WASHINGTON -- In a decision that will exempt some American Indians from paying state taxes, the Supreme Court ruled unanimously yesterday that states have no authority to impose taxes within so-called Indian country.
The ruling came in a case in which the court was asked to decide whether Oklahoma may levy taxes on members of the Sac and Fox Nation.
"Absent explicit congressional direction to the contrary, we presume against a state's having the jurisdiction to tax within Indian country," the court said in an opinion delivered by Justice Sandra Day O'Connor.
The phrase "Indian country" is used as a legal term to describe land held in trust by the federal government for tribes, individual Indians, or dependent Indian communities. Indian country also includes land within reservations.
Oklahoma officials said the ruling will not have major revenue implications for the state. A spokesman for the Oklahoma Tax Commission said officials there do not expect to have to make major refunds as a result of yesterday's opinion, and that officials do not expect an unmanageable loss of revenue.
The tax commission had sought to impose an income tax on tribal members who hold tribal jobs and to require payment of motor vehicle taxes for cars and trucks that are registered and tagged by the tribe.
Although state officials down-played the ruling, O'Connor's opinion appears to provide members of Indian tribes with a broad umbrella of protection from state taxation. In previous rulings, the court had held that states may not tax tribal members on activities within reservations.
Consequently, states such as Oklahoma reasoned that if tribal members earned income outside a reservation, they were not immune from taxation. The Sac and Fox tribe lived on a reservation until 1891, when the reservation was disbanded to accommodate the demand for land by white settlers. Instead of a reservation, the federal government allotted land to individual tribal members and purchased the surplus land for use by the settlers.
Adoption of the broader Indian country terminology means states will not be able to extend their taxes to encompass activities in lands that are not part of reservations but that nonetheless have a pervasive tribal character.
O'Connor said "a tribal member need not live on a formal reservation to be outside the state's taxing jurisdiction. It is enough that the member live in Indian country."
Because the U.S. Court of Appeals for the 10th Circuit had not made a determination of whether the tribal members Oklahoma tried to tax lived in Indian country, the Supreme Court yesterday ordered the lower court to review the matter.
The 10th Circuit appeals court had earlier ruled that it did not matter where the Indians lived. The appeals court looked only at the status of the land on which Indians earned their income. Because the Sac and Fox tribal members earned their income on trust lands, their income was immune from state taxation, the lower court had ruled.
O'Connor said that if the 10th Circuit appeals court finds that the tribal members live in Indian country, it must analyze the case "against the backdrop of Indian sovereignty." She said that unless Congress explicitly authorized the state to have tax jurisdiction in Indian country, Oklahoma has no authority to levy taxes there.
In other action yesterday, the justices:
* Agreed to review whether Oregon's property tax system unlawfully discriminates against businesses that lease railroad cars because it exempts some categories of personal property without extending exemptions to the categories of personal property held by them.
* Asked the solicitor general, the federal government's top courtroom lawyer, to provide the views of the Clinton administration on whether California's application of its worldwide combined reporting tax system is unconstitutional.
At issue in the Oregon case are provisions of the Railroad Revitalization and Regulatory Reform Act of 1976, which generally prohibits states from imposing discriminatory taxes on railroads, and the state's tax system, which taxes railroad cars as tangible personal property.
Exempt from the state tax are agricultural machinery, business inventories, livestock, poultry, bees, fur-bearing animals, and agricultural products in the possession of farmers.
A group of eight corporations that provide railroad cars to railroad carriers claim the tax discriminates against them because they do not enjoy any exemptions.
In the California case, Barclays Bank v. Franchise Tax Board, the bank is challenging the state's use of worldwide combined reporting rather than "arm's length" accounting to determine the income taxes of firms with foreign parents or affiliates. Barclays claims the California tax inflates the amount of taxes it and other foreign firms have to pay.
The justices on Oct. 5 refused to hear the case. But at that time, the case was not considered ripe for review because the California Supreme Court had not issued a final decision in the dispute.