Cotton Petroleum Corp. v. New Mexico

Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989), was a United States Supreme Court case that decided whether states may impose taxes on non-Tribal commercial activity that takes place on Tribal land. Cotton, a non-Indian corporation, extracted oil on the Jicarilla Apache Tribe and paid the Tribe a 6% severance tax. The State of New Mexico collected an additional 8% severance tax, which it levied on all oil producers in the State. Cotton paid the state tax in protest and filed this lawsuit, asserting that the state tax was preempted by federal law. The Court applied "Bracker" balancing, weighing state, Tribal and federal interests. Because the state provided Cotton $89,384 in services, the Court found sufficient state interest to justify the state tax. While amount collected in taxes, $2,293,953, far exceeded the value of the state services, the Court held there was no "proportionality requirement." The Court further explained that current case law allows states to impose non-discriminatory taxes on non-Tribal entities that do business with Tribes, noting that Congress could offer immunity if it chose to do so.