Oklahoma- Muscogee Nation is moving ahead with plans to file a lawsuit seeking relief from state taxation for tribal citizens.

The lawsuit, authorized by a tribal council resolution, would seek a judicial declaration that Muscogee Nation’s reservation is Indian Country for purposes of civil taxation matters. If the suit is successful, the Oklahoma Tax Commission would be prohibited from taxing Muscogee citizens if they live and work inside the reservation boundaries. Citizens would not be required to work for the tribe to be eligible for the exemption.

Joseph Williams is representing several tribal clients seeking to recoup taxes from the state, and helped the tribal council craft the legislation.

“Essentially, this is an affirmation by the entire nation that they are going to defend their rights or the rights of the citizens on this matter,” said Williams.

Last month, an administrative judge ruled that Oklahoma should refund a Muscogee Nation citizen for taxes she paid in previous years.


“Indian Country exemption”


Williams says tribal citizens are already exempt from state taxes in certain situations. He calls it the “Indian Country exemption.”

In the 1970s and the 1990s, the Supreme Court handed down key decisions that paved the way for people seeking state tax relief.

In the 1973 case McClanahan v. Arizona Tax Commission, the Supreme Court ruled that, “absent express congressional authorization, a State could not subject a tribal member living on a reservation whose income was derived from reservation sources to a state income tax.”

In that case, the Court relied on its 1932 Worcester v. Georgia decision where it held that “this concept of Indian reservations as [being] separate, although dependent nations, [means] that state law could have no role to play within the reservation boundaries.”

In the 1993 case Oklahoma Tax Commission v. Sac and Fox Nationthe Court ruled in favor of the tribal nation, as they sought relief on state income tax and motor vehicle excise and registration fees on behalf of citizens who work and reside within tribal jurisdiction. The Court held, “Absent explicit congressional direction to the contrary, it must be presumed that a State does not have jurisdiction to tax tribal members who live and work in Indian country.”

The Court used similar language in the 1995 case Oklahoma Tax Commission v. Chickasaw Nationruling in favor of the tribal nation when they challenged state taxation on motor fuels and income. The Court held that, “Absent clear congressional authorization, a State is without power to tax reservation lands and reservation Indians.”


How McGirt v. Oklahoma has changed things


Williams says the U.S. Supreme Court decision in the McGirt v. Oklahoma case in 2020 paved the way for an expansion of tax relief. That’s because the ruling has expanded the area known as Indian Country.

Before the 2020 ruling, the only lands being recognized as Indian Country were trust land and restricted land. Trust or restricted lands refer to allotment land or land put into trust by the tribal government or the U.S. Department of the Interior.

“It’s been law at the Supreme Court, at the 10th Circuit, at Oklahoma Supreme Court that Indian Country land – you don’t have to have a specific designation that this is civil or criminal or tax or regulatory. It’s just all of those powers come with the designation of Indian Country,” said Williams, talking about how the 2020 McGirt ruling applies in taxation cases.

Last year, Oklahoma Gov. Kevin Stitt sued the Department of the Interior over their decision to strip the state of their jurisdiction to regulate surface coal mining and reclamation operations.

“They are attempting to unlawfully federalize mines that have been regulated by Oklahoma for almost 40 years by ignoring the clear limitations in the McGirt decision. Despite multiple attempts at dialogue, the Biden Interior Department has refused to adequately explain their legal position,” wrote Stitt in a press release to the media. “The state of Oklahoma has no choice but to pursue legal action.”

In December, U.S. District Judge Stephen Friot denied Stitt’s request for preliminary injunctive relief on the issue.

“Oklahoma has not shown a likelihood of success on the merits of its claims, and it is therefore not entitled to preliminary relief,” Friot wrote.

The Muscogee Nation’s decision to move forward with its lawsuit could have implications for other tribal nations seeking the same kind of tax relief for its citizens. But, it could also pave the way for tribes to replace those state taxes with their own, as they look to fund their expanded criminal justice systems.