 L.Ed.2d 1174 (1982). The Tribal school board had solicited competitive bids for the project, and the bidders “included the state gross receipts tax as a cost of construction in their bids.” Id. at 835, 102 S.Ct. 3394. Thus, the tax imposed an indirect burden on the board. Id. at 836, 102 S.Ct. 3394. As in Bracket, “[fjederal regulation of the construction and financing of Indian educational institutions [wa]s both comprehensive